Foundation

DigiWorld2000¨The European way to think the Digital WorldIDATEFoundationwww.idate.fr

DigiWorld2000¨IDATEFoundationwww.idate.fr

© Copyright IDATE 2001, BP 4167, 34092 Montpellier Cedex 5, FranceAll rights reserved. None of the contents of this publication may be reproduced, stored in a retrieval system or transmitted in any form,including electronically, without the prior written permission of IDATE.

Foreword5World2000 How many web surfers are there in China? Was the mobile penetration rate in Europeclearly superior to America's at the end of 2000? Are digital TV developments takingplace primarily on the cable or satellite platform? These are but a few of the pertinentquestions which are now uppermost in our thoughts, whether we are involved in theelectronic communications field or merely curious about the singular significance thatthese sectors hold in this day and age. Questions whose answers often requirefastidious research. DigiWorld's primary merit resides in its offer of a thoughtfulgathering of reference data which are both reliable and coherent, as well as beingindispensable to understanding the great raft of headline news. The IDATEFoundation's members also demand that this annual publication provide them with acommented presentation of the state of reigning trends, in addition to critical analysisof emerging concepts.For all these reasons, we have given our full support to this pioneer initiative instigatedby IDATE's team of consultants. We are well aware of the difficulties which the taskentails, as well as the developments which may be included in future editions. The shiphas been launched, now, and I am certain that the annual publication of DigiWorld willundoubtedly constitute a high point of the IDATE Foundation's activities, as well asbeing a fine reflection of the all the members' will to promote open debate on themassive stakes inherent in the digital industry.Jean-François Leprince-RinguetPresident of the IDATE Foundation Steering Committee (*)(*) The IDATE Foundation's member corporations are: Alcatel, Axa, Bouygues Telecom, Canal+, Cap Gemini, Cegetel, DeutscheTelekom, EDF-GDF, Ericsson, Eutelsat, Firstmark, France Telecom, France Television, IBM, Lucent Technologies, MarocTelecom, Motorola, Nokia, Nortel, Part’Com, PSA, Sema, Siemens, Siris, Telecom Developpement, Telecom Italia, Telefónica.© IDATE www.idate.fr

Introduction7World2000 Here is the first edition of DigiWorld. Thepublication, which is also available in electronicformat (1) , draws its inspiration from the principle ofa geo-strategic atlas which combines up to date,economic, social and demographic data withanalyses of the year's key events.This being said, why has the IDATE Foundation (2)chosen to support the creation and publication ofDigiWorld? Two primary reasons exist, the first ofwhich is the increasing impact of the electroniccommunications sectors. While this is now aforegone conclusion, we do have the sense thatjournalists and politicians are perhaps not fullyaware, or convinced, of the veritable scope of thesesectors. Not so much in terms of a body oftechnological developments, the future generatorsof still virtual wealth, as in terms of a body ofconcrete economic activities sustained byconsiderable markets and which represent knownindustrial powers. In light of this, then, DigiWorldaddresses itself to opinion makers and to all thosewho, whether or not they belong to the IT sector,wish to benefit from an annual source of referenceon the evolution of the markets and the playersinvolved.The second argument in favour of an annualpublication of DigiWorld issues from the remarkableeffervescence of news involving the telecoms,Internet and electronic media markets. Few sectorshave been the focus of so much attention, a factwhich appears only natural given the radical depthof transformation of the markets' rules of play, alongwith the dizzying rate of innovation that isaccompanying it. These two factors make forparticularly fascinating reading. While justifying thedaily avalanche of news, which is impossible toignore, it can, however, lead to great difficulties indiscerning the announcements which confirmtrends or speak of break-ups, and those whichemerge some time later as purely anecdotal. Here,then, DigiWorld endeavours to offer players,operators, manufacturers, financiers and publicpolicy managers, an annual opportunity to beprovided with a review of the year gone by, theemerging trends, as well as a particularly poignantset of reference data.DigiWorld is divided into two main sections. Thefirst constitutes an assembly of data on the size andevolution of the various selected markets, theplayers and the weight of the world's primaryregions and countries. While the data is developedand commented upon on the left hand page, theright hand page provides a graphic representation,in either chart or, more often, map format. Thesecond section is dedicated to analysis. For theyear 2000, we have selected three subjects which,at the time of writing last autumn, appeared as themost significant and problematic of the last twelvemonths: the great expectations and difficult firststeps of mobile Internet, the widespread interest ine-marketplaces and, lastly, a chronicle of thetelecoms sector, with particular focus being laid onthe merger and acquisition trend.I must, however, beg a certain indulgence for thismaiden edition of DigiWorld. We are still far fromhaving fully achieved the way in which we hope tosupply all the useful and pertinent data relating tothe sectors we have chosen. A great many optionsremain, in terms of the possibility of extending ourdata to themes such as e-commerce or to othernations. In the same vein, analyses in future issuescould well be more elaborate and focus moresharply on a critical assessment of the key themesand trends of the year gone by.Nevertheless, we do hope that this Beta edition ofDigiWorld will whet your appetite, and that you willshare your comments and suggestions for its futurewith us. It goes without saying that DigiWorld'sultimate value lies in its role of ongoing monitor.Yves GASSOTDirector, IDATE(1) May be obtained via IDATE's website: www.idate.org(2) According to set formulae, the data provided in DigiWorld, as well as the analyses and opinions it contains, in no wayconstitute a formal commitment on the part of the Foundation's member corporations.© IDATE www.idate.fr

Contents9World2000 Foreword ............................................................................................................................................... 5Introduction............................................................................................................................................ 7Contents ................................................................................................................................................ 9Part 1: DigiWorld AtlasDigiWorld marketsDW markets by sector .............................................................................................................. 14DW markets by region .............................................................................................................. 16International voice traffic ........................................................................................................... 18Global IP backbone projects..................................................................................................... 20DigiWorld accessFixed access lines..................................................................................................................... 24Unbundling and DSL lines ........................................................................................................ 26Wireless local loop .................................................................................................................... 28Cellular subscribers .................................................................................................................. 30Fixed versus cellular ................................................................................................................. 32UMTS licensing......................................................................................................................... 34Internet subscribers .................................................................................................................. 36Cabletel subscribers ................................................................................................................. 38Cable/sat subscribers ............................................................................................................... 40Cable operations status ............................................................................................................ 42Telecom high speed access...................................................................................................... 44Digital TV access ...................................................................................................................... 46DigiWorld playersWorld top telecom operators .................................................................................................... 50Top 12 mobile operators .......................................................................................................... 52Top UMTS licensees ................................................................................................................ 54European top ISPs.................................................................................................................... 56World top telecom equipment manufacturers ........................................................................... 58World top media companies .................................................................................................... 60European top cable operators .................................................................................................. 62Internationalisation of mobile operators ................................................................................... 64Internationalisation of ISPs ...................................................................................................... 66Internationalisation of cable operators ..................................................................................... 68Subscriber value: the valuation of Internet subscribers ........................................................... 70Subscriber value: the valuation of cellular subscribers ........................................................... 71Subscriber value: the valuation of cable subscribers .............................................................. 72Europrivatisation ...................................................................................................................... 74E-krach and company value .................................................................................................... 76Part 2: DigiWorld AnalysesB2B E-marketplaces: market and trends ................................................................................... 81The turbulent first steps toward mobile Internet....................................................................... 99Telecom 2000 : industrial chronicle ......................................................................................... 123© IDATE www.idate.fr

11World2000 Part 1:DigiWorld Atlas© IDATE www.idate.fr

13World2000 I. DigiWorld markets© IDATE www.idate.fr

14World2000 DW markets by sectorThe Digital World covers the following markets:- telecommunications services (fixed and mobiletelephony, data and image transmission),- telecommunications equipment (publicnetworks equipment, private systems andterminals),- IT services (software, data processing andelectronic publishing),- IT hardware (mainframes, PCs, peripherals,datacom equipment),- audiovisual services (TV, video, cinema),- consumer electronics (audio and videoequipment).Data provided here are aggregated figures, assome types of equipment can refer to severalcategories (e.g. telephone sets can be bothconsumer electronics equipment and telecomequipment) and as some segments, e.g. telecomnetwork systems, are part of the value added ofoperation activities.Furthermore, market data provided here are basedon consumption. For some categories, thedifference with production data can be verysignificant as international trade is well developed;in computer hardware in particular, imports accountfor about half of the European consumption whileexports are only a little part (~25%) of localproduction.The Digital World market increased from euros1,406 billion in 1995 to euros 2,581.4 billion in2000; in relative terms, the information marketaccounts for 8.7% of the aggregated GNP. Thecompound annual growth rate (CAGR) was 12.9%over the period. The market can be divided into 3major areas, with telecom activities close to half ofthe total, IT activities accounting for more than onethird and the rest (16.5%) being dedicated to theentertainment sector. In each area, services havebeen the most dynamic part. Growth of DW markets by sector (billion €)1995 1999 2000 2001Telecom equipment 149.8 279.2 316.0 347.6Telecom services 439.2 897.4 969.5 1 066.5IT hardware 220.0 343.6 367.7 392.4IT software & services 262.8 450.4 504.4 560.0Audiovisual services 167.0 200.3 210.3 220.8Consumer electronics 167.3 203.4 213.5 224.2Total 1 406.1 2 374.3 2 581.4 2 811.5 DW markets as % of GNP1995 1999 2000 2001Telecom equipment 0.6% 1.0% 1.1% 1.1%Telecom services 1.6% 3.1% 3.3% 3.5%IT hardware 0.8% 1.2% 1.2% 1.3%IT software & services 1.0% 1.5% 1.7% 1.8%Audiovisual services 0.6% 0.7% 0.7% 0.7%Consumer electronics 0.6% 0.7% 0.7% 0.7%Total 5.2% 8.1% 8.7% 9.3%© IDATE www.idate.fr

17World2000 DW markets by region Growth of DW markets by regionWestern EuropeNorth AmericaAsia-PacificRest of the WorldGermanyUKFranceItalyOther© IDATE www.idate.fr

18World2000 International voice trafficThe effects of telecom market liberalization beganto take hold in 1999, having been initiated in manycountries only one year earlier. Falling retail prices,combined with the sustained rapid growth of mobilephone usage, caused traffic growth to surge fromapproximately 13% in 1998 to over 15% in 1999.Worldwide international telephone traffic volumereached 107.8 billion minutes in 1999. The stronggrowth of international public switched minutesappears all the more remarkable in light of slumpingfax traffic volumes and the increasing number ofminutes moving off the PSTN thanks to bypassmechanisms such as VoIP. Such trends during1999 suggest that the international telecom industryhad one foot on the accelerator, but the other on thebrake. However, these opposite moves lead to aglobal positive result, mainly due to:- the explosion of mobile telephony: tens of millionsof new mobile subscribers boosted international callvolumes in 1999 and 2000. The surge in crossborderroaming calls also contributed to heavier callvolumes,- intensifying competition: competition hasintensified far more quickly in countries whichliberalized their international long distance marketsin the late 90s (notably most European Unionmember states), compared to the more gradualincreases observed in those markets thatliberalized 10 to 15 years ago (US, UK, Japan),- new carriers: the rise of the multinational carriermodel is one reason why incumbent market sharesare shrinking more quickly in the newly liberalizedmarkets than in countries that introducedcompetition in the 80s and early 90s,- price cuts: fierce price competition has spurredcall volume growth in many countries. However, itappears that competitive pressure has been sointense in some countries that prices have fallenmuch faster than demand can possibly increase (forinstance, in Germany). Growth of international voice outgoing traffic (in billion minutes)1995 1999 2000 2001Western Europe: 22.0 42.8 49.7 56.4Germany 5.2 7.0 8.1 9.3UK 4.0 10.1 12.0 13.8France 2.8 5.0 5.6 6.2Italy 1.9 3.1 3.5 3.9North America: 19.9 35.3 39.3 44.0USA 15.6 29.6 33.0 37.0Asia-Pacific: 14.9 15.8 18.9 22.7Japan 1.6 2.0 2.1 2.3Rest of the World: 10.8 14.0 16.1 19.3Eastern countries 3.5 4.0 4.6 5.5Latin America 3.1 4.5 5.2 6.2Africa/Middle east 4.2 5.5 6.3 7.6Total 61.6 107.8 124.0 142.6Source: Telegeography, IDATE estimates© IDATE www.idate.fr

19World2000 International voice traffic International telephone traffic (in billion minutes)5.2 (4.7)2.5 (1.6)5.7 (4.5)0.7 (0.1)4.1 (2.3)1.6 (1.1)0.10.5 (0)0.1 (0)2.2(0.5)6.1(2.7)0.4 (0.2)0.2 (0.1)0.8 (0)0.1 (0.1)0.4 (0)Traffic in 19990.0 (0.0)Traffic in 1996(in billion minutes)© IDATE www.idate.fr

20World2000 Global IP backbone projectsThe pan-European backbone market is currentlystructured by 17 active and operational players, inother words 46% of those companies which hadexpressed their intention to enter this market.Among these projects, a number underwent asignificant rate of deployment last year, includingthose launched by Level(3), Cable & Wireless andi-21, each of which have opened up a portion oftheir projected infrastructure. The principal"Europops" are London, Paris, Amsterdam,Frankfurt, Brussels, Dusseldorf and Hamburg. Ineach one of these cities, at least ten backboneoperators market a commercial offer, with a totalavailable maximum capacity well over one terabit/s.Other cities, at the periphery of those just cited,including Copenhagen, Rotterdam, Milan, Berlinand Munich all offer comparable total maximumcapacities, although they remain in the hands of asmaller number of operators (7). Next are mid-sizetowns where only a handful of operators arepresent. In this highly competitive landscape, then,the number of pan-European backbones is likely toevolve gradually into two distinct divisions: acommodity market, where the transmission bandwill be marketed as such, with very low margins,and another, much more lucrative market: that ofvalue added Internet and Intranet services aimed atcompanies and ISPs. Major global high speed backbone projectsOperator Backbone Number of PoPs Routes Number(in kms)of fibresAT&T GNS Global Network Services 21 na -BT / Farland Euronet 16 na 2Carrier 1 Global Voice 26 4 370 72Cable & Wireless Network 2000 22 16 000 72Colt Telecom Euro Lan 21 14 000 96France Telecom EBN 25 20 000 2Global Crossing PEC 24 11 000 56GTE - 4 0 -GTS TEN 36 25 000 4Highpoint Vine 0 11 000 96iaxis Enroute 18 12 000 -Interoutei- 21 46 20 900 384KPNQwest Eurorings 39 14 735 110Lambda Net - 26 3 500 96Level (3) - 10 5 500 96MFN - 5 2 300 216Teleglobe Globesystem 13 14 200 -Telia TNSI 14 30 000 192WorldCom Ulysses // UUNet 28 14 400 48Viatel Circe 35 14 140 65© IDATE www.idate.fr

21World2000 Global IP backbone projects Number of operators with PoPOslo7Göteborg 6Stockholm83HelsinkiBelfast 15 Manchester410 CopenhaguenDublin14 Amsterdam17 8Rotterdam1 WarsawLondon 7 AntwerpenBrussel 132 Luxembourg (FT-WCom)8 Strasbourg 2 PrahaParis 18Lausanne 1 BratislavaBordeaux257 9 Zürich Vienne 2 Budapest5 5Genève4Lyon 9Bilbao 5MilanoToulouse 81 1MarseilleBelgrade88Barcelona4MadridRoma3Valencia1Bucharest10HamburgHannover 511 BerlinDortmund 25 LeipzigDüsseldorf 156 DresdenKöln 915 FrankfurtMannheim 4Karlsruhe 110 12 MünchenStuttgartNumber of operators14 and more1312111098765432136829358© IDATE www.idate.fr

23World2000 II. DigiWorld access© IDATE www.idate.fr

24Fixed access linesWorld2000 The number of access lines in the world has almostdoubled over the past decade, growing from 523.4million in 1990 to 940.8 million in 2000. The threemajor industrial regions (European Union, USA,Japan) still account for more than half of the globalinstalled base (more than two thirds in 1990).The European Union as a whole has been moredynamic than the other two large industrial regions(USA, Japan).On a country by country basis, the growth of accesslines has been higher in Germany, due thecountry’s enlargement as well as in the UK whereBT was late in installing fixed lines. On the contrary,Scandinavian countries, with a high penetrationrate, have grown very slowly.As for teledensity, there are very big discrepanciesbetween regions: respectively 69.2 access lines per100 inhabitants in the USA, 56% in Western Europeand 52.6% in Japan and less than 12% in the restof the world.On a historical basis, we can see that the EuropeanUnion was particularly late in the early 80’scomparing with Japan and the USA: it has partlyfilled the gap over the period. However, the numberof fixed lines continue to rise even in markets thatseemed to be saturated. In the USA notably, 51million new fixed lines were connected between1990 and 2000 (a 30% increase), due mainly to ademand for second lines.Within the European Union, apart fromLuxembourg, Sweden and Denmark record thehighest levels (74 access per 100 inhabitants inSweden, 70.5% in Denmark) while Ireland, Italy andPortugal are at the bottom (respectively 47.8%,46% and 43.5%). However, progress of teledensitybegins to slow in the most advanced countries. Thisphenomenon is partly due to a substitution processbetween fixed and mobile: new subscribers aremostly attracted by mobile telephony (seededicated section). This explains in particular whyItaly has such a low fixed teledensity! Fixed access lines in the worldFixed access Teledensity (%) Fixed access Teledensity (%) Var.lines (in millions, lines (in millions, 1990-2000end 1990) end 2000)Western Europe: 160.8 44.6% 217.7 56.0% 35.4%Germany 32.3 51.1% 49.2 60.0% 52.3%France 28.1 49.5% 34.5 56.7% 22.8%UK 25.9 45.0% 34.5 58.4% 33.2%Italy 22.4 38.8% 26.5 46.0% 18.3%North America: 153.4 55.5% 210.1 69.2% 37.0%USA 138.1 55.2% 189.1 69.3% 36.9%Latin America 25.8 5.8% 74.6 14.7% 189.1%Asia/Pacific: 114.7 3.8% 323.8 8.9% 182.3%Japan 54.1 43.8% 66.6 52.6% 23.1%Eastern Europe 45.3 12.5% 60.6 31.1% 33.8%Africa/Middle East 23.5 2.8% 54.0 5.7% 129.8%Total 523.4 9.9% 940.8 15.7% 79.7%© IDATE www.idate.fr

Fixed access lines25World2000 Fixed access lines in the worldNumber of fixed lines (end 2000)xxxxxxNumber of fixed lines (end 1999)© IDATE www.idate.fr

26World2000 Unbundling and DSL linesIn the USA, the DSL provision is dominated by theILECs (Incumbent Local Exchange Carriers).Theyhave more than 75% of the DSL subscribers witharound 1.6 million customers by end 2000 (addingmore than 350 000 lines during the 4th quarter).Less focused on the business customers than theDSL wholesellers, majority of their DSL lines areresidential.Outside the ILECs’ share, the DSL provision isdominated by the wholesale model in which theCLECs (Competitive Local Exchange Carriers) areinvesting in DSLAM and installing DSL terminal inthe local of the business customers or the housesof their clients (ISPs, data services providers, longdistance telcos).Three companies among the CLECs (CompetitiveLocal Exchange Carriers) are representing 90% ofthe DSL provision. They are increasing theirrevenues at a very rapid rate, but failing to achievepositive margins.In Europe, only two countries had definedunbundling rules at the opening of the telecommarket in January 1998: Germany and theNetherlands. Of course, it did not prevent them toknow complex regulatory problems.Today, all the EU members have to implementunbundling rules (including line sharing) for 2001.But delays are expected for many countries.Regarding the DSL deployment, Europe is 12months behind the US market.At the end of the year 2000, Europe had just a littlemore than 700.000 DSL lines in service(aproximately equal to the number of high speedaccesses through cable modems). Although arapid deployment is programmed by the main telcosin 2001, the situation is above all characterized bythe heterogeneousness of the european situation,even limited to the three major markets, withGermany well ahead (500 000 DSL lines by end2000), France far behind (80 000 DSL lines) andUK still waiting for effective developments. Status and charges of unbundling in EuropeCountry Status of unbundling and charge Basis for price(incl. Monthly rental of unbundled copperpair where available, exclusive of VAT)Austria € 12.4/month Current valuation of assetsBelgiumConsultationDenmark € 8.23/month Telephone line rentalFinland € 5-25/month Current valuation of assetsFrance€ 17.1/monthGermany € 13/month LRAIC (set by RegTP)GreeceIrelandConsultationItaly Proposed by 2000Netherlands Less than € 15.4/month From historic costs to currentcosts in 5 years (set by OPTA)PortugalSpainLine sharing access can be negociatedSweden Proposed by 2000 Proposed to be basedon current costsUnited Kingdom From July 2001. Price likely to To be based on LRAICbe about € 13/month(set by OFTEL)Source: CE/DG Infso© IDATE www.idate.fr

27World2000 Unbundling and DSL lines Growth of DSL in the USANumber of DSL lines7000005600004200002800001400000SBCVerizonUS West (Qwest)ndBellSouthCovadNorthPointRhythmsSource : IDATE (end 2000 estimates)March - 2000June - 2000September - 2000December - 2000© IDATE www.idate.fr

28Wireless local loopWorld2000 LMDS (Local Multipoint Distribution Service), whichis currently in its development phase in Europe,delivers speeds of 2 to 10 Mbit/s per subscriber(likely to reach 45 Mbit/s within the next two years).In comparison to other access platforms, LMDSoffers a number of advantages (quick installation,available capacity, etc.) and provides the means forintroducing real competition into the local loop.Finland, Ireland and Germany were the firstEuropean countries to award LMDS licences in1999. Since then, most of the other countries havealso followed suit and licences were allocated allover Western Europe, except for Italy, by the end of2000.The vast majority of LMDS operators are newentrants since incumbent operators are generallyexcluded from this market. In the context of thelicence-allocation process, only Tele2 and Star Oneare of European origin, alongside a handful ofalready very active American players, whoappeared on the European scene during the firstround of licence allocations (ART, Broadnet,FirstMark, Formus, Teligent, UPC and Winstar). Allocation of wireless local loop licences in EuropeCountryAustriaAllocation dateJan. 2001Number of licences(national and regional) and frequency bands5 frequency blocks in 6 regions,in the 26 GHz bandAllocation methodAuctionDenmarkDec. 20003 licences in the 3.4-3.6 GHzand 4 licences in the 24.5- 26.5 GHz bandsBeauty contestFinlandJan. 1999 to Jan. 20002 licences per frequency band(3.5 GHz, 10.5 GHz, 26 GHz, 38 GHz)First come, first servedFranceJul. 20002 national licences (3.5 GHz eandt 26 GHz)and 2 licences per region (26 GHz)Beauty contestGermanyAug. 1999662 licences in 262 regions(3.5 GHz and 26 GHz bands)Beauty contestGreeceDec. 20003 licences in the 3.5 GHz and 4 inthe 25 GHz bandsAuctionIrelandSep. 1999 and Dec. 20004 licences in the 26 GHz band, 4 licencesbetween 2.4 GHz and 3.5 GHz in 1999,2 in 28 GHz and 1 in 10 GHz in 2000Beauty contestItalyPlanned for 2000,postponed to Mar. 2001--NetherlandsPlanned for 20005 national licences in the 2.6,3.5 and 26 GHz bandsAuctionNorwayBetween May 1998 andMar. 20003 licences in each frequency band(3.5, 23, 26, 38 and 40 GHz)Beauty contestSpainMar. 20006 national licences: 3 in the 3.5 GHzand 26 GHz bandsBeauty contestSwitzerlandMar. 200048 licences: 3 national (2 in the 3.4, 1in the 26 GHz band) and 5 concessions in9 regions in the 26 GHz bandAuctionUnitedKingdomOct.-Nov. 200011 licences in England, 1 each in Scotland,Wales and Northern Ireland in the 28GHz bandAuction© IDATE www.idate.fr

Wireless local loop29World2000 Allocation of wireless local loop licences in EuropeFinlandNorway662IrelandDenmarkUnited KingdomNetherlandsGermanySwitzerlandAustriaFranceSpainGreece20100Number of regional licencesNumber of national licences© IDATE www.idate.fr

30Cellular subscribersWorld2000 Just starting in the 80's, the cellular market hasrecorded a dramatic growth over the past 10 years:worldwide the number of subscribers has beenmultiplied twice between 1997 and 2000, growingfrom 205.1 to 727.1 millions.The three major industrial regions (EuropeanUnion, USA and Japan) account for 57% of theworld installed base (89% in 1990).The Asian subscriber base starts to boom with a50% growth between 1999 and 2000, adding nearly80 million subscribers in just one year whatapproximately represents the US subscriber basein 2000.In Japan, mobile subscription has been calmingdown over the past three years with a yearly growtharound 25%. China is the biggest cellular market inAsia with a high potential for future growth, as thepenetration rate still remains low.The subscriber base in Latin America starts to growat a 63% rate, gaining up to 26 million additionalsubscribers between 1999 and 2000 what is thetotal subscriber base in Africa and Middle East.Eastern Europe and Africa/Middle East have thesmallest subscriber bases in the world even if theseregions are showing dynamic growth rates such asrespectively 90 and 80%. The countries of EasternEurope, on the other hand, displayed rates in 2000comparable with those in Western Europe in 1997.Penetration rates remain vey low particularly inAfrica/Middle East.In Western Europe, on a country by country basis,the growth of cellular subscribers has beenimpressive in Germany and Italy, which nowrepresent the largest European markets.In Germany, cellular subscribers doubled between1999 and 2000 from 23.1 to 47.6 million reaching a60% penetration rate. France and Spain are latewith respectively only 30 million and 26.4 millionsubscribers as at end 2000.Despite the fact that almost one out of two peoplein France is equipped with a mobile phone (49.9%),the country lies at the bottom of the Europeanleague, having been overtaken by neighbouringcountries such as Belgium and Germany with ratesof 49.8% and 58% respectively at the end of 2000.The Nordic countries (Finland, Norway andSweden), together with smaller countries such asAustria and Ireland, where market difficultiesdisplay appreciable differences, and Italy, secondlargest market in the EU, still dominate the topplaces among major European countries, withpenetration rates of over 70% in 2000 that mightwell reach 80% in 2001. Cellular subscribers in the WorldCellular Subscribers Penetration rate (%) Cellular subscribers Penetration rate (%) Growth 1999-2000(in millions, end 1999) (in millions, end 2000)Western Europe: 154.1 39.6% 244.5 62.9% 58.7%Germany 23.1 28.1% 47.6 58.0% 106.3%France 20.3 33.4% 30.4 49.9% 49.5%UK 23.9 40.5% 39.2 66.3% 63.7%Italy 30.4 52.8% 40.9 70.9% 34.3%North America: 93.3 30.7% 119.2 39.3% 27.7%USA 86.0 31.5% 110.0 40.3% 27.8%Latin America 41.0 8.1% 67.0 13.2% 63.4%Asia/Pacific: 154.6 4.3% 233.0 6.4% 50.7%Japan 48.5 38.3% 61.1 48.3% 26.1%China 44.2 3.4% 86.5 6.9% 95.7%Eastern Europe 13.1 6.7% 25.0 12.8% 90.5%Africa/Middle Est 21.3 2.3% 38.3 4.1% 80.0%Total 477.5 8.0% 727.1 12.2% 52.3%© IDATE www.idate.fr

Cellular subscribers Cellular teledensity31World2000 NorwaySwedenFinlandIrelandDenmarkUKNetherlandsLuxembourgGermanyPolandFranceBeneluxSwitzerlandAustria Czech Rep.HungaryPortugalSpainItalyGreeceWesternEurope80%Number of cellularsubscribersper 100 inhabitantsAmericasEastern countries,Middle East, AfricaAsia/Pacific0%end 1999 end 2000© IDATE www.idate.fr

32Fixed versus cellularWorld2000 In recent months, the press has often had occasionto headline the irresistible growth of mobiles. Morethan one out of every two people in Europeancountries now owns a mobile phone. With 49.43%of French people equipped with a mobile phone,France lies at the bottom of the European league,having overtaken by neighbouring countries.The independence of this specific sector vis-à-visthe telephone market (in terms of wire) is nowobvious and confirms the emerging tendancymentioned a few months ago. The mobiles sectorproved to be more than a successful laboratory forcompetition.In some European countries, mobile telephonyexceeded fixed services during 2000 with adifferential of close on 30 points at the end of theyear in mobile's favour.France, Denmark, Belgium, Germany and Swedenare the European bottom lying countries with stillmore fixed subscribers than mobile ones.In Italy, Spain and the UK, the latest figurespublished confirmed the explosion in the number ofmobile subscribers, and the noteworthyphenomenon of the increasingly part of mobileservices and subscription in the telecommunicationsmarket.Countries and regions where mobile telephony isnot well-developed still have more fixed lines thanmobile subscribers.But in China mobile telephony seems likely toexceed fixed telephony next year and worlwidemobile telephony is expected to exceed fixednetworks in 2003.This trend is not expected to take a downturn, evenif mobile telephony today's growth rates no longerseem realistic: an automatic slowdown in demandwill follow once a 70-75% rate has been reached.The situation as it really stands shows majorchanges in ways of using telephony in the today'sEuropean world.Mobile telephony focuses on private and personalconversation and enables provision of mobilityorientedservices and personalised services andprices. Fixed phones are often only used at homeby everyone or at work.The increasing share of data transmission is also infavour of mobile telephony even if every newsubscriber to mobile services enhances the fixednetwork by creating an additional communicationpotential. Fixed access lines in the world (figures at end 2000)Fixed access Cellular Total telephone Share of Share oflines subscribers subscribers cellular cellular(millions) (millions) subscribers subscribers(end 1999)Western Europe: 217.7 244.5 462.2 52.9% 41.4%Germany 49.2 47.6 96.8 49.2% 31.9%France 34.5 30.4 64.9 46.8% 37.1%UK 34.5 39.2 73.7 53.2% 41.0%Italy 26.5 40.9 67.4 60.7% 53.4%North America: 210.1 119.2 329.3 36.2% 30.8%USA 189.1 110.0 299.1 36.8% 31.3%Latin America 74.6 67.0 141.6 47.3% 35.5%Asia/Pacific: 323.8 233.0 556.8 41.9% 32.3%Japan 66.6 61.1 127.7 47.9% 42.1%Eastern Europe 60.6 25.0 85.6 29.2% 17.8%Africa/Middle East 54.0 38.3 92.3 41.5% 28.3%Total 940.8 727.1 1667.9 43.6% 33.7%© IDATE www.idate.fr

Fixed versus cellular■ Cellular subscribers and fixed access lines33DigiWorld2000 ¤NorwaySwedenFinlandIrelandDenmarkUKNetherlandsBelgiumLuxembourgGermanyFranceSwitzerlandAustriaPortugalSpainItalyGreeceCellularsubscribersFixedaccess linesNorth AmericaWestern EuropeEastern EuropeAsia/PacificUSAJapanAfrica/Middla EstWorldLatin America© IDATE www.idate.fr

34UMTS licensingWorld2000 Up to now, nearly 2/3 (9 of the 15) Member Statesof the European Union have allocated their UMTSlicences. Auctions have enabled the Governmentsto harvest around 103 billion Euros (4 countries),while the awards made on the basis of a beautycontest have brought in some hundreds of millions(Spain, Finland).There have been a wide difference, however, in the'yield' from the auction, with the revenues collectedvarying from 630 euros per inhabitant in the UK to13 euros in Spain.Illustrating the difficulties that have beenencountered over the months are a dispute in theNetherlands, a postponement in Belgium,confusion in Italy and the effect of bottom prices inAustria and Spain, withdrawals in Belgium andFrance, a suspension in extremis of the process inSwitzerland and procrastination in Poland. Thesedifficulties reveal a change of climate surroundingthe conditions for the introduction of 3G services:- the fairly mediocre beginnings of the WAP, whilethe ergonomic aspect of terminals, thesluggishness of the network and the quality ofservices leave much to be desired,- the uncertainty surrounding the maturity of UMTStechnologies and thus the roll-out time for networkand terminal equipment displaying the heraldedperformance, compatibility, stability and reliabilityfeatures. The delays observed in the deployment ofGPRS services aggravate the doubt in the minds ofoperators.- the heavy financial commitments made by themain operators in the German and British markets,in acquiring licences came at a bad time; growingdebt bound up with the takeover of operators inthird markets, increased competition in the homemarket, depressed stock markets causing a fall inshare prices and resulting in the postponement ofIPOs… As a result, candidates grouped each otheror have backed down from their initial commitments(TIW in the UK, Hutchison in Germany, BT in Italy)or just before closing of applications (France,Belgium). Allocation of UMTS licences in EuropeCountryAllocation dateNumber of licenceesAllocation method (total or per(GSM operatorslicence fees when mentioned)+ newcomers)AustriaNov. 20006 (4+2)Auction (€ 832 mn)BelgiumPlanned Dec. 2000,4 (3+0) (1)Beauty contest +/or auctionpostponed to Mar. 2001(€ 150 mn / licence)DenmarkSep. 20014 to 8AuctionFinlandMar. 19994 (4+0)Beauty contest (free of charge)FranceJun. 20014 (2+0) (2)Beauty contest (€ 4.95 bn / licence)GermanyAug. 20006 (4+2)Auction (€ 50.5 bn)GreeceApr. 20014Auction (€ 1.2 bn)IrelandJun. 20013 to 4Beauty contest +ItalyOct. 20005 (3+2)Beauty contest + (€ 12.2 bn)NetherlandsJul. 20005 (5+0)Auction (€ 2.7 bn)NorwayNov. 20004 (1+3)Beauty contest (€ 50 mn)PortugalDec. 20004 (3+1)Beauty contest (€ 400 mn)SpainMar. 20014 (3+1)Beauty contest (€ 520 mn)SwedenNov. 20004 (2+2)Beauty contest (free of charge)SwitzerlandDec. 20004 (3+1)Auction (€ 136 mn)United KingdomMar. 20005 (4+1)Auction (€ 37.5 bn)(1) Only 3 candidates.(2) Only 2 potential licensees in the short term due to the withdrawal of Bouygues Telecom and ST3G.© IDATE www.idate.fr

UMTS licensing35World2000 UMTS licenceesSwedenFinlandNorwayIrelandDenmarkUnited KingdomNetherlandsBelgiumGermanyFranceSwitzerlandAustriaPortugalSpainItalyalready GSM operatornewcomersGreecenot yet granted© IDATE www.idate.fr

