Zapp Case Study

Romanian Market Outlook

Romania: 22 mln pop / 240k km2

pg1

Romania: Outlook

pg1

50

100

150

200

250

1998 1999 2000 2001 2002 2003 20040

50

100

150

Avg. monthly salary (USD)Salary earnings index (previous year=100)

-6

-4

-2

0

2

4

6

1998

1999

2000

2001

2002

2003

2004

2005

e

0

10

20

30

40

50

1998 1999 2000 2001 2002 2003 2004 0

5

10

15

1998 1999 2000 2001 2002 2003 2004

December only Average/ year

% from total active population

GDP

Inflation Rate

Monthly avg. income/ capita

Unemployment rate

Romania: Personal Budget (USD/month)

pg1

0

20

40

60

80

100

120

140

2000 2001 2002 2003 2004 2005e 2006e 2007e 2008e

Food, beverages & tobacco

Housing

Clothing & footwear

Health

Transport & communications

Culture, entertainment, education

Other

Source: UN Statistical Office; World Bank; Food and Agriculture Organisation (FAO); Euromonitor; World Health Organisation (WHO);national statistical offices; Pyramid Research; Economist Intelligence Unit estimates and forecasts.

Romania: Telecom Penetration

pg1

0%

20%

40%

60%

80%

100%

1997 1998 1999 2000 2001 2002 2003 2004 2005e 2006e 2007e 2008e 2009e 2010e 2011e 2012e 2013e

fix mobile

e=estimated

Market deregulation

Romania/CEE: Fixed Penetration

pg1

0

20

40

60

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

HungaryPolandCzech R.RussiaSlovakiaBulgariaGreciaRomania

Romania/CEE: Mobile Penetration

pg1

95.2

83.2

50

41

65

37

93

46.4

0

20

40

60

80

100

Year oflaunching

2nd year 3rd year 4th year 5th year 6th year 7th year 8th year 9th year 10th year 11th year 12th year

Hungary ('94)

Poland ('96)

Czech Rep. ('96)

Russia ('98)

Slovakia ('97)

Bulgaria ('97)

Grecia ('93)

Romania ('97)

Romania: Overall Mobile Market

pg1

2,1

81

2,3

37

2,4

63

2,6

35

2,6

73

2,7

46

2,9

12

3,4

57

3672

4090

43151

,719

1,8

57

2,0

20

2,2

11

2,3

77

2,5

90

2,8

78 3,3

00

3611 3960

4284

2,0

04

4930

1,6

37

4970

44

50

6380

8484

9591

113107

9993

32

182

153128

3721

182

69101

205

229

250

278

46.4%

41.4%

38.7%

35.0%32.8%

29.0%25.7%

24.1%23.0%

20.7%19.3%

18.1%17.4%

0

2,000

4,000

6,000

8,000

10,000

12,000

Q4 '01 Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04 Q3 '04 Q4 '04

Subs (x1000)

TelemobilCosmoromOrangeConnex

Romania: Postpaid Mobile Market

pg1

801

846

894

949

988

989

1,0

66

1,2

79

1,3

59

1,4

31

1,5

10

763

803

845

893

929

1,0

12

1,1

88

1,2

05

1,2

99

1,4

15

1,5

31

761

1,8

01725

1,8

46

1012

3231

32

37

618610290

4541

9

181

153

128

3721182

69101

205229

250

278

17.8%

15.4%

14.3%13.4%

12.6%

11.3%

10.0%9.5%

9.0%8.2%

7.9%7.6%7.1%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Q4 '01 Q1 '02 Q2 '02 Q3 '02 Q4 '02 Q1 '03 Q2 '03 Q3 '03 Q4 '03 Q1 '04 Q2 '04 Q3 '04 Q4 '04

Subs (x1000)

TelemobilCosmoromOrangeConnex

Romania: Internet Penetration

pg1

0

5

10

15

20

2003 2004 2005e 2006e 2007e 2008e0

200

400

600

800

1000

1200

Internet penetration

Personal computers penetration

Internet service providers (no.)

Source: Romanian Authority for Communications

Zapp Case Study

Technology Choice

* The use of unlicensed spectrum creates interference issues

Affordable coverage is key in wireless telecommunications>> Lower frequencies are best positioned

29GHz11GHz5GHz2GHz1GHz

CDMA450

Licensed*Unlicensed

GSM1.8

CDMA1.9

WCDMA2.1

GSM900

CDMA800

cdma2000®

450, 800, 1.7, 1.9, 2.1

CDMA1.7

802.15.1Bluetooth

2.4802.11 b, g

Wi-Fi2.4

TD-SCDMA2.1

802.11 a, eWi-Fi5.0

802.16a, eWiMAX

2-11

802.16a, eWiMAX

5.8

802.15.3aUWB

3.1-10.6 802.16LMDS28-29

Licensed &*Unlicensed

Spectrum Allocations Criteria

Based on the Free Space Loss calculations, 450 spectrum offers larger coverage footprints comparing to upper bands when using the same technology – enabling less cell sites count in open and rural areas.

