Telecom Market in China François BRUN Deputy Vice President, Corporate Strategy Alcatel IDATE conference - Montpellier 29 November, 2003

IDATE Nov. 03(2) (L:françois:) Page 2 All rights reserved © 2003, Alcatel China is world’s largest single telecom market, and its share is growing > Mobile penetration has overtaken fixed penetration (each ~30% today) Source: IDATE Source: Pyramid Research Chinese & US Access Lines > Second largest market is the US, with M access lines (fixed+ mobile) * Including PHS

IDATE Nov. 03(2) (L:françois:) Page 3 All rights reserved © 2003, Alcatel Mobile: China is the growth engine > Over 60% of Mobile subscribers adds till 2008 will be in Asia Pacific > And over 30% in China, with 50+M new subs each year Source Alcatel Net subs add 0100,000200,000300,000400,000500,000600,000 WE CEE US LA AP AME

IDATE Nov. 03(2) (L:françois:) Page 4 All rights reserved © 2003, Alcatel Very high growth of Internet in China > 6.6 m broadband internet users by end 2002 Internet subscribers (‘000) Connected PCs (‘000) Source: CNNIC semi-annual reports PC & Internet penetration

IDATE Nov. 03(2) (L:françois:) Page 5 All rights reserved © 2003, Alcatel Telecom investment vs. Telecom revenue in China $B Source: CCID, MPT reports; Operators reports; MII reports and Statistics > High growth of telecom services revenues, but investments are under pressure, especially in fixed voice

IDATE Nov. 03(2) (L:françois:) Page 6 All rights reserved © 2003, Alcatel China is developing a strong telecom industry > Chinese vendors are already well established in fixed networking > They are increasing their market share in mobile infrastructure > The main vendors have complete product portfolio > They started in China, and are now exporting aggressively Telecom industry in China Fixed networkingMobile infra Chinese vendors: Huawei, ZTE, WRI, UT Starcom, etc Int’l vendors: Alcatel, Ericsson, Nokia, Siemens, Lucent, Nortel, Motorola, etc

IDATE Nov. 03(2) (L:françois:) Page 7 All rights reserved © 2003, Alcatel Broadband Access technologies in China > DSL: about 7M users (12% of ww base) in 03e growing to 45m (33%) in 06e  Mostly a corporate/entreprise service, unlike rest of the world  Serviced 2/3 by China Telecom, 1/3 by China Netcom > Ethernet services via LAN  First broadband approach: fiber links to buildings with LAN distribution over Cat 5 cables.  1.67 mn LAN Ethernet users by July 2002 > Cable modem  > 200,000 Internet users via cable modem in early 2002  But government control does not favor development of cable networks in telecoms  Moreover, only 10% of coaxial lines are bi-directional

IDATE Nov. 03(2) (L:françois:) Page 8 All rights reserved © 2003, Alcatel Chinese Telecom Operators evolution 2001 China Netcom China Unicom CU HK 1993 Directorate General of Telecommunication 1994 China Unicom China Jitong 1998 Ministry of Information Industry: MPT + MEI + networks of Aerospace China Telecom Ministry of Post and Telecommunications Ministry of Electronics Industry 2000 China Telecom China Mobile China Satellite 1999 China Railcom 2002 CT HK 1997 CM HK China Netcom China Telecom CT Corp. operators regulatory State Informatization Leading Group China Paging China Unicom CU HK

IDATE Nov. 03(2) (L:françois:) Page 9 All rights reserved © 2003, Alcatel Operators after re-organization of May 2002 Operator Before ReorganizationAfter Reorganization Share of business revenue (2001) Ranking Share of business revenue (I002) Ranking China Telecom50.50%132.50%2 China Mobile36.60%237.40%1 China Unicom11.30%312.10%4 China Railcom0.94%41.20%5 China Netcom0.47%516.60%3 Jitong0.16%6-- China Sat0.03%70.20%6

IDATE Nov. 03(2) (L:françois:) Page 10 All rights reserved © 2003, Alcatel Key services provided by main operators > One operator offering all services > All operators offering data services > CT and CNC expected to obtain mobile license; in the meantime “PAS” ServiceChina Telecom China Netcom China Mobile China Unicom China Railcom China Sat Fixed services  Mobile services  Paging services  Data services  Transmission services  Satellite services 

IDATE Nov. 03(2) (L:françois:) Page 11 All rights reserved © 2003, Alcatel Broadband - Internet - Transmission - Mobile - Satellite - Applications 2002 Facts & Figures 16.5 Billion euros in sales 13.5 % invested in R&D 76,000 employeesactive in 130 countries Enterprise - Corporate - Operators - Utilities - Government - Defense Alcatel: A Communications Powerhouse

IDATE Nov. 03(2) (L:françois:) Page 12 All rights reserved © 2003, Alcatel Alcatel’s long-term Foundations in Asia Pacific > A major long-term player (100 years in Asia) > US$1 billion invested in the region over the past decade > R&D and Manufacturing in region for global markets > Huge installed base > First to set up regional HQ in Shanghai, China 8% % 19% ASIA / Global Sales (%)

IDATE Nov. 03(2) (L:françois:) Page 13 All rights reserved © 2003, Alcatel China is central to our Asia Pacific strategy > 1983: Established the first Sino-Foreign joint-venture, Shanghai Bell > 1994: Alcatel China established > 1999: Shanghai Bell selected “Top 10” Most Admired JV by Fortune 500 > 2000:First to establish Regional Headquarters in Shanghai > 2002:Launched Alcatel Telecom Technology “T Tech” Fund  Formation of Alcatel Shanghai Bell  Established Research & Innovation Center in Shanghai Sales 1/3 of China’s installed switching baseR&D Product development for global markets Innovation Center Manufacturing One of world’s largest telecom plants – 96,000 m 2

IDATE Nov. 03(2) (L:françois:) Page 14 All rights reserved © 2003, Alcatel China has the key ingredients for the next years Huge consumer and telecoms markets Innovation & global leadership Manufacturing for the domestic market R&D Factories for exports Adaptation of global technologies & trends

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