36Internet subscribersWorld2000 The Scandinavian countries were the Europeanforerunners of commercial Internet and, at the endof 2000, were the best equipped nations on theContinent, with 52% of Finnish homes hooked up tothe Web.Germany is Europe's leading Internet market.Deutsche Telekom, with its finely adapted T-Onlineis currently the top European access provider.The UK was the cradle of "free Internet"development and enjoyed swift success on itshome market, as well as having a considerableimpact on the British end market which was servingnearly 19 million Web surfers at the end of last year.Furthermore, on 1 June, 2000, BT began marketingits unlimited local call flat rates for Internet(SurfTime), making it the first incumbent operator todo so.France continues to lag behind other leadingnations such as Germany, the Netherlands and theUK. The success of its Minitel terminal coupled withthe low rate of PC use in homes are in partresponsible for France's slow development in theInternet sector.In Eastern Europe, commercial Internet is still in itsearly stage. Nonetheless, in certain countries suchas Poland and the Czech Republic, it is growingrapidly.North America, with the US and Canada combined,represents the world's first and third largest Internetmarkets.Switched access in the US is dominated by on-lineservices such as AOL/CompuServe EarthLink andJuno, while the professional and backbone marketsare controlled by long distance operators (AT&T,Sprint and WorldCom along with UUNET).Brazil is number one in Latin America, with nearly 7million users surfing the Web in late 2000.Asia-Pacific is a particularly dynamic zone ofdevelopment; the Asian crisis having had little effecton the growth of the region's networks.Hong Kong, Sydney and Singapore are vying tobecome Internet hubs for the Asia-Pacific region.Thus, the primary international backbones all havePoPs (points of presence) in these three cities. Worldwide Internet user baseInternet users Penetration rate (%) % of HH connected Internet users Penetration rate % of HH(in millions, end 1999) to Internet (1999) (in millions, end 2000) (%) connected to Internet (2000)Western Europe: 55.2 14.2% na 76.4 19.7% naGermany 12.0 14.6% 17.5% 17.5 21.3% 22.5%France 6.7 11.0% 8.0% 10.7 17.6% 11.9%UK 13.0 22.0% 19.0% 18.5 31.3% 26.5%Italy 6.0 10.4% 7.9% 9.5 16.5% 11.7%North America: 102.9 33.9% na 156.5 51.6% naUSA 103.0 37.7% 30.0% 131.0 48.0% 46.0%Latin America 7.1 1.4% na 10.8 2.1% naAsia/Pacific: 49.2 1.4% na 79.2 2.2% naJapan 20.0 15.8% 15.0% 26.0 20.5% 19.0%China 8.0 0.6% na 15.0 1.2% naEastern Europe 5.2 2.7% na 8.0 4.1% naAfrica/Middle East 2.7 0.3% na 3.7 0.4% naTotal 222.3 3.7% na 334.6 5.6% na© IDATE www.idate.fr

Internet subscribers37World2000 Worldwide Internet user penetration rate (%)UK50403020100France5040302010050403020100GermanyItaly50403020100end1999end200050 %Number of internetusers per100 inhabitants0%50403020100North AmericaUSA5040302010050403020100Latin America50403020100Western Europe50403020100Africa/Middle East50403020100Eastern Europe50403020100Asia/PacificJapan50403020100Total50403020100© IDATE www.idate.fr

38Cabletel subscribersWorld2000 Despite the recent introduction of new services(telephony and Internet access) cable is stillprimarily a TV broadcast medium. Germany is thefirst european country concerning number of TVsubscribers: 20.5 million households. Netherlandsis the second one with 5.9 million subscribers andGreat Britain finally the third one with more than 3.2million subscribers.The example of Great Britain where cabletelephony was launched in 1991 indicates that theshare of new services could grow significantly. Infact UK counts the most important number oftelephony subscribers over Europe: more than 4.2million households are connected. Belgium followswith 100 000 subscribers. In the rest of Europe,telephony isn’t so common, but being developedand seems to be an attractive alternative to PSTNlines.Internet access over cable is spread especially inNetherlands with about 150 000 subscribers.France, Austria and Belgium follow withrespectively 50 500, 50 000 and 40 000subscribers. Data are not available in Germany andUK. Only three countries don’t have an Internetaccess over cable: Luxembourg, Italy and Greece. Number of subscribers per cable service at the end of 1999 (in thousands)TV telephony InternetAustria 1 200 38 50Benelux 9 578 150 191Denmark 1 350 na 10Finland 920 na 11France 2 887 15 51Germany 20 500 na naGreat Britain 3 245 4 243 naGreece 11 na naIreland 470 10 1Italy 65 na naNorway 789 na 2Portugal 768 na 0Spain 1 800

Cabletel subscribers39World2000 Number of cable subscribers per service at the end of 1999 (in thousands) © IDATE www.idate.fr

40World2000 Cable and satellite TV in EuropeIn Europe (European Union, Switzerland andNorway), almost 84 million of the 148 milliontelevision households (TVHH) (i.e. 57%) arepassed by cable. This average corresponds to ahighly contrasted cable landscape marked bydifferences between non or barely cabled countries(Italy and Greece) and those that are fully cabled(Germany, Luxemburg, the Netherlands,Switzerland and Belgium). The number of homespassed by cable has been growing at an averagerate of 5.7% a year since 1995.There are now 49 million cable subscribers, i.e.33% of TVHHs, and 58% of these are technicallyable to receive cable. The Netherlands, Belgiumand Luxembourg boast the highest penetration rateof cable subscribers in TV household: respectively89.7%, 80.6% and 86.9%. Few of europeancountries have more than 50% penetration rate:Denmark (59.8%), Sweden (55.7%) and Germany(61.1%). Italy and Greece display the lowestpenetration rate. The European cable subscriberbase has been expanding at a rate of 5.3% since1995.Apart from the traditionally limited over-the-air TVmedium, cable is – by far – the most utilisedbroadband network in Europe. Satellite, however,also posts high growth rates.Penetration rate of satellite in the europeanhouseholds is less important than cable one.However, leading countries – especially in the Northof Europe – are Austria with 37.9% of householdsreceiving TV over satellite, Denmark with apenetration rate rising to 34.2%, the UnitedKingdom 32.4% and finally Sweden with 20.3%. Comparison of cable and satellite by end 1999CATV/TVHH share DTH/TVHH share Other shareAustria 38.7% 37.9% 23.4%Benelux 86.2% 1.5% 12.3%Denmark 59.8% 34.2% 6.0%Finland 43.2% 14.6% 42.2%France 13.1% 10.0% 76.8%Germany 61.1% 3.4% 35.5%Great Britain 12.6% 32.4% 55.1%Greece 0.3% 9.1% 90.6%Ireland 40.9% 8.7% 50.4%Italy 0.3% 7.0% 92.7%Norway 41.1% 16.1% 42.8%Portugal 24.5% 2.3% 73.2%Spain 16.0% 6.3% 77.6%Sweden 55.7% 20.3% 24.1%Switzerland 88.9% 8.7% 2.3%© IDATE www.idate.fr

41World2000 Cable and satellite TV in Europe Comparison of cable and satellite in 1999NorwaySwedenFinlandIrelandDenmarkUKGermanyBeneluxFranceSwitzerlandAustriaPortugalSpainItalyGreeceCATV/TVHH shareDTH/TVHH shareOther share© IDATE www.idate.fr

42World2000 Cable operations statusFor the purpose of enabling cable networks tocompete with incumbent telecommunicationsoperators wireline networks and of generating morecompetition within the cable market itself, theEuropean Commission sought to limit incumbentoperators control over the better part of the Union'scable networks. After giving up the idea of forcingthese operators to sell off their networks, theEuropean Commission adopted a Directive in June1999 requiring that telecommunications operatorsbreak up their cable distribution activities within theEuropean Union into independent structures. Thisfollows an earlier Directive in December 1997 whichunderlined the Commissions opinion that the jointownership of cable networks (audiovisual) andtelecommunications infrastructures is a hindranceto the development of competition and innovationand to exploiting the possibilities of convergencebetween telecommunications, media andinformation technologies to the full.This Directive had no effect on the Union's majorincumbents since the majority of them had alreadybegun putting up for sale all or part of their cablenetworks at the start of the same year:- Deutsche Telekom reorganised its cabledistribution activities into 9 regional companies,which were put up for sale during the summer of1999,- France Telecom sold some of its networks toseveral cable operators (Suez Lyonnaise, UPC,and NTL).This Directive does however directly concernTelefónica because the company possesses one ofthe two franchises for setting up cable networks ineach of the chosen areas. Status of cable operations in EuropeCountryPresence of historical telco in cable Competition status operations, at technical(T) and/or commercial (C) levelsAustriaNoBelgium No Autorisation granted by theState (in fact, no competition)Denmark Yes (T + C) Free (but competition limited to specific areas)Finland Yes (T + C) Effective competitionFrance Yes (T + C)Germany Yes (T + C) LRAIC (set by RegTP)Greece Yes (T) No cable networksIrelandNoItaly Yes (T + C) Limited number of cable networksNetherlands No In fact no competitionNorway Yes (T + C)Portugal Yes (T + C)Spain No Possible competition between Telefonica andanother operator in each areaSweden Yes (T + C) In fact no competitionSwitzerland NoUnited Kingdom No© IDATE www.idate.fr

43World2000 Cable operations status Share of incumbent telcos in cable operationsTelenorSoneraTeliaTele DanmarkEltronaInterdiffusion SADeutsche TelekomFrance TelecomTV CaboStreamOTEcable subscribers of other operatorscable subscribers of national telco© IDATE www.idate.fr

44World2000 Telecom high speed access2000 is undoubtedly the year which saw the firststage in the development of national high-speedmarkets:- in most of the major European marketplaces,ADSL services have been introduced byincumbent operators or alternative ISPs,- the sale of cable networks belonging toincumbent operators can be expected to providenew stimulus to the offer of high-speed Internetaccess services via cable,- wireless local loop licences have already beenallocated in France, Germany and the UnitedKingdom and are due to be delivered in Italy inMarch 2001.It is likely that these three types of access willexperience different rates of growth in each countryof Europe (see table below), according namely tothe level of development of cable networks and alsothe dates of implementation of ADSL and wirelesslocal loops.In the medium term, the emergence of UMTSshould complement the set of high speed accessnetworks, even if 3G mobile will offer rates wellbelow those of fixed networks. In the short term,GPRS will support multimedia applications. Growth of high speed accesses in Europe (in millions)1999 2000 2001 2004ADSL lines 0.0 0.6 2.0 21.5as % of fixed telephone lines 0.0% 0.3% 0.9% 9.2%ADSL lines per 100 inhabitants 0.0% 0.2% 0.5% 5.4%WLL subscribers 0.0 0.0 0.4 4.1Cable modems 0.3 0.8 2.4 9.7as % of cable subscribers 0.7% 1.7% 5.3% 20.3%Cable modems per 100 inhabitants 0.1% 0.2% 0.6% 2.5%Total fixed high speed accesses 0.3 1.4 4.8 35.3Fixed high speed accesses per 100 inhabitants 0.1% 0.4% 1.2% 8.9%UMTS subscribers 0.0 0.0 0.1 12.0as % of mobile subscribers 0.0% 0.0% 0.0% 4.0%UMTS subscribers per 100 inhabitants 0.0% 0.0% 0.0% 3.0%© IDATE www.idate.fr

45World2000 Telecom high speed access High speed accesses in Europemillion subscribers50454035302520ADSL linesWLL subscribersCable modemsUMTS subscribers151050199920002001200220032004© IDATE www.idate.fr

46Digital TV accessWorld2000 The number of Digital TV households reached 10.2millions in Europe by the end of 1999 and wasabove 14 million in 2000 (to be compared with 2million at the end of 1997).Throughout Europe, the economic model chosenfor digital TV is subscription-TV. At the end of 1999,the take-up of free-to-air digital TV was indeed stillrelatively limited and a high proportion (75%) ofdigital TV households were subscribers to satellitesubscription-TV digital platforms.Digital TV take-up so far, however, is limited sinceless than 7% of TV households have subscribed toa digital TV offer.Nevertheless, the growing penetration of digitalcable and the expected launch of numerous DTTVplatforms will contribute to a higher rate of digitalhouseholds.Indeed, following the rapid deployment of satellitedigital platforms, the recent period records theenhanced positioning of cable operators on theDTV marketAt the end of 1999, some 74% of European homespassed by cable could receive DTV servicesprovided they subscribe to a DTV multi-channelpackage (they were 50% in 1997). That means thatnearly 58 million cable connections have beenupgraded for digital transmission. In most MemberStates, cable-operators wish to offer higher valueadded services including telephony, broadbandInternet and subscription TV. Like satelliteoperators, they aim at using DTV to segment theiroffer better, limit the size of the basic tier andincrease their TV revenues per subscriber.1999 and 2000 will have witnessed a rapiddevelopment in i-TV services. Almost each of theDTV platforms in the major E.U. markets nowincludes new i-TV services. i-TV offerings usuallycomprise: EPG, E-commerce and TV-Bankingservices, Information and news services, games, orE-mail. The progresses observed in this domainconstitutes a major evolution in TV domain, inparticular the generalisation of interactive TV-basedadvertising, direct marketing, listing fees and e-commerce practices will give rise in the shortmediumterm to new TV programme productionmethods and also new sources of revenues for theTV broadcasting sector. Growth of digital TV market in Europe (in millions)1999 2000 2001 2004Pay-TVCable subscribers 45.3 46.1 46.1 48.0of which digital cable subscribers 4.7 14.6 27.7 48.0Terrestrial TV subscribers 5.1 5.8 7.1 10.2of which digital terrestrial TV subscribers 0.6 1.0 1.8 8.8Satellite subscribers 11.2 13.3 15.8 22.6of which digital satellite subscribers 7.8 11.1 14.9 22.6Total pay TV subscribers 61.5 65.3 68.9 80.9Digital TVDigital STB homes 13.0 26.6 44.4 79.4IDTV homes 1.3 2.0 3.6 16.0Digital TV homes 14.1 28.4 47.0 89.3Digital/TV homes 9.6 19.1 31.2 57.7© IDATE www.idate.fr

Digital TV access47World2000 Growth of pay TV subscribers90Pay-TV500199920002001Satellite subscribersTerrestrial TV subscribersCable subscribers2004Digital-TV100,050,00,0199920002001IDTV homesDigital STB homes2004© IDATE www.idate.fr

49World2000 III. DigiWorld players© IDATE www.idate.fr

50World2000 World top telecom operatorsThe 1999 ranking of the world's top telecomsoperators gives the overall impression of a stillbooming industry, with a cumulated turnover ofclose to $600 billion. Apart from two exceptions(Germany's Deutsche Telekom and AmericanGTE), all have enjoyed growth rates of over 5%,with close to half posting increases of 10%. Theseresults are, evidently, linked in part with themarket's dynamic fostered by the spectaculardevelopments in mobile and Internet accessservice. It is also the fruit, in a number of cases, ofthe merger and acquisition frenzy that continues toshake up the sector. Such is the case of AT&T withits takeover of TCI, and that of SBC which, afterhaving "absorbed" Pacific Telesis, merged withAmeritech (the 8% growth has, however, beencalculated based on a proforma basis).Internationalisation, another factor which serves toexplain operator's great vitality, has now reachedphenomenal levels, with the share of revenuesderived from overseas activities representing over10% for three of Europe's top operators (Telefonica,France Telecom and BT).More specifically, principal shifts in the ranksconcern:- SBC which moves up three places following itsmerger with Ameritech,- MCI WorldCom, while maintaining fifth place,"passes" Bell Atlantic thanks to a healthygrowth in activities,- China Telecom (whose results are estimates)sustained by a highly ambitious equipmentplan in both the fixed and mobile sectors,- Telefonica which, like MCI WorldCom, whilestill in thirteenth place, is close on the heels ofBell South thanks to spectacular growth – dueessentially to increased internationaloperations,- DDI which has benefited from both escalatedactivity and the strength of the Yen(mechanical effect on the valuation of turnoverin dollars),- and, lastly, Vodafone – beefed up by its mergerwith AirTouch – is now ranked eighteenth butshould be moving up soon thanks to its unionwith Mannesmann. Top 25 telecom operators in the WorldRank Operator Country 1999 operation Growth 1998-1999 Employees Access lines (‘000)revenues(million $)1 NTT Japan 93 090 6.7% 224 000 55 3182 AT&T USA 62 391 17.2% 147 800 nm3 SBC USA 49 489 9.2% 204 530 60 6824 Deutsche Telekom Germany 37 790 0.9% 172 000 47 8005 MCI WorldCom USA 37 420 23.0% nd nm6 Bell Atlantic USA 33 174 5.1% 145 000 43 0007 BT UK 30 162 10.4% 136 800 28 4858 China Telecom China 29 837 24.0% na na9 France Telecom France 29 014 10.5% 174 262 34 10010 Telecom Italia Italy 27 928 7.3% 122 662 26 50211 GTE USA 25 336 -0.5% 99 000 26 06812 BellSouth USA 25 224 9.1% 96 162 44 85213 Telefonica Spain 24 459 31.4% 118 778 40 19914 Sprint USA 19 928 18.0% 77 600 na15 Cable & Wireless UK 14 829 15.8% 54 919 na16 DDI Japan 13 681 22.4% 2 586 na17 US West USA 13 182 6.3% 58 272 17 00918 Vodafone UK 12 689 134.3% 29 465 na19 Telstra Australia 11 661 5.9% 50 761 10 04020 Telmex Mexico 10 075 9.6% na 10 87821 Korea Telecom South Korea 9 914 15.8% 52 533 26 93022 Mannesmann Telecom Germany 9 660 94.8% 22 366 na23 BCE Canada 9 567 9.8% 55 000 11 57924 KPN Netherlands 8 630 8.3% 38 550 9 61025 Swisscom Switzerland 7 429 6.7% 21 777 4 700© IDATE www.idate.fr

51World2000 World top telecom operators Major operators’ positions after recent mergers17Cable & Wireless148BTVodafone57DeutscheTelekom12France TelecomOrange acquisition(+2)10Telecom ItaliaTelefonica113920Korea TelecomKDDIChina TelecomNTT11billion $10016BellSouthQwest15Sprint6MCIWorldcom19Telmex4SBC3AT&TVerizonBell Atlantic + GTE(+4)218Telstra© IDATE www.idate.fr

52World2000 Top 12 mobile operatorsThree European operators are among the world's12 leading mobile operators, based on aproportionate ranking by number of subscribers.With over 60 million subscribers worldwide,Vodafone is the most frequently used operator,even though its domestic market accounts forbarely 10% of all users, vs. 30% for its French rivalFranceTelecom/Orange and close to 42% for T-Mobil (Deutsche Telekom). These top Europeancarriers appear to be following in the steps of theBritish giant. Vodafone's internationalisationthrough the, rarely minority but rarely total, takeoverof shares in local operators is bearing its fruits, andis allowing the operator to benefit from its brandname's clout with international subsidiaries. FranceTelecom/Orange has also launched an internationaldevelopment strategy by regrouping virtually all ofits mobile phone activities under the Orangeumbrella.T-Mobile is pursuing its expansion by targetingmainly Eastern European nations, for reasons ofgeographical proximity, as well as the US via thetotal takeover in 2000 of VoiceStream andPowertel.Having come up against financial troubles, BT wasgiven pause for serious reflection on its stake inmobile operators abroad, and now appears to behoming in on Europe where it holds only threemajority shares. A break with its mobile activities inAsia may well come about in the next few months.Nevertheless, some of those operators who rankamong the top 20, and primarily those operating incountries where deregulation is underway but notyet fully concrete, have yet to seek presenceabroad, such as is the case with China Mobile,whose third place ranking is due entirely to the sizeof its home customer base. This fact also serves toreflect the strategic significance of the massiveChinese market, which is not only the world'slargest but also one which offers highly attractiveprospects. Major worldwide cellular operators (number of subscribers in millions)Rank cellular operator Country of Proportionate (1) Total Domestic (2)origin subscribers subscribers subscribers1 Vodafone UK 60.0 109.2 9.42 NTT DoCoMo Japan 34.0 49.7 30.93 China Telecom Mobile China 30.3 30.3 30.34 T-Mobil (Deutsche Telekom) Germany 28.6 34.1 14.35 New Orange France 24.4 40.3 11.76 Verizon USA 21.6 64.8 14.1 (25.6)7 SBC USA 17.2 57.7 10.9 (18.1)8 BT UK 17.0 40.4 8.19 Telecom Italia Italy 15.7 35.6 11.0 (20.0)10 BellSouth USA 14.6 34.0 7.2 (18.1)11 Telefónica Spain 13.4 24.4 10.5 (11.5)12 AT&T USA 10.2 15.1 9.8 (11.7)(1) The number of proportionate subscribers is calculated on the basis of the shareholdings of each group in related subsidiariesand affiliated companies.(2) Proportionate subscribers (total number of subscribers of domestic affiliated into brackets).© IDATE www.idate.fr

53World2000 Top 12 mobile operators Major worldwide cellular operators (number of subscribers in millions)18BTVodafone45T-MobilNew Orange911TelefónicaTelecom Italia23NTT DoCoMoChina Mobile12AT&T10BellSouth76SBCVerizonbillion subscribers6050© IDATE www.idate.fr

54Top UMTS licenceesWorld2000 Looking at the results of UMTS licensing in Europe,we can make initial comments on the position heldby the top 7 mobile operators in Europe in the sixbiggest markets:Vodafone, uncontested leader in the GSM cellularservice sector in Europe, is also the only operatorpossessing a 3G licence in part or in full in the fivebiggest European markets that have alreadyallocated their UMTS frequencies (with the majoritycontrol in all cases) and having also a good chancein France, through its partnership with SFR/CegetelOrange, France Telecom mobile arm, looks likecoming second in the race for 3G licences in themajor markets of Europe. Assuming the award of alicence in France, the group is present in allmarkets apart from Spain but with only minorityshares in Germany and in Italy.Other operators are displaying much more mixedresults. BT is expected to be involved in 3Glicences in five of the six major markets, but withminority or perhaps uncertain holdings in Spain andFrance. T-Mobil (Deutsche Telekom) is expected tobe present in only three of the six main markets, butit will enjoy full control of the operator in twoimportant markets (Germany and the UnitedKingdom). TIM – currently exercising very littleactivity in Europe apart from in Italy – has similarstrong chances in two of the major markets, but willbe absent in Germany, in the United Kingdom and,at least in the short term, in France. Telefónicathrough its mobile arm Telefónica Moviles is onlyassured of a presence in three of the six mainmarkets in Europe, with a double challenge inGermany and Italy where its consortia have noGSM licences. KPN Mobile, lastly, has managed toobtain UMTS licences in Germany and of course inthe Netherlands.In view of the fears expressed some years ago andduly justified by the first GSM moves, the USplayers seem to be taking only a modest part in theUMTS licence allocation process in the majormarkets of Europe. It remains to be seen whetherthere will be other candidates among the pan-European champions than Vodafone, financiallycapable of bidding at the North American auctionsscheduled to be held in September 2002.Lastly, it can be seen that the prices paid for 3Glicences on a per capita basis vary widely (from€13 to €630) and that the auctions have not in allcases reached the goal set by the respectivegovernments, in the Netherlands, in Italy or morerecently in France. Position of major players in UMTS operations in the main European marketsGermany France UK Italy Spain NetherlandsVodafone 99.1% 32% ? 100% 77% 65.2% 70%TIM - - - 100% 47.8% -New Orange 28.5% 100% ? 100% 43.4% - 80%T-Mobil 100% - 100% - - 49.9% (1)Telefónica 40% (1) - - 34% (1) 100% -KPN 77.5% - - - - 100%BT-Cellnet 90% 21%? 100% - (2) 17.8% 100%Total UMTS fees(number of UMTS 50.5 (6) 19.8 (4) 37.5 (5) 12.2 (5) 0.5 (4) 2.7 (5)licences)Cost of UMTS 609.6 325.7 634.4 211.8 12.7 170.9licences per Pop(1) Not licenced previously for GSM in the country.(2) Licenced for GSM in the country.© IDATE www.idate.fr

Top UMTS licencees55World2000 Interest of the 3 major players in UMTS licences in EuropeVodafone100 50-100

56European top ISPsWorld2000 Of Europe's 10 leading ISP leaders, 6 werelaunched by incumbent operators: DeutscheTelekom (T-Online), France Telecom (Wanadoo),Telecom Italia (Tin.it), Telefónica (Terra Networks),Belgacom (Skynet), KPN… The positioning of theirheadquarters enabled them to quickly attract alarge subscriber base. Overall, these ISPs primarilytarget residential customers, although operatorsoften market an offer for businesses as well. Thiscould be done under the same brand name (T-Online, for instance) or a different one (in France,for example, France Telecom's corporate servicesare marketed under the Oléane brand).As for the remainder of Europe's leading ISPs, theyhave been required to define a particular strategy inorder to distinguish themselves from the pack. Formost, this consisted in offering free access (Tiscaliin Italy, Freeserve in the United Kingdom beforebeing taken over by Wanadoo, Freenet inGermany). They were generally among the first tooffer this form of access in their country, at a timewhen Internet was beginning to gain in scope. A fewISPs have followed suit, such as Terra Networks inSpain and Tin.it en Italy (ClubNet offer). It is worthnoting that AOL/Compuserve holds a rather uniqueposition in Europe, as it is present in the threeleading markets (Germany, France and the UK) viaits American headquarters, which already enjoysthe position of the world's top ranked Internetaccess provider, even when taking into accountonly its US customer base.For some months now, most of these ISPs haveopted to go international, with the goal ofmaintaining their rank of leading player on the web.The European market still holds healthy prospectsfor development, which is reflected in theemergence of ISPs with pan-European ambitions(KPNQwest, UPC, GTS/Ebone), added to whichconfinement to one's domestic market would likelyimply losing one's place among the top 10European players. It is for this reason thatWanadoo chose to take control of ISP Freeserve,which dominates the British market, and that Tiscaliacquired the Dutch ISP WorldOnline, whichmarkets its Internet access services in severalcountries. Top 10 ISPs in Europe (mid 2000)Rank ISP Country(ies) of origin Switched accesssubscribers (millions)1 T-Online Germany 7.0 (1)2 Tiscali / World OnLine Italy, Netherlands 6.0 (2)3 Wanadoo / Freeserve France, UK 4.2 (3)4 AOL / CompuServe - 4.0 (4)5 Tin.it / ClubNet (Telecom Italia) Italy 3.4 (5,6)6 Infostrada/Libero/Italia OnLine (Enel) Italy 3.3 (6,7)7 KPN Netherlands 1.6 (8)8 Freenet (MobilCom) Germany 1.4 (9)9 Terra Networks Spain 1.2 (10)10 Belgacom / Infonie Belgium, France 1.1 (1)(1) Pay subscribers only.(2) Around 60% of free subscribers.(3) Of which 2 million free subscribers to Freeserve.(4) Majorily pay subscribers (only AOL UK has a base of freesubscribers).(5) Of which nearly 2.3 million free subscribers to ClubNet.(6) Same users can subscribe freely to Tin.it/ClubNet andInfostrada.(7) Of which more than 2 million free subscribers.(8) Majorily pay subscribers.(9) Free subscribers only.(10) Of which nearly 0.9 million free subscribers.© IDATE www.idate.fr

European top ISPs57World2000 Top 10 ISPs in Europe (mid-2000)23KPNTiscali/WorldOnLine 8Wanadoo/Freeserve 10Freenet7Belgacom/Infonie51T-OnlineTin.it/ClubNet 69Terra NetworksInfostrada/Libero/Italia OnLinemillion subscribers864420AOL/CompuServe© IDATE www.idate.fr

58World2000 World top telecom equipment manufacturersIn 1999, the world telecoms equipment market wasmarked by a three-tier leitmotif. The first was theincreasing presence of optic and opto-electroniccomponent based equipment, particularly in thelong distance and backbone transport segments,with, nevertheless, the emergence of this type ofequipment in MANs in late 1999, a trend which isexpected to grow over the coming years (cf.NORTEL's positioning). The second prime elementcomprised the growing share of equipmentdestined to wireless infrastructures (LMDS, GPRSand GSM gear, first UMTS framework agreements).The presence of Motorola, Nokia, and Ericssonamong the top 5 is a resounding reflection of thisaspect of the market which is expected to beamplified with the first UMTS contracts in 2001 and2002. Lastly, the third reigning trend involves thegrowing phone-IT convergence due to the vastproliferation of IP in carrier networks, on the onehand, and on business access networks, on theother. On this market, the provision of gross routedconnectivity appears to hold increasingly less valueadded, the onus now being on intelligent aspectssuch as firewalling, class 7 content switching andtraffic analysis. These three elements of analysis,whose consequences will no doubt intensify in thecoming years, are contributing to a restructuring ofthe market toward pure players integrated intothese segments. It is according to this logic that isappears possible to analyse the recent Lucent-Avaya break up, the rumours surroundingEricsson's sale of its terminal activity and 3Com'srepositioning on business equipment as well asAlcatel's takeover of Newbridge. Top 25 telecom equipment manufacturers in the WorldRank Manufacturer Country 1999 telecom Growth 1998-1999 Total salesequipment (million $)sales (million $)1 Lucent USA 32 592 21.4% 38 7742 Ericsson Sweden 26 017 12.1% 26 0173 Motorola USA 22 212 7.9% 30 9314 Siemens Germany 21 973 35.1% 66 8365 Nortel Canada 21 773 26.2% 22 2176 Alcatel France 19 891 3.3% 23 1297 Nokia Finland 19 681 43.7% 19 6818 Nec Japan 15 309 38.8% 48 4609 Cisco USA 12 154 43.7% 12 15410 IBM USA 7 128 16.0% 87 54811 Fujitsu Japan 7 859 47.8% 49 57612 Matsushita Japan 5 503 42.0% 8 81613 Marconi UK 5 416 86.0% 9 16514 3Com USA 4 334 -0.2% 4 33415 Hugues USA 4 087 33.0% 5 56016 Qualcomm USA 3 927 17.3% 3 92717 Corning USA 2 845 58.7% 4 74118 Tellabs USA 2 319 36.1% 2 31919 Hewlett Packard USA 2 162 12.9% 42 37020 Sagem France 1 809 11.0% 3 39521 Toshiba Japan 1 753 -5.2% 54 23922 Oki Electric Japan 1 573 -6.5% 6 31923 Italtel Italy 1 599 -29.7% 1 59924 Mitsubishi Japan 1 537 -2.5% 35 60625 JDS Uniphase USA 1 430 405.3% 1 430© IDATE www.idate.fr

59World2000 World top telecom equipment manufacturers Top 25 telecom equipment manufacturers in the World27NokiaEricsson13Marconi420Sagem6SiemensAlcatel81211 Matsushita5NecFujitsu15Hugues1716Corning10Qualcomm 1419HP918Tellabs31Nortel3ComIBMbillion $3024181260CiscoMotorolaLucent© IDATE www.idate.fr

60World2000 World top media companiesThe 1999 ranking comprises the world's topcompanies in the audiovisual sector. It has beendrawn up of the basis of audiovisual revenues(derived from the operation of channels and cablenetworks and from film and video activities).Total revenues of the top 25 companies in theranking amounted to $137.3 billion in 1999. Thesurvey of these companies brings out the degree ofconcentration within the sector:- the top 5 companies account for 44.4% of totaltop 25 revenues,- the top 10 for 64.1%,- the top 15 for 78.6%.The US industry is still prominent with 7 players outof the 10 world leaders, 10 out of the top 25 and56.7% of revenues.The numerous mergers and acquisitions duringrecent years bear witness to this increasingly strongconcentration.The ranking reveals only a few noteworthy changesin comparison with the previous year's ranking: asfor the new top 25 are concerned, the onlyrepositioning is that of the Canal+ group, whichclimbed from 26th to 16th place (the French groupis now just ahead of CLT-UFA and takes its place asthe leading private European company in theranking). Top 25 media companies in the WorldRank Company Country 1999 audiovisual Growth 1998-1999 Total salesservices sales (million $) (million $)1 Time Warner USA 19 945 5.2% 27 3332 Walt Disney USA 14 060 0.5% 23 4023 Viacom USA 12 157 7.8% 12 8594 News Corporation Australia 8 785 5.4% 14 1205 ARD Germany 6 006 -2.9% 6 0066 General Electric / NBC USA 5 790 9.9% 111 6307 Comcast Corporation USA 5 777 23.4% 6 2098 NHK Japan 5 698 16.8% 5 6989 CBS Corporation USA 4 949 0.6% 7 37310 AT&T USA 4 871 -24.9% 62 39111 Sony Japan 4 412 3.5% 59 95012 BBC UK 4 032 1.4% 4 84013 Cablevision Systems USA 3 943 20.8% 3 94314 Hughes Electronics DirecTV USA 3 785 108.4% 5 56015 Fuji Television Network Japan 3 696 20.5% 3 69616 Canal + France 3 285 47.5% 3 50517 CLT-UFA Luxemburg 3 275 6.6% 3 57418 Carlton Communications UK 3 108 2.1% 3 10819 BSkyB UK 2 943 14.9% 2 94320 Nippon Television Network Japan 2 941 18.5% 2 94121 Seagram Canada 2 931 4.9% 12 31222 RAI Italy 2 828 0.0% 2 82823 Organisacoes Globo Brazil 2 821 23.1% 2 82124 MediaOne Group USA 2 693 8.1% 2 69525 Kirch Gruppe Germany 2 595 23.6% 3 800© IDATE www.idate.fr

61World2000 World top media companies Top 25 media companies in the World18Carlton Comms19 12BSkyBBBC16Canal +17CLT-UFA5ARD81115 NHK20 SonyFuji TVNippon TV1097AT&T362 1CBS13 ComcastGE/NBCCablevision Systems14ViacomWalt DisneyDirecTVTime Warnerbillion $201510450Newscorp© IDATE www.idate.fr

62World2000 European top cable operatorsCable is currently undergoing a rapid phase ofinternationalisation resulting mainly from the sale ofincumbent telcos’ cable networks and the fact thatthese were purchased by three MSOs - UPC, NTLand Callahan. However, a few incumbents still rankamong the top European operators and areoccasionally present in several countries (FranceTelecom and Telia). The sale of DeutscheTelekom’s networks in Germany accelerates thistrend.Then, between 1999 and 2000, market has knowna new level of concentration. During 1999, UPC andDeutsche Telekom represented almost 48% ofeuropean subscribers. With the third and fourtheuropean cable opeartor this rate rises to 54%. Bythe end of 2000, those two operators plus CallahanAssociates International (USA) and NTL (UnitedKingdom) own more than 70% of europeansubscibers. Next stage of sector’s rolling out couldstill see the sale of incumbent telcos cablenetworks. Deutsche Telekom is not yet totallydisengaged from cable operations.From now UPC is the first operator in Europe withnearly 12 million subscribers. UPC is present in12 European countries as well as in Israel. It hasconducted a lot of investment and pledged muchcapital to spread its pan european strategy.Deutsche Telekom takes up the second place with10 million subscribers. Callahan Associates is thethird european cable operator and counts 7.1subscribers, after having baught one DT cablenetworks. NTL which is the first British cablenetwork investor (it baught the consumer assets ofits old competitor Cable & Wireless in 1999) isfourth one in Europe with 6.7 million subscribers.Like UPC, it piles up much debt since 1995. By theend of 1995, debts reach $91 million and jump to$642.5 million at the end of 1999.Except DT the other incumbent telcos still have arelative part in the industry. France Telecom owns2 million subscribers, Telia 1.7, TV Cabo and TeleDanmark 0.8. Top 10 cable operators in Europe(Cable TV subscribers, end 1999 and end 2000, millions)Rank Cable operator Country of origin End 1999 End 20001 UPC Netherlands 5.3 11.92 Deutsche Telekom Germany 17.7 10.03 Callahan Germany 0.7 7.1Associates International4 NTL Group UK 1.4 6.75 France Telecom France 1.7 2.06 Telia Sweden 1.5 1.77 Telewest UK 1.1 1.68 TV Cabo Portugal 0.7 0.89 Tele Danmark Denmark 0.8 0.810 Lyonnaise Câble France 0.7 0.8© IDATE www.idate.fr

63World2000 European top cable operators Top 10 cable operators in Europe (end 1999)© IDATE www.idate.fr

