SLOWDOWN WAS GLOBAL BUT NON EQUAL, OVER THE PAST 3 YEARS EUROPE (- 2,3%) AND FRANCE (-4,2%) WERE ESPECIALLY HIT

The Communication, Media & Technology Practice at Booz & Company Paris provides an annual analysis of the trends, growth and major changes affecting the TMT sector.

OVERALL in 2013 Telco growth slowed down to 1,5% and operator growth was only 0,3%. This decrease was mainly driven by:

THE SHARE OF VALUE IS SKEWED TOWARDS SERVICE PLAYERSby 2020 80% of total revenue opportunity will go to Information Services Providers leading to the rise of integrated players providing hardware, software and information services

Network Operators

Software and IT Services

Electronic Products

Electronic Components

TMT REVENUES BY MARKET SEGMENT2010 - 2013, in $bil.

Intermediation

Media & Content

growth

4.85.4

5.8 5.912%8%

1.5%

NETWORK OPERATORS

LTE USERS IN FRANCE(million)

70

Q4 12

1.6

Q3 13

2.5-3

Q4 13e

800

Q2 13

370

Q1 13

In France the number of users has grown from 1,6 to 3Mn between Q3 & Q4 2013 and from 75 to 182Mn worldwide in 2012-13

NEW USAGES ARE DRIVING FAST LTE ADOPTION AND GROWTH:

A first option is cost reduction. This can be achieved through market and network consolidation. For example, network sharing between operators can generate savings up to 50%

Finally, network operators are trying to capture additional growth by expanding into adjacencies with limited impact on their revenues

A second option is reducing costs by per Mb. This can be achieved by developing advanced technologies such as LTE - 3 to 4 times more cost effective than 3G - or by deploying hybrid network

A third option is optimizingrevenues. Operators canaccomplish it by improvingtheir pricing models: users pay for traffic or makecontent providers pay forbroadband used

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The development of low cost/ online brands; Price wars between operators; Market commoditization due to a larger share of online sales (50% in France) as well as by new regulatory requirements (termination rate, roaming revenues)

THE VALUE SHIFTED TOWARDS SOFTWARE, IT AND CONTENT PLAYERS

Reaching 50bn by 2020, the number of connected devices will achieve

TELCO IS MOVING FROM A “CONNECTING PEOPLE” TO A “CONNECTING DEVICES” BUSINESS

7 TIMES THE WORLDWIDE POPULATION

CONNECTINGPEOPLE

CONNECTINGDEVICES

IN THIS NEW WORLD OF CONNECTED DEVICES, Handset manufacturers are strengthening relationships with software providers that now account for 45% of the smartphone revenue. Further, almost all smartphone manufacturers controlling 96% of the smartphone market have chosen an OS from one of these software companies

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NOKIA / WINDOWS MOBILE ALLIANCE

MICROSOFTACQUIRES NOKIA

GOOGLE ACQUIRESMOTOROLA

LENOVO ACQUIRESMOTOROLA FROM GOOGLE

IPHONE LAUNCH

ANDROID LAUNCH

FIRST SAMSUNGANDROID PHONE

As operators are paying for LTE deployment, they need to build a new economic model to monetize network cost

GROWTH MODELS

THE VALUE IS DISTRIBUTED BETWEEN CONNECTIVITY AND OTT, OPERATORS AFFECTED BY A DECREASE OF ONLY -2%

CUSTOMERS PURCHASE ACCESS-BASED SOLUTION AND OPERATORS INNOVATE BY PROVIDING NEW OFFERS AND SERVICES RESULTING IN A +3% GROWTH FOR CONNECTIVITY

OVER THE TOP PLAYERS SQUEEZE OPERATORS THAT REGISTER – 5% CAGR

TELECOM IN A TURNING POINTTHE INDUSTRY IS IN A TURNING POINT, WE SEE THREE POTENTIAL SCENARIOS AHEAD

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