CDMA2000 RF capacity per MHz is higher than other technologies capacity – enabling less cell sites count in urban areas.

CDMA link budget is driven by usage when using the same band – enabling flexible data margins

CDMA packet based encapsulation for Voice & Data provides better system efficiency -enabling cost effective transport and services (IP based).

Resulting network CAPEX and OPEX figures are the lowest in the industry – enabling a competitive positioning for trading the service usage for buying desired market-share.

450 MHz

900 MHz

Technical Considerations

Strategic considerations

CDMA2000 can (inter) operate across multiple bandsCDMA needs only 1.8 MHz of spectrum for the first carrier (1.25 MHz plus the guard bands) while 450 MHZ spectrum can host up to four CDMA carriersBased on its cost efficiency, CDMA2000/450 can cover and serve all the NICHE markets left underserved by other technologies due to their capacity and/or coverage limitations (on both mobile & fixed / voice & data markets).Due to the poor fixed infrastructure available in Romania, CDMA2000/450 can provide the most cost effective solution for the “Universal Service” initiative.Broadband data capability allows CDMA2000/450 to substitute equivalent fixed data solutions (ISDN, CATV, xDSL etc) where these are unavailable.Reliable always-on data capability provides an excellent platform forthe next generation applications

Technology Choices

802.20

Source: International Telecommunications Union and WiMAX Forum

Fixed(Stationary)

Pedestrian(Nomadic)

Mobile(Vehicular)

2G/2.5GCellular

0.1 1.0 10 100

Peak Data Rate per User (Mbits/second)

Mob

ility

802.16e

CommercialProposed

802.16a(WiMAX)

79 x 1 MHz

Bluetooth

> 100UWB

20802.16

5HSDPA

1.251xEV-DO 1xEVDV802.20

1.252G/2.5G

Bandwidth(MHz)

Bandwidth Assumptions

WWAN(IMT-2000)

cdma2000® 1xEV-DO,cdma2000® 1xEV-DV

3.1

WCDMA HSDPA

802.15.1(Bluetooth)

802.11(WLAN)

802.15.3a(UWB)

Wireless Data Standards

Zapp Case Study

Segmentation & Positioning

Zapp: Overview

pg11

o Coverageo Nationwide coverage of Romaniao 90% pop, 78% geo

o Market Shareo 310,000 Subscriberso 250k voice / 50k data 1x / 10k data DOo 10% Postpaid Market Shareo Price & HSPD as major differentiators

o Networko CDMA2000 – Band Class5/Ao IS-41 (ANSI-41)o cdma2000 1x & EV-DO, Brew, PTTo SMS M/O, M/To Wireless Internet @153.6kbps &

2.4Mbpso Total 580 BTS and 5 MSCo Outbound roaming to GSM based on

plastic roaming with call-forward/call-back for the best price/convenience

Zapp: Segmentation / Opportunities

pg11

Fixed Broadband Data - postpaid(Huge growth potential for Voice & Data prepaid services)

Prepaid offers11.000.000Residential

720.000Home offices < 6 employees

52.400Small size companies6-50 employees

Voice & Data - postpaid(&prepaid)

CUG offersCheaper prices than Residential

7.700

Medium size companies 50-200 employees

Mobile Data - postpaid(Competition on Voice services being obstructed by the interconnect fees)

Extremely Cheap offers

3.100Corporate>200 employees

Niches for new operatorsExpectCountMarket Segments

Zapp: Voice Business Strategy

pg11

• Main focus on SME/SOHO segment with “no frills” strategy

• Product based on generous on-net traffic bundles to ease

CUG communications and “snow-ball” growing strategy

driven by the low cost per capacity and coverage

• Distribution and advertising strategy tailored for addressed

segment

Profitability significantly higher than for residential (over $30 ARPU)

Zapp: Data Business Strategy

pg11

• Romania is characterized by virtually nonexistent mobile

data market and very poor fixed internet access infrastructure

• Zapp shifted focus from mobile to fixed/portable data market

and moving from data volumes charging towards connection

time charging

• Positioning WLAN as “data repeater” technology for CDMA

Voice + Dial-up and Data Broadband products revenues over $40 ARPU/GM

Zapp: Evolution Enablers

pg11

Consumers

63%63%

ZAPPZAPP

10%10%

Zapp mainly focus on business users.

Evolution in core and adjacent segments depends on the following ingredients/timelines:

• Nation-wide coverage / 2005

• Handsets price decrease / 2006

• Critical mass achievement / 2005

• Differentiating services / permanent

• Interconnect fees decrease / 2006

• Prepaid / 2006

• Roaming / 2007

27%27%Corporate

SME, SOHO

Zapp Case Study

Evolution Milestones

Zapp: Milestones

• world’s first cdma2000 operator in 450 MHz band (December 2001) under Zapp Mobile brand name.

• first European operator to launch BREW-based services (April 2004) under Zapp Me brand name.

• among early adopters of the cdma2000 1x EV-DO technology (October 2004) under Zapp Internet Express brand name.