64World2000 Internationalisation of mobile operatorsEuropean operators are facing increasingcompetition in their home market both in fixed andmobile communications. As European penetrationrates reached 50 to 70% as at end December 2000,European mobile leaders find it difficult to expand inWestern Europe.They are still striving for a rapid subscriber baseincrease. Through selected acquisitions they aretrying to expand on a worldwide basis and give aboost to group sales, be it at lower profit marginsthan those which they traditionnally enjoyed athome.They are focusing on mobile operators which canbe best potentials for growth and profitability indeveloping countries and maintain subscriptionacquisition costs and ARPU. In Eastern Europe,Latin America, or Asia, they are targeting on smalllocal mobile operators, which can provide wellknown brand names and advanced services.For operators who can pay in cash, now is a greattime to go shopping.For instance, Asia's cellular sector has kicked off2001 with a round of deal negociations that has therumor mill buzzing. There are many availablestakes that create juicy opportunities in Asia forinternational players and it may be just thebeginning. BT's decision to reassess its extensiveAsian holdings outside Japan could soon unloadsizeable chunks of seven carriers in seven differentcountries. And France Telecom, Vodafone amongothers have said that they are ready to startspending to build their names around the region.The case for consolidation is most obvious in verycompetitive markets in Europe and elsewhere suchas Hong Kong where six operators vie for apopulation of about 6.5 million. These acquisitiontalks come at a time of growing pressure forconsolidation and alliance building, prompted bythe arrival of the third generation networktechnology. Because the third generation networkswill have much greater capacity to carry data,mobile devices will have services like highspeedInternet. But it takes billions of dollars to build thesenetworks from scratch, and only carriers withmassive subscriber number will be able to justifythe cost. The advent of third generation networksalso creates scale incentives. A carrier that strechesacross several countries has greater leverage innegotiating deals with vendors of infrastructure andhandsets. And with wireless applications they onlyneed to develop them at once to roll them out inmultiple markets. International interests of the 3 major European cellular operatorsCountry Vodafone T-Mobil OrangeAustria 100 000 (54%) 2 100 000 (100%) 1 300 000 (18%)Belgium 3 190 000 (25%) 1 800 000 (51%)Denmark 504 000 (53.6%)France 9 921 500 (26%) 13 940 500 (100%)Germany 19 394 336 (100%) 19 100 000 (100%) 2 800 000 (28.5%)Greece 2 226 000 (55%)Ireland 1 314 800 (100%)Italy 14 900 000 (77%) 4 900 000 (43.4%)Netherlands 3 180 000 (70%) 616 000 (50%) 1 000 000 (100%)Portugal 2 315 275 (51%) 1 199 000 (20%)Spain 6 900 000 (74%)Sweden 979 000 (71%)Switzerland 3 111 000 (25%) 800 000 (85%)UK 11 663 000 (100%) 8 324 300 (100%) 9 830 000 (100%)Number of affiliates in other areas:Eastern countries 3 6 5Americas 2 3 4Asia/Pacific 6 3 1Others 4 - 9© IDATE www.idate.fr

65World2000 Internationalisation of mobile operatorsInternational interests of the 3 major European cellular operatorscountry of originVodafoneT-MobilOrange© IDATE www.idate.fr

66World2000 Internationalisation of ISPsWhile Wanadoo and T-Online have benefited fromboth the position and experience of their respectiveparent companies, Tiscali was required to gain afoothold on its domestic market before being able todefine European and international expansionstrategies.Following its immediate success in Italy (the 1st ISPto provide free Internet), Tiscali obtained the fundsrequired for its expansion by floating 2% of itscapital on the market in October '99. It then beganto acquire ISPs and telecoms groups inSwitzerland, Germany and the Czech Republic,and to launch services under its own brand incertain countries (France and Spain). ThisEuropean development accelerated swiftlyfollowing the takeover of free ISPs that werealready major players on their home markets, aswell as being present in other nations: World Onlinethen Libertysurf.Wanadoo, before the announcement of its takeoverof the UK's leading ISP Freeserve, had alreadybegun to forge itself a position in new markets bylaunching its brand in several countries: Spain,Belgium, the Netherlands and Morocco. Itsdevelopment strategy then evolved and, in order toreach its target of 10 million subscribers in Europeby 2003, the French ISP acquired Britain's accessleader. Parallel to this, Wanadoo chose to developits content offering along with its value addedservices (specialised portals, yellow pages, e-commerce sites…)Lastly, T-Online is clearly Europe's top Internetaccess provider, even when taking into accountonly its German subscriber base. The ISP deployedits international expansion strategy by launching itsbrand in Austria, then by acquiring shares oftelecoms operators (One 2 One in the UK, Matavand its ISP Matavnet in Hungary, HrvatskeTelekomunikacije in Croatia) and, finally, by optingto take over ISPs which already had a solid positionon their home markets (Ya.com in Spain,Terravista.pt in Portugal and, lastly, French ISPClub-Internet, which it acquired from the LagardereGroup in June 2000).These three ISPs thus all took initially divergentapproaches to internationalisation, while allultimately opted to undertake major acquisitions inorder to maintain their rank among Europe'sleading players. International interests of the 3 major European ISPsCountry T-Online Tiscali/WorldOnLine Wanadoo/FreeserveAustria 63 000 naBelgium 163 000 60 000France 510 000 150 000 1 510 000Germany 5 980 000 237 000Italy 1 500 000Netherlands 700 000 207 000NorwaynaSpain 340 000 (1) na 269 000SwedennaSwitzerland 89 000UK 2 000 000Eastern countriesCzech Republic (na)AmericasAsia/PacificOthers Morocco (4 000)(1) Number of subscribers in Spain and Portugal.© IDATE www.idate.fr

67World2000 Internationalisation of ISPs International interests of the 3 major European ISPsT-OnlineTiscali/World OnLineWabadoo/FreeservCountry of origineMorocco© IDATE www.idate.fr

68World2000 Internationalisation of cable operatorsThe European cable industry has been burdenedwith the need for substantial financial resources fora long time now due to the expense of buildingnetworks requiring a great deal of civil engineeringwork. This is especially true in urban and suburbanareas that are subjected to severe constraintsrelated to the respect of the environment, townplanning and listed sites.For this reason, the majority of initial cableinfrastructure investments in Europe were made bypublic or para-public organisations, as was the casein France, Germany and Scandinavia. Cable iscurrently enjoying renewed interest, sparked offmainly by the emergence of new interactiveservices and the sale of some of the largestnetworks in Europe. These sales have spawned astream of major concentration phenomena in theEuropean landscape, which notably take the formof the acquisition of holdings and the developmentof new financial partnerships throughout thecontinent.Today, 3 major cable operators lead the Europeanindustry: UPC, NTL and Callahan Associates. International interests of the 3 major European cable operatorsCountry UPC NTL Callahan(subscribers at end Sept. 2000) (subscribers at year end 2000) (subscribers at year end 2000)Austria 476 000Belgium 124 000France 382 000 778 600 670 000Germany 920 000 6 300 000Netherlands 2 258 000Norway 331 000Portugal 876 000 (1)Spain 110 500Sweden 251 000Switzerland 1 406 800UK 3 201 700 (2)Eastern countriesPoland 1 042 000Romania 283 000Slovenia 247 000Hungary 605 000Czech Republic 409 000Americas - -Asia/Pacific - -OthersMalta 82 000Israel 447 000(1) Figures at end June 2000 for Portugal and Spain.(2) Figures for UK and Ireland.© IDATE www.idate.fr

69World2000 Internationalisation of cable operators International interests of the 3 major European cable operatorsUPCNTLCallahanCountry of origin© IDATE www.idate.fr

70Subscriber valueWorld2000 As the Information Society takes shape and particularly, as the networks accompanying its development areput into place, subscriber control is becoming an increasingly strategic industrial issue. This can be witnessedin the frenzy that seems to have built up around subscriber value.The valuation of Internet subscribersSince the E-Krach of March 2000, we are seeingcertain differences between valuation of Internetsubscribers. These differences between securitiesdepend on how long ISPs have been positioned onthe market, acquirers’ strategic interest, thecoupling of trades (ISP/portals), brand value(especially as regards media), questions pertainingto tariff models (as regards free ISPs) and thecapacity to efficiently segment one or a fewcustomer bases.Today with the falling of the free models acrossEurope and the arrival of flat rate subscriptionsincluding local calls, the best subscriber’svaluations are among “classical” ISPs. All theseISPs are today controlled by an operator: T-Online /DT, Wanadoo / FT, Terra Networks / Telefonica, …Concerning the pure free players like ISP launchedby distribution networks (Mageos / PPR) orindependent ones (Freesbee), all the lastacquisitions of these players show us very lowvaluations of their subscribers. The explanation is alow monthly connection time not stimulatingpublicity online and a very high churn rate of thesesubscribers. Top Internet subscriber valuations between mid-1999 and end 2000date Transaction Subscriber value (€)Sep. 1999 Telefónica-Terra Networks 12 222Nov. 1999 Thus (Scottish Telecom)-Demon 7 059Oct. 1999 Tiscali Freenet 6 000Apr. 2000 Deutsche Telecom-T online 4 048Feb. 2000 Deutsche Telekom 3 125Apr. 2000 Kingfisher/Groupe Arnault-LibertySurf 2 667Jul. 1999 Dixons-Freeserve 2 059Sep. 2000 Tiscali-WorldOnline 1 594Sep. 2000 Deutsche Telekom-Ya.com 1 375Dec. 2000 Wanadoo-Freeserve 1 350Jan. 2001 Tiscali-LibertySurf 1 000Jan. 2001 LibertySurf-Freesbee 209Nov. 2000 9 Telecom-Mageos 183© IDATE www.idate.fr

71World2000 Subscriber valueThe valuation of cellular subscribersSubscriber value and valuations in the mobilesector have moved drastically down in 2000 - thatno one really knows what is the correct value -under the impact of various factors:- telecoms stocks languish 50% below where theywere 10 months ago and in the mobile operatorsoutlooks because of heavy acquisitions strategies,- debt raised from the huge investments needed toacquire licences in Western Europe without goodrevenues forecasts,- investments needed to build and run a reliable 3Gnetwork and incertainty in potential ways andmeans to pay off these debts with sectorvaluations slipping,- over-hyped and limited technology for the WAPconsidered as an initial step to the WirelessInternet,- postponed IPOs of wireless subsidiaries in Europesuch as BT Wireless Deutsche Telekom andDutch KPN's mobile units later in 2001 orworldwide such as Verizon Wireless).France Telecom which needs cash now is currentlyoffering 15% of Orange though an IPO isexperiencing a severe discount to most analysts'valuations.In addition to these general factors, we need to takeinto account other considerations such as:- whether the operator has access to control or not.If the operator already owns part of the acquisitiontarget, the price may be lower;- target size and above all, national market potential(stability, economic situation, market maturity,state of competition). Thus, the markets of largeEuropean Union Member States are still bettervalued than those of operators in Central orEastern Europe, especially since the penetrationrates in Germany, France or the United Kingdomcontinue to be somewhat moderate;- target activity (a service marketing firm such asDebitel will have a lower value than a networkoperator) and the characteristics of the customerbase (loyalty, average sales/subscriber);- the strategic dimension of the buyer’s nationalestablishment: not only is control of a mobileoperator a good vehicle for gaining a foothold ona national market but also a factor ofdifferentiation for a pan-European offering ofenhanced services. Top 20 mobile subscriber valuations between mid-1999 and end 2000Date Transaction Subscriber value (€)Aug. 2000 Deutsche Telekom-VoiceStream 26 768Jul. 2000 NTT DoCoMo-KPN 11 848Oct. 1999 Mannesmann-Orange 9 189Jul. 2000 Deutsche Telekom-Powertel 9 002Sep. 1999 VoiceStream-Aerial Comms 8 182Aug. 2000 BT-Viag 7 389Nov. 1999 Vodafone-Mannesamnn 6 128Jan. 2000 Vodafone-Airtel 5 872Oct. 1999 AT&T-ACC 5 829Jun. 2000 France Telecom-Orange 5 720Nov. 2000 Verizon Wireless-Price Communications 4 578Aug. 1999 Deutsche Telekom-One 2 One 4 571Nov. 2000 NTT DoCoMo-AT&T Wireless 4 537Aug. 1999 France Telecom-E Plus 3 962Oct. 2000 Deutsche Telekom-Ben 3 728Nov. 2000 Vodafone-Swisscom Mobile 3 710Dec. 1999 KPN-E Plus 3 669Sep. 1999 Vodafone AirTouch- Bell Atlantic GTE 3 500Jul. 1999 BT-Cellnet 2 625Oct. 1999 Deutsche Telekom-PTC/Westel/RTDC 2 372© IDATE www.idate.fr

72Subscriber valueWorld2000 The valuation of cable subscribersTransactions carried out in the cable networksphere in 1999-2000 clearly reveal hugedifferences in prices: the average price persubscriber stood at €1,717 in Europe, compared to€4,854 in the United States. The average price ofoperations in 1999 rises to $2,447 compared to$1,811 in 2000.During 1999, the most expensive operation wasconducted by AT&T when it bought MediaOne. Thesubscriber value was almost $7,500. The secondmost important operation is the 5% stake thatMicrosoft acquired from NTL at the beginning of theyear. At last Cable London’s subscribers areevaluated at $6,330.Regarding 1999, 2000 was a peaceful year. Elevensignificant operations were conducted in the cableindustry. NTL acquired 49.9% stake in the frenchoperator Noos for nearly $3,500 per subscriber.Two companies are strongly active on the marketsince 1999. NTL undertake several actions toacquire european companies like Cablecom inSwitzerland, Cablelink in Ireland, Cable & Wirelessin UK or the France Telecom 1G Network. UPC thefirst pan european cable operator makeinvestments in Europe too and also in the east:Slovakia, Poland, Czech Republic. Top 20 cable subscriber valuations between mid-1999 and end 2000Date Transaction Valuation per subscriberMay 1999 AT&T-MediaOne 7 452Jan. 1999 Microsoft-NTL 7 015Aug. 1999 Telewest-Cable London 6 330Nov. 1999 Comcast-Lenfest 5 134June. 1999 France Telecom-NTL 4 464May 1999 Cox Communications-TCA 4 045July. 1999 Cox Communications-Multimedia Cable 4 018Dec. 1998 Vivendi-Telewest (sale) 3 963July. 1998 Cox Communications-AT&T BIS 3 698Aug. 2000 NTL-Noos 3 468Aug. 1999 Microsoft-Rogers Communications 2 975Sep. 2000 Quebecor-Videotron 2 773Dec. 1999 NTL-Cablecom 2 643May 1999 AT&T-Lenfest 2 619Mar. 1999 Microsoft-TV Cabo 2 057May 1999 NTL-Cablelink 2 000June. 2000 UPC-K&T Group 1 738Aug. 1999 UPC-Stjärn TV 1 674Dec. 1999 UPC-Intercomm 1 440Apr. 2000 Klesch-DT's Hessen network 1 399© IDATE www.idate.fr

Subscriber value Top 20 subscribers valuations73World2000 Deutsche Telekom-One 2 OneMicrosoft-NTLTelewest-Cable LondonTiscali-FreenetComcast-LenfestVerizon Wireless-Price CommunicationsDeutsche TelekomVoiceStreamNTT DoCoMo-AT&T WirelessAT&T-MediaOneMannesmann-OrangeNTT DoCoMo-KPNVodafone-MannesamnnBritish Telecom-ViagVoiceStream-Aerial CommsAT&T-ACCDeutsche Telekom-PowertelThus (Scottish Telecom)-DemonFranceTelecom-OrangeVodafone-AirtelTelefónica-Terra Networks30,000Subscribervalue in20,00010,0000© IDATE www.idate.fr

74EuroprivatisationWorld2000 Over recent years, privatisation of incumbentoperators appeared in a lot of countries as anessential step for accompanying the telecom sectorrestructuring. The main objectives are:- to promote the reorganisation of the incumbentcarrier and the development of a competitivestructure and strategy. This organisationalchange was sustained via a public shareoffering,- to allow the conclusion of alliances andpartnerships between incumbent carriers andprivate global-scale operators, enabling viableentry into the global marketplace and givingway to the emergence of a global servicesmarket,- to provide incumbent operators with the fundsrequired to finance international developmentand migration of their networks to newtechnologies (entry onto the stock market alsomakes it possible for incumbent carriers tonegotiate via stock swaps).In Europe, the situation is still contrasted for thetime being with some countries having completedtheir privatisation process (UK, Spain, Italy), someon the contrary just beginning (Norway andSweden) while a great majority has been on themove for several years. IPO, strategic partnerships,stock swaps… can be used alternatively bygovernments. State shareholdings in incumbent operatators within EuropeIncumbent State Other Commentsoperator Shareholding Share holdersGermany Deutsche Telekom 66.6%Austria Telekom Austria 75.0% Telecom Italia (25%) IPO (Nov. 2000) for a further 25%Belgium Belgacom 50.0% Tele Danmark (16.5%),SBC (17.5%), Singapore Telecom (13.5%)Czech Republic Cesky Telekom 51.1% KPN (20.3%), Swisscom (13.2%)Denmark Tele Danmark 0.0% SBC (42%)Spain Telefónica 0.0%Finland Sonera 52.9%France France Telecom 55.5% Deutsche Telekom (1.8%) DT's interest to be soldGreece OTE 51.0% invitation for a strategicpartner (20%) in progressHungary Matav 40.5% Deutsche Telekom (59.5%)Ireland Eircom 50.0% KPN (21%), Telia (14%) KPN and Telia'sinterests to be soldItaly Telecom Italia 3.5% Olivetti (52.1%)Luxembourg PT Luxembourg 100.0%Norway Telenor 79.0%Netherlands KPN 43.5%Poland TPSA 50.0% France Telecom (35%)Portugal Portugal Telecom 9.0% Telefonica (3.5%) remaining to befloated in Dec. 2000UK BT 0.0%Sweden Telia 70.0%Switzerland Swisscom 64.5%© IDATE www.idate.fr

Europrivatisation75World2000 State shareholdings in European incumbent operators (end 2000)SwedenNorwayFinlandIrelandDenmarkUKNetherlandsGermanyPolandBeneluxLuxembourg Czech RepublicFranceSwitzerlandAustriaHungaryPortugalItalySpainGreeceStateShareholding (%)© IDATE www.idate.fr

76World2000 E-krach and company valueEstablishing telecoms operators' worth: the year ofliving dangerously?Beginning in the spring of 2000, at a time when thesums being paid by operators at UMTS auctionswas leading to visions of increasingly colossalexpenditures, the telecoms sector fell prey to theburst of the Internet bubble. Sources of financinggradually began to dry up and, along with start-ups,infrastructure suppliers, equipment manufacturersand telecoms operators all watched as their shareprices and market capitalisation tumbled.The following chart reflects this phenomenon, bycomparing the market capitalisation of the world's10 leading operators (AT&T, British Telecom, Cable& Wireless, Deutsche Telekom, France Telecom,MCI Worldcom , NTT, Telecom Italia, Telefonica andVodafone) between September 1999 and January2001.This capitalisation has thus decreased:- by $166 billion between September 1999 andJanuary 2001 (representing 16% of thecorporations' capitalisation betweenSeptember 1999 and January 2001);- by $514 billion between March 2000 andJanuary 2001 (representing 37% of thecorporations' capitalisation betweenSeptember 1999 and January 2001).The swelling and bursting of the telecoms bubbleover the last two years led to a major shake up,reshuffling the deck within the sector, as the twofollowing charts illustrate.An observation of the rankings of the five leadingstocks over the last two years makes it possible toascertain a certain number of general facts:- the widening gap between the top ranked stock(i.e. Vodafone) and the following four, whoseworth continues to plummet;- the slide under the $100 billion mark of one,then two, of the five leading operators duringthe second half of 2000 and 2001;- the disappearance of American players(Worldcom and AT&T) from the field, and theirreplacement by two European operators(France Telecom and Telecom Italia) amongthe top 5, between September 1999 andJanuary 2001.Do the most recent fluctuations on the marketforeshadow a return to grace of telecoms stocks?Within a landscape of generally lowering rates, theupswing of a handful of stocks led to a relativetightening of the spreads (i.e. premiums vs. themarket's reference rate). Furthermore, incumbentshave been taking measures to rid themselves ofdebt (gradually selling off non strategic assets,floating a portion of their mobile activities) which,given the size of their debt, has helped assuagecredit rating agencies which, over the last fewmonths, have gone so far as to demote the majorityof incumbent operators (generally from AA to A). Market values of major telecom operators (in million US$)Sep. 1999 March 2000 Jan. 2001 Var. Sept. 1999 Var. March.2000Jan. 2001 Jan. 2001AT&T 143 503 177 176 64 559 -55.0% -63.6%British Telecom 98 512 120 518 60 704 -38.4% -49.6%Cable &Wireless 24 581 42 098 35 524 44.5% -15.6%Deutsche Telekom 124 548 221 080 100 064 -19.7% -54.7%France Telecom 84 114 176 476 90 628 7.7% -48.6%MCI Worldcom 144 655 124 516 52 311 -63.8% -58.0%NTT 181 906 252 879 105 958 -41.8% -58.1%Telecom Italia 69 681 110 781 86 714 24.4% -21.7%Telefonica 51 629 82 425 60 653 17.5% -26.4%Vodafone 123 294 86 121 222 940 nm nm© IDATE www.idate.fr

77World2000 E-krach and company value Market values of major telecom operators (in million US$)© IDATE www.idate.fr

79World2000 Part 2:DigiWorld Analyses© IDATE www.idate.fr

World2000 81B2B e-marketplaces: Market and trendsDaniel Kaplan(December 2000)The e-marketplace phenomenon................................................................................... 83Why marketplaces? ........................................................................................................ 84The marketplace market................................................................................................. 86Trends and stakes: a market which is at oncecreating and restructuring itself.................................................................................... 91© IDATE www.idate.fr

World2000 83The E-Marketplace phenomenonStill fledgling only two years ago, the inter-company (B2B) electronic marketplace phenomenon on the net hasundergone extraordinary development since that time. Numbering only several dozen in 1998, there now existbetween 1,000 and 1,500 world-wide. According to Commerce One, 25% of American businesses in 2000were involved in at least one e-marketplace, with a projected 70% for 2002.Forrester Research, which counted 300 marketplaces in Europe in late 2000, notes that 54% of majorEuropean buyers and 21% of major industrial suppliers plan to take part in the creation of an electronicmarketplace between now and 2003. Forrester estimates that 10% to 15% of all B2B purchases in Europe willgo by way of an e-marketplace by 2004. American forecasts are more ambitious still: a projected $1,000 to$3,000 billion in trade in 2004-2005, equivalent to 30% of all business to business trade.What is an e-marketplace?For economists, a marketplace is an either physical or virtual space where suppliers and buyers of a certain typeof product or service come together to conduct transactions.The "purest" form of a marketplace is the stock exchange. Beyond merely putting people and companies intocontact with one another, the e-market operator also performs a number of functions required for efficient trade:guaranteed outcome (delivery, payment) monitoring of the proper, honest conduct of transactions, providinginformation services, financing, etc.An electronic marketplace is therefore a virtual space whose function consists in facilitating contact between agreat many buyers and providers/suppliers of goods and services, and in both facilitating and streamlining thetrading process. This definition encompasses a wide range of situations, from a raw materials exchange toprofessional portals, within which commercial transactions constitute only one source of added value amongothers (1) .(1) Refer to the IDATE study, "E-Business: Professional portals and Marketplaces", 2000 editionBy late 2000, however, while the marketplace creation dynamic remained lively, the fever that had taken holdof the, particularly financial, players, was beginning to subside. Market ratings for the top players have fallenwell below the peaks reached in the first quarter of 2000. The economic and technical path taken by thepioneer entrants proved much longer and more arduous than expected. Close to two thirds of the announcedmarketplaces remain inactive, and the volume of transactions for the remainder is increasing at a lower ratethan what their founders had initially hoped. Analysts are predicting a strong concentration movement for thetwo years to come, leading to the creation of only two to four major players in each sector.Market value of the top three e-market playersThis return to earth does not, however, undermine the reigning general conviction concerning marketplaces'significance, i.e. that they are the heart of the future growth of B2B e-commerce. One of the major difficultiesencountered by specialised operators, in fact, is the market's exceptional dynamic: the inordinate number ofmarketplaces in each sector and the arrival en masse of major players from the "Old Economy" who are© IDATE www.idate.fr

84World2000 collaborating to create their own marketplaces. Players such as i2, Commerce One and Ariba, whose turnoveris generated primarily by the sale of services and software licences to marketplaces, have managed toweather the recent market storm better than others.Why marketplaces?Few companies involved in B2B e-commerceInter-company Electronic Data Interchange (EDI) has been developing steadily for over 20 years now, andcurrently represents a large portion of client-supplier trade in sectors such as automotive and retail: in Francealone, some 120 million euros change hands each year over specialised value added networks (Allegro,Galia...), which are gradually migrating toward the net. EDIs remain focused on one-to-one relations betweencorporations which have existing business ties, and which are linked by a prior interchange frameworkagreement. For the most part, their development depends on the initiative of corporate buyers who imposetheir use on suppliers.B2B e-commerce on the web has developed rapidly over recent years, notably in the field of generalpurchasing and around business portals created by several large manufacturers (Cisco, Dell, Intel, ...).Nevertheless, despite the significant volume of transactions, the net is still only responsible for a small shareof inter-company trade, and is far from being in widespread use. Some ten companies alone are singlehandedlyresponsible for the lion's share of transactions taking place around the globe, whether in terms ofsale to end clients (where the web generates over half of their sales) or management of the company's supplychain.E-marketplaces: closing the loopB2B e-marketplaces are seeking to go beyond the current boundaries of B2B e-commerce:- to increase the number of players involved in e-trade, to expand the nature of possible transactions andthe types of products and services traded;- to combine the benefits of EDIs (direct exchange between management systems) and those of openInternet (opening up to SMEs, trade between players with no previous ties, use of web technologies);- to use auctions, reverse auctions and group buying techniques in B2B operations; techniques which havebeen used (with varying success) in B2C e-commerce;- to co-ordinate the various players who are likely to be involved in a complex supply chain;- to extend the open market process and ensuing reduced costs that Internet enables to other exchanges(raw material, food products, spot markets…)Forms of inter-company collaborationSource: Andersen Consulting© IDATE www.idate.fr

World2000 85Estimated savings generated by electronic marketplacesPotentially, then, common use of an e-marketplace by both suppliers and buyers offers a number ofadvantages beyond the mere migration to electronic of the existing flow of trade. It is generally estimated thatsavings which are likely to be generated by use of a marketplace are between 15% and 35% of the total costof purchases, depending on the market and the nature of the product.The benefits of a marketplaceFor buyersBenefits tied to an electronicised stream• Simplified, accelerated and more reliable purchasingprocess• Deconcentration of purchasing decisions linked withbetter guarantee of adherence to internal regulations(authorised amounts, approved suppliers…)• Better synchronisation of supply chains, reduced stock,cycles, logistical costs, turnaround timeBenefits tied to the marketplace's scopeFor suppliersBenefits tied to an electronicised stream• Lowers order processing costs• Facilitates production forecast managementBenefits tied to the marketplace's scope• Allows SMEs to tender bids to companies that would beimpossible to contact through other channels• Economies of scale thanks to aggregation of multipledemands• Broadening the scope of potential suppliers, enhancedcompetition, lower risks of stock depletion• Easy comparison of bidsFor all players involved in the marketBenefits tied to an electronicised stream• Reduction of administrative costs and margin of error thanks to integration of exchanges into the information systems• Better view of the supply chain: enhanced flow, reduced rate of errorBenefits tied to the marketplace's scope• Improvement on the market's transparency and liquidity• Reduction of information research/sourcing and transaction costs• Better mastery of operations thanks to a capacity to produce statistics by product, buyer, supplier, etc.• The ability to go beyond mere buy and sell transactions toward more complex forms of co-operation: joint stockmanagement, project management, etc.© IDATE www.idate.fr

86 World2000 Marketplace - organisational logicBenefits offered by the marketplaceThe customerAutomates management of hisorders.Puts a greater number of suppliers incompetition.The operatorActs as intermediary between thecustomer and the supplier.Revenues come from a percentageon sales or registration fees.The supplierAccess to a greater number ofpotential customers.The marketplace's possible methods of operation1. The customer consults the suppliers' catalogues and places an order directly.2. The customer requests a quotation from the operator, who then asks suppliers to bid.3. The customer requests a quotation from the marketplace's operator, who then organises a reverse auction among thesuppliers.The marketplace marketSource: IDATEThere exists a wide variety of marketplaces on the net, to the extent that it is entirely legitimate to wonderwhether this generic term can apply to all. An attempt to categorise gives rise to at least four primaryclassification criteria:• According to the nature of the products and services offered: strategic buying linked to the production ordistribution chain, purchasing equipment or administrative products: technical and office supply products forthe most part;• According to the sector to which the companies involved belong: vertical, sector based or horizontalmarketplaces, for a single category of goods and services;• According to the scope of the services rendered, types of transactions offered: from a simple on-linecatalogue to comprehensive organisation of an activity;• According to the operator's origin and its shareholders: major buyers, suppliers or specialised or neutraloperators.Strategic or administrative purchasingB2B e-commerce and marketplaces still primarily involve administrative purchases and a number ofequipment purchases, mainly in the computer and telecoms fields. Marketo, Avisium and AchatPro in France,Works.com and many others in the US, fall into this category. Taking advantage of its world dominance of thecorporate purchasing cards sector, American Express, which initiated the MarketMile marketplace, has evendeveloped, along with the CommerceNet consortium, a data exchange standard specific to this type ofpurchasing: Open Buying on the Internet (OBI) (1) .Strategic purchases are part of a continuous supply chain, geared to supplying a company's productionprocess or distribution units: raw materials, assembly parts, shelf stock products… The global volume thatthese purchases represent in the economy is far greater than purchases of equipment or administrativeproducts. On the other hand, the significance of factors such as cost, delivery time, the quality and reliabilityof supply sources serve to explain, in part, the relative slowness with which this type of buying is migratingtoward a marketplace mode.Certain sectorial marketplaces focus from the outset on administrative purchasing and later evolve towardstrategic buying; such is the case, for instance, of Answork which regroups a number of major French banks.On the border between these two categories there exist marketplaces specialised in replacement parts andmaintenance for complex equipment used in sectors such as aeronautics — the portal currently beingmounted by Air France, British Airways and the top four American airlines, for instance.(1) www.openbuy.org© IDATE www.idate.fr

World2000 87Horizontal and vertical marketplacesHorizontal marketplaces specialise in one or several categories of products and services: equipment suppliesand goods, corporate services, transactional services… They target all companies or other sectorialmarketplaces for which they play the role of service provider. The most advanced among them can undertaketo fully organise a process or a profession: logistics (such as CargoWeb and Freightmarket), managingadvertising, maintenance, human resources… Players such as OnVia.com and Citicorp (via the Bizzed.comsite) federate some of these functions in order to offer SMEs a range of products and services geared tofulfilling their main daily operational requirements.Sector-based or vertical marketplaces mainly target companies from a given sector of activity. Their goal is tomaster their understanding of the sector's practices and trade channels, to identify sources of inefficiency andto offer solutions. It is in this category that the greatest number of e-marketplaces have emerged, althoughtheir development has been both unequal and problematic. While some marketplaces are growingsuccessfully with little fanfare, notably in the field of raw materials and energy trade, others are struggling justto get off the ground.Financial results obtained by several vertical marketplacesEmerge InteractiveIntegration of the value chain for the American beef industry.• Overall market: $40 billion• Creation date: 1998• 3rd quarter 2000:- TO: $277 million- 632,800 heads of cattle sold- Gross margin: $3.7 million (turnover takes account of the value of livestock sold)- Losses: $7.3 millionVentroOperates primarily Chemdex, a marketplace for life sciences industries (pharmaceutics, biology) and Promedix,specialised in medical supplies. Serves only the United States.• Creation date: 1997 (Chemdex), 2000 (Ventro)• 3rd quarter 2000:- TO: $25.2 million- 37,000 registered users- Gross margin: $1.8 million (TO takes account of the value of the products sold)- Losses: $119.6 million• 4th quarter 2000:- Ventro dissolves its own marketplaces and becomes a marketplace service provider.Altra Energy SystemsWorld-wide marketplace for the energy industry• Overall market: $1,800 billion• Creation date: 1997• 7,000 professionals from 500 countries, 4,500 offers and requests posted each day• August 2000: 19 million Mwh of electricity, 28 million barrels of natural gas traded• $12 billion worth of transactions expected for 2000 ($6.9 billion in 1999)• 1999 TO (commissions): $40 million© IDATE www.idate.fr

88 World2000 The benefits of a marketplace A marketplace's functionThe functions that the different marketplaces offer vary greatly. In the simplest case, an e-marketplace ismerely a collection of supplier catalogues which allows buyers to compare prices and products. On the otherend of the spectrum, there are companies which have entirely modelled a sector's activities (e.g. Citadon forthe construction and civil engineering sector).SourcingMore or less strategic sourcing, or supplier research, constitutes a basic function. It relies on the creation ofqualified directories, collecting and integrating catalogues, tools and search and comparison agents and, incertain cases, an exchange of comments or ratings provided by players who have conducted business on themarketplace.The supply and demand reunionPutting buyers in touch with suppliers takes place through:- the presentation of offers via catalogues;- the publication of calls for tender and possibly bid management;- a set of price setting systems which ranges from classic catalogue prices (homogenous or previouslynegotiated with each client) to complex systems of dynamic pricing: more or less automated negotiations,auctions and counter bidding, exchange… ;- the possibility of concluding a transaction in a secured environment; security seeks to guarantee notpayment (which does not generally take place on- line) but rather the commercial contract.The principal price setting models © IDATE www.idate.fr

World2000 89Managing the supply chainDepending on the degree to which the buyers and suppliers' information systems are integrated with themarketplace's system, this latter may enable:- management of the company's internal purchasing process: referenced suppliers and negotiated prices,authorisation and purchase validation procedures, reporting, …;- replacement of traditional EDI networks for exchanging standardised e-mails between clients andsuppliers who have already collaborated;- access to supplier stocks, or direct requisitioning of certain in-stock products;- contrarily, to enable a supplier to manage his client's stock supply himself;- management of complex chains or multi-player projects;- automatic data integration into the players' management and ERP systems, …Services related to commercial transactionsProper conclusion of a financial transaction depends on a body of services that are being increasingly offeredby marketplaces, generally in partnership with specialised players:- solvency, credit risk analysis,- billing,- payment,- financing,- insurance,- logistics and shipping.Data processingOne of the benefits offered by the concentration of a large volume of transactions on a single platform, forvendors and buyers alike, is the ease of aggregation and processing of the information relating to thetransactions:- performance comparison, rating... of buyers and suppliers;- tracking and analysis of purchases or sales by product, supplier, client, internal buyer…Collaborative functionsAn increasing number of e-marketplaces are developing functions geared to facilitating exchange betweentheir members:- informal exchange: chat forums, …;- structured exchange: project management, joint design, workflow, ...Externalising functionsIn certain cases, marketplaces offer the possibility of handling other functions for their users:- client relations management, call centres;- administrative functions: accounting, payroll, taxes, ...InformationLastly, more and more marketplaces are offering a range of related information and services with the goal ofbecoming a central destination for their clientele (1) :- sectorial and professional information,- training catalogues,- classified ads and employment offers, etc.(1) Refer to the IDATE study, "E-Business: Professionnal Portals and Marketplaces", 2000 edition.© IDATE www.idate.fr

