New Services and Opportunities in the Telecom Industry

Bruce Bowden

| 15 Octobre 2004 |

Page 2

Agenda

French fixed telecoms market environment

Overview of neuf telecom

New services

Page 3

6,000

600 500

4,600

1,223

445

1,614

340

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Residential voice Residential dial-up Residential BB Business

M E

uro

s

All alternatives

France Telecom/Wanadoo

2003 French fixed telco market

Note: excludes 4.2B Euros in revenues (from 0800, cards, public phones, annuaires, non-corporate leased lines) which added to these amounts results in ~20B Euros total market

LDCOM estimatesLDCOM estimates

17%

43%41%

26%

Alternatives’ share

Evolving quickly in 2004

Page 4

Neuf and Cegetel are the key integrated fixed-line alternativesneuf has far superior growth profile; others like Tele2 and Free are well-positioned in their niches

Note: net of intercompany revenues

2003 alternative market: 4.7B Euros

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

Wholesale Residential voice Residential dial-up

Residential BB Business

M E

uro

s

Others

COLT

WorldCom

Cegetel

neuf telecom

Club Internet

Tiscali

Noos

Free

AOL France

Tele2

LDCOM estimatesLDCOM estimates

Evolving quickly in 2004

Page 5

Data & Internet3.5 B€

Voice(incl. dial-up @ mins.)

11.1 B €

Access & Subscriptions5.4 B €

French fixedtelco market: 20 B€

New entrants France TelecomMkt. share Revenue Margin Value Mkt. share Revenue Margin Value

20%

35%

3%

0.7

3.9

0.2

4.8(24%)

60%

50%

70%

0.4

1.9

0.1

2.4(12%)

80%

65%

95%

100%

100%

100%

SOURCES: ART, LDCOM ESTIMATES

2.8

7.2

5.2

15.2(76%)

0.32.8

2.07.2

0.15.2

17.6(88%)

FT holds ~75% of the fixed market and ~90% of value

Page 6

Agenda

French fixed telecoms market environment

Overview of neuf telecom

New services

Page 7

A growing alternative operator in the shrinking French fixed telco market

A profitable challenger: net income positive for 1H04

The company with the most unbundled ADSL lines in Europe

#2 fixed-line telco for French enterprises

A leading innovator in broadband services

Who is neuf telecom?

Page 8

neuf has grown rapidly both organically and via acquisition

CAGR 1998 - 2003 = + 219 %

3 38

111 181

551

992

CAGR 1998 - 2003 = + 219 %

CAGR 1998 - 2003 = + 219 %

3 38

111 181

551

992

Note: Figures in US GAAP

Wholesale: 429ME

Business: 390ME

Residential: 173M€

0

S1 2003 S1 2004

+ 24%

455 M€

564 M€

0

S1 2003 S1 2004

+ 24%

455 M€

564 M€

8% share of the fixed market #1 alternative operator for ISPs and other telcos #1 alternative operator for enterprises #4 residential alternative operator

Page 9

Growth across all segments

Résultats au 30 juin 2004, US GAAP

OperatorsEnterprisesResidential

Total Rev (*)

H1 2003

M€200176

78

455

H1 2004

M€228227109

564

VariationH1 2003 /H1 2004

+ 14%+ 29 %+ 40 %

+ 24 %

OperatorsEnterprisesResidential

Total Rev (*)

OperatorsEnterprisesResidential

Total Rev (*)

H1 2003

M€200176

78

455

H1 2003

M€200176

78

455

H1 2004

M€228227109

564

H1 2004

M€228227109

564

VariationH1 2003 /H1 2004

+ 14%+ 29 %+ 40 %

+ 24 %

VariationH1 2003 /H1 2004

+ 14%+ 29 %+ 40 %

+ 24 %

Page 10

CAGR 1999 - 2003 = + 83 %

1998 1999 2000 2001 2002 2003

0 4

- 13

4 1

- 5

9 11

42

18

101

EBITDA

Net income before extraordinary asset write-downs

Neuf has been profitable since inception

Note: Figures in US GAAP

-20

0

20

40

60

S1 2003 S1 2004

Ebitda Résultat net

45

60

-14

15

-20

0

20

40

60

S1 2003 S1 2004

Ebitda Résultat net

45

60

-14

15

-20

0

20

40

60

S1 2003 S1 2004

Ebitda Résultat net

45

60

-14

15

Page 11

Proven track record as consolidator

Chart shows pro forma key financials of neuf plus 8 acquired businesses since January 1st 2001

