1. 1 Internet access in France, overview & prospects Press conference of 18 March 2003

2. 2 Internet In France, overview & prospects Outline of the presentation I. A rapidly expanding marketI. A rapidly expanding market - Key figures for the residential market (1) - The residential market: growth stimulated by the strength of broadband (2) - Falling prices (3) - Changing economic models and sector concentration (4) - Is France trailing the rest of Europe? (5) II. ART's role: now more than ever, to support market developmentII. ART's role: now more than ever, to support market development - Decisions providing structure to market development (1). Flat-rate Internet interconnection in September 2001. The reference offer for unbundling the local loop. ADSL decisions of July 2002. Wi-Fi networks - For the future (2) III. Legislative changes on the horizonIII. Legislative changes on the horizon - A new definition of the basis of assessment for universal service which is more advantageous to ISPs (1) - Incentives for the roll-out of broadband to remote areas (2). The possibility for local governments to intervene in the least covered areas. Use made possible by European structural funds

3. 3 I. A rapidly expanding market (1) - Key figures for the residential market - Over 9 million paying Internet subscribers at end December 2002 Constant growth: +28% between end 2001 and end 2002 Source AFA

4. 4 I. A rapidly expanding market (1) - Key figures for the residential market - 5 billion of minutes are collected each month for low-speed Internet access (+14.8% from 3 rd quarter 2001 to 3 rd quarter 2002) The number of minutes is used to measure low- speed dial-up Internet access Minutes are not relevant in measuring broadband and permanent access. These are measured by the number of flat-rate subscriptions

5. 5 I. A rapidly expanding market (2) - The residential market: growth stimulated by broadband - Low speed levels off at 4 th quarter 2002 Source: AFA figures

6. 6 I. A rapidly expanding market (2) - The residential market: growth stimulated by broadband - Cable modem offers are available in 650 cities representing 6 million outlets (source Aform) 283 000 Internet on cable subscribers at end December 2002 (+ 50% in one year)

7. 7 1.4 million ADSL subscribers at 31 December 2002 Strongest growth in Europe: +250% in one year I. A rapidly expanding market (2) - The residential market: growth stimulated by broadband- 65% of the population is covered by ADSL (source France Telecom)

8. 8 I. A rapidly expanding market (2)

9. 9 I. A rapidly expanding market (3) - The residential market: falling prices - Low-speed access prices falling sharply 60,0 70,0 Jan-99 Mar-99 May-99 Jul-99 Sep-99 Nov-99 Jan-00 Mar-00 May-00 Jul-00 Sep-00 Nov-00 Jan-01 Mar-01 May-01 Jul-01 Sep-01 Nov-01 Jan-02 Mar-02 May-02 Jul-02 Sep-02 Nov-02 Jan-03 Price (euros incl. VAT) 15H/month 20H/month 25H/month

10. 10 I. A rapidly expanding market (3) - The residential market: falling prices - Prices of broadband access Large number of offers and different speeds Representative prices for ADSL offers, excluding promotions, access fees and modem included - ADSL 128 k offers: €30 - ADSL 512 k offers: €29.90 to €45 - ADSL 1024 k offers: €39.90 to €80 Cable modem offers have similar prices for speeds of 512 k - Cable 512 k offer: €39 to €45

11. 11 I. A rapidly expanding market - The residential market - European price comparisons I. A rapidly expanding market (3) - The residential market - European price comparisons

12. 12 I. A rapidly expanding market ISP’s changing economic models I. A rapidly expanding market (4) ISP’s changing economic models In 2000, there were several dozen ISPs (Internet service providers) in France, with revenues generated primarily from advertising, the extreme case being “free-free” offers Today, ISP revenues generated almost exclusively from access Since ART’s pricing decisions for ADSL and unbundling in July 2002, the number of broadband accesses has grown strongly in France, with the commercial launch of ADSL offers, including 10,000 based on partial unbundling At the same time, the sector has concentrated, with the French market now counting five major ISPs (Wanadoo, AOL, T-Online /Club Internet, Tiscali, Free). They represent about 80% of low-speed traffic in terms of numbers of minutes.

13. 13 I. A rapidly expanding market (5) Is France trailing the rest of Europe? France was trailing its European neighbours, but has been gaining ground lately with strong growth in the number of accesses, particularly for broadband The PC penetration rate (38.8%) has probably hurt growth Source CMA consulting 3 rd quarter 2002 Penetration of low speed as a % of households Penetration of high speed as a % of households

14. 14 II. ART's role: to support market development (1) - ART has taken decisions providing structure to market development - 1 – A new economic model with the flat-rate interconnection offer in September 2001  Global decrease in collection costs for low-speed Internet => Unmetered Internet access products are on the market since July 2002 2 – Accelerated competition process with the unbundling reference offer approved in April 2002 (option 1)  Technical and pricing conditions give impetus to the unbundling process for the residential market, across France  Prices among the lowest in Europe

15. 15 II. ART's role: to support market development (2) - ART has taken decisions providing structure to market development - 3 - The development of broadband with decisions on DSL bitstream offers in July 2002 (option 5):  Decrease in the price of France Telecom bitstream offers for ISPs and operators as of 15 October 2002  Coherent decisions improving the situation of ISPs and creating viable entrance conditions for operators on the ADSL market  Repercussions on ISP retail prices since end 2002 4 – Increased competition between carriers and ISPs  Approval of Internet access interconnection offers in France Telecom’s RIO  Pricing opinion on bitstream access offers (unbundling option 5 and option 3)

16. 16 II. ART's role: to support market development (2) - ART has taken decisions providing structure to market development - 5 - Wi-Fi networks can now be established freely, especially in the least served areas with broadband networks On 7 November 2002, ART opened the way for Wi-Fi network experiments in areas poorly served by existing networks => a number of applications have already been studied and the first authorisations have been granted by the Minister => projects submitted by municipalities should soon be examined (following the final vote on the digital economy law allowing municipalities to become operators)

17. 17 II. ART's role: to support market development (3) - For the future 6 - For the future The future of cable networks in France ART has always encouraged the deployment of alternative infrastructures. It wishes to see cable networks able to play a major role in the development of diversified competition for broadband development in France Prospects of UMTS launch UMTS: commercial launch planned for 2004 for Orange and SFR and end 2005 for Bouygues Telecom

18. 18 III - Legislative changes on the horizon (1) - Universal service - A new definition of the basis of assessment for universal service which is more advantageous to ISPs At the first reading, in examining the bill on the digital economy, the National Assembly adopted a measure modifying the distribution key for the cost of universal service. The calculation will be based on revenues and no longer on traffic, as requested by ART. => Thus, ISPs would contribute 1% of their sales to the universal service fund, instead of the current rate of over 10%.

19. 19 III - Legislative changes on the horizon (2) - Incentives for the roll-out of broadband to remote areas - The possibility for local governments to intervene At the first reading, in examining the bill on the digital economy, the National Assembly adopted a measure which would allow local governments to become operators, and in certain cases, provide telecommunications services to the public. => Where operators are not sufficiently present, local government will be allowed to invest in building networks in order to provide access to broadband. => European structural funds (ERDF) can be used to finance local telecommunications infrastructures