90 World2000 Technological components of a marketplace A marketplace's functions therefore go well beyond merely putting supply and demand into contact. TheCitadon example, which enables its users to manage a construction project from start to finish, buying andselling (quotes, ordering, delivery), represents only a small portion of the services rendered. Creating andoperating a complex marketplace is thus becoming a particularly difficult and cash intensive endeavour.Marketplaces operated by players with divergent interestsThe first marketplace operators on the web were, on the whole, specialised start-ups (Commerce One, Ariba,Chemdex, VerticalNet, FreeMarkets...) or intermediaries who had forged themselves a place in product tradeor spot market management (e.g. Enron in the energy sector). A number of them have since gone public;following a much touted entry onto the market they have experienced great many ups and downs.2000 marked the entry of a new category of player: large buyers who have come together in their respectivesectors to create their own co-operative marketplaces in the goal of optimising the purchasing process and oftaking advantage of their enormous buying power to put pressure on prices. These initiatives generally takethe form of an independent joint venture managed by its founders.The emergence of co-operative marketplaces has not only diminished specialised operators' clout, it has alsofostered unease among a great many suppliers as well as competition monitoring bodies anxious to avoid thecreation of buyer cartels.Several co-operative initiatives were created by suppliers themselves, such as is the case with MetalSite,created by several American industry players.© IDATE www.idate.fr

World2000 91Some of the major co-operative marketplacesSectorAeronauticsFood productsConsumer productsAutomotiveBankingRetailIndustry(misc.)NameMyaircraft.com(TBD)ExostarCPGmarket.comTransoraCovisintRubber NetworkAnsworkGNXWWRE(TBD)Steel 24-7E2openPaperExchangeChemConnectFoundersUnited Technologies, HoneywellAir France, British Airways, American Airlines,Continental, Delta, UnitedBoeing, Lockheed, RaytheonDanone, Nestlé, Henkel49 world-wide companies including Coca-Cola, KraftFoods, Procter & Gamble, Sara Lee, UnileverFord, GM, Daimler Chrysler, Renault, NissanGoodyear, Michelin, Pirelli, SumitomoBNP Paribas, Crédit Agricole, Société GénéraleCarrefour, Sears, Sainsbury, Metro, Target, Coles MeyerCasino, Auchan, Kmart, Safeway, Kingfisher, Tesco, Marks& Spencer...ABB, Alcatel, Legrand, Philips Lightning, Schneider ElectricUsinor, Arbed, Corus, Thyssen KruppAcer, IBM, Hitachi, LG Electronics, Lucent, Nortel,Panasonic, Seagate, Solectron, ToshibaAsia Pulp & Paper, Staples, Bowater, KraftBASF, BP, Dow, Eastman, DSM, Enichem, GE Plastic,Repsol, SumitomoTrends and stakes: a market which is at once creatingand restructuring itselfA more difficult launch than anticipatedIt seemed that all of the conditions required for fostering a boom of marketplace transactions were at hand,as was marketplaces' ensured profitability: the temptation of possible savings of between $180 and $480billion, that analysts forecast for between now and 2003, was far too great for companies and forentrepreneurs hoping to gain a share of this windfall.In truth, the growth rate of marketplace offerings has far exceeded demand. E-markets are having troubleconvincing companies to sign on, and even more difficulty in "activating" their members. While certainoperators, such as Altra and Freemarkets, have announced billions of dollars worth of transactions (thoughnot margins), they remain the exception. In a survey conducted of 120 marketplaces, Andersen Consultingnoted that less than 10% of registered users had actually performed a transaction (with a relatively lowaverage amount of $6,500); a little under half of these companies constitute the marketplace's core, and useit regularly to conduct transactions.A still unstable business modelMarketplaces' business model is continually changing. Intermediation commissions, which were to constitutetheir prime source of revenue, are not enough to cover the costs which are often deemed excessive given theservices that they offer. By enhancing their offering, the players have added a cost source without necessarilyhaving identified the corresponding revenues.© IDATE www.idate.fr

92World2000 Currently, the sale of licences account for virtually all of the revenues generated by the sector's pioneersCommerce One and Ariba, even thought they operate live marketplaces. The "pure" marketplaces, quoted onthe stock market in the US, rarely post quarterly gross margins (deduction made from buying-resale of entirelyintegrated products) of more than $10 million, while losses often exceed that amount.Principal components of the marketplace business modelPrincipal sources of revenue• Entry/registration fees• Referencing fees• Subscription• Sales commissions (1%-5%)• Direct targeted marketing• Intermediation with service providers:financial, shipping, insurance, etc.• Sale of licensesPrincipal cost centres• Purchase-resale of products (in certain cases)• Technology• Promotional and commercial campaigns• Integration of new client and suppliers'catalogues and information systems• Customer service• Content purchasingResult: no single marketplace, to our knowledge, is currently turning a profit. There are an increasing numberof bankruptcies (Industrialvortex.com and Equipp.com, two industrial sector marketplaces, Efedex's Britishbranch, a marketplace under construction for the food industry), with failures and takeovers expected toproliferate in 2001.A dispersal which fosters little confidence among industry playersIn the present conjuncture, marketplaces' number and immaturity translates into insufficient cash flow andgreat instability. All marketplaces are struggling to achieve the required critical mass; in order to reach asignificant number of clients or suppliers, companies are forced to join a great many marketplaces, whichevidently runs counter to the purported benefit of taking part in such an operation.Furthermore, despite the generally widespread use of standard XML format, the diversity of implementationsin practice requires specific interface processing for each marketplace, forcing companies to make a choice.The main technical limitation to generalisation of these marketplaces resides in the absence of an exchangestandard. This issue, long the bane of EDI specialists, has now become a stumbling block for marketplaceoperators. XML, which allows description of a document's structure and semantics, was initially perceived asa cure-all until it was revealed to lack an essential feature: a common dictionary and business proceduresdescriptions. A considerable number of groups and consortia are working to resolve this issue, giving rise tothe worrisome supposition that each will come up with its own solution, thus limited in scope and incompatiblewith all others.The achievements made by EDIFACT for the UN (description of messages and business procedures) and theUCC for product descriptions (via UCCnet) are no doubt among the most pertinent, although they still run therisk of being drowned in the flood of private and co-operative initiatives: Biztalk (Microsoft), cXML, OAG,Ontology.org, sectorial consortia such as RosettaNet (electronics), etc.© IDATE www.idate.fr

World2000 93A multitude of initiatives and groups surrounding XML(non exhaustive listing) The market is already restructuring itselfAlthough fledgling, the marketplace market is already entering a phase of rapid restructuring. Threemovements are simultaneously underway:- a concentration movement,- a movement toward specialisation and expansion of services rendered,- a movement toward consolidation and interconnection of marketplaces.E-markets: the four phases of developmentSource: Jeffrey Brokks & Susan Cantrell,Andersen Consulting Institute for Strategic Change© IDATE www.idate.fr

94World2000 Marketplaces in the United States: an ever-increasing offer (non exhaustive listing)HORIZONTAL MARKETSVERTICAL MARKETS FEDERATIONSDDiversified Agriculture/livestockB2BGalaxyBarter.comBigVineBizAuc.comComAuctionDega.comEventoryExcess MaterialsGeneral purchasesBizBuyer.comB2Bstores.comBuyersZone.comExpenseVisionGetThere.comGrainger.comIntelisysNetbuyMRO.comFairmarketIcon InternationalUSF ProcessorsSIC-Guide.comSurplusBIN.comWIZnetOfficeClickOfficeSupplies.comOnlineMROPurchasingCenterPurchaseProTPNRegisterWorks.comAgrimallAgWeb@griculture onlineCybercropDirecAgeHarvestE-marketseMerge2Farmbid.comFarms.comXSChemAutomotiveANXAutodaqAutoTradeCenterAutoviaCarStationCobalt GroupFast-NetPartsNetRapidAutoNetChemicalpharmacyBioSpace.comCambridgeSoft/Chemsell.comChematchChemConnectChemPointChemWebDexpo.come-chemicalsPlasticsNetPlanetTest.comSciQuestComputerelectronicsAffiliated RemktgCDW Comp.ChipCenterComponentKnowledgeElectricalWebFablink.comFastPartsInsightIntraawreiPartsMemory NetworkNECX3Need2Buy.comNetBuy4Oxgen ElectronicspcOrder.comQuestlinkUS BidZone Trader.comCivil Engin.Real EstateBestrouteBidComBuildpointBuzzsawBluelineBuildscapeBuildNetComps.comeBricks.com7IMX ExchangeLoopNetPlumbingOnlinePropertyFirstSiteStuff.comEnergy FinancialservicesAltra EnergyAutomatedPower ExchangeContinentalPower ExchangeE-ChoiceNetEnergy Mktplace6EnermetrixHoustonStreetNat.Gas.Exch.ReTx.coChannelPointIMX ExchangeOneCoreLIMITraderMoneyLineMuniAuctionPedestal CapitalPlanSponsorTradeWebTrading EdgeUltrapriseFoodproductsBAXMart.comBevaccess.comBeveragemediaecFood.comEldexFoodBuyFoodGalaxyFoodService.comFreshnexGoFishICS FoodOneInstillProduceOnlineSeafood.comAribaBizSpace Inc.CahnersCendexChemdexComerce OneeMarketplacesFreeMarketsInternet Capital GroupiZi.comI2 technologiesmySAP.comTradematrixVerticalNetGeneral purchasesAsseTrade.comeSprocketEcnetEquipmentLeasingImark.comMaterialNetNetEquipmentPartsDriver.comPoint2.comsupplierMarketSupplybaseTradeAccessTraeOut.comHealthmedicineBioMetNetCareInsiteClaimsNetClinicalWebDoubleTwistEdentalstoreEmpactHealthHealtheonMedibuy.com2MedicalBuyerMedscapeMedpool.comNeofrmaNetivationNet32PharmabidPointmentAdvertisingAdauctionAdFlightAdOutlet.comB2BworksBuyMedia.comeMarketWorldEventSourceImmerce.comPowerful MediaRoweCom Inc.Metale-STEELMetalSalesMetalShopperMetalsiteMetalWorldSteeltradeSMEAllBusiness.comAtYourOffice.comBigstep.comBizland.comBuyersZoneDemandline.comEqualFootingKillerBizMondusOnvia2SmartAgeSmartOnlinePaperprintingCollabriaELetter.comiCopyrightIGetSmart.comImageXImpresse.comNoosh.comPaperDeals.comPaperExchange5PrintBid.com5PrintChannelPrintNationPrintshark.comTelecomsArbinetBand-XEnron Comm.GlobalTeleExchangeIntegrated AccessIntrXionMin-XRateXchangeTelezooUniversal AccessShippinglogisticsCarrierPointCetarixeTransportIATMiShip.comNTEOceanside MarinePartsBase2SmartShipTrade CompasTransAmericaLeasingTruck.netMiscellaneousAffiliated NetworksCenquestComputer Jobs.comDigital CommerceEmployeeLifeEnviroXcessEpylon.comeWorkFibermarketFloraplexForest ProductsInternet Exch.Fuelspot.comPatent & License Exch.Olygon.netShoe.netWorldWide TestingSource: Internet Capital Group© IDATE www.idate.fr

World2000 95E-marketplaces' main technology suppliersCompanyAribaBEA SystemsCommerceOneCSCi2IplanetOracleRightworksVentroOfferThe most open andcomprehensive platform forbuilding B2B e-marketplaces,managing purchasing and allowingsuppliers to access electronic trade.Software editor for corporatee- business infrastructures.Global e-commerce solutions:"allowing anyone to purchase fromanyone, anywhere, anytime."(Global Trading Web), the largesttrading community in the world.Consulting and computerservices firm.Provides intelligent e-businessand marketplace solutionsE-commerce solutions including"Market Maker" for marketplacesOracle Exchange: all of theproducts and services required tocreate, operate, maintain anddevelop global marketplaces."E-business applications thatpower the complex businessoperations of global corporationsand trade exchanges."Designs and provides services forB2B e-markets, owns andoperates Chemdex and Promedix.AlliancesIBM / i2CSCSAP, PeopleSoft(ERP software),OracleBEA, CommerceOne, IBM/i2, iPlanet,Oracle, PeopleSoft,SAP…IBM, AribaSun/Netscape,OpenMarket,Andersen Consulting,Cap Gemini, FranceTelecomCommerceOneCSC, PriceWaterhouse CoopersAriba,CommerceOne, IBM, SAP,Sun/Netscape…Major referencesWWRE (retail), e2open(computer), B2Build (France,civil engineering)…Buildpoint (BTP)58 marketplacesTradeXchange (GM), Covisint(automotive), Answork (France,banking), GEX (GE)…Involved in the creation of over60 marketplaces world-wideMyAircraft (aeronautics),ChemicalsWorld (chemical)…A subsidiary of AndersenConsulting's eProcurementCovisint (automotive),GNX (retail)…VerticalNet, NetworkCommerce,eMerge InteractiveChemdex, Promedix (medical),Amphire Solutions (foodproducts)…(1) This company's marketplace activity is negligible, and even marginal, in terms of TO and market ratin.Capital18,30219,475 (1)9,19612,208 (1)25,207Notquoted162,200 (1)Notquoted117TO 3Q2000134.9224 (1)112.72,500 (1)320N/A2,261.9 (1)N/A28.7The heralded concentration movement, getting underway…Analysts are now predicting a massive concentration movement in this market. According to the GartnerGroup, 20,000 marketplaces will be created between now and 2003… 19,000 of which will become defunct.For Europe, Forrester Research forecasts 1,000 existing marketplaces in 2001, and 50 in 2003. On theAmerican market, AMR estimates that only 100 of the 600 existing vertical marketplaces will remain at the endof 2001, i.e. 2 to 4 per sector.In addition to the economic difficulties that new entrants face, a number of factors are driving the concentrationtrend.The criteria required for successful operation of a marketplace: everything points to concentration• Liquidity: the offer and the demand must meet easily, in terms of both quality and quantity. This essential factorcreates a network effect that renders the marketplace more attractive, the more it is vast: this is a cumulativeprocess linked to the positive external factor produced by the size of the marketplace, which will incite operatorsto join forces in order to quickly reach a critical mass.• Global scale: the major markets are global markets, hence marketplaces must also be so. In a great many cases,the fact of going beyond ones original borders requires the marketplace to make adjustments (language, businessmethods, accounting systems, etc.) which are beyond the expertise of small players.• Ease of integration: the marketplace must be easy to access, integration of the catalogue and interfacing with© IDATE www.idate.fr

96 World2000 the members' information system must also be as fluid as possible. This factor pushes the development ofstandards outright or by rights as well as collaboration or, at the very least, networking marketplaces that use thesame exchange formats.• Quality of the service and the technology: the more exchanges involve a company's key procedures, the moreit becomes crucial that a marketplace be flawless. This generates added costs that are easier to shoulder oncea certain critical mass has been reached.• Security and risk management: a e-marketplace must be able to commit to transactions (authentication ofparties, contract certification) and to assume a share of responsibility should a problem occur. Financial stabilityhelps create user confidence.• Related services: a marketplace must understand the workings of its sector of specialisation and its users'needs, and must offer the content and services which fulfil those requirements.Specialisation and enchancement of marketplaces' contentA majority of e-marketplaces tend to focus on a given audience, be it a sector or an activity, and to enhancethe services they offer based on an analysis of the workings of the targeted sector by each marketplace andby its participants demands.Steps for creating a marketplace1st step: creation of the marketplace• Objective: create a critical mass of major partners from the onset• Problem: minimise the risk2nd step: launch and 1st transaction• Problem: time to market3rd step: growth and search for liquidity• Problems: integration and adoption• Services: integration support, order management and tracking, financial services, stock visibility…4th step: optimisation• Objectives: consolidate partner loyalty and generate profit• Services: functions which are unique to each marketplace– Business intelligence: monitor and analyse orders, flow, suppliers. Make use of knowledge of transactionsand optimise: a datawarehouse available to clients.– Collaboration and community: in the context of a project which requires purchases from several suppliers,collaboration is necessary.– Personalised marketing: who buys, how often, how to adapt pricing…?Source: Martha Greer, VentroNetworking marketplacesLastly, a trend toward interconnection of marketplaces appears to be underway.A number of players, such as VerticalNet, have made this interconnection their primary raison d’être: its 57vertical marketplaces or communities have common technical and display resources, services and catalogues(in cases where the products may be sought be several categories of buyers). As for Commerce One, it isseeking to consolidate the sectorial or geographical marketplaces that use its technology into its GlobalTrading Web, which is touted as the "largest B2B trade community in the world". The Global Trading Webpresents itself as a "meta marketplace", and allows companies to trade in a standardised fashion with allcompanies that are registered with one of the network's marketplaces.Interconnection represents an attractive alternative to massive concentration. Relying, naturally, on commonexchange and data description formats, it facilitates the integration process, in addition to which it makes it© IDATE www.idate.fr

World2000 97possible to associate players with complementary fields of expertise in order to better respond to companies'complex requirements. With this in mind, PaperExchange.com, a marketplace for the paper industry, joinedforces with Impresse which manages the data streams necessary for administering printing projects.Uncertainties linked with the scope of the changes generated by marketplacesA confidence which needs to be createdLastly, a number of concerns persist in both buyers and suppliers' minds which must be dispelled. Suppliersfear that their offering will be lost in the shuffle if they place their wares in the vast multi-supplier catalogues,they fear a loss of contact with their clients as well as being subject to impossible pressure on their margins.Certain buyers consider that management of their supply chain is one of their primary competitive advantages,and are naturally reticent to share that advantage with their rivals. Hence, large corporations such as GeneralElectric are creating their own marketplace wherein they not only negotiate with their suppliers, but also allowsuppliers to trade amongst themselves.Marketplaces' impact on competitionAfter studying the cases of Covisint (automotive) and MyAircraft.com, respectively, the American FederalTrade Commission (FTC) and the European Commission came to the same provisional conclusions: at thisstage, co-operative marketplaces which were created from the regrouping of major buyers do not pose athreat to fair competition. On the one hand, it constitutes an emerging and still highly competitive market and,on the other hand, traditional commercial channels are still alive and well. Both bodies did, however, clearlystate their intention to continue to monitor these initiatives in such a way as to avoid the creation ofmonopsonies which would run the risk of creating unsustainable pressure on suppliers' margins.Prospects for co-operative marketplacesCertain market specialists, such as Forrester Research, have expressed a degree of scepticism about thefuture success of co-operative marketplaces. Three arguments serve to support these doubts:- these marketplaces bring together direct competitors who will not be willing to share strategic informationor expertise, which would thus limit their added value;- their main objective would then be to exert pressure on suppliers who, in turn, will be tempted to joinforces with more neutral players and even to call, once again, upon the bodies regulating competition;- lastly, these marketplaces are not true enterprises, but rather joint projects, and risk being put into perilwhen their shareholders become aware of the heavy costs required and the problems with getting theproject off the ground.Another scenario exists wherein these marketplaces' operators become increasingly independent of theirmajor shareholders, and seek to make a profit for themselves rather than for their founders. The evolution ofEquant (originally founded by a the Sita air transport consortium) and, to a lesser extent, Visa, serve toillustrate the possibility of this development coming to pass.The role of traditional intermediariesThe development of e-marketplaces greatly undermines the role of a certain number of intermediaries, mainlyin the field of inter-company distribution, but also in terms of finance and logistics. While little present onmarketplaces for the meantime (with the exception of logistics), these players will no doubt soon seek tovalorise their expertise and to develop alternative models.© IDATE www.idate.fr

98World2000 Security, quality and confidenceThe more e-market transactions have a strategic role for players, the greater will be the demands in terms ofreliability and security of transactions. Buyers and vendors alike will demand authenticated identification oftransaction participants and of the validity of electronic contracts. They will require financing solutions andinsurance services. They will demand that the marketplace guarantee message delivery time, confirm receipt,etc. The e-marketplace's operator must be willing to accept a degree of legal responsibility if ever a problemoccurs in a transaction that he helped facilitate. Fulfilling these requirements will constitute one of the meansby which certain intermediaries, notably financial, will regain a strategic role on the marketplaces.Managing changeWe must not overlook the significance of the changes that participating in a marketplace bring about withinthe companies themselves:- evolution of information systems: enhancement and standardisation of catalogues, integrating access tothe e-market into the company's intranet portal, interfacing with outside and heterogeneous systems, theneed for a more flexible, communicative and adaptable technical architecture;- organisational changes: reduction of administrative tasks, increased buyer autonomy, acceleratedcirculation of information;- and, by extension, distribution of a tight flow production model which is increasingly flexible and able tobe personalised, as well as inter-company collaboration practices which may profoundly re-shape amajority of company's operating methods.Integrating a marketplace is by no means a minor decision. It may be taken hastily, but must be done with thelong term consequences in mind.Becoming involved in e-markets: advice to suppliers• Know where the clients or prospects are– give precedence to the leaders who will remain (Ariba, CommerceOne…)• Standardise and adapt catalogue data: standards and content– bet on XML• Maintain brand image and customer relations: never let corporate image pale, create links to your companywebsite• Do not demand exclusivity• Negotiate rates:– no initial payment without a clear counterpart offer– no more than 3%-4% commission• Do not restrict yourself to a single marketplace, but do not get involved in too many marketplaces at once– a necessary but difficult integration process• Begin with low integration processes, and work progressively toward integration of back office applicationsSource: Joan Abrams, Wearguard; Richard Burns, MRO.com© IDATE www.idate.fr

World2000 99The turbulent first steps toward mobile InternetYves Gassot & Philippe Mathonnet(February 2001)Recap of European strategy........................................................................................ 101Faltering WAP................................................................................................................ 103The hopes resting on GPRS ........................................................................................ 105Japan's comeback ........................................................................................................ 107Controversy in Europe over the methods for and levelsof allocation of UMTS licences.................................................................................... 110Players' strategies faced with the uncertainties in the value chain ....................... 113By way of a conclusion ............................................................................................... 118© IDATE www.idate.fr

World2000 101Now that the year 2001 is upon us, it has become clear that the expected rush for WAP services in Europehas not really come to pass. Alongside of this is the fact that the allocation of the first 3G licences in Europetook place in a certain state of confusion in terms of the selection procedures, in addition to recent concernsabout the viability of investments given the dizzying sums laid out for licences in a number of the largernations. At the same time, Japanese operator NTT DoCoMo has managed to attract over 15 millionsubscribers to its i-mode service in a matter of months.This situation may seem disappointing for Europeans who, buoyed up by the success of GSM, were hopingto lead the pack in the first forays into mobile Internet.Nevertheless, it must be said that this somewhat sombre climate must also take into account the lessons thatthe players will no doubt have learned from the various issues encountered, as well as the trial and error whichis invariable given the profound restructuring taking place in the mobile industry faced with the advent ofmobile Internet.Recap of European strategyMobile Internet is primarily supposed to be sustained by the exceptional growth of mobile services. Added tothis, the allocation of new frequencies and the introduction of data-oriented protocols offer mobiles new growthchannels by relying progressively on the web's dynamic.Mobile Internet's potential is therefore, at first, expected to be fulfilled via a combination of:- massive distribution of mobiles, which already enjoy a subscriber base of 500 million world-wide and,likely, 1.2 billion in four years' time, along with,- the net's inexorable growth, which involves all economic players, well beyond merely the protagonists inthe telecoms sector.Furthermore, a great many analysts surmise that PC's will increasingly lose their position of sole terminal foraccessing the net.Figure 1: Growth of Internet connections around the world Source: IDATE, Nokia, Dataquest© IDATE www.idate.fr

102World2000 In early 2000, Europe's infatuation with mobile Internet was backed by the success of GSM in Europe eventhough, overall, it is not the method of choice for accessing the net and its technologies.Figure 2: Forecast of the number of web users and mobile subscribersEvolution in Europe(in millions)World-wide evolution(in millions)14 0012 0010 00 mobiles Western Europe Web users Western Europe800600400200019 97 1998 1999 2000 20 01 20 02 2004Mobiles-worldWeb users-worldSource: IDATEGSM (Global System for Mobile communication) – the standard for digital cellular telephony, while initiated inEurope, is now applied the world over. It represented 46% of all operator investments in 2G systems in 1999.Europe remains the largest market for GSM systems, enjoying 60% of total world-wide sales. ManufacturersEricsson and Nokia, in particular, have benefited from this situation as they dominate the GSM systemsmarket, boasting an approximately 60% share of the pie. The Swedish manufacturer single-handedly holds40% of the network equipment market. As for mobile terminals, the leading European equipmentmanufacturers enjoy over 50% of the world market. Nokia continues to lead the pack with close to a 27.5%share of the global market (see graph below).Figure 3: Market share: mobile terminals (2nd half 2000) Source: Dataquest© IDATE www.idate.fr

World2000 103Furthermore, European mobile subscribers totalled 245 million, compared to 105 million in the US, in late2000. By 2004, three-quarters of Western Europe's population will be using cellular telephony services.It must be said, however, that while the mobile penetration rate in the US was close to 40% at the end of lastyear (37.5% in September 2000), compared with 62.9%(39,7% in December 99) for Europe, Americamaintains a much higher rate of use of pocket computers and PDAs which now enable wirelesscommunications. According to Gartner, annual world-wide sales of PDAs are expected to increase from 9.4million units in 2000 to 33.7 million units in 2004, keeping in mind that close to half of those sales will takeplace in the States. Additionally, the diversification of terminals should, at term, make for more opencompetition (among North American PC and PDA manufacturers as well as Japanese audiovisual specialists),while the increasing significance of data and IP could open up the equipment market to players such as Cisco.In early 2000, Europe was geared up for the prospects that mobile Internet was offering, reflected in:- a schedule, if not a set timetable, for the progressive deployment of technologies enabling increasinglypowerful platforms (WAP, GRPS, UMTS,….),- an immediate commitment to the UMTS licence allocation procedures in Europe.Faltering WAPDeveloped with the support of mobile manufacturers with an eye on renewing their deployed base, WAP(Wireless Application Protocol) was quick to woo mobile network operators as they were facing stiffcompetition on their national markets as well as a gradual decrease in ARPU (Average Revenue Per User).WAP was given a quick launch, touted via futuristic-style advertising campaigns, but the pioneer servicesproved disappointing to users who had expected to be able to surf the web on their mobiles. WAP servicescontinue to resemble early Videotex or teletext services rather than real web pages. Added to this deceptivecommunication was the under-estimation of the difficulties involved in launching a new technology on themarket, as well as the positioning of the services. Among the various factors which accumulated, makingWAP's launch a relative failure, of particular note are:- delays in the terminals' availability in addition to their poor performance,- slow connection time, linked in part to the GSM platform circuit,- limited speeds which cannot enable the graphic interfaces to which web users are accustomed,- the poor quality of the initial services due to the hasty launch and a non-exist market segmentation. Itappears that operators under-estimated the adaptations required to be made to those services whichwere responsible for the net's success, coming up against the mobiles' ergonomic constraints given theirlow bit rates. They also failed to take proper account of the specific assets that mobile Internet could haverepresented (see insert on mobile Internet's assets). Of particular note is the locating function which,while deemed highly promising for a number of applications, is still in its early stages of development.Lastly, a debate between mobile network operators, who want to maximum visibility, if not exclusivity, for theirportal of services, and content or bouquet editors, who want to see open platforms available to all, has servedto bring to the fore the uncertainties surrounding the regulatory and business model which will prevail.In this context, then, the WAP market developed much less significantly than had been expected in early 2000.France Telecom's WAP subscribers number some 450,000 on its domestic market, for close to a millionterminals in use. BT, which had high hopes for WAP, has not managed to attract more than a million users forits WAP compatible terminal.These issues sometimes gave rise to questions regarding WAP's pertinence for handling mobile informationservices. Operators and service providers alike are focusing on the performance offered by their voiceservices and particularly on the still under-exploited possibilities of SMS systems, along with users' recent© IDATE www.idate.fr

104World2000 infatuation with this service (more than 2 million SMSs exchanged each month in Europe, with revenuesgenerated by this service already accounting for 10% of earnings for certain operators such as Telia). Beyondseveral new applications in messaging for interpersonal communications (with the unified messagingservices), SMS could support more and more interactive and value added services (m.commerce).Figure 4: Evolution of the number of messages/day on TIM networkSource: TIMIn addition, the extraordinary success of i-mode in Japan, based on a compact version of HTML, as well asPDAs' (Personal Digital Assistants, such as Palm) popularity – are serving to incite both manufacturers andoperators to develop applications and services using a bi-mode WML/C-HTML navigation protocol.In fact, new solutions are emerging in the realm of standardisation. The WAP Forum announced, for mid-2001, a WAP2 version which combines WML and C-HTML, and which is hoped will overcome a number oftechnical issues by enabling, notably, the consultation of web pages on a mobile phone. As for the WorldWide Web Consortium, it is working on an upcoming convergence of HTML, C-HTML, XML and WMLstandards, to create a single X-HTML norm designed to be used on both fixed and mobile terminals.It appears likely that the renewal of terminals (50% of units sold) supporting improved services, will help WAPto at last move into gear during 2001. Hopes rest primarily on improvement of the GSM networks, through theopening of a wireless packet-oriented access mode: GPRS.Mobile Internet's assetsBeyond WAP's awkward first steps, and the many constraints that appear to derive from comparisons with currentweb practices, mobile Internet's success will come about by focusing on its primary assets, i.e.:Personalisation of services. The terminal is an individual and personal tool. In this context, then, it assimilates theID card or passport, with the portfolio or card holder, the planner, the microcam and… the cellular phone. Financialand banking services, personalised health services, advanced communication services (messaging, digital image© IDATE www.idate.fr

World2000 105libraries, videoconferencing, etc.) the screen savers and personalised rings, as well as access to a corporateIntranet… all constitute possible channels for valorising this aspect of mobile Internet.Permanent availability: ("always on and always with you") opens the way to contextualisation of services. To theextent that this personal terminal is always in the client's pocket or within reach, operators will be able to definepersonalised service offerings aimed at maximizing use of the terminal according to users' requirementsthroughout the day (niche time services), by offering, for example, games, commercial promotions and informationor news during commuters' or students' waiting and travel time.Locating: Whether via GPS or an evaluation via triangulation originating with the terrestrial radio signal, mobileInternet can take advantage of user locating to offer traffic and itinerary information, alerts, information on nearbyservices, etc.Naturally, it is by combining these attributes that operators' creativity can achieve its full impact.ServicesEntertainmentMessagingBanking &brokerageLocating &assistancee-commerceApplicationsMusic (extracts, forums, people)Beginning this year: digital (MP3 and GPRS) musicdownloads onto a cardGames, real timePre-installed, downloaded…Inter-personal communication (SMS, instantmessaging Unified messaging, e-mail,Interactive services platform (informational in PushPull, transactional)Banking (consultation, card status, transfers, Billpayment, on-line credit)Brokerage (rates, transactions, alerts)GPS geodependent applicationsConsumer – pedestrian or driver (shopping, hotelrestaurant,itinerary…)Corporate (fleet management, delivery routeoptimisations…)Travel reservation and purchasingLive event ticket reservation & purchasingAuctionsDistant buyingSource: IDATEThe hopes resting on GPRSThe obvious limitations encountered during WAP's initial forays are now generally recognised, particularly inview of the fact that they are expected to be eliminated with the advent of GPRS (General Packet RadioService) technology in Europe. Transmission in packet mode which GPRS offers, does indeed present anumber of advantages:- a much shorter access time ("always on" function),- a higher transmission speed (20 to 40 kps in 2001-2002 and, at term, over 100kbs on multislot terminals),- llowered transmission costs thanks to better use of the transmission band, with billing no longer perminute but rather per Kbyte.The 2001 market launch of mobile Internet via GPRS services has been the subject of announcements fromthe majority of operators.© IDATE www.idate.fr

106World2000 Table 1: Announcements of main GPRs networks in EuropeOperatorBouygues Telecom(France)BT Cellnet(United Kingdom)Itinéris (France)Mobistar (Belgium)SFR (France)Sonera(Finland)T-Mobil (Germany)Telecel (Portugal)TIM (Italy)Vodafone UKCommercial deploymentdate1st Half 2001June 2000: launch onthe corporate market1st Half 20011er Quarter 2001December 2000December 20001er Quarter 2001Pre-commercial launch inSeptember 20002nd Quarter 20012nd Quarter 2001Status of the GPRS network(late 2000)GPRS network core deployedNational coverage completed inSeptember 2000GPRS network core deployedGPRS network core deployedNational coverage completeNational coverage completeNational coverage completeNational coverage completeNational coverage completeN/ASource: IDATE, JP. MorganTo GPRS's assets, we may also witness the addition in 2001 of the much-awaited flexibility of configurationsequipped with Bluetooth communication interfaces.Nevertheless, the delays and issues surrounding WAP have given rise to a certain caution. Fostered by thelimited speeds recorded during the first trials, further delays in terminal delivery and, lastly, the reportedopening of services by a number of operators who do not wish to repeat the communication errors madeduring WAP's initial launch. Other analysts are reflecting on the co-ordination of investments in GPRS andUMTS equipment. Analysis focuses primarily on whether deployment of GPRS will generate a significantincrease in operators' revenues while awaiting UMTS, and whether the deployment of this latter can takeplace gradually over time, thanks to the availability of a national GPRS network.In view of these elements, then, it appears probable that WAP will come into full force with the arrival of GPRS;growth is likely to be in the form of a steady increase (see below).The relatively slow development of mobile Internet services presents a stark contrast to the Japanese situationin 2000.IDATE has established three scenarios for the possible future growth of mobile Internet (including data and SMSapplications), based on provisional data in terms of mobile subscribers and the number of web users, along withhypotheses relating to mobile Internet's penetration rate according to different categories of users:# of users Penetration30070%25060%200150100 50%40%30%20%5010%02000 2001 2002 2003 20040%Totalof cellphone subscribers S1 of MI users S2 of MI users S3 of MI usersSource: IDATE© IDATE www.idate.fr

World2000 107• The first scenario, referred to as "niche targeting" relies on a hypothesis of limited distribution of data servicesto a segment of avant-garde users. These users are typically either young mid to upper level professionals or froma particular professional segment whose activity takes direct advantage of the complementarity of Web andmobile services (construction, transport,…). IDATE forecasts calculate the number of mobile Internet users in2004, in Europe, at 45 million, which represents approximately 15% of all Western European mobile subscribers,for a market worth $28 billion.• The second scenario, known as "buoyant growth" is based on a hypothesis of a growth in stages of the numberof mobile Internet users. It reflects a landscape of continued development of mobile data services fostered by thepopularity of messaging services and high value added services linked with locating and e-commerceapplications. Users consist primarily of the core of current GSM operators' subscribers, notably well-equippedbusiness people who use the mobile office functions and access their company information in an adapted fashion.According to this scenario, by the end of 2004, there will be 120 million mobile Internet users in WesternEurope, or 30% of the total population, for a market worth $40 billion.• The third scenario, termed "explosive growth", banks on dynamic development of the mobile Internet servicesmarket, particularly with the deployment of new high-speed mobile network infrastructures and the widespreaduse of basic data services such as e-mail. According to this scenario, 2 out of 3 subscribers will be using mobileInternet services in 2004, which represents 189 million users and a market worth $54 billion.IDATE favours the niche targeting scenario (S1) as the most likely to prevail over the 2000-2003 period.Japan's comebackJapan, which appeared to hold a number of trump cards allowing them to be a major player in 2G mobiletelephony, found itself faced with a time lag between its cycle of domestic investment and its technology. Suchshould not be the case for 3G. As this situation has already been taken into account and, following a procedurewhich led to the selection of the three existing mobile operators (with the awarding of free licences), Japan isset to become the first major market to experience deployment of commercial 3G services in 2001, using theW-CDMA standards, in line with the European choice.In spite of this, the year 2000 revealed, and in a most unexpected fashion, Japan's ability to provide contentfor mobile Internet and, above all, to exploit its market potential, particularly via the spectacular success ofNTT DoCoMo's i-mode.That which is now a foregone conclusion regarding Japanese operators on the commercial level, came aboutusing the existing Japanese 2G standards. Operators were able, on the one hand, to migrate the PDC (PacificDigital Cellular) network to packet mode transmission using the PDC-P standard and, on the other, to makefull use of PHS (Personal Handyphone System) systems — which had appeared doomed to extinction — andthe significant speeds (up to 64Kb/s) that they offer. These 2G networks constituted the platforms of choicefor mobile Internet trials, with no use being made of WAP. The i-mode service was launched by NTT DoCoMoin February 1999. By November of the following year, over 15 million Japanese (out of a total 33 millionDoCoMo subscribers) were using i-mode to access some 1,700 official websites and 30,000 "volunteer" sites.Billing is based on a complementary subscription and per byte consumption (0.3 yen per 128 byte packet),added to which, certain services are subject additional billing by the operator. Every i-mode subscribergenerates additional revenues which are estimated to total an average $20 a month (2,000 yen) for theoperator (subscription + communication), on top of the $80 ARPU for voice services. The operator's mainproblem is managing the one million new i-mode subscribers who register every three weeks.© IDATE www.idate.fr