• first cdma450 operator to launch VoIP/PTT services (2005)

pg11

Zapp: Network Evolution

pg11 2004/20052002/20032001/2002

PHASE I

•Pop Coverage: 40%•Geo Coverage: 27%•60% Urban Pop(34 cities)•2000 km roads

PHASE II

•Pop Coverage: 60%•Geo Coverage: 55%•80% Urban Pop(135 cities)•4000 km roads

PHASE III & IV(including EV-DO)•Pop Coverage: 90%•Geo Coverage: 78%•98% Urban Pop (250 cities)•6300 km roads

Zapp: Terminals Evolution

pg11

Low-end

Medium - end

High - end

Special Handsets

Zapp: Subscribers

pg11

Subscribers

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

Apr-03

May-03

Jun-03

Jul-03

Aug-03

Sep-03

Oct-03

Nov-03

Dec-03

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Apr-05

Zapp Case Study

Usage & Performance Statistics

Voice: 1x Time Usage (MoU/sub)

pg11

Total Minutes Of Usage per Subscriber (IN+OUT)

0

50

100

150

200

250

300

350

400

450

500

Nov-02

Dec-02

Jan-03

Feb-03

Mar-03

Apr-03

May-03

Jun-03

Jul-03

Aug-03

Sep-03

Oct-03

Nov-03

Dec-03

Jan-04

Feb-04

Mar-04

Apr-04

May-04

Jun-04

Jul-04

Aug-04

Sep-04

Oct-04

Nov-04

Dec-04

Jan-05

Feb-05

Mar-05

Mobile to Mobile (org+trm) PSTN (inc+out) MOBIFON (inc+out)MOBILROM (inc+out) COSMOROM (inc+out) INTERNATIONAL (inc+out)Voice Mail (inc+out) NMT (inc+out) Termination (from Ext)Total (inco+out)

- CSR > 98.5% (MO & MT)- HOSR > 99% (SHO & HHO)- DCR < 0.6% (voice)- RFER < 0.8% (voice)

HDR: ZIE Time Usage (hours/sub)

pg11

-

10

20

30

40

50

60

Hou

rs

Nov-04 Dec-04 Jan-05 Feb-05 Mar-05

Average Usage (Duration)

ZIE 100

ZIE 15

- ZIE 15 costs $19 and bundles 15 hours of HDR and 1xRTT data service usage- ZIE 100 costs $39 and bundles 100 hours of HDR and 1xRTT data service usage

HDR: ZIE Volume Usage (MB/sub)

pg11

-

200

400

600

800

1,000

1,200

1,400

1,600

MB

Nov-04 Dec-04 Jan-05 Feb-05 Mar-05

Average Usage (MB)

ZIE 100ZIE 15

- More than 99% of FL packets served @ 300 kbps or higher- Throughput per active user is 80 kbps as of 5 min average aggregate

3232

March 2005 BREW Revenues: $21,930 ($ 4.5 ARPU )A total of 9,740 downloads performed by 3,355 Z710i, 641 Z510i and 939 Z720i distinct users in March 2005

Zapp Me (#downloads)

Browser de Zapp8.9%

RingTone JukeBox3.9%

M eteo by DigitAIR17.6%

Logizmo10.6%

Wallpaper de Wiz3.6%

Jail Trail 2.8%

Other2.2%

Email by Zapp3.3%

Hook-up Nurses3.2%

Pocket FHM6.5%

Air Raid5.4%

Lines Tournament4.3%

Xringer Z710i3.0%

*) Source: Data Mining and Billing Departments**) Includes Z510i FREE Access Nov promotion

BREW Revenues

$20,897

$19,445

$21,930

$19,331

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

Dec Jan Feb Mar

Revenues Distinct Users Downloads

BREW: Zapp Me Download Usage

Zapp Case Study

Next Product Solutions

BrewChat: VoIP PTT

VoIP: EV-DO Connectivity

MSC

Number:YCalled

GSM Sponsor system

Zapp site

Romania

HLR

GSM Sponsor Roaming Center

GSM SponsorMSC

GSMSponsorHLR

STP SS7 ISUP orSDN PRI

VMS

SMSC

VLR

Visited country

Zapp Roamer

Income call A-Z

CFU X’

X

CFU X’’

4

3

1

2

5

7

8

Z6A

6B

Voice connection

GSM Signaling

SMSC Signaling

Y = Zapp CDMA sub

X = GSM roaming MSISDN

X' = Zapp Number.

X" = Linku Number.

Z = GSM Dynamic Mapping

Roaming: Call-Forward/Call-BackRoaming: Call-Forward/Call-BackZapp – GSM Sponsor connectionZapp Zapp –– GSM Sponsor connectionGSM Sponsor connection

InternetCdma Mobile Link

Internet802.11b/g

Internet802.11b/g

Data Repeater & RouterData Repeater & Router

Low Cost in-building data coverage solution ($60/unit)High interoperability based on USB, Ethernet & Wi-Fi interfaces (no drivers required)Large number of applications based on Linux open source

Voice & Data Repeater (0.1 & 1W)Voice & Data Repeater (0.1 & 1W)

Low Cost in-building coverage solution