1

Paris, February 2016

MWC Press Conference 2016

2

Competition is growing

with the emergence of

new players

Mobile plays a key role

in the digitization of all

industries

Data is proliferating

Strong M&A activity

through consolidation

& diversification

• OTT players have defined new communication standards in Voice & Messaging

• Emergence of new infrastructure players (SIGFOX, Google, Facebook, Microsoft)

• A 10% rise in 3G penetration increases GDP per capita growth by 0.15 percentage points

• 81% of CEOs think mobile technologies are strategically important for their business

• Global Mobile Data traffic will grow 10-fold from 2014 to 2019

• Consolidation of the market continues

• Telcos diversify their activity through acquisitions (Verizon acquired AOL, AT&T purchased DirecTV,

Orange is finalizing the acquisition of Groupama Banque)

Market is stabilizing

• After several years of decline, revenues and margins are stabilizing

• In particular in France, after the disruption of the market by Free, we notice a slight increase in ARPU

(Orange: 22.6€/month in Q3 1 2015 vs. 22.5€/month in Q2 1 2015, SFR B2C ARPU in H2 2015 is 22.7€ vs.

22.6€ in H2 2014)

1) 12 months rolling

Sources: PwC’s 18th annual Global CEO Survey 2015, Cisco, GSMA, Strategy& Analysis

Device market start

losing traction

• High-end market is saturated and showing its first signals of growth decline (iPhone sales were flat in Q4

2015 for the first time since launch in 2007, Samsung announced a profit warning)…

• …combined with a tougher competition in the low-end segment with the growth of new players (e.g.

Xiaomi)

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Market Landscape overview

Sources: PwC’s 18th annual Global CEO Survey 2015, Strategy& Analysis

• Pay TV• Gaming & Video• Mobile Money

• Voice & Messaging (WhatsApp, Skype…)

• Infrastructure (Google Loon, Fiber, Microsoft WiFi…)

Telcos

• Apple SIM

OTT / Digital

players

Device

manufacturer• Apple TV, Apple Pay, Maps• Samsung Tizen

• Google Nest, Google Car• Amazon Firephone

New

players

• Russia (MTS, Megafon)

• Orange (PIXI, KLIF)

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Telcos responses to competition of OTT players

Find new areas of growth outside of core

business

1 Embrace OTT growth to drive data

consumption through content offering

3

Differentiate by leveraging customer data

both internally and externally

2Consolidation

4

56% of CEOs saying competitionwill come from another industry 19 out of 48 (~40%)

of MWC conferences are around other

verticals

71% of Telco CEOs are extremely concerned or somewhat concerned by the treat of new entrants in their industry

26% of Telco CEOs plan to initiate a domestic M&A in 2016

24% of Telco CEOs plan to initiate a cross-border M&A in 2016

65% of Telco CEOs consider Data Mining & Analysis capabilities as strategically importantfor their organization

16% of CEOs expect competitionto come from Telcos

5

A B

1 Diversify in new industry verticals

Transportation

18

Connected

Car

3

Utilities

6

Industry

4.0

1) 2019 figures based on 1% - 3% commission of Consumer 2 Business, Personal 2 personal payments and NFC total transaction values

*) Market size will highly depend on different political scenarios and what roles telcos can win in the bidding processes (general contractor or only connectivity provider)

Sources: IDC, Ovum, Technavio, MarketsAndMarkets, GSMA, Grand View Research, Navigant Research, Mind Commerce, Strategy& analysis

Telcos’ legitimacy to play a significative role

Estimated global addressable market for Telcos, USD bn, 2020

Focus of today’s presentation

High legitimacy to play a significative role

C

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1 Zoom on Mobile Financial ServicesA

Mobile banking

NFC based payments

Mobile commerce

Money transfers in developing countries

Ban

ked

po

pu

lati

on

Develo

ped

co

un

trie

s

Un

ban

ked

po

pu

lati

on

Em

erg

en

t c

ou

ntr

ies

Evolution of Mobile Financial Services Telco market entry strategy in Mobile Banking

Telco Key Differentiators in Mobile Banking

Acquire a bank

Partner to distribute

a bank’s products +

Best-In-Class

Customer Journey

Lower fees &

product bundling

Customer knowledge

• Look & Feel

• Leverage mobile to eliminate pain

points (origination, product application)

• Bundle with Telco services

• Lower cost due to lower structural cost

& revenue synergies

• Credit scoring based on big data

• Geolocalized discounts

1

2

1

2

3

Sources: Strategy& analysis

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1 Zoom on eHealthB

Most promising eHealth

markets for TelcosWell-being wearables market state

Disease Management

Remote patient monitoring

Tele-diagnostic

Tele-consultation

Well-being wearables

Consumers have not

embraced health wearable

technology in large numbers,

but they are interested

Most consumers do not want

to pay much for their

wearable devices

Consumers remain concerned

about privacy

1

2

3

Sources: PwC Health Research Institute (Survey of 1,000 US citizens), Strategy& analysis