108World2000 Table 2: Growth in the number of i-Mode subscribersMonth # of subscribers (x1000) % of total subscribersMarch 1999 58 0.2April 1999 139 0.6May 1999 252 1.0June 1999 457 1.8July 1999 857 3.4August 1999 1,293 5.0September 1999 1,733 6.6November 1999 2,654 9.4December 1999 3,190 11.4January 1999 3,803 13March 2000 5,420 19Source: NTT DoCoMoThe most popular services appear to be messaging, followed by sites which offer a combination of games andmusic downloads for personalising the phone's ring melody or comic book characters for screen savers.Overall, a great deal of time was spent focused on discerning those connections which, while brief, took placerepeatedly at a given time during the day or week (niche time services).Table 3: Principal sites on the NTTDoCoMo portalTypes Mobile operators Service provision Interface used Commercial services Geographicalof services partners coverageDownloading graphics NTTDoCoMo Bandai i-mode yes JapanInformation on train timetables, NTTDoCoMo East Japan Railway i-mode yes Japandelays (+30 mins), and routesInformation on the shops NTTDoCoMo East Japan Railway i-mode yes Japanaround railway stationsElectronic coupon services NTTDoCoMo Recruit i-mode yes JapanServices dedicated to music NTTDoCoMo DaiichiKosko i-mode yes Japan(file downloading, info, purchase)and reservation of karaoke hallsPhoto digitizing and transmission NTTDoCoMo Photonet i-mode yes JapanserviceBook sales NTTDoCoMo Kinokuniya i-mode yes JapanAirline ticket sales NTTDoCoMo Japan Airlines i-mode yes JapanFinancial information services NTTDoCoMo Nikkei Business Publications i-mode yes JapanOn-line brokerage services NTTDoCoMo SFG Securities i-mode yes JapanSource: IDATEDoCoMo's success derives from several factors:- the terminals' quality: the Japanese operator's leading position on its local market facilitated the definitionof the terminals' technical features, which offer remarkable performances (large colour screen allowinggraphic display); F502i D502i© IDATE www.idate.fr

World2000 109Source: NTT DoCoMoD501i F501i N501i P501i- marketing investments which placed a great emphasis on the new market segments (teenagers), and arapid increase in the number of available on-line services, with the adoption of c-HTML: the choice of c-HTML as the browser protocol made it possible to assemble a great many application developers andcontent editors. A "light" version of HTML, c-HTML, facilitates programming and requires less effort intranslating content;- the simplicity of the business model: thanks to packet switching, the operator is able to bill by volume ofdownloaded data rather than per minute. The permanence of the connection authorises delivery of asingle invoice from the operator, and makes it possible to remunerate all of the players along the chain;- the specificity of the Japanese market: i-mode was introduced onto a Japanese market characterised bya relatively low rate of penetration for PCs in users homes (21%) and hence of home connection to theweb. Added to this, NTT DoCoMo no doubt benefited from those assets which endowed the companywith a very healthy share of the market (58.4%) (1) .Buoyed up by its success and financial clout (it holds the leading stock on the Tokyo exchange), NTTDoCoMois now seeking to develop an international strategy. During the year, the corporation has acquired 15% ofDutch operator KPN Mobile and 20% of British Hutchison 3G UK. More recently, it became the potential majorshareholder of AT&T Wireless with16% of the United States' third-ranked mobile operator. NTT DoCoMo isalso consolidating its position on the Asian market, with a recent acquisition of 20% of Taiwanese operator KGTelecom. Thanks to these massive investments, NTT DoCoMo will become, along with Vodafone, the onlymobile operator who is active in Europe, America and Asia. These share acquisitions reflect a desire tooperate internationally, which the Japanese operator was relatively slow to initiate. They are also likely tohave an impact on the choice of mobile Internet standards which will prevail. NTT DoCoMo and its Japanesesupplier-partners have given massive backing to W-CDMA technology, favouring it over the other standardprofiles selected by the ITU under IMT 2000. Its acquisition of minority shares is now serving to promote theJapanese choice on a global scale.As concerns i-mode, it is possible that we will witness, in certain European countries as well as in the US andAsia, a parallel promotion of services using this norm and WAP applications. Hence, Dutch mobile giant KPNis planning to introduce i-mode services during the first half of 2001 over its GPRS networks in theNetherlands, Germany (via E-Plus) and in Belgium (via KPN Orange). KPN, in November 2000, stated itsdesire to continue to develop and offer WAP services as well. NTT DoCoMo supports the work being done bythe WAP Forum, and which could lead to an eventual migration of the i-mode protocol toward a nonproprietarystandard.(1) NTT DoCoMo enjoys a 78% share o the Japanese mobile Internet market.© IDATE www.idate.fr

110World2000 For NTT DoCoMo, i-mode represents a source of considerable complementary revenues, a springboard forthe deployment of its 3G network, a margin of independence vis à vis NTT as well as a vector for making upfor its globalisation initiatives. For the Japanese industry, i-mode's success and the propitious timing of thelaunch of 3G represent an international-scale opportunity for its manufacturers but, above all and ultimately,a highly promising chance to expand the video game, digital photo and video etc. markets by exploiting itsremarkable expertise in the fields of flat screen technologies and micro-electronics.Although Europe maintains a certain lead in 3G telephony over the US (auctions for the allocation of 3Glicences in the US are not likely to take place before September 2002), it is a lead that must be shared withJapan.Controversy in Europe over the methods for and levelsof allocation of UMTS licencesFaced with WAP's difficult launch, i-mode's success in Japan emerges as somewhat comforting, as it revealsthe existing market's potential for mobile Internet services once a significant marketing investment has beenmade. While the coming months should serve to indicate the extent to which European operators have learnedtheir lesson, the real test for top players is to be found in the opening up of 3G networks, referred to in Europeas UMTS (Universal Mobile Telecommunications Systems).Let us recall that compared to current mobile networks, defined — despite improvements made to GPRS —essentially for supplying low-speed voice services relying on packet switching technology, the third Gennetworks are designed based on new frequency bands (around 2 Ghz) for supporting multimediaapplications. They should therefore offer very high speeds (from a minimum 144 kbit/s up to a "theoretical"384kbit/s mobile and 2 Mbit/s in stationary). To this high bit rate should be added the attractive feature of awide range of terminals, from communicating cameras or walkmen (using MP3) to PDAs, by way of handheld,Gameboy-type consoles, along with a variety of configurations based on the use of Bluetooth interfaces.Contrary to WAP, GPRS or even EDGE, the deployment of a UMTS network involves a massive investment,even for existing GSM operators. The high frequencies used require a greater density of base stations, evenif the multiple (2 to 3) varies according to the hypothesis of uses and speed (more or less close to 384Kbits).Tens of thousands of new sites will have to be identified, negotiated and equipped. The scope of the taskjustifies the emergence of specialised intermediary solutions involving teams of manufacturers and suppliers,and is likely to bring about a cost sharing trend among the players. The technique used for coding as well asthe one deployed at the network's core also diverge and require a renewal of infrastructures. It is, however,expected that these new 3G platforms will not be completely independent of GSM/GPRS networks. Given theincreasing power of UMTS infrastructures, GSM/GPRS networks should offer a geographical continuity thanksto both gateways and the distribution of bi-mode (GSM/UMTS) terminals. Roaming agreements should alsoallow new UMTS entrants (who operate a GSM network) to offer their subscribers a national radio-telephoneservice.The European Commission had fixed 1 January, 2001 as the deadline for allocation of UMTS licences, in viewof launching network operations beginning in 2002. This is, however, likely to take place according to aprinciple of subsidiarity on a country by country basis, and not in a uniform fashion. This choice, along withthe turbulent evolution of telecoms stocks on financial markets during 2000, translated into a relatively chaoticsituation in which the cost for acquiring a licence varied greatly (in line with the population involved). Theannex 1 recaps the situation at the start of 2001, and it is worth noting that:- in several countries, final decisions are being taken by dedicated tribunals,- the differences in the cost of licences do not derive purely and simply from the comparativeauction/beauty contest alternatives. In a number of nations, auctions led to serious disappointments for© IDATE www.idate.fr

World2000 111the public coffers, either because the highest bidder mechanism proved ill-adapted (in the Netherlands,for instance, where 5 licences were awarded to 5 existing GSM operators), or due to the fact that, as timewent on, the market cost of a licence diminished, coming in line with a less glorified vision of mobileInternet's potential revenues;- the differing cost of licences based on the population involved must be assessed while taking into accountthe numerous parameters which are unique to the national economies and markets, the cost of deployinginfrastructures according to the population's density and location, to the licences' lifespan (15 years fromthe data of allocation in France, 20 from the data of service launch in the UK), to the methods of paymentwith or without value update, to the accounting and fiscal provisions (rules for amortisation and carryingforward tax credits).The conditions for awarding UMTS licences were not and will not be without significant consequences forindustrial structures. While awaiting the results of the open contest in France, it is possible to make certainpreliminary remarks on the position of the 7 leading European mobile operators on the 6 largest markets (seetable below).• Vodafone, the undisputed leader on the GSM mobile services market in Europe, is also the only one to havea share in a 3G licence in Europe's top 5 markets which have already allocated their UMTS frequencies.Added to which, these are all majority holdings. On Europe's third potential market, i.e. France, of note is thefact that, while Vodafone, along with SFR/Cegetel (controlled by Vivendi) has a very good chance ofobtaining a share, it is likely to remain a minority one. The counterpart being that, in order to ensure 3Gpresence in all 6 countries, Vodafone will have to shell out some 20 billion €. Nonetheless, the resale of anumber of Mannesmann assets, beginning with Orange, will enable it to post only a limited debt.• France Telecom, whose mobile assets should go public in February via New Orange, appears to be insecond place in the competition for 3G licences in Europe's top markets. Expecting that the incumbent willbe awarded a licence in France (although this is not necessarily a given, as was seen in Sweden, much toTelia's dismay), the group is present on all major markets, except Spain. Nevertheless, its share in 3Glicences are minority ones in Germany (where, furthermore, its partner MobilCom does not have a 3Glicence but rather reseller status) and in Italy. New Orange's investment in licences could reach as muchas15 billion €.• Other operators' successes are far more mitigated. BT should well be present in 3G licences in 5 of the 6major markets, albeit with minority and even uncertain shares in France and Spain. Of note: its probablefailure in Italy will be an exception (repeated by Telia's failure in Sweden): up until now all candidate consortiaholding a GSM licence have been selected, whether by auction or beauty contest. In spite of these modestresults, the investment required for licences could well exceed 15 billion €. T-Mobil (Deutsche Telekom) willlikely be present on only 3 of the 6 top markets, albeit enjoying complete control over operations in two majormarkets (Germany and the UK). This is likely to cost the company some16 billion €. Italian giant TIM – forthe meantime not terribly active outside its home base — also has a good chance of being present on 3 ofthe leading markets, although absent from Germany and the UK and with a meagre stake in the Frenchmarket. Telefonica will be present on only 3 of the 6 European markets, with a double challenge presentingitself in both Germany and Italy where its consortia do not hold a GSM licence. KPN Mobile, by putting itselfin some financial peril, obtained a UMTS licence for Germany where it had taken control of the number threeGSM operator, in the UK via its alliance with NTT DoCoMo, and, naturally, in the Netherlands.• Lastly, in view of the fears expressed some years back, and justified by GSM's initial forays, of particular noteis the modest involvement of Americans in the UMTS licence allocation procedures in the major Europeannations, and this in spite of spectacular mergers which have taken place in the US in the mobile sector. (Itremains to be seen whether, among the new pan-European champions, there will be any candidates otherthan Vodafone and Deutsche Telekom, who are capable of taking part in the future auctions in NorthAmerica).© IDATE www.idate.fr

112World2000 Table 4: Position of major players in UMTS (1)Germany France United Kingdom Italy Spain NetherlandsVodafone 100 50 >50 >50TIM 0

World2000 113Players' strategies faced with the uncertainties in thevalue chainThe evolution of mobile networks under the effect of mobile Internet services will no doubt entail profoundrestructuring of the sector's organisation. It is still difficult to gain a clear view of those positions which will playa decisive role in mastering mobile Internet's value chain.The following paragraphs will present the positions being forged by operators, equipment and terminalsuppliers. New entrants onto the mobile Internet market are not confined to 3G licence holders andmanufacturers. Their number is potentially significant when we include application developers, terminalresellers, systems integrators and content editors (see the graphic below), while this diversity is particularlywell illustrated by the ambitions surrounding mobile portals.Figure 5: Structure and evolution of the value added chain Operators' goal and dilemmasMobile operators appear to be expecting to enjoy a certain number of befits from mobile Internet:- first to make up for ever-lowering ARPU, which has been gradually accentuated parallel to the distributionof mobile services, and particularly due to the place of choice held by pre-paid cards for new subscriptions(see the following table). The offer of a wide range of services along with the "always on" mode shouldincite much lengthier use than the connection times occupied by current voice services;- to reduce the churn out rate which is detrimental to operators' profitability, by gaining customer loyaltythrough innovative services which help to distinguish from rivals, hence gaining an edge on this highlycompetitive market;- this also involves exploiting the potential that mobile Internet provides for distinguishing ones' servicesfrom the competitions', as well as for target market segmentation.© IDATE www.idate.fr

114World2000 Table 6: Evolution of mobile operators' churn rate and ARPU1997 1998 1999 2000France Telecom Churn - 24.1% 22.7%ARPU (€) 69.97 55.03 48.80Vodafone Churn - - 27% 29%ARPU (€) 50.02 46.53NetCom AB Churn - 20% 24%ARPU (€) 35.67 41.54 47.19Libertel Churn 23% 25% 23%ARPU (€) 60.35 45.37 35.84Sonera Churn 12% 14% 14.6%ARPU (€) 31.10 36.83 38.85Telecel Churn 18.1%%% 29.9%ARPU (€) 60.82 44.89 32.80Telia Churn 12% 14% 9%ARPU (€) 38.95 40.87 37.48Source: Corporate annual reportsFaced with these highly promising prospects, existing mobile operators are naturally aware of the risks anduncertainties of the shifting landscape which mobile Internet is leading them into. First, in all Europeancountries, allocation of UMTS licences has stepped up the level of competition, with the entry of at least onenew mobile operator onto the market (see UMTS table).Operators will also have to deal with a much more complex environment, linked in large part with thepreponderance of data applications and services. They will thus have to learn the intricacies of relationshipswith partners who master software and (for instance, entertainment type) content editing and distribution ,with video and music editors as well as portal brands. Those operators who did not obtain a UMTS licencewill also seek to be present on the market by negotiating the use of a portion of the frequencies with certainlicensees (most likely those who do not have a large GSM customer base), and by seeking to differentiatethemselves from a marketing standpoint. This strategy, referred to as Mobile Virtual Network Operator(MVNO), has already been implemented, with a certain degree of success, by Virgin Mobile in the UK, onOne2One's GSM network.An initial dilemma for operators thus resides in their strategy's degree of openness: in order to woo theirclientele, they will be required to offer varied and attractive services, and to play on the different distributionchannels, without being reduced by their multiple partners to being mere pipeline operators, a fact whichwould prevent them from enjoying remuneration in line with the cost of licences and infrastructures.Further dilemmas involve rates. The mobile-Internet convergence opens the way to a wide range of possiblebilling and business models. This is by no means surprising: the advent of mobile had a huge effect on fixedtelephony billing, with the introduction of the notion of flat rates, pre-paid cards, etc. Internet furthercomplicated things by separating billing from a call's distance, by inventing indirect revenues (banners, e-commerce, call charges for phone operators), flat rates which encompass access to the web and callingminutes, and even the offer of some services free of charge… It is probable that billing models for mobileInternet will involve a combination of billing modes:- set monthly rate (e.g.: NTT DoCoMo),- billing not per calling minute but rather by volume of downloaded data (packet switching mode) (e.g.: NTTDoCoMo),- a set rate for the average volume of data downloaded during a certain period (e.g.: Palm VII onMobitex/BellSouth),- billing per use, notably for high value added services (e.g.: NTT DoCoMo),© IDATE www.idate.fr

World2000 115Added to these, operators will be able to combine these billing models with other revenues:- revenues from commissions on e-commerce transactions,- revenues derived from advertising, particularly adverts embedded on webpages, sponsoring, cobrandingwith advertisers, associating a service and a brand having the same target market,- revenues come from hosting providers' services on a WAP platform.At first glance, it also appears likely that operators will seek to rapidly develop traffic on their networks, whilegaining increased ARPU, by counting first on billing by volume (Kbyte). This option combines itself naturallywith a subscription which does not constitute a barrier for current GSM users, and with free services. Theresult could mean a difficult situation for independent portals or content providers, even if we envisage thatoperators will offer their users certain content, that they will have purchased previously from a third party, freeof charge. Operators may also be caught in a dilemma if they focus on applications which require a highvolume of transmission band, with the goal of rapidly generating traffic on new Gen high-capacity networks,but which run the risk of threatening the revenues generated by voice services and pioneer WAP services, aswell as being detrimental to their GSM infrastructures.ARPU Model Source: IDATETalking about profitability over UMTS Networks is first of all considering ARPU levels and its components. Westrongly believe in IDATE that voice ARPU will continue its decrease over the years, due to the overallcompetitiveness of markets across Europe, and that the data ARPU will, in the premium years of UMTS, allownetwork operators to see their ARPU decrease from its 2K voice-centric level (almost 40 euros) to almost 35-32euros. Then, the growth of data usage, though combined with the decrease of its tariffs, will increase the ARPUlevel to reach 55 euros 10 years after UMTS licenses grant. After that date, we think that voice may be carried ona packetised network, and so that its pricing could fall down, as it will become a commodity over the network.Those ARPU don't constitute the only revenue for UMTS Network operators. We might also consider advertisingrevenues from the portals , roaming revenues, and also bundled revenues that are to be generated by cross-sellingof other telecom products like fixed line web access, for example. But that source of revenue strongly depends onthe evolution of WAP standards, of the evolution of the access devices, that could allow, with large screens, theadvertisers to propose standardized spams on the screens of the mobile access devices.Looking at the hopes being placed on commercial intermediation earnings, a further uncertainty resides inmobile Internet's capacity to support transaction functions by fulfilling consumers' and merchants demandsfor security, and with an economic efficiency which works for both micro-payments and large sumtransactions. At term, this will no doubt constitute a major asset for mobile Internet. Currently, in the WAPenvironment, a diversity of approaches can be discerned. The difference resides, in part, in the breakdown ofroles between the applications which can be supported by the SIM card (Subscriber Identification Module),© IDATE www.idate.fr

116World2000 its evolved incarnation (SIM Tool kit), and the functions ensured by the terminal itself. Currently undergoingspecification, WIM (WAP Identification Module) should make it possible to offer digital signatures andauthentication. The WIM module could be directly integrated into the SIM smart card or grafted onto a bankingcard. Here, it becomes clear that the diversity of solutions opens up onto the hefty stakes surrounding bankingcards and the potential rivalry between banks, major card networks, mobile operators, retailers…Beyond security and payments functions, a another consequence of development of data services overmobile networks will be the necessity of upgrading the customer management solution (CRM) in place tomonitor the performances of the different services or the profitability of different groups of customers, and toset pricing which maximise profitability.What is at stake for manufacturersEuropean manufacturers, such as Nokia and Ericsson, who dominate the mobile equipment and terminalmarkets, are also going to have to prove themselves in the new mobile Internet landscape. They will have tocontend with stealthy ambitions come from Motorola, the Japanese (see NEC along with Siemens' first forayswith TIM), as well as from manufacturers whom they overtook in the realm of GSM (Siemens, Alcatel ) andthose equipped with powerful solutions for the deployment of IP-oriented networks that 3G will require (Lucent,Nortel, Cisco, …). Added to this, they will have to abandon a probably increasing portion of the value of UMTSsystems to firms specialising in CRM software (as we mention it before), network administration and valueadded applications integrators.As for terminals, the market could be gradually restructured by a wide range of products that will be offeredto consumers. More specifically, mobile terminal manufacturers will have to, on the one hand, call upon theexpertise of computer firms which, themselves are divided into camps defending the various, competingoperating systems (Palm, Symbian and Pocket PC) and, on the other, players come from the consumeraudiovisual electronics sector. Lastly, let us underline the fact that it is possible that we will see terminalmanufacturers gradually begin operating directly with subscribers on the services market.Overall, and in the medium term, the field remains relatively open, particularly if we taken into account:- the veritable industrial challenge posed by the provision, within a relatively short time frame, of networkequipment and terminals for close to 70 European operators;- the uncertainties relating to the North American market, which could place a significant focus on CDMA2000 but also on EDGE type developments (offering coding on existing networks which authorisesspeeds of over 300 kbs; see insert). NTT DoCoMo's acquisition of shares of AT&T Wireless, could wellre-shuffle the deck;- the increasing weight of the Chinese market, which is expected to generate 20 million new mobilesubscribers each year;- the significance that the financial offer accompanying the technical offer is gaining. Development ofsupplier credits may constitute an element of distinction for both suppliers and operators (manufacturers'debt).Uncertainties surrounding EDGEEDGE (Enhanced Data Rates for the GSM Evolution) makes it possible to multiply GPRS speeds three-fold thanks,notably, to a new modulation technique. Initially designed as an intermediate solution between GRPS and W-CDMA, EDGE is currently having trouble finding its place in the technical evolution of mobile telephony, eventhough it does present a number of advantages:• Real bit rates comparable to those offered by early W-CDMA networks (around 144 kbps).• Lower deployment costs than UMTS.The uncertainties surrounding EDGE may be illustrated through analysis of the three possible deploymentscenarios, either in the context of GSM technology or in the context of TDMA IS-136 technology:© IDATE www.idate.fr

World2000 117TDMA IS-136 operators: the American regulatory body UWCC branded EDGE a common standard enablinginterconnection of the TDMA IS-136 standard (voice services provision). EDGE thus appeared imperative for IS-136 operators, most of whom are located in North and South America. Nevertheless, IS-136 operator AT&TWireless in November announced that it would be deploying a GSM voice/GPRS data network, rather thandeveloping IS-136, rendering EDGE a less likely candidate than previously. Once GPRS is deployed, the operatorcan, in fact, migrate directly to W-CDMA, even if AT&T officially upholds its intention to deploy EDGE. It is now lesscertain that manufacturers will be supplying EDGE IS-136 terminals.GSM/GPRS operators who do not hold a UMTS licence: EDGE is currently the only viable solution for networkoptimisation. Such operators are, however, both small and few. It is by no means certain, then, that manufacturerswill elect to supply terminals for such a restricted market. Blu, which withdrew from UMTS auction in Italy, andFinnish operator the Finnet Group are the only GSM operators in Europe to have announced their intention todeploy EDGE.GSM/GPRS with a UMTS licence: The delays encountered for the launch of GPRS entailed a delay inmanufacturers' developments of EDGE, to the extent that EDGE will not become available until early 2002, in otherwords at the same time as the first UMTS networks. Consequently, GSM operators who hold a UMTS licence arelikely to deploy W-CDMA directly. The only viable use of EDGE for these operators is as a complement to W-CDMAin order to, on the one hand, rapidly offer broader and less costly 3G coverage and, on the other hand, to optimiseuse of the 900/1800 spectrum. Up until now, not a single operator has announced plans to deploy EDGE. Theavailability of terminals that integrate GPRS, EDGE and W-CDMA may, however, trigger its adoption.The mobile portals' warThe most promising scenarios for amortising investments in UMTS speak of a broad role of intermediary thatmobile operators are brought to play via more or less specialised portals. The development of a mobile portalappears to crucial to the constitution of an important means for capturing additional communication streams,for creating customer loyalty and generating complementary sources of revenue.In the, apparently inevitable, battle that is being waged over mobile portals, operators hold a number of trumpcards. They possess the technological expertise, knowledge of their subscribers' habits, and can optimise theterminals with features that correspond to their offering, in the goal of gaining a competitive edge on the portalmarket. Mastering a truly attractive portal boosts an operator's value and probably endows him with the assetsrequired for a strong international presence, particularly if a complementary MVNO strategy is implemented.In WAP's early days, of particular note was Finnish operator Sonera's Zed bouquet of services (which hasattracted over 700,000 subscribers).Figure 6: Strategies observed: players' positioning along the mobile portals chain Source: IDATE© IDATE www.idate.fr

118World2000 Network operators are not alone, however, in wanting to forge themselves a place on mobile Internet portals;other players are equally eager to gain a foothold on this market:- manufacturers have also taken the initiative of creating their own portal. Such is the case of Nokia, andits Nokia Club portal, which has signed a number of partnership agreements with service providers suchas CNN, Amazon, AOL… for offering turnkey solutions to mobile operators and new entrants alike.Terminal manufacturers may team up with software firms with the goal of operating specialised portals;- specialised retailers (PhoneHouse, Unicom,….) and, more generally, large retail chains, are developingmobile portal offers to rival mobile network operators;- traditional portal operators (i.e. those found on the web) also intend to be present on the mobile market.Here, they have the advantage of expertise in content development and existing consumer knowledge oftheir brand;- content providers, particularly large communications groups (CNN, TF1…), software editors (IBM,Oracle…) and even car manufacturers such as PSA (in collaboration with Vivendi );- the many start ups which, in Europe, saw in WAP the chance to exploit a new bouquet of services wereparticularly hard hit by the market's sluggish beginnings, and the insistence with which operators soughtto control the market. The last point was the subject of much debate throughout 2000.Operators were accused of holding their subscribers hostage by locking the mobile terminals that weremarketed as part of a package. This "locking" consists in the pre-configuration of the mobile terminal in sucha way that the web can only be accessed via the mobile operator's gateway. All mobile Internet connectionsgo by way, then, of the manufacturers' or operators homepage. Following complaints from independentportals, and under pressure from the regulator (the obligation in France, for instance, to indicate the phonenumber which allows users to reconfigure the portal, as well as a similar decision handed down by theEuropean Commission to limit Vizzavi's exclusivity practices), subscribers are now able to access all mobileportals.This issue concerning the opening up of mobile Internet content, rather comparable in fact to the debate inthe US over open cable access, brings us back to questions surrounding not only the legitimacy, but also theeconomic efficiency, of operators' vertical integration strategies: how far can they and must they go incontrolling content?By way of a conclusionIt appears highly likely that the year 2000 will be remembered as the year when decisions of a structural naturewere taken, shaping mobiles' future and, more generally, the telecoms industry itself, even though it is stillhard to fully measure the impact that these decisions will have on the landscape in the years to come.Over the last few months, Europe has focused particularly on the revenues that are likely to be generated fromthe mobile-Internet convergence: over 130 billion € for UMTS licences and an at least equivalent sum forbuilding the networks. The emergence of the mobile Internet market via WAP proved much more difficult thanexpected. Faced with the prospect of additional revenues, which would be only gradually generated, while thevoice ARPU is continually decreasing, anxiety has set in. In light of the debts incurred or expected, this anxietywas first felt by the financial markets, investors and banks which, after having contributed to the entirelyunreasonable valuation of the mobile Internet market, now intend to limit their share of the risk. Naturally, thegeneral state of alarm hides a wide diversity of contexts, depending on the operators and the national marketsin which they have invested. It is therefore possible that a new consolidation phase in the sector will comeabout.© IDATE www.idate.fr

World2000 119The year end woes also derive from questions regarding manufacturers' capacity to supply tens of thousandsof base stations (BTS) which will be ordered for 2002 and 2003, and particularly their ability to supply amassive amount of quality terminals at a reasonable cost and which, at term, offers speeds that correlate withexpectations. The delays in the launch of UMTS are not in themselves a source of worry for existing mobileoperators. They could stagger their investments and learn the mobile Internet business via a GPRS platform.But, given the fact that they did not expect to have to make such massive investments for UMTS licences,they will be required to uphold their commitments, at term, and to provide the services. Here, it is reasonableto wonder whether the EU's very determined timetable, to which European governments have more or lesscommitted, remains pertinent and, more generally, it is equally legitimate to wonder whether Europe is indeedset to lead the pack. The Japanese have confirmed 2001 and 2002 as the launch dates for W-CDMA services.As we have seen, this will come about without the arrival of new competitors and without the additional costof licences. At the outset, the Japanese do not have the same functional and financial demands as Europeans.First, UMTS will allow them to enjoy new spectral capacities, which they required, before being able to offerradically altered performances in terms of speed. Next, they have been able to create a significant source ofadditional earnings with i-mode…Should we then, following the somewhat naive optimismwhich reigned in early 2000, now wallow in the systematicpessimism of certain analysts? A number of considerationsmust, above all, be kept in mind:• First, we must not overlook the remarkable, andcontinuing, growth of the mobile market in Europe (cf.table). The mobile telephony market is not yet saturated;there remains a significant potential, given the verycautious predicted penetration rate over 80%. UMTSinfrastructures will be increasingly perceived as highlyprecious assets required for responding to this growth.• The increasing success of messaging should becombined with a re-launch of data services in GPRSmode, to develop a complementary turnover and slow theever-lowering ARPU. Regardless of the limits of theJapanese model, the i-mode example serves to indicatethat in order for mobile Internet's potential to be fullyexploited, large creative and marketing investments arerequired. Mobile operators will, in particular, have to proveTable 7: Mobile’00 growth in Europe1999 2000Austria 51.80% 73.05%Belgium 31.36% 49.83%Denmark 53.28% 69.26%Finland 65.55% 76.10%France 33.80% 49.43%Germany 28.10% 57.60%Greece 36.37% 56.41%Ireland 37.41% 69.34%Italy 53.61% 72.02%Netherlands 43.57% 71.01%Norway 63.57% 72.09%Portugal 48.05% 62.37%Spain 38.18% 63.74%Sweden 56.74% 73.48%Switzerland 37.97% 67.33%UK 40.51% 68.17%Average 39.79% 62.90%Source: IDATEtheir ability to make use of the expertise and imagination of their various partners in order to offer attractiveservices on their portals, capable of wooing the various target markets.• Explosive growth of mobile Internet revenues is not the most likely scenario. It is not, in any case, the onethat operators are banking on in their business plans. And while pay-back forecasts vary between 5 and 10years, depending on the cost of the licence, the projected market share (in part attributed to the existing GSMbase), and the financing needs which diverge from one player to the next, it is by no means a given that themarket will be reduced to an oligopoly of 3 or 4 operators dominating all of Europe. It goes without sayingthat governments and regulatory bodies will have to remain vigilant to avoid this and, in certain cases, beable to adapt to the demands borne of the euphoria in early 2000. This risk appears to, above all, be set tobe tempered by the limits which the economies of scale could come up against during the market'sprogressive structuring, which will not be the same as mobile telephony's. Mobile Internet will becomeentrenched via increasingly complex business models and a value chain which, while not indifferent toscope, opens the way for new players.© IDATE www.idate.fr

120World2000 Annex 1: UMTS licences in Europe (starting 2001)Country Number of Number of 3G Allocation Selected candidates / Licence cost Total Cost per2G Licences licences (lifespans (1) procedure Operators (2) (billion €) revenues inhabitantin years) from 3G (€/inhab.)licences(billion €)Germany 4 6 auction Mannesmann/Vodafone 8.4T-Mobile 8.5 50.5 609.93(20) E-Plus/KPN/Hutchison/DoCoMo 8.4Viag Interkom/BT 8.4MobilCom/FT 8.4Group 3G 8.4Austria 3 6 auction Mobilkom Austria /Telekom Austria 0.121 0.832(20) Max mobil (Deutsche Telekom) 0.12 102.72Connect Austria (E.ON, France 0.12Telecom, Telenor, TeleDanmark)Tele.ring / Vodafone 0.113Hutchison Whampoa 0.114Telefonica Moviles 0.118Belgium 3 4 beauty contest Candidates: naor auction Proximus (Vodafone/Belgacom) 0.150 per licenceKPN Orange (KPN)Mobistar (FranceTelecom)JV Suez Lyonnaise/TelefonicaDenmark 4 4, 5, 6? auction Candidates:Sonofon (Telenor/Bell South)TeleDanmarkTeliaMobilix (France Telecom)Spain 3 4 beauty Telefonica Moviles 0.13 0.5contest Airtel/Vodafone 0.13 13.00(20) Amena 0.13Xfera Moviles 0.13Finland 6 4 beauty contest RadiolinjaSonera(20) Telia MobileSuomen KolmeGee (Tele2 (3) )France 3 4 beauty contest Candidates:France Telecom 4.95/licence 19.8 329.56(15) CegetelBouygues Tel./TIMKPN/Hutchison/DoCoMo ?Greece 3 20 candidatesauction Cosmote? 113.211.2Ireland 3 Candidates:beauty contest EircellESAT DigiphoneMeteorOrange© IDATE www.idate.fr

World2000 121Annex 1: UMTS licences in EuropeCountry Number of Number of 3G Allocation Selected candidates / Licence cost Total Cost per2G Licences licences (lifespans (1) procedure Operators (2) (billion €) revenues inhabitantin years) from 3G (€/inhab.)licences(billion €)Italy 4 5 beauty TIM 2.417 12.2(15) contest Omnitel (Vodafone) 2.448 211.81& Wind/FT, Blu/BT 2.427Financial auction Atlanet/Telefonica 2.442Andala 2.427Luxembourg beauty contest ? P+TTangoST3G (Suez Lyonnaise/ Telefonica)KPN MobileCegecom (Cegedel / RWENorway 2 4 beauty contest Telenor ASA 0.01248+ 0.002/year 0.05NetComGSM AS / Telia 0.01248+ 0.002/year 11.11Broadband Mobile / Sonera-Enitel 0.01248+ 0.002/yearTele2 / NetCom AB 0.01248+ 0.002/yearNetherlands 5 5 auction KPN mobile 0.7 2.7(07-2000) Libertel/Vodafone 0.7 169.81(15) Dutchtone/FT 0.4Telfort/BT 0.43GBlue 0.4Portugal 3 4 beauty contest Telecel / Vodafone 0.1 0.4 + 0.9Optimus / Sonae SGP 0.1 129.87Telecommunicacoes Movies 0.1Nacionais / Portugal TelecomONI WAY / 55% EdP, 20% Telenor, 0.18% Iberdrola, 4% Brisa, 3% JeronimoMartins, 3% Media Capital, 1% EfatecUK 4 5 auction Vodafone 9.95 37.5 630.59(20) BT/Cellnet 6.73Orange/FT 6.84One2One/DT 6.68Hutchison-DoCoMo-KPNm/TIW 7.32Sweden 4 4 beauty contest Europolitan / VodafoneTele 2 /Netcom AB,Société Européenne de CommunicationsOrange Sverige AB / New Orange, Bredbansbolaget,Skanska, NTL, SchibstedHI 3 G Access group / Hutchison Whampoa,Investor ABSwitzerland 4 4 auction Swisscom 0.03311 0.136dSpeed /78.5% TeleDanmark 0.03311 18.89UBS-Chemins de fer suisses- DiAx holding(15) Orange Communications /FT 0.03642Team 3G (Telefonica, Sonera, One.Tel) 0.03311(1) Variable lifespan calculated either from the date the licence is issued or the commencement of services (UK).(2) Underlined operator = 2G licence holder.(3) Via NetCom AB and 41 regional mobile operators.© IDATE www.idate.fr