Pro forma revenue CAGR of 12% even during integration; revenue now re-accelerating

SG&A reduced from 61% of revenues to 26% and still shrinking

EBITDA turned around from -45% of revenues to 10.5%

Capex divided by 6; effect of one high-quality network shared by nine businesses

Chart shows pro forma key financials of neuf plus 8 acquired businesses since January 1st 2001

Pro forma revenue CAGR of 12% even during integration; revenue now re-accelerating

SG&A reduced from 61% of revenues to 26% and still shrinking

EBITDA turned around from -45% of revenues to 10.5%

Capex divided by 6; effect of one high-quality network shared by nine businesses

Key pro forma financials (at current neuf telecom perimeter)

Millions of Euros

-700

-600

-500

-400

-300

-200

-100

0

100

200

300

400

500

600

H1 01 H2 01 H1 02 H2 02 H1 03 H2 03

Revenues Gross margin EBITDA Oper. CF CAPEX SG&A

Page 12

Figures in US GAAP(*) Acquisitions, net of cash in companies acquired and gains on sales of assets

408 +857

+707

-1153

Cash flows from operations

Tangible and intangible investmentsOther net investments (*)

Cash flows from investments

Capital increasesMinority interestsOther financing - net of repayments

Cash flows from financing

Exchange rate variations

Cash as of 31 December 2003

707

(1 329)176

(1 153)

8001443

857

-3

408

In M€

€ 200 million in CapEx in 2004 (vs. € 130 million in 2003)

Neuf has been funded largely by operational cash flow and equity capital

Financing Operations Investment Cash

CUMULATIVE CASH FLOWS FROM INCEPTION TO EOY 2003

Page 13

neuf’s shareholders

Suez16.7%

Telecom Italia7.0%

Belgacom8.1% Alpha Funds &

Wendel Inv.7.3%

Phoenix Equity

Partners1.8%

BC Partners1.6%

Goldman Sachs2.0%

PAI2.0%

Artemis-Net2.2%

Other10.0%

Louis Dreyfus Group &

Employees42.6%

Others0.4%

CSFB Private Equity8.3%

Page 14

The largest alternative broadband network

Liste des villes demandéeListe des villes demandée

2 000 communes

> 50% of the population covered

Page 15

Agenda

French fixed telecoms market environment

Overview of neuf telecom

New services

Page 16

Unbundled DSL lines are the key platform for advanced services

100 000

160 000

250 000

> 300000

400 000

0

100 000

200 000

300 000

400 000

déc-03 Mars Juin Sept Décembre

Abonnés ADSL actifs

Today 40% of lines are for us, 60% for other ISPs

100 000

200 000

350 000

500 000

700 000

0

100 000

200 000

300 000

400 000

500 000

600 000

700 000

800 000

déc-03 Mars Juin Sept Décembre

Unbundled lines

Page 17

Where do we go from here?

Page 18

Broadband up to 25 Mbps

Priced based on « free » backhaul

Using a technology already built into our network (same chassis, new chipset)

Commercial launch in early 2005

Virtual

fiber to the home

Faster

Page 19

Cheaper and deeper: VOIP

Cheaper

Lower cost long-haul protocol

Lower cost for retail voice services for an alternative operator

Deeper

Move from single-site to multi-site to PABX

Layer on services Hosted PBX, IP

CENTREX Private numbering

schemes Unified messaging Virtual offices

Page 20

Ups and downs of VOIP

Advantages

Industry momentum in support of IP

Operating cost efficiency

Service complexity Mass customisation of

QoS Incrementality of BP

Drawbacks

Disruptive to the voice market (user cost of voice -70% over 5 years)