10% own a wearable and wear it everyday

56% believe that the average life expectancy will grow by 10 years because of wearable-enabled monitoring of our vital

38% of consumers would pay a fitness band at $100

68% of consumers would wear employer-provided wearables streaming anonymous data to a database in exchange for breaks on insurance premiums

23% of consumers want to share their health information

82% of consumers felt concerned that wearableswould invade their privacy

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1 Zoom on Connected CarC

Estimated Market for Connected Car technologies*In €bn, 2016 - 2020

0.0

15.5

9.5

0.1

35.7

47.3

S 40.3 S 115.3

2016Market potential in €bn

2020Market potential in €bn

Opportunities for Telcos

Maturity

Telcos’

Right to

win

Explanation

Safety • Requires auto

knowledge – OEM

specific

• Relevance in

connectivity only

Autonomous

Driving

Vehicle

Management

Mobility

Management

Entertainment • Telcos are already

providing

entertainment solutions

Well-being • Requires specific

technology

• Low relevance but

might communicate

with eHealth & Smart

Home offerings

• Relevance in

connectivity

Home

Integration

*) Passenger vehicles only excluding light commercial vehicles

Sources: Strategy& analysis

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1 Diversify in new industry verticals

Telcos have experienced limited success

in the past…

…showing the importance of better

leveraging assets to win the game

Keep a dominant position in the

connectivity space

Play a central role in the distribution of new

service offerings

Leverage brand trust to reinforce data

protection

Telecom operators have started heir

diversification on content more than 5

years ago with mitigated results:

• Closure of Telefonica digital in 2014

• Reduced participation of Orange in

Dailymotion

• Shut down of Orange sport / Cinema

• BT and Vodafone high investment in

TV content with limited impact on

revenues

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2 Leverage proprietary data to differentiate

Externally

Differentiate through

offer targeted business

services

Internally

Generate value internally

Key challenges

• Improve data quality across

all IT systems (data cleansing,

data completion, data

integration, etc.)

• Develop enhanced Data

Analytics capabilities

• Manage confidentiality issues

• Detect and mitigate Cyber

security threats

Ways to leverage

proprietary dataIllustrations

Flux vision

Vodafone

Analytics

Improve and balance the

flow of traffic in London by

analyzing movement on the

different types of transport

Analyze visits & mobility

behaviors for Bouches-

du-Rhône Tourisme

Delivered couponing campaigns

for Tesco and drove 40K

customers to retail stores

Network optimization based on data

consumption analysis and customer geo-

localization network quality improvement

Network operations enhancement through

identifying potential BTS failure due to

defective batteries caused by temperature

decrease

Life cycle-based behavior churn &

profit forecast modelling

Increased « right » acquisitions by

27% and decreased attrition by 50-60%

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2 Leverage proprietary data to differentiate

Sources: Global State of Information Security Survey 2016, Strategy& analysis

Increasing cybersecurity threatsStrategic initiatives adopted by

TelcosCybersecurity – an opportunity

• Cybersecurity can create

competitive advantages by

boosting customer trust in brand

and reputation, giving the

company a leg up in entering new

industries

• Some Telcos like Singtel have

already entered the cybersecurity

business

Have an overall

security strategy

Have a CISO in

charge of security

Employee

security training

Have security

standards for 3rd

parties

Conduct threat

assessments

Monitor actively

security intelligence

62%

58%

54%

58%

57%

54%

45%Increase in

detected security

incidents in

Telcos between

2014 and 2015

Most-cited sources of incidents

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3 Invest in Content

In-house

development

Key Takeaways

• Main objectives:

o Increase client base by

providing more attractive

offerings

o Drive data usage to offset

voice revenues decline

o Generate additional revenues

through ads (e.g. Aol)

• Key challenges

o Fierce competition from pure

players

o Offer attractive content for

in-house development

How Telcos are

reinvesting in ContentIllustrations

Partnerships

Acquisition

+

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FMC Local mobile consolidation International expansion

Current trends

• FMC convergence observed

in all markets (both:

fixed/cable and fixed/copper)

• A second trend is local

mobile convergence

• Further international

expansion possible

• On average, number of

players per market expected

to be reduced to three

0.9

17.0

3.4

7.7

8.6

1.3

2.61.3

2.3

7.2

7

7.4

Major M&A Deals from 2011 – 2015, In €bn

16.5

Sources: Web search, Strategy& analysis

4 Consolidation