122World2000 Annex 2: Main UMTS contracts in EuropeOperator Features Country Type Manufacturer(s)D1 T mobil Deployment trials Germany UMTS EricssonD2 Mannesmann Deployment trials Germany UMTS EricssonE1 E-Plus Germany UMTS Alcatel orEricsson or NokiaE2 Viag (BT) Contract Germany UMTS NokiaE2 Viag (BT) Germany UMTS Siemens & Nortel?Mannesmann Deployment trials Germany UMTS EricssonMannesmann Contract Germany UMTS EricssonMannesmann Contract Germany UMTS SiemensMax Mobil Deployment trials Germany UMTS AlcatelMobilcom Infrastructure deployment Germany UMTS EricssonT mobil Tests Germany UMTS EricssonT mobil Contract Germany UMTS NortelT mobil Contract Germany UMTS NokiaSonofon Denmark UMTS Nokia?Telefonica Motorola/Cisco Spain UMTSRadiolinja Finland UMTS Siemens/NECSuomen Finland UMTS NokiaBouygues Telecom MoU licence France UMTS Alcatel+ provision of a pilot networkBouygues Telecom MoU licence France UMTS NortelBouygues Telecom MoU licence France UMTS Alcatel+ provision of a pilot networkBouygues Telecom MoU licence France UMTS NortelCegetel Co-operation agreement France UMTS Nortel?France telecom France UMTS Nortel/Alcatel/Motorola for radioBlu (BT) Candidate Italy UMTS Nortel/NokiaOmnitel Italy UMTS Nokia, EricssonTIM Contract Italy UMTS SiemensTIM Contract Italy UMTS NecTu Tlc Utilities Candidate Italy UMTS ?Wind Italy UMTS Ericsson or AlcatelPortugal telecom Contract Portugal UMTS SiemensPortugal telecom Contract Portugal UMTS AlcatelPortugal telecom Contract Portugal UMTS EricssonTele1 Holding AB Hopes to obtain a licence Sweden, Norway UMTS EricssonBT Cellnet Deployment trials UK UMTS NortelOne2One/DT UK UMTS Nortel, ?Orange/FT UK UMTS Nokia ?TIW/Hutchison UK UMTSVodafone Contract UK UMTS EricssonVodafone Deployment trials UK UMTS - CDMA LucentVodafone Deployment trials UK UMTS - CDMA NortelVodafone Contract UK UMTS EricssonVodafone Deployment trials UK UMTS - CDMA Lucent© IDATE www.idate.fr

World2000 123Telecom 2000: industrial chronicleYves Gassot & Didier Pouillot(January 2000)USA: from merger-acquisitions to spin-offs.............................................................. 125Mergers in Europe ........................................................................................................ 127Delays on pan-European networks ............................................................................ 128The anaesthetising effect of alliances ....................................................................... 128Migrating from national scale competition to a European-scale strategy.............. 129Mobile fever................................................................................................................... 129A year that for Europe was dominated by UMTS ...................................................... 131Bank and investor anxiety ........................................................................................... 132High-speed taking baby steps..................................................................................... 132Growth in the number of DSL lines in the US, in 2000 ........................................... 133Conclusion ................................................................................................................... 134© IDATE www.idate.fr

World2000 125Since1996, we have been maintaining a sort of column on our website 1 that serves to relay key events takingplace in telecommunications and Internet fields. In the appendix to this article, you will find a month by monthlisting of those events which, while divergent in impact, have marked this last year 2 .The previous year, 1999, was particularly poignant as it revealed the crescendo escalation of the scope of theInternet phenomenon, an intensified concentration movement among the leading North American telecomsoperators and the spectacular value that mobile subscribers in Europe were gaining due to this market'sgrowth, the players' race to internationalise activities and the prospects being offered by the launch of mobileInternet.What stands out in particular when we think of the year 2000?The year was clearly as dramatic as 1999. It began as a perpetuation of '99 phenomena, but was marked bya brutal, albeit expected, reversal of the euphoria which had reigned on financial markets and among themarket's players.Here, then, we will endeavour to take a look back over the main events and to place them in the context ofmovements and trends which are profoundly transforming the telecommunications sector: mergeracquisitions,internationalisation strategies, mobile growth, Internet's development, etc. While we will alsoglance at the banking world's anxiety at year end, the frailty of mobile Internet and high-speed's businessmodels…USA: from merger-acquisitions to spin-offsIn the course of four years, we have witnessed more than 20 merger-acquisition deals worth over $20 billionin the telecommunications sector, 14 of which took place in the US. While this phenomenon is not reservedsolely to this sector of activity, these transactions represented 7 of the 10 largest operations announced in2000, and 8 out of the 10 largest of all times …This undeniable fever is, in truth, quite natural for a sector undergoing rapid technological development andwhich was, up until recently, dominated by national monopolies. It was accentuated in 1999 by the headymarket ratings in a context where virtually all transactions took place mainly in the form of stock swaps.Initially, the mergers took place primarily in the US. By signing the Telecom Act in 1996, President Clinton firedthe starting pistol for a new era which would be characterised by the erasure of those borders which hadsingularly hemmed in the telecoms markets (long distance/local telephony, cable) since the dismantling ofAT&T in 1984. Let us recall that following the anti-trust complaint that led to a consent decree, the Americangiant had accepted to abandon its local companies and to regroup them into 7 Regional Bell OperatingCompanies (RBOCs), and to pursue its development based on its long distance infrastructure activities andits manufacturing division (which would become Lucent in 1996). The 7 RBOCs were banned from all longdistanceactivities (inter LATA) while AT&T was unable to reconstruct its local phone networks. By proposingto lift the barriers inherited from this ruling, and to erase cable-telco cross ownership prohibition which, up untilthen, had been upheld by successive cable legislation, the Telecom Act freed the long-distance and localtelephony as well as the cable markets. And this at a time when Internet and mobiles' considerable potentialfor growth and innovation was just beginning to be discerned.We then witnessed an extraordinary series of mergers, furthered by the onset of RBOC re-concentration, theWorldCom saga and AT&T's return to the local market via its takeover of cable operators.What did the year 2000 add to this powerful dynamic?First, the confirmation that certain announcements would receive the go-ahead from authorities to proceedwith the massive horizontal mergers of regional companies (Bell Atlantic after taking over GTE, to becomeVerizon, while SBC merged with Ameritech). A parallel operation took place in the mobile sector with theOctober announcement of the creation of Cingular (19 million subscribers), the joint venture between BellSouth and SBC's mobile activities. Following the Vodafone-AirTouch and Bell Atlantic-Verizon Wireless© IDATE www.idate.fr

126World2000 (26 million subscribers) merger, it came to confirm the swift consolidation of the American mobile sector which,up until that time, had been hindered by dispersal of licences and standards. These two heavyweights nowdominate the sector, even though they will have to keep an eye on AT&T Wireless (12 million subscribers)which enjoyed a considerable investment from DoCoMo, and on Sprint's growth potential (8 millionsubscribers).Telecoms merger-acquisitions (+$20bn)Date Origin Target Sector Amount ResultJuly. 2000 Deutsche Telekom VoiceStream Mobile $53bn underwayJuly. 2000 JDS Uniphase SDL Optics $41bn underwayJune. 2000 Vivendi Seagram TV.musi.internet Mobile $40.4bn concludedMay 2000 Telefonica KPN fixed+mobile failedMay 2000 France Telecom Orange Mobile $46bn concludedMar. 2000 VeriSign NSI Internet $21bn concludedFeb. 2000 Pacific Century CyberWorks Cable&Wireless/HKT Fixed+mobile $38bn concludedJan. 2000 AOL Time Warner Internet + audiovisual $160 bn underwayNov. 1999 Vodafone Mannesmann Mobile + fixed + diverse $180 bn (1) concludedOct. 1999 Mannesmann Orange Mobile $31bn + $3 bn (2) concludedOct. 1999 Telia Telenor Fixed + mobile $47 bn failedOct. 1999 MCI WorldCom Sprint Fixed $129 bn failedSept. 1999 Vodafone AirTouch Bell Atlantic-GTE Mobile $70 bn (3) concludedSept. 1999 BT AT&T Mobile n.a. underwayJuly 1999 Qwest US West Fixed $35 bn concludedMay 1999 Olivetti Telecom Italia Fixed $33 bn concludedMay 1999 Vodafone AirTouch Mobile $74.7 bn concludedMay 1999 AT&T MediaOne Mobile and cable $56 bn concludedMar. 1999 Comcast MediaOne Mobile and cable $53 bn failedJan. 1999 Lucent Ascend Phone equip. $20 bn concludedJuly. 1998 Bell Atlantic GTE Fixed $52.8 bn concludedJun. 1998 AT&T TCI Cable $48.3 bn concludedMay 1998 SBC Ameritech Fixed and mobile $62 bn concludedNov. 1997 WorldCom MCI Fixed and internet $40 bn concludedApr. 1996 SBC PacTel Fixed and mobile $16.5 bn concludedApr. 1996 Bell Atlantic Nynex Fixed and mobile $25.6 bn concluded(1) A detailed analysis of merger-acquisitions conducted in late 1999, gave rise to an article published in issue N°38 of ourCommunications and Strategies review (The merger and acquisition frenzy ,Gassot-Pouillot-Balcon). It offers analyses oftelecoms manufacturers which have not been updated, here.(2) www.idate.fr/maj/cle/chron/chrTel/index_a.htmlAs concerns long distance companies, 2000 will remain in memory as a dark time. First, the extraordinarysuccession of WorldCom mergers came to a spectacular halt. The FCC and the European Commission bothruled that the proposed merger with Sprint was incompatible with maintaining fair competition on the longdistance and global Internet traffic markets. The failure carries a great many consequences for WorldCom asit enjoys neither Sprint's presence on local markets nor its mobile growth potential. As for AT&T, while it finallyobtained the go-ahead to take over cable operator MediaOne, its financial markets' growing impatience facedwith dwindling long distance revenues, led to a third quarter announcement of virtual dismemberment. Thecorporation’s break up into four separately quoted entities runs contrary to the convergence strategy that hadled the vertical mergers reflected in the acquisition of Teleport, TCI (1988) and, naturally, MediaOne…This reversal was such that, following a period of mergers and acquisitions, came the era of spin-offs, or atleast a tracking stocks trend. The three leading long distance operators have had recourse to this practice, ifnot to respond to the pure player profile, which certain analysts prize greatly, at least to make the most of thoseactivities with the greatest growth potential. This phenomenon is not yet entirely irreversible, but it doeswarrant being pointed out to the extent that in runs contrary to the objectives of economies of scale andassociation which traditionally accompany convergence strategies.True, 2000 began with the spectacular announcement of a planned merger between AOL, by far and awaynumber one on the web, and Time Warner, behemoth of film, TV, music and cable. Arguments to support thisdizzying sum merger are considerable. They revolve around the assets offered by full control of the value© IDATE www.idate.fr

World2000 127chain, while relying on relatively concrete synergies. Access to the finest American cable networkinfrastructures constitutes, for AOL, a considerable means for maintaining its leadership on the access andbroadband portals market. The other outcome of the operation, which in retrospect appears evident, residesin the anticipated tumble of web stocks following the first quarter peak. AOL has itself well padded by hookingup with an Old Economy corporation which is much larger but of lesser market value. The year 2000 offeredthe duo a lengthy wait full of doubt, as anti-trust authorities deliberated on approving the deal, to the extentthat the partners were forced to abandon their plans to acquire EMI, and to await the year's end before beingapprised of the conditions for FTC approval. Possible further constraints from the FCC are still awaited…Mergers in EuropeCompared to this impressive North American fever, Europe appeared to remain long in the background: whilethe Telecom Act triggered operations in the US, the new regulatory framework of January '98 did not have thesame effect.Up until autumn 1999, only Vodafone and Olivetti/Tecnost were in a position to undertake operations of over$10 billion, added to which, in the first case the deal took place in the US (for AirTouch along with Bell Atlantic,see diagram 2 in the appendix) and, in the second case an operation destined to prevent Deutsche Telekomfrom taking over Telecom Italia.In spite of this, the telecoms sector in Europe was far from stagnant. The prospects of deregulation on 1January, 1998 led incumbents to begin to gain a foothold on a number of European markets. This was donethrough the creation of consortia, as much with the goal of obtaining second, third or even fourth mobilelicences as for taking part in fixed telephony services.Acquisitions were for the most part minority shares, as we can see for BT in the table below.BT’s interests in West European telecommunications operatorsSubsidiary or affiliate Country BT’s shareBT Cellnet UK 100%Telfort The Netherlands 100%Esat Digifone Ireland 100%Telenordia Sweden 50%Viag Interkom Germany 45% (1)Sunrise Switzerland 34%Cegetel France 26% (2)Albacom Italy 23%Blutel Italy 20%Airtel Spain 17.8%(1) to be increased to 90% (purchase of Viag’s shares) in 2001(2) and 20.8% indirectly in SFROf equal note is the fact that, among European new entrants, few had the required means, or set themselvesthe goal of investing outside their national market. The notable exception is off course Mannesmann, whichhad taken the same path trodden by Vodafone.Here, one might have expected to witness the merger of several incumbent operators, comparable to theRBOC phenomenon. Of the two attempts to do so undertaken in 1999, one being Deutsche Telekom's hostiletakeover bid for Telecom Italia, and the other the government-assisted merger between Telia and Telenor, bothfailed. The announcement in spring 2000 of a KPN-Telefonica merger was no more successful. It must be saidthat ex-PTTs are not RBOCs. First, because their capital is still for the most part held, entirely or in part, bythe State, even if 2000 was the stage for a perpetuated irreversible trend to pull out of activities, as thefollowing table illustrates.© IDATE www.idate.fr

128World2000 State shareholding in European incumbent operatorsOperator % State-held 1999 % State-held 2000Deutsche Telekom 65.3 66.6 (1)BT 0 0France Telecom 63.6 55.5 (2)Telecom Italia 3.5 3.5Telefónica 0 0KPN 45 43.5Telia 100 70Belgacom 50 50Telenor 100 79(1) Before VoiceStream; 43.2% directly and 23.4% through Kfw.(2) After increase in capital and takeover of Orange. Source: IDATEThe State's presence engenders national sentiment, thus rendering operations somewhat more sensitive.Such was clearly the case for the operation led by Deutsche Telekom, for the planned merger of the twoNordic incumbents, as well as the more recent failure of the Telefonica/KPN deal. National sensibilities imposethemselves on the principles of shared management and head office location, which run contrary to therationale of both the companies interests' and those of its majority shareholders. Ultimately the deals moreclosely resemble those partnerships or alliances which soon reveal their limitations.The ambiguity of these management schemes appears all the more clear in view of the fact that mergersbetween two incumbents tends more to aggravate existing weaknesses than to create an harmoniousmarriage of complementary assets. A great many analysts consider that Deutsche Telekom and TelecomItalia's re-engineering challenges were far too great to be overcome within a single corporation. Let us recall,here, that most RBOCs did not hesitate in the mid-90s to stock up on resources, even at the risk of being inthe red for one or two fiscal periods, in order to accelerate their restructuring.Delays on pan-European networksMaintaining the analogy between the American and European landscapes, the delays that Europe's leadingplayers had in deploying their pan-European networks may appear surprising. It has only been during the lastthree years that BT, Deutsche Telekom and France Telecom have undertaken initiatives and begun to createinfrastructures linking Europe's leading financial capitals. Well after this, GTS/Hermes (although the fruit of aEuropean initiative), WorldCom, Qwest (in alliance with KPN) and Level3 all have projects well underway, andare even being joined by American players such as Viatel and Global Crossing. A number of hypotheses canbe advanced to explain this absence. The first would be that European operators were aware of the difficultiesfacing new entrants, and the frailty of the more or less wholesaler business model. Direct access to customerswas sought by several of these companies, but they require a considerable cash outlay, to the extent that now,as happened in the US, a number of corporations, such as Iaxis, have either gone bankrupt or, at the veryleast, have been forced into toning down their development projects. However, other hypothesis may wellhave tempered the major operator's pan-European ardour, a fact which brings us to address the issue ofweighty alliances which long appeared as telecoms players' primary vector for internationalisation.The anaesthetising effect of alliancesThe existing of Unisource and Atlas/Global One not only contributed to freezing merger operations which mayhave taken place among the smaller European incumbents, but also put a quick halt to the creation of anhomogenous pan-European network. Alliances very soon saw themselves more or less explicitly responsible© IDATE www.idate.fr

World2000 129for objectives which, while not entirely contradictory, invariably represented divergent priorities depending onthe partners. They were expected, concurrently, to: 1) offer, under the best possible price and turnaroundconditions, a broad range of services to multinational corporations; 2) to enter the carriers' carriage markettogether; 3) to target these first two objectives while seeking a synergy with the partners' internationalconcerns, and to seek national licences together. The indisputable results obtained by these alliances,particularly in terms of the service offering to multinationals, were unable to resist the pressure come from theother objectives, leading to financial negative results and an acceleration of centrifugal forces of the mobileexplosion (1) . In 2000, then, we witnessed France Telecom, after dismantling the partnership which was at thebase of Global One, re-deploy this company by marrying it off to Equant, whose operator announced thetakeover in November of that year.Another reason which could explain European players' late start in deploying pan-European networks residesin the stakes involved: since the pioneer days of international telephone communications, operators were inthe habit of exchanging traffic. An operator serving a third party operator on his own infrastructure has a goodchance of seeing that country's incumbent channel his outgoing traffic to another carrier. At first, it is by nomeans certain that this is a winning situation.Migrating from national scale competition to aEuropean-scale strategyOne of the goals of the successive reforms of European regulations, undertaken since the publication of the1987 Green Paper, resides in the advent of a large single telecommunications market which fosters bothcompetition and the emergence of pan-European global scale players.The situation unfurled, however, as though competition had been organised market by market, inside nationalborders. Hence, the deregulation process, while framed by communal directives, took place in line withnational legislation, regulation and regulatory body directives. The directives review procedure which wasundertaken in 1999 serves to underline the significance of regulatory specificities, in particular in terms oflicence allocation. It is probable that the application of the principle of subsidiarity was an obligatory rite ofpassage, a condition for obtaining the approval of member states to enter into full deregulation of the telecomssector. Nonetheless, this phase proved a stumbling block which serves to bring to the fore the limits of theanalogy between the US and EU markets (2) .Mobile feverA large portion of our remarks do, however, appear to be applicable to only that period before the summer of'99. A complex chain of events seems to have transmitted the American fever to European telecoms players,even though the stakes revolved around the advent of pan-European mobile operators.Chronologically, Olivetti/Tecnost's acquisition of Telecom Italia, which impeded Deutsche Telekom fromcarrying out its bid to take over an incumbent operator for the time being, can be considered the point ofdeparture. The operation, on the one hand, marked the beginning of Mannesmann's international ambitions,as the operator found itself under the control of Ominicom, Italy's number two GSM network. It also sealed theDeutsche Telekom-France Telecom break up. Confirmed by the Sprint-MCI WorldCom merger, this split wouldlead the two giant European operators to quickly seek out major deals. Deutsche Telekom took the lead with(1) Concert does remain. In its new incarnation which associates BT with AT&T (after the failed alliance with MCI), the project istaking advantage of its two main rivals failure. It is, however, worth wondering whether this project's success does not implythe merger of the two operators.(2) Although under national legislation, the American States also constitute a federation and have thus also, albeit to a lesserextent, experienced mounting regulatory clashes. One of the Telecom Act's goals was to reinforce federal power, an ambitionwhich was only partially achieved.© IDATE www.idate.fr

130World2000 its announced takeover of Britain's One2One, a transaction which represents the German incumbent's largestinternational investment. Mannesmann followed suit by taking over Orange in October for 34 billion euros (ofwhich 3 billion was an assumption of debt). In the summer of '99, France Telecom entered the British marketby taking advantage of the chance to merge with NTL and incorporate CWC's (Cable & WirelessCommunications) residential operations. While not a mobile operator, but rather a broadcaster, NTL does havea great many high points and appeared to be in an advantageous position for upcoming UMTS auctions.Nevertheless, in October, France Telecom thought that it had acquired crucial leverage for consolidating itsEuropean ambitions in the mobile market, by signing an agreement to enter Germany by acquiring Vodafone's17.2% stake in the country's third-ranked mobile operator E-Plus, for a total $1.86 billion. As we know, the dealfell through, with KPN coming out the winner, laying out only (!) 9.1 billion euros, for a 77.5% share of E-Plus,although they will have to share voting rights with BellSouth, which enjoys a right of pre-emption and holdsthe remaining 17.5% of capital.Lastly, while the battle between Vodafone and BT for the control of Airtel continued to rage in Spain which, inlate 2000, BT appeared to be wining, the situation did serve to drive the bids up; Vodafone's offer forMannesmann closed with a bid of 180 billion euros, or close to 50% higher than the initial offer. Theseexamples provide good illustrations of the feverish dynamic which reigns in the sector and European telecoms'dramatic entry into a new world.As we all know, it was not until February 2000 that Vodafone ultimately came out victorious. This deal placesVodafone in top spot on the European mobile market, completing its coverage with the leading position on theGerman market, number 2 in Italy and consolidating its position in France. Here, an alliance was concludedbetween Vivendi, SFR's majority shareholder, to develop Vizzavi, a multi-access portal, which is likely to beefup Vodafone's European mobile Internet services. Along with the advantage of geographical presence that itinherited from Mannesmann, came a staggering level of debt. In May 2000, France Telecom took the lead overits rivals by accepting to pay over 40 billion euros for Orange (of which some 22 billion in cash).Evolution of mobile subscriber valueDate Transaction Subscriber value (in euros)Nov. 2000 AT&T Wireless-NTT DoCoMo 4 537Nov. 2000 Price Communications-Verizon Wireless 4 578Nov. 2000 Swisscom Mobile-Vodafone 3 710Oct. 2000 Ben-Deutsche Telekom 3 728Aug. 2000 Viag-British Telecom 7 389Aug. 2000 Voice Stream-Deutsche Telekom 26 768July 2000 KPN-NTT DoCoMo 11 848July 2000 Powertel-Deutsche Telekom 9 002June 2000 France Telecom-Orange 5 720Oct. 1999 Mannesmann-Orange 9 189Sept. 1999 VoiceStream Wireless-Aerial Comms 8 182Nov. 1999 Vodafone-Mannesmann 6 128Jan. 2000 Vodafone-Airtel 5 872Oct. 1999 AT&T-ACC 5 829Aug. 1999 Deutsche Telekom-One 2 One 4 571Oct. 1999 France Telecom-E Plus 3 962Dec. 1999 KPN-E Plus 3 669Sept. 1999 Vodafone AirTouch- Bell Atlantic GTE 3 500Oct. 1999 France Telecom-E Plus 3 480July 1999 BT-Cellnet 2 625Oct. 1999 Deutsche Telekom-PTC/Westel/RTDC 2 372Aug. 1999 AT&T/BT-Rogers Cantel 1 394July 1999 SwissCom-Debitel 774Source: IDATE© IDATE www.idate.fr

World2000 131The explosion in prices in the last quarter of 1999 (and which was to last until the end of the third quarter of2000) was primarily justified by the virtually guaranteed continued growth of mobile subscribers. Over thecourse of two or three years, we have gone from a vision of a saturated market, to one of 50% to one whichspeaks of a service involving 3/4 of the population. In late 2000, no other product was marketed for theChristmas season the way mobiles were. This switch in perspective, boosted by spectacular growth, is all themore notable in view of the fact that Europe's leading markets, such as Germany, the UK, and particularlyFrance, continue to have a penetration rate which is far below that of Scandinavian countries or even Italy.A year that for Europe was dominated by UMTSA further consequence of the focus on subscriber value resides in the countdown that began with theEuropean Parliament and Council's decision of 14 November, 1998 to implement UMTS authorisationsystems by 1 January, 2000 at the latest, with the gradual and co-ordinated introduction of services by 1January; 2002 at the latest.From the onset, leading operators, who displayed no sense of urgency as their GSM networks are generatinga positive cash flow, perceive UMTS as detrimental to their acquired positions. The considerable investmentrequired to deploy 3G networks and services have driven a concentration movement, and contributed toescalating the costs of GSM operators who are in peril of becoming prey, as major operators are feeling thepressure to acquire and gain a veritable pan-European status.Financial analysts who consider that the primary value of large incumbents such as Deutsche Telekom andFrance Telecom resides in their mobile assets, maintain this escalating trend and are pushing for separateratings for their mobile operations. Naturally, this trend is being upheld as it reinforces the players' ability toenter into takeover bids for shares.It is in this context, then, that we witnessed a certain degree of confusion in terms of the procedures selectedby the various governments for the allocation of 3G licences (cf. article "2000: the turbulent first steps towardmobile Internet"). What will remain in memory from the year 2000, apart from this confusion, are theconsiderable differences in the amounts paid for acquiring a 3G licence, between those which had been setduring the first half of the year and those of the second half. The dizzying costs reached a peak in Augustduring the German auctions, following already significant costs in Britain (April), which, while surprising tomany, nevertheless appeared justified given in the subscriber value established following the mergertransactions outlined here above. To this, it is worth adding Deutsche Telekom's spectacular announcementin July 2000, just prior to the German auctions, that it would be acquiring VoiceStream, a North American GSMoperator with 2.3 million subscribers, for a cost of over 50 billion euros… The divergence is not so much theaberration of the procedures selected by the governments (even though the delicate rules of auctions werenot always mastered) nor the prices administered in the case of beauty contest, but rather the expression ofoperators' and financial markets' exuberance in early 2000, and the doubtlessly excessive anxiety which setin at the end of the year. There was no shortage of surprises, in addition to the unbelievable prices paid at theBritish and German auctions and the gradually dwindling number of candidates which led, in Poland, tocancellation and, in Switzerland to postponement. In Italy, we witnessed, for the first time in October, a GSMoperator, Blu, desist from its bid for a 3G licence and, in December, incumbent Telia's absence from the list ofrecipients…These difficulties encountered in UMTS licence allocation were coupled with the paltry enthusiasm whichgreeted the launch of WAP, which had been touted as the first step toward mobile Internet. This failure,painfully underlined by the success of NTT DoCoMo's i-mode, brought to the fore the bloated confidence ofmobile operators buoyed up by their recent triumphs. They no doubt reflect an under-estimation of the issuestied to migrating from a telephone (even mobile) industry to a multimedia services industry which has a farmore complex value chain.© IDATE www.idate.fr

132World2000 Bank and investor anxietyBy cruelly juxtaposing the minimum 300 billion laid out for some seventy 3G licences and the deployment ofUMTS networks, along with the uncertain complementary revenues that these new services will generate,these difficulties brought analysts to pass increasingly harsh judgement on telecoms operators; within a matterof months, telecoms values had tumbled down, in the same manner as their Internet counterparts had: losingclose to half their value (some $500 billion) in 2000. Even though the average decrease was not quite sodramatic, it did represent over 50% for KPN (-74,3%), BT (-60,89%), and DT(-55%).The evolution and the downslide of share prices served to spotlight the level of debt being suffered byoperators and new entrants for whom the gushing capital is virtually dammed up, in both Europe and the US,as it is for the sector's leading players. The top three European operators' debts in late 2000 ranged from over46 billion euros for BT to 65 billion for DT, with France Telecom 60 billion in the red.In such a landscape, it was by no means surprising to see the spectacular escalation in the amounts ofsyndicated loans granted to telecoms firms during 2000, particularly in Europe (and at another level in Asia)Syndicated loans granted to telecom companiesArea 1998 1999 2000 (million $)W-Europe 32,114 113,324 238,179E-Europe 1,610 1,945 3,699N.America 116,631 128,082 145,095S.E.Asia 2,122 1,927 35,560WW. Total 167,255.06 264,470.63 438,829Source: Capital Data/La Lettre des TélécommunicationsNaturally, this situation attracted the attention of credit rating agencies, and it is likely that certain incumbentoperators with an insufficient debt:equity capital ratio will find their rating demoted to B. In addition to pullingout of non-strategic shareholdings, operators are reacting by launching an increasing number of IPOs for theirmobile and Internet subsidiaries. Telefonica went public with its Terra Nova Internet subsidiary, which hadtaken over Lycos, a leading American portal, while France Telecom, after having put Wanadoo onto theexchange, is getting ready to do the same with Orange, which is now its mobile subsidiary. DT (which was apioneer in this trend with the public offering of T-Online), is expected to follow suit with T-Mobile. While thesesales of shares represent only a fraction of the capital, and do not directly undermine headquarter operations,they do contribute — by isolating growth values — to underlining traditional telephony's gradually dwindlingrevenues. Here, the uncertainties which accompany BT's announced restructuring in the last quarter of 2000,gave rise to questions on the correlation with the latest break-up of AT&T…High-speed taking baby stepsWhile mobiles and all the issues surrounding UMTS licences dominate the debates in Europe, the issuesrelating to the conditions required for the progression of high-speed technologies were also present. At theend of 2000, however, the US took a lead in this field, particularly thanks to the advent of copper pairtechnologies, i.e. DSL (Digital Subscriber Loop). At the end of last year, there were over 2.1 million DSL lines,representing a significant increase given the fact that there were only 600,000 marketed lines at the end ofthe first half of the year. This growth took place after a two year period of stagnation, during which investmentswere made in operating centres and negotiations undertaken for the application of unbundling rules. In theUS, these rules were included in the 1996 Telecom Act, a fact which do not spare the country from a number© IDATE www.idate.fr

World2000 133of disputes and the FCC's required intervention to loosen up on a number of clauses, as well as to broadenthe directives to line sharing, which involves the co-existence of the network owner's analogue phone line andthe DSL operator's high-speed access service, which enables lower leasing costs for the DSL operator (from$15/20 to $5). The relative surprise derives from the fact that over two-thirds of DSL lines are marketed byregional telephone operators (SBC, Verizon, Bell South, Qwest/US West).Growth in the number of DSL lines in the US, in 2000Although encountering no difficulties in obtaining financing until mid-year, and enjoying the support of longdistance operators, new entrants specialising in DSL find themselves not only miles behind the ex Baby Bells,but now in dire straits. After the April crash, investors discovered the frailty of these operators' business model,who, while few in number, spend considerable sums to be present in thousands of COs, and whose rapidlygrowing revenues are not enough to counterbalance increasing operating losses. Created in 1997, Covad, theleading DSL pure player with 270,000 lines at the end of the year, posted some $189 million in losses in thethird quarter of 2000, for $66 million in earnings. Worse still, the battle over costs came to aggravate thesituation during the last quarter, under the effect of their ISP clients' bankruptcies. The three leading DSLfirms–Covad, NorthPoint and Rythm- collapsed under the pressure. The irony is that they do not appear to beable to find a saviour among local phone companies. SBC acquired a 6% share of Covad and committed toa long term agreement, while NorthPoint was banking on a merger to help stave off the effects of heady cashconsumption; a deal which has now been cancelled. Given these plights, many now consider that thewholesaler model upon which these companies were based is in need of serious revision.Growth of DSL lines in the USANumber of DSL lines700000560000420000280000140000March - 2000June - 2000September - 2000December - 20000SBCVerizonUS West (Qwest)ndBellSouthCovadNorthPointRhythmsSource : IDATE (end 2000 estimates)More generally, while the stability of regional phone companies should enable DSL lines to continue to developin the US, doubts persist about the current profitability of high-speed access, particularly on the residentialmarket (around 2/3 of all lines). The results of leading cable provider Excite@Home, held by AT&T, whichboasts over 2 million subscribers (+157% in one year), but which posted a deficit of $5.4 billion during the lastquarter, serve to indicate that the frailty is not technological in nature.It is doubtless by keeping the North American experience in mind that Europeans will attempt to proceed thisyear with the veritable launch of high-speed. Europe was clearly lagging behind at the end of last year, withunder 700,000 DSL lines marketed (with an equivalent number of high-speed cable accesses). In fact, themajority of DSL lines are operated by Deutsche Telekom, which has announced 500,000 lines marketed in© IDATE www.idate.fr

134World2000 Germany. The other major incumbents are far behind: France Telecom's DSL lines number only 80,000,although the numbers are growing, and it is expected that by the end of this year 50% of their subscriberpopulation will be covered. Faced with the risk of seeing the DSL market controlled by dominant operators,the year 2000 in Europe was above all marked by debates over unbundling. Contrary to the North Americansituation, and with the exception of Germany and the Netherlands, national legislation ratified for telecomsderegulation in January '98, did not include unbundling rules. Lastly, it was only at the end of the year thatEuropean regulation rendering this principle mandatory by 1 January, 2001 was handed down.ConclusionIt is without a doubt that, prior to 2000, the telecoms sector had never found itself in the headlines to thisextent. After having begun on a basis which remained largely national, deregulation of the European marketsgave rise to the emergence, in a matter of months, to those players who could lay claim to a truly pan-European, if not global, dimension.In Europe, mobile continued to by the prime vector of this dynamic. Think only of the exceptional path takenby Vodafone (1) !Overall, however, this came about with considerable risk being taken by the players, taking into account thecost of this internationalisation, the cost of UMTS licences and networks, and the only gradually increasingearnings from mobile Internet. Marked by an, albeit expected but nevertheless brutal plunge in market ratings,the year also reflected the increasingly central role of financial markets and banking establishments.Europe thus finds itself plunged into a delicate phase where it will have to prove its ability to maintain itsleadership in the field of mobiles and to manage the players' consolidation trends — which remain lesssignificant than in the US (2) — without hindering competition.The year in the United States was marked by the opposite phenomenon, in the hands of regulatory bodiesruling on two major mergers: WorldCom's takeover of Sprint, and AOL's takeover of Time Warner. It is thefinancial markets, however which, it appears, put an end to AT&T's dreams of convergence. Even the grandlaunch of high-speed access fed analysts' doubts about the business models' maturity.On both sides of the Atlantic, then, the consequences of growth which were supposed to allow free reigningcompetition for the benefit of both the heavyweights and their rivals, appear much more complex to implementthan initially anticipated.Lastly, the only certainty which remains is that, confronted with their lowering margins and the risks inherentin new services and networks, operators will continue to radically re-paint the sector's landscape in the yearto come. It is still anyone's game, even from a strategic standpoint. In light of strategies of specialisation (eithergeographically or in terms of operation), convergence strategies will no doubt continue to proliferate with thegoal of gaining control over the various user access platforms, as will disputes over the value of theapplications they support.(1) And the total growth of mobile subscribers in Western Europe during 2000: + 80 millions!(2) See "The merger and acquisition frenzy".© IDATE www.idate.fr