Bandwidth anarchy / parasitism

Security Hyperactive

technological advancement (ROI challenges)

Page 21

More disruptive: MVNO & F-M Convergence

Penetration rate : 69.5%(+1% Q303-Q104)

France is lagging behind

70%78%

91% 92% 95% 97% 98%

France

Germ

any

Greec

eUK

Spain

Sweden

Italy

Source : CSFB

French mobile penetration rate is still relatively low with potential strong

additional growth …

… probably linked to low competition within market maintaining high

profitability

Orange 48.8% 17.9 6.6

SFR 35.3% 6.8 1.9

Bouygues 15.9% 3.3 1.0

Stable market share with30-35% EBITDA return

Market share

Revenue(Bn€)

EBITDA(Bn€)2003 figures

Page 22

Convergence of fixed and mobile driven by customer needs Telephony becomes personal and portable. Using a phone

means more and more using a 'Mobile phone' 16% of households are now mobile only France Telecom will launch fixed-mobile bundles before the end of

the year

SIgnificant mobile vs fixed line substitution

Customers expect "universal" usages : Voicemail, directory, navigator, …

Indoor usage of mobile phones as a continuity of service is growing (already ~30% of mobile calls)

Some customer segments need fixed-mobile integrated offers Consumer need for more simplicity regarding telecom providers

Futur Telecom already proposes fixed-mobile bundles for the business segment

Cegetel business offer includes SFR mobile offer with bundled prices (special rates for calls between employees)

… a single customer care ? a single bill? VPN rates ? …

Page 23

Convergence of fixed and mobile driven by technology (I)

Broadband Internet strong growth multiplies access points usable for

mobile calls collect

Emergence of IP technology enables services platforms convergence

Strong growth of mobile calls made in-house or inside workspace …

Mobile phone usage by consumers

On net « base station » with a 6fold lower cost than GSM / UMTS cost

Full IP networks already enable voice and data intergated services

Voicemail / directory available for consultation over computer or IP phone

…

Fixed and mobile network integration will add mobile sevices

Universal voicemail Unified SMS / MMS

… that can be captured by fixed operator through millions of residential and corporate modems or routers

Page 24

Convergence of fixed and mobile driven by technology (II) Hybriphone technology should be available by Q1 2005

Fixed PSTN & IPNetwork

MobileNetwork

OSP

Bluetooth/WifiAccess Point

Bluetooth, WiFi

GSM

Hybriphone principles :

HLR

Simplicity One handset for all calls One phone number One voicemail One bill

Pay less Mobile minute = 6X fixed

minute cost

Customer value

Fixed-operator value

Capture revenue (increase ARPU) & margin on mobile calls

Capture revenue & margin on mobile incoming traffic

Optimize cost structure

Network interconnexion

required

Same handset for all calls (indoor & outdoor)

Communications between handset and access points through short range wireless (Bluetooth or WLAN)

Access points located at home or in workspace

Already tested & being implemented :• BT in the UK ('Blue Phone' project)• Hutchinson in Hong Kong

3

Page 25

MVNO can create major new IT platform needs

Customer relation (incl. billing) Customer care SIM cards (delivered by SFR) Brand 'Neuf Telecom' Added value services

All network Traffic management

Minimum yearly traffic Mobile adapted distribution &

customer care 9 years contract

MVNO responsibility

Mobile operator responsibility

MVNO requirements

Not a full MVNO offer, even though mobile operator proposes to start discussion on a

possible future network interconnection

No direct proposal to become MVNO yet

Commercial partnership for common offer with Neuf Telecom on the business segment (<100 employees)

VPN Fixed-Mobile

One bill, one customer care

…

Already a distribution agreement for the business segment

MVNO proposal A MVNO B : a 'common offer' on the business segment

Page 26

Starting this Fall in unbundled zones

40 chains in digital quality

Paired with digital terrestrial TV (Télévision Numérique

Terrestre or TNT)

… and a few surprises …

More content-rich:

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