1. TSM & Termination rates Eric Debroeck AR/ DRG 2006/06/30

2. 2 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED Agenda Interconnection between fixed telecommunications networks Interconnection rate for fixed legacy networks CPS sunset Towards symmetric interconnection prices in a NGN environment Interconnection services provided by Mobile Networks Mobile call termination issues : Market development Usage prices Impact of MVNOs

3. 3 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED 1 Interconnection between fixed telecommunications networks

4. 4 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED Fixed access networks interconnection (1) Termination Rate (TR) Asymmetry in fixed interconnection Throughout Europe : asymmetric TR between incumbent and new entrants From the regulatory perspective, entry assistance due to : Volume asymmetry Interconnection points covering greater zones Infancy concept Higher TR could be recovered via higher retail price / asymmetry level has no material effect on the incumbent economic equilibrium From an incumbent perspective Technologies deployed by competitors are more cost effective than those of legacy network Asymmetric TR distort retail markets Incumbent customers de facto subsidize entrants’ customers There is no clear case for a TSM in the narrowband market narrowband vs broadband ?

5. 5 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED Fixed access networks interconnection (1) TR Asymmetry in fixed interconnection Alternative fixed operators’ TR

6. 6 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED France Télécom starts (at best) on the same footing as efficient competitors from a Voice over Broadband costs perspective : No legacy infrastructure (apart from ducts and poles) Lower volumes (incumbents switch later than new entrants from narrowband to broadband access) Remedies applicable after recent market analysis of legacy termination market should not apply to NGN terminations services : Same obligations for incumbents and new entrants on NGN Termination Rates Non excessive rates Identical costs + identical obligations => symmetrical rates Fixed access networks interconnection (2)

7. 7 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED Towards the end of carrier selection Carrier selection (CPS) + Wholesale Line Rental (WLR) are substitutes of direct access on legacy fixed networks Enduring dominant position on copper access justify specific remedies on access : ULL & BSA for broadband services WLR & CPS for remaining narrowband access on NGN Those obligations allow vibrant competition on the retail market Carrier selection on NGN networks would lead to costly, cumbersome and socially inefficient developments Carrier selection on BB access and stand alone carrier selection on POTS are no longer justified. Outdated remedy, such as CPS, should not apply to NGN networks

8. 8 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED 2 Interconnection services provided by Mobile Networks

9. 9 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED Mobile termination prices have historically favoured the great success of GSM services throughout Europe GSM development had a positive impact on European customers, operators and industry Clear TSM case Today’s challenge is to repeat this success with UMTS services Mobile termination prices may help : is it wise to abandon such a tool ? Mobile termination issues (1) : global market development

10. 10 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED GSM services reached very high mass-market penetration, thanks to a combination of low handset and access prices with initially high usage prices Once penetration objective reached, commercial and regulatory attention focussed at usage prices : The market currently manages to develop low marginal prices Convergence and NGN will strengthen this trend Inappropriate regulatory intervention should be avoided as it could destroy market value, investment incentive and lead to retail price increase Mobile termination issues (2) : usage prices

11. 11 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED Within a year, MVNOs brought : Strong brands (Virgin, M6, Tele 2, …) Competitive convergence (F&M) offers New prices models Service innovation (“Ten” with integrated SMS and IM services, “Beautiful Phone” from 9) The outcome of commercial negotiations, not of regulatory intervention : Commercial dynamics are strong and regulatory intervention would slow and distort them. MVNOs

12. 12 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED Fixed NGN Symmetric terminations between FT and Alternative Operators No carrier selection Mobile interconnection Operator’s strategy is to lower mobile usage prices MVNOs based on commercial agreements intensify competition and bring innovations on the market Inopportune regulatory intervention would lower market value and jeopardise 3G development Conclusions

13. 13 Groupe France Télécom TSM & Termination rates IDEI / 30 june 2006/ED Thanks