World2000 135AppendixJanuary 2000• BT makes an overbid ($2.46 billion in cash) for Irish operatorEsat in an effort to beat the offer made by Telenor.• To continue its expansion policy, UPC tales out a bank loanof $1.5 billion. It recently acquired the French subsidiary ofIntercomm for 98 million euros and bought out Germanoperator Primacom for a sum of 221 million euros. UPC isalso still in the running for some of Deutsche Telekom's cablenetworks and might well be interested in the French marketthrough a partnership with Lyonnaise Communications.• AOL takes control of Time Warner in a friendly operationestimated at a record value of over $190 billion. PushingTime Warner stock well beyond the officially quoted prices,this deal clearly highlights:- AOL's interest in the 14 million Time Warner Cablesubscribers in a situation where high-speed Internetaccess with AT&T and its @Home service was becominga threat- the hoped-for complementarity with the range of TimeWarner content, also in music and video distribution.- AOL's desire to take shelter from a sudden change inInternet stock values by acquiring Time Warner'snumerous business assets. Just a few days after thisagreement, Warner Music announced a planned mergerwith EMI• It was France Telecom that ended up in taking control ofGlobal One by paying its two former partners a sum of $3.88billion, plus taking over debts evaluated at $461 million. Thedeal puts Global One's market valuation at $5.386 billion.France Telecom is now faced with the task of quicklyreassuring Global One's customers by deploying networksolutions and commercial services in areas where itspartners played a major role (USA and Germany) and whereGlobal One was inadequately represented. Backed by theinternational WorldCom offering, especially strong in Europe,Sprint need not worry, whereas Deutsche Telekom must nowmount a completely new offering to meet the requirements ofits multinational clientele.• Just when Cisco is in the process of taking over Pirelli'soptical activities, comes news of the draft agreement withTelecom Italia on its purchase of a 20% equity stake in"historic" Italian equipment manufacturer Italtel. The newsarrives nearly 10 years after the acquisition of a 20% holdingin Italtel by AT&T, a deal which ended in failure.• After acquiring the start-up, Cerent Corp., for $7.7 billion,Cisco continues to strengthen its position in opticaltelecommunications by taking over Pirelli's optoelectronicactivities. Valued at a total of $2.15 billion (in the form of ashare swap), the deal includes the acquisition by Cisco of a10% stake in the new division set up by the Italian firm foroptical components and optical submarine transmissionsystems.• Nortel pays $778 million in the form of a share swap forPromatory Communications. Somewhat like the Alcatel-Xylan deal, Nortel takes over one of its OEM suppliers, anADSL specialist with a turnover amounting to scarcely $1million.• Confirmation of the Vodafone-Vivendi alliance, and thecreation of a joint venture, Vizzavi, focused on developing amulti-access portal.February 2000• Vodafone pulls it off: with the backing of the financial marketsand their unending appreciation of the group's marketvaluation, Mannesmann had to resign itself to accepting thetakeover in a record deal valued at over 180 billion euros.The agreement gives Mannesmann shareholders 49.5% ofthe shares in the new entity, a giant of world-scaleproportions in the mobiles sector with close on 40 millionsubscribers in Western Europe (reckoned in relation to thecapital of licensed operators), that will also have to determinethe future of Orange ( which it will be forced to sold off) andof Mannesmann's fixed and Internet activities and naturallyensure the spin-off of the manufacturing business which stillin 1999 accounted for 50% of total turnover.• Little by little, Deutsche Telekom is strengthening its footholdin the French market. Having acquired operator Siris, it hasconcluded an agreement with the Lagardère group wherebyT-Online (4.2 million subscribers mainly in Germany) is totake control of Club Internet (300 000 subscribers), thirdbiggest French ISP after France Telecom's Wanadoo andAOL/Cegetel. In exchange, the Lagardère group is to obtaina 6.5% equity stake in T-Online, soon to be floated on thestock market. This move should open up T-Online tointernational business and contribute to enhancingLagardère's content and titles (press, TV) on the Internet.• Major European banks are seeking alliances to be able tocope with the effects of the Internet boom. In Spain, BBVAand Telefónica have announced an extensive agreement inthe form of a share swap, whereby the operator acquires a3% equity stake in the bank, while BBVA raises its holding inTelefónica from 9 to 10%. In addition to this exchange, BBVAtakes a 3% stake in Terra Networks, which, in turn, acquiresa 20% holding in the bank's on-line service, Uno-e.com (withan option on an increase to 35%). T-Online, still preparing forits entry into the stock market, gave out news of itsagreement with Commerzbank, whereby it will obtain 25% ofthe bank's subsidiary, Comdirect (257 000 customers). Thebank, in return, could become the third biggest shareholder inT-Online (with less than 5%) after Deutsche Telekom andLagardère.• BCE, the holding with 80% control of Bell Canada (theremaining 20% in the hands of SBC/Ameritech since lastJune) and which has accumulated large sums of cash inpace with its withdrawal from Nortel, has negotiated thetakeover of 77% of major international carrier Teleglobe in adeal evaluated at $6.65 billion (cash and swap). With BCEalready as one of its shareholders (23%), Teleglobe has beenhit in recent months by competition and the fall in price ofinternational services, plus the difficulties being experiencedby reseller Excel, operating in the US market , which it boughtfor $7 billion in 1998.• In a share swap deal valued at $3.8 billion, Global Crossingtakes control of Ixnet and its main shareholder (73%) IPC.Ixnet specialises in telephone services for trading posts.• Alcatel takes over Newbridge in a share swap deal valued ataround $7.1 billion. Benefiting from the rise in Alcatel shares,this operation will enable Alcatel to complement its range ofATM products, strengthen its position in the DSL area andbuild up its activities in the US market.• ADC fortifies its position in the DSL market by taking controlof PairGain in a share swap deal evaluated at $1.6 billion.• The consortium led by the Callahan group (already active inSpain and France) succeeds in obtaining the first lot of© IDATE www.idate.fr

136World2000 Deutsche Telekom's cable networks by acquiring a 55%equity stake in the company established in North Rhine-Westphalia. Estimated at 1.8 billion euros, the operationinvolves 4.2 million subscribers and 6.7 million homes.• Baby Bell SBC pays $3.9 billion in cash for SterlingCommerce. The deal illustrates how anxious telecomoperators are not to miss the B to B e-commerce train.• French group Carrefour (world’s No.2 in large-scale retaildistribution ) and US department store chain Sears team upwith Oracle to set up a new company, GlobalNetXchange,thus building the retail sectors’ biggest marketplace. Althoughno financial details have yet been published, this movebelongs within the current spread of sector-based shoppingportals triggered by automobile groups (cf. Ford, GM,Daimler-Chrysler agreement).• From under the nose of Singapore Telecom, Pacific CenturyCyberWorks (PCCW) snatches Hong Kong Telecom, owned54.4% by Cable & Wireless, for a sum of $38.1 billion (cashand stock). It is difficult to know whether it was Cable&Wireless’ desire to make a rapid exit from Hong Kong or adecision on the part of the Beijing authorities that pushed thedeal in favour of an Internet start-up, but one admittedly witha market valuation of close on $30 billion and steered by theson of the magnate in control of Hutchison.March 2000• Long-established web address manager (still leading withover 8 million addresses) Network Solutions (NSI), isacquired for $21 billion (in the form of a share swap) by anInternet authentication leader, VeriSign, although the deal stillhas to be approved by the anti-trust authorities.• Pursuing its expansion strategy in American markets and itsefforts to build up its upstream activities, Cap Gemini paysthe partners of Ernst & Young $11 billion for control of thecompany’s consulting activities.• Cisco and Cap Gemini announce the signing of a cooperationagreement leading to the setting up of a unitspecialising in networks (owned 95.1% by Cap Gemini). Overand above the 170 million euros corresponding to its 4.9%holding, Cisco is to spend some 700 million euros onacquiring an equity stake of around 21% in Cap Gemini (oncethe merger with Ernst & Young is finalised).• BSCH, one of the top banks in Spain with a strong presencein Latin American markets, acquires 75% of the region’sbiggest financial portals, Paragon.com, valued at around$730 million.• Pursuing its expansion and investment programme inEurope, cable operator UPC announces the forthcominglaunch of a friendly takeover bid for SBS Broadcasting, aLuxembourg-based TV group with some 10 channels andnumerous radio stations in Central and Northern Europe. Thedeal is estimated at $2.98 billion, partly in cash and partly inUPC stock (UPC had already acquired a 23% equity stake inconnection with a previous agreement).• Telecom Italia and yellow page publisher Seat Paginepresent a plan to merge the operator’s Internet division, Tin.it,with the portal run by the publisher. Initially, Telecom Italia’sholding in Seat is to be raised from 12.9% to 30% prior to thcomplete integration of Tin.it into a new entity, controlled66.7% by the operator. Telecom Italia’s choice of strategy forenhancing its activities as an Internet access provider differsfrom the IPO procedure successfully practised by Telefónica(Terra Networks) and planned to be employed by DeutscheTelekom.• The big winners of the beauty contest for the allocation offour UMTS licences (3G mobile) in Spain are the three GSMoperators (Telefónica, Airtel and Retevision) and theconsortium comprising Vivendi (main shareholder in Frenchfixed/mobile operator Cegetel/SFR) and the Spanish buildingand public works enterprise, Fomento de Construcciones yContratas (FCC).• Nortel continues to shop around for skills and pays $3.25billion for Xros, a well-established optical switching specialist.• Telefónica confirms its interest in the media by announcingplans to take control of one of Europe's leading independentTV production companies, Endemon Entertainment NV, for asum of around 5.5 billion euros (in stock).• AOL announces the acquisition of Bertelsmann’s 50%holding in AOL Europe and AOL Australia for some $8.25billion.• France Telecom takes an important step towards the Germanmarket by taking a 28.5% stake in MobilCom for a sum of3.63 billion euros, with an option to raise its holding by 2003.By teaming up with MobilCom, the French operator securesa place in the three segments: fixed (600 000 long-distancesubscribers), mobile (close on 2 million subscribers beingserved) and Internet (1 million subscribers to Freenet.de, thesubsidiary launched by MobilCom in 1999). Still under themajority control of its founder chairman, MobilCom wasunable to turn a blind eye to the need for the backing of apowerful partner, especially with a view to obtaining UMTSlicences.• IBM and Qwest team up to make a joint $5 billion investmentin Web site hosting. According to the terms of the agreement,IBM Global Services is to receive $2.5 billion over 7 years forinstalling and managing 28 new hosting centres, and will paya similar sum to Qwest for the use of 25% of the capacity ofthese centres and for access to the fibre optic networkslinking them. This move highlights the battle being enteredinto for control of the hosting segment, which has nowbecome a decisive element for new optical network operatorssuch as Qwest and Global Crossing. IBM, in turn, will bestrengthening its already well-developed hosting activity andonce again (through this announcement that followsagreements signed earlier in the month with Ariba and I2) hasconfirmed its policy of focusing on services under the aegisof a global offering in the field of e-commerce.• Deutsche Telekom takes control (50.1%) of DebisSystemhaus, Daimler-Chrysler’s IT subsidiary, for around 6billion euros, with an option up to 2002 on the remaining49.9%. Providing extra skills in the sphere of integration, thisacquisition should help Deutsche Telekom avoid losingground in the major corporation sector. It does not, however,solve all the problems bound up with the departure fromGlobal One, particularly in the North American market.• Open TV, leader in interactive TV platforms, takes control ofSpyglass, a specialist in Internet browsing software, in ashare swap deal valued at $2.5 billion.• Major alliance between two marketplace (B2B) players,i2Technologies and Aspect Development, in a share swapdeal valued at $9.3 billion. Although still to be approved, thisoperation will make Aspect a subsidiary of i2Technologies.• Leading independent ISP in the USA, PSINet, spends $1.9billion in a share swap deal on acquiring Internet webconsultant Metamor Worldwide.• Pixelpark AG, a company controlled by Bertelsmann,announces the acquisition of two Swedish companiesspecialising in Internet consultancy, Cell Network AB andMandator, for a sum of 2.4 billion euros.© IDATE www.idate.fr

World2000 137• Japan Telecom, Vodafone and BT decide to invest $6.6billion in a jointly owned company to take over the control ofJ-Phone, third biggest Japanese mobile operator with 8million subscribers.• Cisco acquires SignPath (intelligent management systemsfor content transmission), InfoGear Technology (products andsoftware for IP access equipment management), JetCell(internal wireless telephony in buildings) and UK companyAtlantech Technologies (network element management).• Lucent Technology announces the spin-off of its BusinessCommunications division so as to concentrate on what is nowits core activity, network platforms for operators. The world’sNo 1 equipment manufacturer also announces the takeoverof DeltaKabel TeleCom, a small Dutch manufacturer of cablemodems and telephony systems.• Rich happenings at Nortel, which acquires the majorityshareholding in its French and German joint ventures, NortelMatra Communication and Nortel Dasa respectively. Thisfinancial restructuring gives Nortel de facto operator status inits two European subsidiaries. At the same time, Nortelacquires DSL technology specialist PromatoryCommunications for $778 million in shares and announcesthe takeover of CoreTek in a deal that could reach a figure of$1.43 billion. Designer and manufacturer of opticalcomponents, CoreTek is expected to substantially increasethe US-Canadian group’s potential in the area of opticaltransmission. This acquisition follows the takeover of Xros, adesigner of optical switching platforms, bought for a paltry$3.25 billion (in shares), a sum that illustrates the eagernessof the big manufacturers to supply complete all-opticalnetwork platforms in as short a time as possible. March alsosaw the finalisation of the acquisition of Clarify, a specialist ine-commerce solutions.• Nokia finalises the acquisition of Network Alchemy, aCalifornia-based company specialising in clusteringtechnology for IP network platforms. The deal involves a sumof close on $335 million in the form of a share swap.• Sema Group merges with LHS, an OSS player (billing andcustomer relations management) in a deal worth almost$45.7 billion. The merger gives birth to one of the world’stopmost players in the area of OSS for cellular networks, witha turnover of $400 million and a staff of 2 600. Once themerger is completed, telecom activities will account for closeon 25% of the new company’s revenues. The Anglo-Frenchgroup hereby demonstrates its ambitions in a market whereit is already established and which has turned out to be a realzone of friction among telecoms manufacturers, softwarehouses and IT specialists.April 2000• UK cable operator Klesch acquires a 65% stake in the Hessecable network company (serving 1.8 million homes) fromDeutsche Telekom for an estimated sum of $1 billion, andannounces plans to invest a further 1.5 billion DM and raisethe number of subscriber households to 2.2 million.• UPC announces the takeover of EWT-TSS, which operatesthe 4th biggest cable network in Germany, for an unpublishedsum (25% in cash, 75% is shares).• Portugal Telecom subsidiary PT Multimedia announces afriendly takeover bid for a 42% equity stake in Lusomondo,leading Portuguese multimedia and audiovisual group for asum of 180 million euros. Apparently treading a similar pathto Telefónica (which recently acquired Endemol), PortugalTelecom already controls TV Cabo (cable) and Telepac,leading Internet access provider in Portugal, via PTMultimedia.• The wave of investments in web hosting continues with theannouncement by Concert and its shareholders, AT&T andBT, of plans to spend $2 billion on the setting up of 44 datacentres in 16 countries over a 3-year period.• AT&T, its subsidiary Liberty Media and BT decide on a jointinvestment of $1.4 billion in IP telephony leader Net2Phone.The two partners are to acquire 32% of the shares and 39%of the voting rights. They will be joining IDT, the majorshareholder with whom the deal was negotiated, GeneralElectric, AOL, Software and Yahoo!.• UK-based Pearson and the CLT-UFA group (controlled byBertelsmann and Bruxelles Lambert) announce the merger oftheir audiovisual activities in a new entity with a marketvaluation of 20 billion euros.• Microsoft continues investing in cable by taking overMediaOne’s 60% holding (pending its merger with AT&T) inJapanese cable company Titus, whose other shareholdersare Itochu and Toshiba.• The auctions held by the UK government for the allocation ofthe five 3G (UMTS) mobile licences led to the selection of thefollowing groups: TIW (backed by Hutchison), Vodafone, BT,One2One and Orange. The UK Treasury raked in a sum ofaround $34.4 billion, a level that led various governments thathad opted for the beauty contest procedure to think twiceabout their choice. The results raised the value of Orange,which Vodafone will be obliged to sell, in proportion.• AT&T Wireless is listed in New York. After the fashion ofSprint with its Sprint PCS, AT&T introduces tracking stocks.• Cisco’s shopping round takes in a subsidiary of Seagull,specialist in silicon technology, with the aim of raising theperformance of its terabit routers. It also acquires Pentacom,an SRP protocol pioneer (enabling metropolitan networks tooffer the same performance in regard to security as SONET,while doubling their capacity).• Lucent finalises its takeover of California-based Ortel,developer of opto-electronic components for the cabledistribution industry. Lucent also announces a partnershipagreement with Siemens covering UMTS terminals. Itembraces joint R&D work and interoperability tests.• Nortel strengthens its position in the OSS sector by acquiringits Canadian counterpart Architel for a sum of $395 million.The object of the deal is to speed up Nortel’s developmentsin the area of management of nextgen IP services. Architelwas also one of the last independent OSS players. In thesame month, Nortel implements its production restructuringstrategy by signing a 4-year contract worth some $10 billionwith Solectron for outsourcing some of its manufacturing andmaintenance activities in North America and Asia. Nortel hasset its sights on becoming one of the world’s leadingequipment manufacturers with an integrated productionorganisation in virtual mode.• Ericsson announces plans to reorganise its operatingstructures into 6 divisions (Mobile Systems, Multi ServiceNetworks, Consumer Products, Data Backbone and OpticalNetworks, Internet Applications and Solutions, SystemServices).May 2000• For a cash sum of $5 billion, NTT acquires the remaining90% of Verio, a US company specialising in web hosting ande-commerce (revenues of $81.1 million in the first quarter of2000).• DoCoMo makes its first significant investment in European by© IDATE www.idate.fr

138World2000 agreeing to pay 5 billion euros for a 15% equity stake in KPNMobile. This cash deal raises the value of KPN mobilesubscribers to 8 000 euros. Due shortly to put its mobilessubsidiary on the market, KPN also announces thecontinuation of negotiations with other operators, followingthe failed merger with Telefónica.• Cisco continues its round of acquisitions by taking control ofthe Swedish company, Queyton Systems, in a share swapdeal valued at $800 million. A small firm founded in 1998 andemploying a staff of 52, Queyton, like Pirelli Optical Systemsthat was taken over a few weeks previously, possesses skillsin wavelength multiplexing techniques for metropolitannetworks. In the same month, Cisco also acquiredArrowPoint Communications, a web content routingspecialist, for $6 billion in shares.• While the latest quarterly results concerning Alcatel’stelecoms activities indicate growth of close on 50%, theFrench group announces plans to put its cable business onthe stock market. At the same time, Alcatel announces thesetting up of a joint venture with the Japanese Fujitsu group,designed to enable the company to make up for lost time inthe UMTS sector.• Technological partnership agreement between Nokia andTRW in the area of base stations for 3G mobiles. Bull, too,announces a partnership with the Finnish group for providingmobile operators and content suppliers with WAP systems.• Motorola finalises its takeover of C-Port Corp., a companyinvolved in programmable processors for optical networksand high-speed routers. The deal follows the acquisition of astrategic stake in Paratek Microwave, a group concernedwith the development of technologies employed for RFcomponents and so-call phased array antennas.• Terra Networks obtains control of Lycos in a $121.5 billionshare swap deal. The two partners will be exploiting thecomplementarity of their respective geographicalrepresentation. Operating under the name Terra Lycos, thenew entity will be present in 37 countries and is expected togenerate revenues of some $500 million in 2000. In 1999,Terra Networks posted losses of $173 million on revenues of$78.5 million, while with revenues of $135.5 million, Lycosrecorded a profit of $52 million.• The British government gives the go-ahead for FranceTelecom to increase its stake in NTL by 25% when Cable&Wireless Com. sells off its cable business. In exchange forthe use of NTL's high-point based wireless network, FranceTelecom undertakes to sell its 20% share in Crown CastleInternational Corp.• Singapore Telecom Ltd, the unsuccessful candidate in theHong Kong Telecom takeover, announces an agreement withthe British group Virgin totalling several $billion. The 50/50joint venture will bring together the two groups for thepurpose of developing mobile services in Singapore, HongKong and South Korea. Virgin will notably take advantage ofthe experience it has gained as a Virtual Mobile Operator(VMO), enabling it to quote the figure of 300,000 subscribersin the UK on the basis of minutes of communication boughtfrom One2One.• The Callahan investment group purchases 55% of DeutscheTelekom's Baden-Wurtenberg cable network representing 2.2million subscribers. The American group had alreadyacquired control of DT's main regional company in NorthRhenania-Westphalia, providing it with almost twice as manycustomers (4.2 million).• Telefonica continues its forays into the media world byincreasing its stake in the Spanish production company,Mediapark, to 25%. Meanwhile, its Telefonica Media arm isgiven the green light from the Argentinean authorities topurchase the AC Inversora and Atlantida Communcaciones(AtCo) groups. This will give it full control of Telefe, thesecond-largest TV broadcasting group in Latin America, aswell as of Radio Continental and eight regional TV channelscontrolled by AtCo.• UPC, whose development strategy has been greatlyimpeded by the sudden drop in its market capitalisation, hasto give up its intention to acquire the Scandinavianaudiovisual group SBS, which is present in both TV and radiochannels in a dozen or so European countries. At the sametime, Chello has postponed the floatation of its fast-Internetaccess service (170,000 subscribers) while negotiations withTelewest get underway.• KPN announces the withdrawal of the Irish operator Eircom.It is to sell its 21% stake estimated at some 1.6 billion euros.• Confirming the effervescence to be seen in the opticsorientatedstart-up sphere, Lucent announces its acquisitionof the MAN specialist Chromatis for $4.5 billion. Lucent,which already owned 7% in this company via its venturecapital firm, will finance the deal through a share-swap.• Hutchison Whampoa Ltd. says that it is to invest $400 millionin China Unicom, the second-biggest Chinese operator, atthe time of its IPO planned for June.• France Telecom buys Orange, the third-largest mobileoperator on the UK market boasting around 6 millionsubscribers for 40.3 billion euros and an additional 2.9 billiondebtassumption. A significant proportion of the transactionwill be paid for in cash ($22.2 billion) and the rest by shareswapafter selling more stocks and by doing so, reducing theFrench State's 61% stake in the company to 54. Afterwithdrawing from the UK's UMTS auctions in the homestraight, France Telecom should now recuperate Orange'slicence and for this reason, it will have to pay 6.6 billion eurosto the British Treasury. The French group has also expressedits intention to keep Orange's managerial team and to mergeall of its mobile assets into one new entity ("New Orange"),which means that it will control nearly 20 million subscribers(in Western Europe).• Failure of the $60 billion merger of Telefónica and KPN,which would have given birth to Europe(s fourth biggestoperator (market valuation of $120 billion). Following thedifficulties encountered by Deutsche Telekom and TelecomItalia and the last-minute break-up of the Telia-Telenoragreement, this failure highlights the problems beingexperienced by ex-PTTs in Europe in joining forces. Theproject seemed comparatively coherent, given thecomplementarity of the two groups’ geographical sites andtheir limited ability to meet the investments required by UMTSlicences. The blame is attributed to the Spanish governmentfor having demanded exact dates for the sale of the Dutchgovernment’s 43.5% holding in KPN, and to differences in theviews of the chairman of Telefónica, several shareholdersand the Aznar government.June 2000• The French government confirms its initial choice to awardthe country's four UMTS licences through a beauty contestprocess, by the summer of 2001. It does, however, set amuch higher level of royalties than expected. Each selectedoperator will be required to pay 32.5 billion FF in royalties,half of which must be paid out during the first two years.Nonetheless, this sum does remain well below the amountthat the British government wil take in (equivalent to close to250 billion FF), even when taking into account the difference© IDATE www.idate.fr

World2000 139in the number of licences, their lifesapn (15 years vs. 25), thepayment deadlines and the cost of infrastructure deployment.• In his ruling, Judge Jackson demands that Microsoftdismantle its activities, notably the separation of its OS andsofware units. Microsoft appeals…• The FCC gives the conditional go-ahead for AT&T's takeoverof MediaOne, for a transaction that is estimated to be worthsome $46 billion. Following this agreement, AT&T willmanage over 16 million subscribers on its cable networks.The giant will, however, opt for one of the three anti-trustprotection solutions proposed by the FCC by 5 May, 2001: toseparate from its Liberty Media subsidiary, sell off its 25.5%stake in Time Warner Entertainment (which controls themajority of second-ranked Time Warner's cable assets), handover a number of its cable networks. The Justice Departmenthas demanded that it must sell of MediaOne's 25% stake inRoadRunner.At the same time, it was discovered that the FCC waspreparing to give its approval for the GTE-Bell Atlantic mergerproject, announced two years previously. The newcorporation respresents a capitalisation of $150 billion, withan annual turnover of around $60 billion. It will regroup some60 million phone lines spread out over 31 states, or close toa third of the American market. Among other things, GTE willbring in some 4 million mobile subscribers to Verizon, thecompany created by Bell Atlantic and VodafoneAirTouch,which dominates the market with its 25 million subscribers(well ahead of AT&T Wireless). In counterpart to theauthorities' go-ahead, GTE has agreed to a spin-off whereinits Internet backbone will go it alone in an IPO under theGenuity brand name.Lastly, Sprint appears to be getting discouraged by theproblems it has been having in obtaining approval fromAmerican and European authorities to merge withWorldCom. One of the main obstacles resides in the possiblespin-offs which would ensure fair competition on the Internetbackbone market. The options considered would requireWorldCom to separate from UUNET, or to reduce the mergerto only the acquisition of Sprint's mobile assets (Sprint PCS).• After a comparative bidding process the Japanese authoritiesrespectively awarded 3G mobile licences to the followingmobile operators:- the No. 1 on the Japanese market, NTT DoCoMo,- the No.2, DDI (which has announced its imminent mergerwith KDD and IDO),- the No.3, J-Phone (in which BT has a 20% stake,Vodafone 26% and Japan Telecom 54% - itself the objectof a 30% joint investment by BT and AT&T). DoCoMoannounced it intention to roll out W-CDMA-standardservices in the country's major conurbations in aroundMay 2001, starting with Tokyo.• The Turkish government confirms that 20% of public fixedtelephone operator Türk Telekom is to be sold to a strategicinvestor. SBC, Telefónica, Vivendi and France Telecom areamong investors from the western world being quoted. It isbelieved that the company chosen firstly on the basis of itsapplication and subsequently as a result of an auctionprocedure will have to spend over $2.3 billion. Türk Telekomis going to have to pay $2.5 billion for the fourth GSM licence,after the fashion of the Telecom Italia-led consortium thatobtained the third licence. With a 41% stake in the country'sNo.1 mobile operator, Turkcell, Sonera remains the leadingwestern operator in the market.• After the failure of its attempted merger with Telia, Norwegianpublic operator Telenor resumes action by acquiring GNStore Nord’s 53% interest in Danish mobile operator Sonofon(the remainder is held by BellSouth) for a sum of 1.77 billioneuros. Thanks to this control of No.2 in the Danish marketand its 900 000 customers, Telenor can now boast close on3 million subscribers. It is hoping to increase its equity capital,finance its acquisitions and the costs of any accompanyingUMTS licences by offering a first tranche of 15 to 25% of itscapital on the stock market in September this year.• Telia, in turn, which has a 52% share of the Swedishtelecoms market (plus 44% of the Internet access market),had a successful introduction on the stock market, despitethe downturn in telecoms stocks. The 30% put on the marketis reported to have brought in 9.2 billion euros to the State,which will be reducing its holding to around 20% inconnection with future stock market operations. Telia’s 1999revenues amounted to 6.2 billion euros, 19% of which wasaccounted for by mobile activities.• Third stage of Deutsche Telekom's privatisation: the 6.6%capital floatation brings the State's share down to about 58%and provides it with revenues of 15 billion euros. The twoprevious tranches were floated in autumn 1996 and in June1999.• The French group Vivendi (Cegetel, Havas, Canal+) takescontrol of Universal Music and Universal Pictures aftermerging with Seagram. This share-swap deal gives theCanadian group a valuation of $34 billion (over $40 billionincluding Seagram's debt burden). The new entity, VivendiUniversal, which should clear its debts by selling Seagram'sspirits unit and floating Vivendi's environment branch shortlyafter, will represent an annual turnover of around $20 billionin communications. The relatively complex arrangement ofthe transaction has to be submitted to the French competitionand regulation authorities (The broadcasting body, CSA)).Presented as a rival merger following the announcedmarriage of AOL-Time Warner, Vivendi Universal does notappear to be a totting-up of subscriber portfolios at first sight.In certain respects it may come close to what have nowbecome systematic alliances in the United States betweenlarge TV networks (the one between Canal + and itssubsidiaries comes to mind) and the majors. What is more,the multi-access portal Vizzavi launched a few months earlierby Vivendi and its partner Vodafone should be able to pull outsome extra trump cards from Universal Music's catalogue (oreven Universal Pictures') to supplement those provided byHavas' publishing activity and Havas Interactive's interactivegames.• The FCC finally gives the go-ahead for the GTE-Bell Atlanticmerger announced in July 1998 and valued at $55 billion.The transaction has given birth to the biggest regional phonecompany boasting around 63 million customers and make itthe No.1 mobile operator with 25 million subscribers (in thecontext of the Verizon entity formed by Vodafone AirTouch).In order to get the green light from the US authorities BellAtlantic had to give further guarantees for opening up itsmarkets to competition for local services, while GTE has topart with its Internet activities (by dividing them up intosubsidiary companies to begin with).• Telia puts the failed Telenor merger behind it once and for allby taking control of NetCom (51.5%), Norway'ssecondbiggestmobile operator (750,000 subscribers) for 2.6 billioneuros. The remainder of NetCom's capital is owned byTeleDanmark and its shareholder SBC.• China Unicom, the second-largest mobile operator in Chinawith about 6.5 million subscribers (way behind ChinaTelecom which possesses over 20 million) is successfullyfloated on the Wall Street and Hong Kong stock market. Itraised almost $5 billion for 20.2% of its capital. The company,which has chiefly based its development on the GSM© IDATE www.idate.fr

140World2000 standard, pushed itself into the limelight some time beforethis deal by announcing its decision to abandon an ambitiousdeployment plan for CDMA mobile technology with a view tofavouring investments primarily focused on a 3G standard.• The beginnings of a restructuring can be seen in theJapanese cable industry following the announced mergerbetween Jupiter and Titus. In a country where cable networksare extremely fragmented (700 cable operators and 15%subscriber households), this new body will represent aroundone million subscribers and 28 television channels. It will beowned by Sumitomo and Liberty Media (35% each),Microsoft (24 %), Itochu and Toshiba (3 % each). Thecompany's objective will probably be to take advantage of aconsolidation phase in the cable industry in order to offer areal alternative to NTT in the high-speed Internet accessfield.• After signing a protocol agreement, Liberty Media (AT&T)should take control of the UGC holding which owns 51% ofUPC. The transaction will take place as soon as LibertyMedia has given all its international assets to UGC (including25% of Telewest in the United Kingdom and numerousshareholdings in Latin America and Japan). In exchange forthese contributions estimated at $5.3 billion, Liberty Mediawill receive $200 million in cash and will control 45% ofUGC's capital (with 82% voting rights). The new UGC shouldcontrol 61% of UPC which represents 1.8 million subscribersin Europe (with significant potential for creating synergieswith Telewest's 1.8 million subscribers). It could become aregional holding to manage assets in Latin America (28% ofCablevision in Argentina, 49% in the Puerto Rican firmCablevision, 41% in Gruppo Portatel in Mexico and 43% inthe Digital Latin America platform created with Motorola).• Deutsche Telekom beats Tecnost's record (the vehicle thatenabled Olivetti to take control of Telecom Italia) by issuing a$14.6 billion bond loan. In the face of operators' growingneed to merge or cope with the cost of UMTS licences andnetworks, a certain amount of mistrust fortelecommunications firms can be seen on the bond marketand this is forcing these companies to offer more and moregenerous conditions.July 2000• Telecom Italia withdraws from Italtel by selling 81% of itsshares to a consortium uniting Cisco (19%) and US financialpartners for 600 million euros. Itatel, initially owned byTelecom Italia and Siemens, gave up its mobile and systemsactivities to Siemens when this group left the joint venture. In1999, it embarked on a restructuring plan that resulted in a 20million e loss. Forecasts predict a 35% increase in turnoverfor 2000, pushing sales figures up to 1 billion euros. Cisco'sinvestment, following on from its acquisition of Pirelli's opticalsystems for $2.14 billion goes hand in hand with an alliancestrategy with Telecom Italia to develop innovative datatransmission, voice and image applications and collaborateon developments accompanying the advent of UMTS.• Deutsche Telekom acquires 51% of SlovakTelecommunications (ST) for 1 billion euros. At the sametime, Telekom announces the 2.3 billion e buyout of theAmerican operator SBC's 50% stake in Magyarcom. Thisholding (in which Telekom already held 50%) controls themain Hungarian operator Matav with 59.5% of its capital.• Following a series of acquisitions and reorganisations,Telefonica underlines the importance of its base in LatinAmerica by announcing that it now owns 96% of Telefonicade Argentina (up from 51%), 87.5% in Telecommunicaoes deSao Paulo (up from 28.5%), 89.3% of Sudeste CelularParticipacoes (up from 20.9%) and 90% of Telefonica delPeru. These consolidation moves, amounting to aninvestment of 4.8 billion euros for the group, were funded byshare swaps and capital increases. They will enableTelefonica to reorganise its shares by product line andenvisage certain floatations.• Microsoft, which had announced a $3 billion investment toacquire 29.9% of the second-biggest British cable operatorTelewest, limits its direct participation to the current 23.7%.The European Commission was worried about theconsequences of the software giant increasing its interest –already very much involved in the development of digital settopboxes - in Telewest, given its privileged relationship withLiberty Media (which owns 25% of Telewest) and its holdingsin NTL and UPC.• JDS Uniphase and SDL announce a new merger in theoptical technology sphere. As a specialist in opticalamplifiers, the latter of these two companies supplies JDS,the firm that has managed to push itself to the fore as one ofthe new leaders in the optical component industry. AlthoughJDS is not yet making a profit it has carried out more than 17acquisitions since 1995 and four of these took place duringthe last six months. True to the frenzy that characterises theoptical sector, JDS had to pay a high premium to buyout itssupplier in a $41 billion share swap valuation…• The French authorities awarded two national broadbandwireless access licences to Firstmark CommunicationsFrance (Firstmark, Suez-Lyonnaise, Arnault group, Rallye,Rothschild and BNP-Paribas) and Fortel (PriorityWireless/UPC Marine-Wendel and Sgerel/NRG). 52 regionallicences (including 8 in overseas departments) were alsoawarded to the following main beneficiaries: Broadnet France(Comcast/AT&T/Microsoft and Axa) - 14 regional licences,BLR Services (LD Com, Teligent, Artemis/F.Pinault) - 8licences, Landtel France and Belgacom France - 7 licenceseach. These were awarded after comparing bids and yieldedFF1.5 billion for the French State. The outcome of theseawards demonstrates the failure of France Telecom's maincompetitors on the French market: Cegetel (Vivendi,Vodafone, BT), 9 Telecom (held by Telecom Italia), Tele 2 andSiris (Deutsche Telekom), as well as that of LMDS-licencespecialists like Formus and Winstar.• The Japanese mobile giant NTT DoCoMo finalises its buy into KPN Mobile (15%) for 4 million euros and announces a 1.6billion e investment to take over 20% of Hutchison 3G. At thesame time, KPN Mobile is going to acquire 15% ofHutchinson 3G for 1.2 billion euros. Hutchinson 3G holds90.1% (the remainder belongs to TIW) of the company whichwas awarded a 3G licence in the United Kingdom for 7 billioneuros. The trio should be competing together for a licence inGermany (where KPN controls E-Plus) and in Italy, Franceand Belgium (where KPN owns 50% of KPN Orange andhopes that France Telecom, which already has control ofMobistar, will retrocede Orange's 50% stake). The originalityof this alliance lies in the fact that the players seek to acquirelicences as one single entity but envisage operating servicesseparately (under each brand name).• Global Crossing, which has to cope with the weight of its debtburden and its massive investments in the deployment of itsworldwide network, sells its local telephony activity toCitizens for $3.65 billion in cash. It acquired these one millionlines scattered around fifteen states through the Frontierbuyout. Once the agreement is effective Global Crossingshould be providing Citizens with a long-distance service onthe lines that it has purchased.• WorldCom and Sprint abandon their merger projectestimated at $129 billion after coming up against hostility© IDATE www.idate.fr

