All Rights Reserved © Alcatel-Lucent 2009 Alcatel-Lucent Special Customer Operations Global Forum Gabrielle Gauthey – Executive Vice-President Public Affairs November 8th 2010 Broadband : ready to invest? Disruptive changes and new investment models

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Disruptive changes Underpinning trends (1) The data Exaflood calls for network investments... Rapid shift in consumer behavior towards data consumption, leading to network capacity crunch : –34% CAGR in global IP traffic ( ) –108% CAGR in global mobile data traffic ( ) Mobile data traffic is rocketing (Ipad and connected devices boom ) Example of Mobile Data Plan vs network cost forecast :

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Disruptive changes Underpinning trends (2) More devices and demand, less revenues Shift of the value chain and brand image in favour of Other The Top (OTT) players Emerging balance sheet strength and equity value of content players vis-à-vis carriers –Content: >20 P/E ratio (H1 2010) (Google, Yahoo, Amazon…) –Carriers: <13 P/E ratio (H1 2010) (FT, BT, AT&T, Verizon,…) Growing unbalanced IP interconnection flows OTTs image is well positioned vis vis end-users Dollars Dem and Devi ces Increasing subscriber take rate for apps and (multiple, mobile) devices Increasing BW per app Increasing subscriber take rate for apps and (multiple, mobile) devices Increasing BW per app Increasing number of rich media/video-enabled devices Increasing device capabilities Increasing number of rich media/video-enabled devices Increasing device capabilities Increasing network (CapEx) costs Increasing OpEx costs Increasing dilution of role in subscriber value chain Increasing network (CapEx) costs Increasing OpEx costs Increasing dilution of role in subscriber value chain

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 New challenges for the industry Two majors challenges Enabling new business models... Combining Net Neutrality requirements with the right of network management: – Upgrade of Core and aggregation networks capacity – Enhanced transparency to the consumers Allow the rebalancing of the value chain through: – Network monetization for content delivery – Value added managed services (low latency, network security and privacy) – IP interconnection revision... And acceptance of new investment models -lower the overall cost through increased sharing of non-discriminant network assets

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Why and how Government step-in Why do Public Authorities step-in? Growing awareness of broadband investments spill-over effects (GDP, productivity and competitiveness) To achieve ubiquitous coverage of very high speed connectivity and tackle future challenges of society (social inclusion, ageing population, climate change) To complement private initiatives in policy driven areas and maximize networks social benefits, minimize public funding thanks to perequation. To ensure network openness and cost-effective connectivity through competition while encouraging new investments needed to handle data explosion How do Public Authorities( governments and regulators) intervene? Mandating infrastructure sharing models to lower market entry barriers (ducts, in-house wiring, poles and masts sharing, NGA recommendation, co-investment in wire-line and wireless passive infrastructure) Organizing new competition models (NBN model, open rural LTE networks) Fostering competition and coverage through PPP like projects (recovery plan in the US, digital and broadband plans in the EU and APAC, EU State Aid guidelines encouraging PPPs)

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Public driven Initiatives A global trend French digital plan 2 B for very high speed BB roll-out in grey and white areas 2,5 b for services/applications FTTH roll-out regulation (geographic segmentation) Digital dividend release Digital Britain 2 Mb/s universal broadband access service in M£ NGA fund German Broadband Plan 100% bb coverage by end % of hh access at 50 Mb/s by end 2014 Spectrum allocation for LTE + Draft bradband plans in Greece, Italy, Poland, Russia,... Chinas recovery plan 4 Trillion RMB ICT included in pillar industries program India National Backbone 4,5 B fiber backbone 90% of population bb coverage by 2013 Australian National Broadband Network 100 MB/s to 90% of subscribers 43 B A$ ( 23 B) New Zealand Broadband Investment Initiative 1.5 B NZ$ investment UFB Plan – Regional Fibre companies Connecting America Broadband Plan Foster competition, innovation and investments Ensure Spectrum availability Universal broadband service Develop broadband based services (e- health, e-education,...) Brazilian Plano Nacional de Banda Larga Connectivity for 50% of urban hh and 15% of rural hh 60 M mobile access 41 M $ capex (1/3 public, 2/3 private) Europes Digital Agenda EU countries to adopt national VHS broadband strategies 100% BB coverage in MBs connections for all in 2020 with 50% of EU citizens connected at 100 MBs

