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DISCLAIMERThis material was produced by Daiwa Institute of Research Europe Limited for and on behalf of Daiwa Securities SMBC Europe Limited. Daiwa Institute ofResearch is the trading name of Daiwa Institute of Research Europe Limited. Daiwa Institute of Research Europe Limited is an appointed representative ofDaiwa Securities SMBC Europe Limited which is regulated by The Financial Services Authority and is a member of the London Stock Exchange. This material is

distributed in the United States by Daiwa Securities America, in Japan by Daiwa Securities SMBC Co. Ltd, Tokyo, and elsewhere in the world by Daiwa SecuritiesSMBC Europe Limited, or another authorized affiliate of Daiwa Securities SMBC Europe Limited (such entities and their associated persons, the Companies).The Companies may, from time to time, to the extent permitted by law, participate or invest in other financing transactions with the issuers of the securitiesreferred to herein (the Securities), perform services for or solicit business from such issuers, and/or have a position or effect transactions in the Securities oroptions therefore and/or may have acted as an underwriter during the past three years for the issuer of such securities. In addition, employees of theCompanies and of Daiwa Institute of Research and its affiliates may have positions and effect transactions in such securities or options and may serve asDirectors of such issuers. Daiwa Securities SMBC Europe Limited may, to the extent permitted by applicable UK law and other applicable law or regulation,effect transactions in the Securities before this material is published to recipients.This document is intended for investors who are not private investors within the meaning of the Rules of The Financial Services Authority and should not,therefore, be distributed to private investors in the United Kingdom. This document is not to be used or considered as an offer to sell or solicitation of an offerto buy any securities. Information and opinions contained herein have been compiled or arrived at from sources believed to be reliable, but none of theCompanies, Daiwa Institute of Research and/or its affiliates accepts liabi lity for any loss arising from the use hereof or makes any representation as to their

accuracy or completeness. Any information to which no source has been attributed should be taken as an estimate by Daiwa Institute of Research. Thisdocument is not to be relied upon as such or used in substitution for the exercise of independent judgement. Should you enter into investment business withDaiwa Securities SMBC Europes affiliates outside the United Kingdom, we are obliged to advise that the protection afforded by the United Kingdom regulatorysystem may not apply; in particular, the benefits of the Financial Services Compensation Scheme may not be available.Additional note to our U.S. readers: Daiwa Securities America is distributing this document in the United States and, in connection therewith, acceptsresponsibility for its contents. Any U.S. customer wishing to effect a transaction in any Security should do so only by contacting a representative at DaiwaSecurities America in the U.S.Recommendation Guidance1 - expected to outperform by more than 15%, 2 - expected to outperform by between 5% and 15%, 3 - expected to deviate no more than plus or minus 5%, 4 -expected to underperform by between 5% and 15%, 5 - expected to underperform by more than 15%. All DIR recommendations are made on a 6 months basis.Our benchmark is the DJ STOXX 600 index.

Hong KongThis publication is produced by Daiwa Institute of Research Europe Limited, and distributed by Daiwa Institute of Research (Hong Kong) Limited and/or itsaffiliates. This publication and the contents hereof are intended for information purposes only, and may be subject to change without further notice. Any use,disclosure, distribution, dissemination, copying, printing or reliance on this publ ication for any other purpose without our prior consent or approval is strictlyprohibited. Neither Daiwa Institute of Research (Hong Kong) Limited, nor any of its affiliates, nor any of its or their respective directors, officers, servants andemployees, represent nor warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which might besignificant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents hereof. Neitherthis publication, nor any content hereof, constitute, or are to be construed as, an offer or solicitation of an offer to buy or sell any of the securities orinvestments mentioned herein in any country or jurisdiction nor, unless expressly provided, any recommendation or investment opinion or advice. Any view,recommendation, opinion or advice expressed in this publication may not necessarily reflect those of Daiwa Institute of Research (Hong Kong) Limited, exceptwhere the publication states otherwise.Daiwa Institute of Research (Hong Kong) Limited, its parent, holding, subsidiaries or affiliates, or its or their respective directors, officers, servants andemployees may have positions in or may be materially interested in the securities in any of the markets mentioned or may have also performed investmentbanking and other services for the issuers of such securities.

