1. kpmg 1 Industry Consultative Group 14 July 2000 Broadband Fixed Wireless Access 40GHz BFWACG(00)36 Market and financial modelling Preliminary Findings

2. kpmg 2 Contents Background Background 40GHz BFWA market 40GHz BFWA market Market & financial assessment Market & financial assessment Conclusions Conclusions Next steps Next steps

3. kpmg 3 Study objectives The objective of this study has been to assess whether a market for 40GHz in the UK is viable. This has been carried out through: consultation with operators, vendors and other interested parties consultation with operators, vendors and other interested parties market modelling - estimating potential revenues from businesses and households at a detailed county level market modelling - estimating potential revenues from businesses and households at a detailed county level financial modelling - to determine the extent that the overall 40GHz business will be profitable for operators financial modelling - to determine the extent that the overall 40GHz business will be profitable for operators

4. kpmg 4 Conclusions from phase one INDUSTRY CONSULTATION There is interest in the market There is interest in the market The 40GHz market appears to be broader than 28GHz with both business and residential segments and telecoms and broadcast services The 40GHz market appears to be broader than 28GHz with both business and residential segments and telecoms and broadcast services Internet is expected to be the key revenue driver by most respondents and broadcast revenues also expected to be important Internet is expected to be the key revenue driver by most respondents and broadcast revenues also expected to be important But the overall service composition appears uncertain But the overall service composition appears uncertain No respondent suggested delaying the licensing No respondent suggested delaying the licensing There is still uncertainty about timing, equipment costs and when and if economies of scale will be achieved There is still uncertainty about timing, equipment costs and when and if economies of scale will be achieved MARKET ASSESSMENT Total revenues for 2004 were estimated (indicative only) Total revenues for 2004 were estimated (indicative only)

5. kpmg 5 Contents Background Background 40GHz BFWA market 40GHz BFWA market Market & financial assessment Market & financial assessment Conclusions Conclusions Next steps Next steps

6. kpmg 6 Market definition 28GHz40GHz Data rates > 64 kbps Services voice, data (internet)voice, data (internet), Broadcast Target customers business and residential - size: SMEs and medium to large corporates - region sub-urban and urban Availability Q1 2001Q1 2002 Technology PMP Geographic coverage UK Usage access only i.e. no backhaul business - size: focused on SMEs - region: sub-urban The KPMG market assessment model assumes 40GHz BFWA will address the following: The KPMG market assessment model assumes 40GHz BFWA will address the following: Characteristic Our market assessment also assumes: Our market assessment also assumes: –that 40GHz provides complementary services to 28GHz i.e. does not take market share from 28GHz –the cell radii or reach of the two technologies are the same

7. kpmg 7 BFWA addressable market Residential Very Small Small Medium Large UrbanSuburbanRural BFWA speed of roll- out cost availability cost? ADSL bandwidth speed of roll- out cost speed of roll- out bandwidth availability cost 40GHz 28GHz SATELLITECABLE FIBRE

8. kpmg 8 Contents Background Background 40GHz BFWA market 40GHz BFWA market Market & financial assessment Market & financial assessment Conclusions Conclusions Next steps Next steps

9. kpmg 9 Market and financial model overview IRR analysis sensitivity analysis regional analysis IRR analysis sensitivity analysis regional analysis Revenue per subscriber & Number of subscribers Business model county industry sector size of business SOHOs coverage of fibre, cable, ADSL, BFWA & Satellite potential market market share average business spend number of business units revenue per customer average price Residential telecoms model county household coverage of ADSL, BFWA & cable potential market - broadband telecoms market share average b’band internet spend number of households revenue per household average price Residential broadcast model coverage of ADSL, BFWA, cable & DTT potential market- pay TV pen. market share average pay TV spend number of households revenue per household average price Level of analysis Key inputs Outputs Financial model capex e.g. base stations, CPE opex e.g. marketing, core network, SGA one-off costs e.g. launch capex e.g. base stations, CPE opex e.g. marketing, core network, SGA one-off costs e.g. launch Key inputs Outputs county household

10. kpmg 10 Market model results

11. kpmg 11 Market model base case results substantial revenues projected for business telecoms market SOHO telecoms market revenues significant residential market revenues sizeable (broadcast and telecoms)

12. kpmg 12 Financial model

13. kpmg 13 Key changes to 28GHz methods Broadcasting costs introduced e.g. server, head end, set top boxes and programming costs Broadcasting costs introduced e.g. server, head end, set top boxes and programming costs New costs associated with residential customers e.g. launch costs New costs associated with residential customers e.g. launch costs Increase in business capacity requirements from 2mbps to 4mbps Increase in business capacity requirements from 2mbps to 4mbps Base station expenditure increases Base station expenditure increases

14. kpmg 14 Results - medium market scenario Business telecoms - profitable Business telecoms - profitable Business and residential telecoms - marginally profitable Business and residential telecoms - marginally profitable Business, residential and SOHO telecoms - positive IRR Business, residential and SOHO telecoms - positive IRR Total telecoms residential broadcasting - negative IRR Total telecoms residential broadcasting - negative IRR

15. kpmg 15 Contents Background Background 40GHz BFWA market 40GHz BFWA market Market & financial assessment Market & financial assessment Conclusions Conclusions Next steps Next steps

16. kpmg 16 Conclusions Business telecoms appears to be a profitable market Business telecoms appears to be a profitable market The addition of SOHO and residential markets under both base and high case scenarios result in businesses where it appears difficult to realise significant profits, given current cost assumptions The addition of SOHO and residential markets under both base and high case scenarios result in businesses where it appears difficult to realise significant profits, given current cost assumptions The financial model results are highly sensitive to the costs of CPEs, base stations and launch. Equipment costs and base stations are especially uncertain The financial model results are highly sensitive to the costs of CPEs, base stations and launch. Equipment costs and base stations are especially uncertain

17. kpmg 17 Contents Background Background 40GHz BFWA market 40GHz BFWA market Market & financial assessment Market & financial assessment Conclusions Conclusions Next steps Next steps

18. kpmg 18 Next steps Further sensitivity analysis Further sensitivity analysis Discuss results with RA Discuss results with RA Finalise results Finalise results Regional analysis Regional analysis