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Public driven initiatives for VHS broadband investments Different types of access competition models Access to non replicable passive infrastructure (ducts, poles, masts, in house wiring) triggers infrastructure competition in urban/suburban dense areas In medium/low density areas, competition is based on a combination of access to passive infrastructure and bitstream wholesale State Aid is allowed for fibre access networks and in backhauling in underserved areas Differentiation between operators is based on access to physical network ressources- LLU Active infrastructure-based competition Service-based competition A single network is rolled-out and shared: « regulated monopoly »/functionnal separation model Competition is based on bitstream wholesale (layer 2) or Radio Access Network /spectrum sharing Universal coverage is a first priority – projects are government driven Differentiation between service providers is based on access to logical network ressources (fixed or mobile IP bistream) Vertically integrated operators compete through passive infrastructure wholesale (e.g. EU) Horizontallly integrated operators compete through active bitstream wholesale (e.g. APAC)

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Very High Speed Deployments: French case study Three Levers Legislative Lever – Loi de modernisation de leconomie – August 2009 Sharing of the fibre last drop through mandatory agreements between operators and landlords Right to Fiber Mandatory fiber pre-cabling for new buildings Regulatory Lever – Market 4 analysis - July2009 Asymmetrical regulation (duct access) Symmetrical regulation (last drop and in-house wiring) Fiber Flexibility Point (Point de Mutualisation) accomodates all technologies Public Policy Lever Caisse des Dépôts mandate Grand Emprunt Intervention of local authorites

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Infrastructure sharing French case study : infra sharing according to geo-types Very dense areas Fiber flexibility point at building basement (if MDU has more than 12 DUs) Draft agreement between Landlords and operators Commercial reference offers for last drop access Multi-fibre in the terminating segment (in- house wiring) in case of co- investment Duct shared access Less dense areas Fiber flexibility point at cabinet level ( min 300 fibers) Shared mono-fibre in terminating segment and in- house wiring Duct shared access Fiber Flexibility Point accomodates all access technologies (P2P, P2MP)

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Very High Speed Deployment: The French Case Policy lever : local authorities role in broadband coverage In recent years, local authorities have played a key role in the digital development of their regions in partnership with operators Arcep first impact assessment: – 86 projects of which – 60 are running – 29 are FTTH access roll-out – 2 billion invested (approx.50% public funds) Major consequences : – Less expensive coverage of rural areas – Expansion of LLU, and wireless coverage – Fostering of local operators development – Preparation of the future of FTTx

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Very High Speed Deployments: French case study Policy lever : Precautions for local authorities intervention Precautions taken to avoid concerns and risks mentioned in the recent GAO report Competition distortion : Maps, agreements with existing networks, … long term investment sustainability : privately run networks handle networks interoperability : few wholesale providers, common standards implemented

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Infrastructure sharing Australian Case study : active access sharing and universal coverage

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Industry landscape and trends Scenarios for the future Industry faces a range of uncertainties and must prepare for a number of alternative scenarios : Source: IBM study – Telco 2015 Clash of giants – competition between integrated giant carriers, increased competitive threats from OTT Survivor Consolidation – Revenue decline, industry loss of confidence, leading to consolidation of Telcos Generative Bazaar – Scattered initiatives, passive infrastructure sharing, valorization of active infrastructures Market Shakeout – Structural separation, growth through premium connectivity sold to third parties A return to strong growth requires the telecom industry to act collectively, to create the necessary conditions for the emergence of the more profitable scenarios – How can Governments support this transition ? Worst case scenario ! US scenario APAC scenario Europe scenario

All Rights Reserved © Alcatel-Lucent | Global Forum November 8th 2010 Industry landscape and trends (2) Regional trends EMEA AMERICAS Active infrastructure based competition prevails, favoring operators vertical integration - bitstream wholesale being considered as a second best except in UK (VULA) EU Digital Agenda : universal bb coverage through PPP, bandwidth increase, national BB strategies required State Aid scope has been broadened for fiber networks in suburban and remote areas with pricing equalization – may accelerate fibre PPPs APAC US : Competition between vertically integrated operators. Public funding limited to underserved/unserved areas - upcoming debates on BB reclassification CALA : Broadband plans are heating up, focus on mobile open access and open backbones Functional separation (i.e. shared access) combined with bitstream wholesale and regulated monopolies are leading network transformation (Singapore, Australia, NZ) aka NBNs – Open backbones in India. Test bed for very high speed universal coverage

All Rights Reserved © Alcatel-Lucent 2009 Alcatel-Lucent Special Customer Operations Thank you! Questions?