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Who I am and what I do

Six-time VON veteran

fifth appearance in the pre-

lunch comic relief slot.

European TelecomAnalyst/Global Telecom

Strategist (whatever that is).

Author of EuroTelcoblog

and Chaotica blogs. My avatar is considerably

thinner than me

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My own industry is being disrupted from the edge

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Last month I caused some trouble

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2. Voice is becoming a feature, not a service

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3. Telcos cant grasp that consumers may not

want what theyre being sold

Telcos Consumers

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+

=

- $

4. Telcos thrive on scarcity - future value will

be built around abundance

http://images.google.co.uk/imgres?imgurl=http://www.searchengine-weblog.com/50226711/skype.jpg&imgrefurl=http://www.searchengine-weblog.com/&h=170&w=300&sz=11&tbnid=rqwtqN_gPldhsM:&tbnh=62&tbnw=111&hl=en&start=7&prev=/images%3Fq%3Dskype%26svnum%3D10%26hl%3Den%26lr%3D

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5. Command and control culture is dead, open

APIs rule

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6. Telco DNA is fundamentally unsuited to

the current dynamics of content

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7. Telcos expand their footprints physically,

not virtually

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8. Telcos can't innovate

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9. Telcos shouldnt try to innovate

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"...future proof data infrastructure is for Rotterdam just as

important as a good connection by means of water, road andrailtrack. A fiber network has proven to be an important

settlement criterion for young professionals, knowledge-intensive

companies, port-related companies and companies in the medical-

technological sector. A high-quality communications network is

essential as well for cultural institutions.

10. Maybe the entire foundation is wrong

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TheVFactor

The future lies in

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Volition

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Vision

Source: UK Department of Trade and Industry

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Venture

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Vanguard

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Variegation

Vs.

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Video? are you sure?

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Video? are you really sure?

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Video know your limits

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6.6%

16.2%

76.7%

0.5%Consumer

Business

Wholesale &

OperationsOther

21.5%

33.9%8.6%

36.1%

BT Retail

BT Wholesale

BT Global Services

Openreach

Contributions to positive free cash flow BT Group (left), and KPN fixed line (right)

Source: Daiwa, from company data

Viability

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Voice as a feature

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Source: BigResearch, August 2006

0%

5%

10%

15%

20%

25%

30%

35%

40%

Blogging Satellite radio Web radio Instant messaging Video gaming

Mar-06

Aug-06

Technology adoption of internet users

Viral

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0%

10%

20%

30%

40%

50%

60%

70%

80%

Liveconcerts

Live

sporting

events

Videopo

dcast

s

Full-l

ength

movies

orTV

show

s

Concerthig

hlights

Amateur

videos

Sport

shighli

ghts

Musicvid

eos

TVor

movie

clips

News

Types of online video watched

Source: AOL/AP September, 2006

Viral

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Virtual

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Virtual

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Vilification to be avoided

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Value for the end user

http://www.amazon.com/AWS-home-page-Money/b/ref=sc_iw_l_0/104-9165648-1046343?ie=UTF8&node=3435361&no=3435361&me=A36L942TSJ2AJAhttp://www.amazon.com/AWS-home-page-Money/b/ref=sc_iw_l_0/104-9165648-1046343?ie=UTF8&node=3435361&no=3435361&me=A36L942TSJ2AJAhttp://www.amazon.com/AWS-home-page-Money/b/ref=sc_iw_l_0/104-9165648-1046343?ie=UTF8&node=3435361&no=3435361&me=A36L942TSJ2AJA

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Thanks for listening!