World2000 141from the US Department of Justice and the EuropeanCommission. The American authorities saw this merger as aserious danger to maintaining competition on the longdistancemarket, while the European bodies were especiallysensitive to the 60% international Internet traffic market share(in fifty countries) that this new marriage would represent.• Lucent announces the imminent spin-off of its microelectronicactivities representing a turnover of around $4billion. The new entity, grouping together the integratedcircuits and electronic components divisions, should lead to a20% floatation during the first quarter of 2001, with theremainder of its capital being distributed among Lucent'sshareholders. Although Nortel has initiated talks with Corningto pool their optronics activities and Alcatel may be creatingtracking stocks for its optical component activities, this sectoris still particularly unsettled.• After extremely long negotiations an agreement is now takingshape between Vodafone AirTouch and BT for control ofSpain's second-largest mobile operator Airtel, whichaccounts for 1/3 of the national market with 5.7 millionsubscribers in March 2000 and has a UMTS licence. Thisagreement will make Vodafone majority shareholder with a65.3% stake (21.7% already owned plus 30.46% bought upfrom the BSCH bank, and the remainder from otherinstitutional investors). After this transaction, BSCH shouldown nearly 2.7% of Vodafone.• France Telecom successfully floats 9.7% of its shares in itsWanadoo subsidiary in a difficult context. Representing aturnover of 810.4 million euros in 1999 for a profit of 39.6million, this company groups together France Telecom's verylucrative directory publishing activities as well as its greatloss-making ISP business (1.8 million subscribers) and stillmarginal portal and e-commerce activities. To make sure thatWanadoo's flotation went well, the subsidiary was valuedbelow the 20 billion-mark, which still places it in secondposition in Europe behind T-Online and ahead of TerraNetworks.• BskyB becomes the majority shareholder in Open TV afterbuying up HSBC and Matsushita's stakes for £394 million(BT stays at 19.9%). The platform is valued at 1.92 billioneuros.• The Oxygen project that was supposed to lead to thedeployment of a gigantic world-spanning optical network(328,000km-long, touching down in 171 countries in 265places) between now and 2003 is abandoned. The initialbudget for the project was estimated at nearly $15 billion.• In consistency with the Liberty Media (controlled by AT&T)and UGC/UPC alliance, the two high-speed cable accessservices, Home and Chello are going to merge their activitiesoutside the United States. 13.5 million homes have access toExcite@Home in ten countries (outside USA) and Chelloboasts close to 170,000 subscribers on UPC networks mainly(10.5 million homes) and in Europe. The new 50/50 venturecreated by Excite @Home and UPC, estimates its initialsubscriber base at 300,000. Its shareholders will provide itwith 400 million euros and the company should have beenfloated on the stock market before the year is out. Backed byAT&T and valued at around $6 billion, the structure shouldprove to be a challenger for T. Online, Wanadoo and TerraNetworks.• Deutsche Telekom takes up initiative again in the UnitedStates by announcing its cash-and-swap purchase ofVoiceStream, the last independent mobile operator acrossthe Atlantic. Created from a spin-off of Western WirelessCorp in 1999 and later acquisitions of Aerial Communicationsand Omnipoint, VoiceStream has the particularity of being theleading GSM-standard mobile operator in the US. With 19%and 7.9% respectively, Hutchison Whampoa and the Finnishcompany Sonera are VoiceStream's majority shareholders.In view of the fact the number of subscribers did not exceed2.3 million and that the transaction was estimated at $53billion (including a $5 billion debt takeover) when theannouncement was made, this was a record-breaking dealwith a subscriber valuation of over $20,000…• After difficult negotiations and with the start of the UMTSlicence award process looming in Italy, Deutsche Telekomwithdraws from the operator Wind in this country. Its twoformer partners France Telecom and Enel takeover its 24.5%stake thus boosting their capital in the third-biggest Italianmobile operator (2.779 million subscribers) to 43.37% (18.9%for 2.09 billion euros) and 56.63% (+5.6% for 0.62 billioneuros) respectively.• Lucent acquires Sprint Tide Networks, the switch andnetwork equipment specialist for $1.3 billion.• Auctions for the 5 UMTS licences closes in the Netherlandsafter Viatel, one of the 6 bidders, pulls out. In the end theseauctions only raised 2.68 billion euros. Licences wereawarded to Libertel (Vodafone-Airtouch) for 713.8 millioneuros, KPN Telecom for 711.07 million, Dutchtone (FranceTelecom) for 435.63 million, Telfort (BT) for 430 million, andthe consortium uniting Belgacom/TeleDanmark andDeutsche Telekom. The multiplication of mergers(Mannesmann/Vodafone, Orange/France Telecom), andalliances (like KPN/Hutchison/DoCoMo or Teledanmark/DT))is putting a damper on competitive strategies and highrevenues from auctions. Once market differences have beentaken into account, these licence-awards will have brought infar less than auctions in Great Britain or the licence feesaccompanying the "beauty contest" in France.• The Polish government confirms it decision to award 35% ofthe operator TPSA's capital to the bid headed by FranceTelecom. France Telecom will have to lay out 3.2 billion euros(25% shares) and its partner – the Jan Kalezyt Group - 1.4billion. The two partners should be increasing their share ofcapital in TPSA (up to 51%) in two stages planned for theyear2001. TPSA, which manages ten or so million fixed lines anda million mobile lines, posted a turnover of 3.17 billion eurosin 1999.• Nortel takes the offensive again by acquiring AlteonWebsystems Inc, one of the leaders in data accelerationdevices for Internet servers for $7.2 billion (share swap).Although Websystems Inc still has a modest turnover - $51.5million for the last quarter - it is expanding rapidly.August 2000• Cisco pushes on with its external growth strategy by takingcontrol of IP Mobile in a deal estimated at $425 million (shareswap). Established in 1999, IP Mobile employs 81 staff andis specialised in the development of the wireless IP accesssystems that will form the core of 3G mobile systemmanufacturers' expertise. This acquisition, demonstratingCisco's ambitions in the mobile domain at the time of a newgeneration of IP-orientated services, is the 16th since thebeginning of the year. It followed the purchase of NuSpeedInternet Services ($450 million) and Netiserve ($210 million)a few days earlier.• As a result of its merger with GTE, preceded by the one withVodafone-AirTouch, Bell Atlantic – now called Verizon - sellsseveral of its mobile networks in the regions of Chicago andCincinnati, representing licences for a population of 16 millioninhabitants, for $1.4 billion. The sale went to a BGV© IDATE www.idate.fr

142World2000 consortium grouping together Triton Cellular Partners LP andother investors. Verizon now leads the US mobile marketwith 25.6 million subscribers, 40% of which are digital.Verizon Wireless announced that it was going to investapproximately $4 billion in 2000 to deploy its CDMAnetworks.• Verizon announces its takeover of the No. 2 new DSLoperator, NorthPoint by acquiring 55% of the company'sshares for $350 million. Verizon and NorthPoint intend to pooltheir DSL activities in a single entity into which Verizon willbring $450 million in cash. This agreement will enableNorthPoint to stay in business after watching its lossesballoon dangerously ($112 million loss in the second quarterfor revenues of $24.4 million). As well as bringing the compansubscribers onto its 62,000 active DSL lines, it will expand itspresence outside Verizon's territories. This newly establishedentity will become the US and world leader in DSL with its280,000 lines and intends to hit the 500,000-mark by the endof the year.• As planned, France Telecom pursues its withdrawal from thecable plan by selling its 49.9% stake in the cable operatorNoos to NTL (27%) and Morgan Stanley Dean Witter PrivateEquity (22.9%) for 1.35 billion euros. Noos, whose majorityshareholder is Suez Lyonnaise, manages more than 737,000subscribers (for a total of 2.2 million marketable sockets) onseveral networks including the one in Paris. This new entity'sshareholders agreed to invest 750 million euros rapidly tospeed up the deployment of digital TV and the marketing ofInternet, along with the generalisation of cable telephonyduring a second phase. The UK cable leader, NTL (in whichFrance Telecom is the major shareholder) is already presentin France with 70,000 subscribers.• The WAP pioneer, Phone.com announces its merger withSoftware, a firm specialised in messaging software, in ashare swap deal valued at $6.4 billion. The two companieshave posted combined revenues of $146 million over the lasttwelve months.• The German energy giant E.ON sells its 45% stake in ViagInterkom, the fourth-largest GSM operator in Germany withover 2 million subscribers, to BT. This agreement, which willgive BT 90% control of Interkom (the remaining 10% beingheld by Telenor), values the transaction at 6.65 billion eurosminimum, but may be revised depending on the outcome ofthe UMTS auctions.• The UMTS licence auctions raised 50.52 billion euros for theGerman State, far surpassing the 37 billion obtained by theBritish treasury. The country's four GSM players(Mannesmann Mobilfunk, T-Mobil, E-Plus, and ViagInterkom) were joined by MobilCom (MobilCom/FranceTelecom) and the 3G Group (Telefonica, Sonera).• The Canadian mobile operator Telus announces itsacquisition of rival Clearnet after clinching a deal estimated at$4.4 billion. Representing 1.8 million subscribers in all, thisnew group benefits from partnership agreements in the USwith Nextel and Verizon.• After making a bid for VoiceStream, Deutsche Telekomcontinues its US mobile expansion drive by acquiring theGSM player Powertel for around $5.89 billion. Based mainlyin Atlanta, this operator now has 727,000 customers. IfDeutsche Telekom manages to secure these deals, it willcontrol around 3.3 million subscribers across the Atlantic,going on current client figures• Cisco buys the Canadian firm PixStream, supplying softwareadapted to the broadcast of animated images, in a stockswap estimated at $369 million.• WorldCom acquires Intermedia Communications for $3billion in shares and cash (the price was doubled by debtassumption). The Competitive Local Exchange Carrier(CLEC) Intermedia is active in Bell South and boasts 90,000Small and Medium-sized Enterprises (SMEs) customers inthe 14 conurbations it serves. However, the main attractionfor WorldCom lies in the 54% voting control it has over theWeb-hosting firm Digitex. Despite WorldCom's significantpush into this field, it now has to face up to market leaderslike Exodus Communications or Global Crossing, as well ascontending with the ambitions of Qwest and AT&T.September 2000• T-Online takes control of Ya.com, the third-biggest IAP(400,000 subscribers) and second-largest portal on theSpanish market. For a total 550 million euros (100 million incash and 450 million in stock), T-Online now has completecontrol of Ya.com and after buying Club Internet, constitutesT-Online's second internationalisation deal.• The ISP consolidation move in Europe advances as Tiscaliannounces its takeover of World Online in a share swapestimated at around $5.9 billion. The new entity shouldrepresent 6 million internauts (of which 3.5 million are alreadyactive).• The Italian yellow pages publisher, Seat-Pagine, currently inthe process of merging with Telecom Italia's Internetsubsidiary, Tin.it, announces its purchase of a 75% stake inTelemontecarlo for 387 million euros (130 million in cash).However, this transaction is still caught up in Italianregulations, which do no allow Telecom Italia to own a TVchannel.• Inktomi, one of the leaders on the Internet server "datacatching" market buys Fast Forward Networks, a companyspecialising in video and audio online broadcastingtechnologies in a $1.3 billion stock deal. This transaction canbe compared to the one carried out last month by itscompetitor Akamai to take control of Intertainer.• Videotron, the third-largest Canadian cable operator with 1.5million subscribers and Quebec's biggest cable TV channeland high-speed Infinity access service (150,000 subscribers)is finally sold to the publishing and media giant Quebecor for4.16 billion euros.• The sale of the News Corp TV Group's shares in the OpenTV software platform will leave Motorola with over 5% in theinteractive television company.• Telecom Italia's French subsidiary 9 Telecom should takecontrol of the company Jet Multimedia, specialising inaudiotex, minitel and web server hosting and Internet access.In the form of a takeover bid, this transaction values JetMultimedia at 887 million euros. Together, these twocompanies provide Internet access to 200,000 customers onthe French market.• Superfluous investments in pan-European networks arebeginning to take their toil. One of the first victims is Iaxiswhose optical network runs over 8,000 km and boasts majorcustomers like Deutsche Telekom. The company'sadministration has been limited and is now in the hands ofPrice WaterHouse Coopers.• The Canadian telecommunications leader BCE announcesan alliance with the Thomson Media Group. BCE is to hold a70.1% stake in this new multimedia ensemble, which willbring together TV channels, major newspapers-magazinesand web sites.• The broadband network provider ADC announces itsacquisition of the IP platform specialist Broadband AccessSystems in a share swap deal estimated at $2.25 billion.• The Airtel holding situation becomes a little clearer asVodafone announces its acquisition of the 8.43% stake thatAlba owns in Spain's second-largest GSM operator, for 2.5© IDATE www.idate.fr

World2000 143billion euros. Once this deal has been finalised, Vodafone willcontrol 30.18% of Airtel. It will also provide it with stockoptions for 30.46% of BSCH and the 8.43% belonging toAcciona and Torreal.• Time Warner Telecommunication takes over GST, whosemetropolitan and regional optical networks span acrosswestern America, for $690 million. Time Warner's subsidiaryis present in over 22 American conurbations.• Lycos Europe buys its rival Spray for 674 million euros. 31%of Lycos Europe belongs to Lycos Inc (currently merging withTerra Networks) and 19.3% to Bertelsmann.• France Telecom announces that it will be investing $200million in the U.S. on a broadband fibre network stretching24,000 km and linking 28 major cities. This investment willgive Global One its own infrastructure for serving UScustomers and offer France Telecom greater autonomy asregards transport of transatlantic Internet traffic. Level 3 willbe providing the fibre in a $100 million, 20-year contract.Alcatel will be supplying the DWDM multiplexing equipmentand Nortel, the SDH equipment. The network has to beoperational by the end of 2001.• The US Supreme Court refuses to directly examine the antitrustlawsuit against Microsoft. The trial should therefore lastlonger than expected on account of the company's appeal.• An alliance takes place between AOL (24 million subscribersthroughout the world) and the Japanese Mobile giant, NTTDoCoMo, (32 million subscribers in all, of which 12 millionhave signed up for the i-mode service). DoCoMo is to pay$100 million for 42.3% of AOL Japan (leaving AOL with42.3% and Mitsui/Nikkei with 17.4%). I-mode subscribers willhave access to AOL's messaging service and the partnerswill be developing other new services combining PC andmobile-enabled access.• Global Crossing sells its subsidiary Global Center (groupingtogether its hosting centres) to the world-leading web-hostingcompany Exodus for $6.1 billion in stocks. This transactionwill allow Exodus to add a further 19 centres to its currentbase of 22 (said to increase to 26 before the year is out) bythe end of the year. The deal will leave Global Crossing withbetween 16 and 18% of Exodus' capital and should enable itto rely on traffic generated by its partner's web-hostingcentres, whilst ridding it of its excessively capital-drainingbusiness (Global Center posted a $170 million loss in 1999for earnings of $70 million).• Pirelli sells 90% of its American optical component subsidiaryOptical Technologies (the remaining 10% being in the handsof Cisco) to Corning for $3.6 billion. This record-breakingfigure values the firm 165 times higher than its expectedturnover for 2000.• Liberty Media, AT&T's subsidiary run by John Malone, whichalready owns 8% of News Corp. increases its stake in theMurdoch family's group to 18%. This equity-based dealinvolves the exchange of Liberty Media's 21% share inGemStar-TV Guide, thus enabling News Corp. to hold 42.5%of this flourishing business that sells its own software totelevision manufacturers. In addition, Liberty will receiveshares worth $500 million in Sky Global, the holding groupingNews Corp.'s interests in satellite TV. Liberty Media NewsCorp. may get the chance to demonstrate its team powerwhen General Motors puts the control of Hughes Electronic(owner of DirecTV) up for sale, as intended.October 2000• Cable & Wireless chooses Nortel Networks for its $1.4 billioncontract to design, deploy and technically operate a platformthat will enable it to transfer its voice traffic over to IP withinthe next three years.• Deutsche Telekom increases its capital in BEN with a UMTSlicence in the Netherlands. Deutsche Telekom will own 50%of the consortium's capital (minus one share) and its partnersBelgacom and TeleDanmark will respectively possess 35%(instead of 70.6) and 15% (29.4).• NTT DoCoMo joins forces with the retail chain Lawson,Mitsubishi and Matsushita to create an M-commercecompany.• The project to merge with the British music firm EMI isabandoned in order to save the mega-merger between AOL-Time Warner ($130 billion) currently being examined inBrussels.• Vodafone invests $2.5 billion in China Mobile, which claims tohave over 50 million subscribers at the end of September.This transaction took place as new capital was issued, andshould make it easier for the Chinese giant to finance its $34billion investment plan. The deal should go hand in hand witha strategic partnership between the two groups.• Metromedia Fiber Networks announces its acquisition ofSiteSmith for $1.31 billion (in shares). MFN, the Americanoperator specialised in the construction of fibre-optic localloops and present in more than 50 North Americanconurbations and 18 European cities, consolidates its valueaddedservices by snapping up a firm specialising in thedesign and operation of corporate web sites that did not evenexist a year ago. MFN, which boasts additional Internetexpertise in the hosting and interconnection fields, has beengreatly affected by the drop in market values, brought aboutby the fears of optical infrastructure overcapacity.• Telefonica concludes its agreement with Motorola and takesover the equipment maker's stakes in 5 mobile networkoperatingcompanies in Mexico for an undisclosed amount.All of Telefonica's international mobile assets, representingnearly 10 million subscribers, will be added to the 11.5 millionsubscribers in Spain when Telefonica Moviles is floated onthe stock market. The deal, which should involve 10/15% ofthe company's capital, has been planned to take place inNovember, before France Telecom's and DeutscheTelekom's expected mobile subsidiary IPOs (New Orangeand T-Mobile respectively).• Creation of Cingular, a 60/40 joint venture , which regroupsSBC and BellSouth's 18 mobile units.• Vodafone's Italian subsidiary (ex-Olivetti/Mannesman)Infostrada is finally sold to Enel for 11 billion euros (50% ofwhich in cash). Following an agreement between the Italianenergy giant and France Telecom, the company will latermerge with their Wind joint venture: Infostrada will bring itsfixed subscribers (2.75 million) and its ISP activity (2 millionInternet subscribers) to Wind (4 million mobile subscribers,1.8 million fixed subscribers and 450,000 internauts). Withdebts amounting to 1.4 billion euros, Infostrada'smanagement team plans to obtain positive results for 2000and to make a profit from 2001 onwards. This transactionshould alter the power relationship within the new Wind team- the share of capital held by Enel will increase from 56.5% to73.8%, whereas France Telecom's stake will fall to 26.2%.However, the French operator has negotiated an option thatwill enable its to raise its share when Nouva Wind is floatedon the stock market.• The Hong Kong firm PCCW confirms its regional partnershipwith the Australian operator Telstra by selling its 60% controlof their mobile joint venture for $1.68 billion. The partnershipbetween these two groups should also allow an IP backbonto be financed in the region within the context of a 50/50 jointventure.• The European Commission in Brussels agrees to theVivendi-Seagram merger under certain conditions. Vivendiwill have to sell its 22.7% stake in the British satellite TV© IDATE www.idate.fr

144World2000 platform controlled by News Corp and limit Canal +'sexclusivity to 50% of Universal Studio's films.• The Japanese government met with half-hearted successwhen it floated another portion of NTT's capital. Thistransaction will provide the government with $11.3 billion butleave it with only a 46.7% stake in the world's number onetelecoms services company.• The UMTS licence auctions in Italy came to an end after onlythree days when the Blu consortium withdrew from thebidding process following a disagreement between itsdifferent partners (BT and the Benetton family in particular).This event proved to be a great letdown for the Italiangovernment, which only raised 12.6 billion euros instead ofthe 20 billion it was hoping for. However, it is reserving thepossibility of keeping the 2.06 billion euros deposit put downby Blu.Things worked out well for the five other licencewinners, however, who only had to lay out 2.41 to 2.45 billioneuros to obtain their licence: TIM, Omnitel (Vodafone), Wind(Enel, France Telecom), IPSE (Telefonica), Andala (Tiscali,Hutchison-Whampoa) It should be noted that this is the firsttime in Europe that a GSM operator did not obtain a UMTSlicence• Struggling with a tumbling share-price, an even sharper fall inits long-distance activity and a $61 billion debt burden, AT&Tannounces its decision to split up the group into four entities.The first three of these will be proper spin-offs, aiming tobecome fully-fledged independent companies, even thoughthe idea is to establish a contractual framework fo cooperation:AT&T Business (pooling all the corporateservices), AT&T Wireless and AT&T Broadband (cable).AT&T's Consumer activity will be attached to AT&T Businessbut will have its own tracking stocks.• Cable & Wireless, which took control of the Japaneseoperator IDC last year, announces a five-year $1.4 billioninvestment plan to build a fibre-optic network in Japan.November 2000• In the face of its falling share-price (less than half its value atthe beginning of the year) and dwindling long-distancetelephony sales, WorldCom resigns itself to following inAT&T's footsteps by announcing the creation of a trackingstock for its long-distance business, which will use its MCIbrand. Sprint, which was supposed to become part ofWorldCom, has not given any indication of the structuralreforms to be made, although it does admit that the FONentity (coupled with its data transmission activity) was notable to count on is long-distance business for significantgrowth. Its mobile arm (PCS), which already has its owntracking stock, should enjoy 90% growth in the year 2000.• European operators have planned to float their mobileactivities in a bid to cope with growing debts. In spite of thecurrent state-of-affairs on the stockmarket, Telefonica will betaking the plunge before France Telecom/Orange and T-Mobile by putting 8.92% of Telefonica Moviles' stock on themarket in November to raise capital. Last September, TM,which has already committed itself to spending 6 billion eurosto obtain UMTS licences in Germany, Italy and Austria,posted a turnover of 4.7 billion euros, of which 75.8% camefrom its activities in Spain (11 million customers) and 23%from Latin America (9 million subscribers).• With an expected penetration rate of 62% by the end of theyear, the Swiss market is in tremendous shape and hasbecome the much-coveted 'hot spot' on the eve of the UMTSauctions. Vodafone has negotiated the acquisition of a 25%stake in Swisscom Mobile - the outright leader on the Swissmobile market with 3 million subscribers (67% of the market)- for $2.54 billion. This agreement hinges on the operatorobtaining a UMTS licence in Switzerland and should alsomean that it will be possible for Debitel, Swisscom's 74%-owned subsidiary, to sell Mannesmann's D2 service inGermany. France Telecom has also made further inroads intothe Swiss market by purchasing E.on's 42.5% share inOrange Communications SA (754,000 subscribers at the endof October). This deal, valued at 1,113 billion euros, will giveFrance Telecom an 85% stake in the Swiss operator. 25% ofthe acquisition is to be paid for in cash and the remaining75% in shares in the New Orange company whose IPO isplanned for the beginning of 2001.• In light of its ailing share-price, which has halved thecompany's value since the start of the year, and thepublication of its Q3 earnings, confirming a drop in profits, BTannounces a corporate restructuring plan in which 25% of itsmobile business is to be floated during the second part of theyear 2001. The company's Yellow Pages business will alsobe floated, while a new company - NetCo - will draw togetherall of BT's wired network infrastructure in the UnitedKingdom. BT will also reduce its £30 billion debt by getting ridof its minority shareholdings, since it is now destined to focusits attention on the European and Japanese markets.• The mobile franchise-swapping saga continues in the US inthe race for geographical coverage amidst a climate ofintense consolidation around Verizon, AT&T, Cingular, Sprintand Nextel. Whilst AT&T and Sprint were agreeing on a swapthat would boost their mobile franchise potential to reach the18.5 million subscriber-mark, and Cingular (the joint venturebetween Bell South and SBC uniting 18 million subscribers)and Voicestream concluded a similar agreement involving 35million pops, Verizon Wireless announced that it waspurchasing rights from Alltel concerning 11.4 million potentialsubscribers in 6 states. Cingular is only present in 42 of thefirst 50 markets and Nextel, which is short on frequencies,should be among the major investors at the FCC auctions tobe held next December.• The International Court of Arbitration, to which BT (whichholds a 26% stake in Cegetel) referred its case, decides thatVivendi (44% share of the same company) has not brokenCegetel's shareholder pact by launching the multi-accessportal Vizzavi. However, it has asked Vivendi, which isinterested in buying 7.5% of the 15% that Vodafone holds inCegetel (acquired through its merger with Mannesmann) toestablish a holding company beforehand (it will not havedirect control of this additional stake before September2002). The court has left it up to BT to decide whether it willrequest compensation from its partners, provided that itmanages to prove that the agreement signed with SFR(Cegetel's mobile arm) and Vizzavi goes against SFR'sinterests. In this context, it seems highly unlikely that BT willpartner with Vivendi to acquire a UMTS licence in France.• The number of bidders for a UMTS licence in Switzerlandwas whittled down from 9 to 4 in the space of a week.TeleDanmark's last transaction led to the merging of two ofthe initial would-be licence holders, Sunrise and diAx, after itannounced that it was going to increase its stake in Sunrisefrom 44 to 89% by buying the 34.4% share in BT'spossession and half of the Swiss Railroads' and Union Bankof Switzerland's holding, while obtaining 70% from diAx bypurchasing SBC's shares (which owned 40% of diAx as aTeleDanemark shareholder) and half of the shares in diAxHolding (60%). TeleDanemark should own a 78.5% stake inthe new company once it has merged these two entities andspent 2.13 billion euros doing so (cash and securities). Giventhese events, the Swiss government has had no choice but© IDATE www.idate.fr

World2000 145to postpone the auctions, thereby following in the footsteps ofthe Belgian and Polish governments.• One of the UK's two top cable operators - Telewest- buyseurobell, one of the last independent cable networks in thecountry, from Deutsche Telekom for over £200 million.• The spate of frequently superfluous junk bond-fundedinvestments in the US is now starting to take its toil, leadingnew operators into a state of bankruptcy. This is notably thecase with ICG Communications which has been forced todeclare Chapter 11 bankruptcy protection, leavingconsiderable debts behind it.• Verizon Wireless, a Verizon - Vodafone subsidiary,announces its purchase of the cellular operator PriceCommunications Wireless for $2.06 billion. This acquisition,chiefly in the form of a share swap (taking on-board a 550-million debt burden) will add an extra 500,000 subscribers toVerizon Wireless' present 26.3 million (plus 3.5 million for itspaging services). The deal is however conditional on VerizonWireless' IPO before September 30, 2001.• Confirming a long-awaited agreement, France Telecomannounces its takeover of Equant, the company born of theairline co-operative, SITA, specialising in the provision ofmultinational data. The firm will become part of FranceTelecom's Global One subsidiary. Taking advantage of thedrop in Equant's share price, France Telecom acquired54.3% of the company for the sum of $1.3 billion in cash andassets via Global One (excluding voice services), which isvalued at 3 billion euros. Reporting a subscriber base of3,700MNEs, this new company will represent - pro formaaccounts – a turnover of between $2.5 and $3 billion for theyear 2000.• AOL and Time Warner, which are still waiting to receive thegreen light from the FTC and the FCC for their merger tobecome effective, announce an agreement with the secondlargestISP in the States, Earth Link (4.6 million subscribers),which should make it possible to offer broadband access viaTime Warner's cable networks.• The Arnault Group and Suez Lyonnaise des Eaux join forcesin France. With joint connections in the wireless local loopoperator FirstMark France, the two groups have agreed toteam up to obtain a UMTS licence in France and provideInternet services. Once this agreement has been concluded,Arnault will take control of 10% of the SR36 consortium setup between Suez and Telefonica and Suez will entereurop@web with a 30% stake, injecting 300 million euros intoArnault's venture capital structure (minus four interests,however, including the ISP LibertySurf and the online bankZebank).• NTT DoCoMo announces its acquisition of a 16% stake inAT&T Wireless for $9.8 billion ($6.2 billion paid to AT&TWireless and $3.6 to AT&T). AT&T Wireless is the thirdbiggestmobile operator in the US with some 15 millionsubscribers and frequencies enabling it to develop enhancedmobile services in 90 of the 100 key areas in America.However, a major portion of AT&T Wireless' subscribers useanalogue technology. DoCoMo, the market leader in Japanwith over 33 million cellular subscribers (15 million of whichuse its i-mode data service) now seems determined toacquire minority shareholdings in Europe (6.7 billion euros for15% of KPN and for 20% of Hutchison 3G UK) and Asia(Hutchison in Hong Kong, and only recently 20% ($517million) in KG Telecommunications, the third-largest mobileoperator in Taiwan).• TIM, Telecom Italia's mobile subsidiary, announces itspurchase of a 38% stake in Maxitel, the Brazilian cellularoperator in which it already holds a majority interest (58.7%),for $240.4 million.December 2000• Excite@Home (controlled by AT&T) and UnitedGlobalCom,the UPC - Chello holding company, abandon the idea ofmerging their cable Internet access businesses, primarily, itwould appear, on account of the companies' changing shareprices. Excite@Home, which boasts 175,000 customers forits fast internet access service outside North America, (out ofa total 2.3 million subscribers) announced its merger withExciteChello last July to create an aggregate subscriber baseof 300,000.• Verizon, the second-largest phone operator in the US,decides to abandon the project to merge its DSL activitieswith those of NorthPoint, one of the DSL market's pureplayers (90,000 lines). The new company, which wassupposed to start business in 2001, would have accountedfor around 600,000 DSL lines on the market. The decision toabandon this merger is the result of a precipitous fall inNorthPoint's stock price, and the audit carried out on itsfinancial results for doubtful debts, which has increased its3Q losses. NorthPoint is not the only firm experiencingdifficulty: Covad, the number one independent DSL operator(200,000 lines on September 30) also had to announce staffcuts affecting 13% of its workforce (400 employees) in orderto cope with its drop in share price. Strong growth insubscriptions is no longer enough for the financial market onthe whole and doubt is clearly being expressed as to whetherthe enormou investments made to equip thousands oftelephone exchanges across the country will prove profitable.On the other hand, the rule of the ex-Baby Bells (Verizon,SBC, Bell South, Qwest-US West) is becoming more andmore apparent with a total of around 1.2 million lines for salein September, representing 75% of all DSL lines on themarket.• France Telecom's Internet subsidiary Wanadoo, boasting 2million access subscribers (1.5 million of which are Frenchresidents), takes control of Freeserve, the ISP launched bythe European free-access pioneer Dixons, and becomes theUK market leader with 2 million customers. The transactionwas carried out by public offer of exchange and valuesFreeserve at some 2.7 billion euros. This announcementcomes at a time when Tiscali should be wrapping up its WorldOnline takeover.• The Norwegian government sells off 21% of its share ofTelenor, the country's incumbent operator, at a cost wellbelow what was initially expected.• In judicial liquidation for over a year, the Iridium satellitenetwork, which cost some $5 billion, is taken over for $25million. It is expected to focus its activities on the military andprofessional markets.• For a total sum of 500 million euros, KPN Mobile takescontrol of France Telecom's (50%) share in KPN Orange(500,000 subscribers) in Belgium. Already the majorityshareholder in Mobistar, France Telecom finds itself ashareholder in Belgian mobile operators following itstakeover of Orange.• Telia, of which the State holds a 70% stake and which enjoysa 52% share of the Swedish mobile market, is not among the4 candidates selected for a UMTS license: Orange Sverige,Tele2 (Netcom), europolitan (Vodafone group) and HI3G(Investor). This marks the first time since the onset of 3Glicense allocations in Europe that an incumbent operator wasnot selected on its home market.• Greek operator OTE is awarded the third mobile license inBulgaria, for $135 million. A mere 3.5% of Bulgarianssubscribe to a mobile service.© IDATE www.idate.fr

146World2000 • Telecom Italia confirms its desire to rival Telefónica in LatinAmerica by investing $905 million to increase its stake inEntel, Chile's number two operator.• British data operator, Energis, is pursuing its expansion intothe European continent with its takeover of German companyIsion, specialised in website hosting, for a sum of 812 millioneuros of which 210 in cash.• After the euphoria of the first UMTS auctions, the proceduresfor licence allocation in Europe began to suffer from adwindling number of candidates, noted first in Italy and laterin Austria,. In Switzerland, bidding was wound up by the endof the first morning: the 4 licences on the block were awardedto Swisscom (whose mobile activities should open up toheavyweight Vodafone), Orange, dSpeed (Teledanmark) andteam 3G (Telefónica), for 135 million euros. In Poland, thegovernment opted to cancel the beauty contest for the 5licences and to awarded, for a total 650 million euros each,licenses to the three candidates (PTC/Era GSM controlled byElektrim, Polkomtel/Plus GSM and Centertel controlled byTPSA and France Telecom). In Portugal, the four 3G licenceswere awarded, for 100 million euros to the three existingGSM operators: TMN (Portugal Telecom), Telecel (Vodafone)and Optimus (Sonae and France Telecom), with the fourthgoing to Oni Way (controlled by Electricidade de Portugal).• France Telecom announces the sale of its 1.8% share ofDeutsche Telekom for a total 3.1 billion euros. The cashbrought in by this sale, which bears capital gains of 1.9 billioneuros, will contribute somewhat to improving the financialsituation of the French incumbent which had finished thequarter with a debt of close to 60 billion euros, while awaitingthe arrival of Orange in February 2001.• Vivendi Universal's bid was selected by the Moroccangovernment, winning out over Telecom Italia, Telenor andFrance Telecom, obtaining 35% of Maroc Telecom for a total$ 2.33 billion.• Vodafone boosts its international standing withannouncements, only days apart, of massive investments:$2.2 billion for a 15% stake in Japan Telecom, which controlsthat country's number three mobile operator, J-Phone (9.5million subscribers, of which 4 million to the new J-Sky mobileInternet service). Vodafone, which already holds a 26% shareof J-Phone, will nevertheless have to collaborate with BT asit controls 15% of Japan Telecom and 20% of J-Phone, andwhich could well take over AT&T's 15% share of J-Phone. InSpain, Vodafone establishes its edge over BT by taking amajority share in Airtel (the country's 2nd-ranked mobileoperator, enjoying a 29% share of the Spanish market),laying out 13.3 billion euros to take over the capital held byseveral Spanish shareholders (of which 8 billion for BSCH).BT still holds a 27.8% stake, while Vodafone's shareincreases from 21.7% to 74% (the two remaining Spanishshareholders are Acciona and Torreal with 6.2% and 2%respectively). Lastly, Vodafone announces a 4.5 billion einvestment in Eircell, Ireland's leading mobile operator.• The year winds up with the go-ahead being given by theAmerican anti-trust body, the FTC, for the mega-mergerbetween AOL and Time Warner, initially announced inJanuary. Following the agreement by European authorities inthe autumn (obtained on condition that they desist from EMIintegration), the FCC's ruling remains to be heard. The mainrestriction imposed by the FTC involves opening up TimeWarner's cable networks to AOL's competitors, along with aguarantee of AOL's continued commitment to competing DSLtechnology.© IDATE www.idate.fr

World2000 147© IDATE www.idate.fr

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