Capturing the opportunities from the New Digital World

Barcelona, February 15th, 2011

A view from the top

César AliertaChairman & CEO

MWC, Barcelona 2011 2

Index

A growth and dynamic industry

ICT sector challenges

01

02

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A growth and dynamic industry

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(Bn USD) 2010F ICT Market

CAGR 2007-10F

CAGR 2010F-14F

North America 1,042.9 1.3% 4.4%

Europe 916.0 -3.5% 2.3%

Asia & Pacific 894.0 6.3% 5.4%

Latin America 263.6 5.9% 6.1%

Middle East and Africa

212.4 3.5% 4.8%

Worldwide 3,329.0 1.5% 4.3%

ICT industry : back to solid growth rates

Source: Gartner Market Databook (Oct 2010)

6

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Apps & Services

Customers

We are very positive about our industry future

GreatDigital

Opportunity

DevicesApps

Customers

Devices

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Telco industry growth will be driven by Fixed and Mobile Broadband

10

Net adds of accesses 2010F – 2014F

2.018 Mill

85% Mobile

10

91% Emergingmarkets

* BB: Fixed BB + 3G+ suscribers)Source: Pyramid Data Forecast (Jan 2011)

Total accesses(Million)

CAGR

4.1%

7.3%

6.6% CAGR 2010 - 2014

MBB: 31% FBB: 11%

DevicesApps

Customers

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Improved user interface devices and M2M new applications are boosting demand growth

DevicesApps

Customers

From Internet of People toInternet of Things

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Massive smartphone uptake DevicesApps

Customers

Source: Strategy AnalyticsEmerging markets: Latin America, Eastern Europe, MEA, and Asia Pacific (ex-Japan, South Korea and Australia)

Worldwide Smartphone Installed Base*(Million)

CAGR 2010-2014

Emerging Economies*: 32%

Advanced Economies: 24%

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Digitalization of the real economy broadens the scope of our market

DevicesApps

Source: U.S. Bureau of Economic Analysis - U.S. national income and product accounts (NIPAs) (Aug 2010)

Customer expenditure breakdown 2009

Customers

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Telco players have a key role to play in the ICT ecosystem

18

Telco as service platforms

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ICT sector challenges

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Apps & Services

Customers

This growth opportunity is supported by networks

Networks

DevicesApps

Customers

Devices

Development of NGN and upgrade of existing ones is needed to allow the exponential broadband growth

Price no longer a barrier for uptake of mobile data

24

Time

Broadband capacity /user

EDGE

UMTS

HSxPA

LTEADSL

ADSL2+VDSL

TODAY

FTTHGPON IMT

Advanced

FTTHNG-GPON

Technology evolution

DevicesApps

Network

Heavy investments are needed - Who is going to invest?

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Mobile data growth increases the importance of the Fixed network

26

… Fixed network will be keyFor the evolution of mobile network…

New Wireless Access Technologies require bigger network capabilities

New Wireless Network Architecture need sites nearer to the customers

Growth of mobile traffic

LTE Nodes capacity

> x10

# Nodes (long term)

> x10

>> x10

BACKHAUL

Every Mobile Base Station will have to be connected by Fiber Fixed Network

POINTS OF PRESENCE

Massive Points of Presence in buildings (home/enterprise)

MULTIMODE

Intensive Use of Technologies usually characterized as “fixed” ones: WiFi,

all-IP, video…

INTERNATIONAL

Strength of capacities in submarine cables and satellite

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Expected traffic increase will require incremental CapEx, both in Fixed and Mobile Networks

28

DevicesApps

Network

Source: Oppenheimer, A.T. Kearney analysis. FTTx investment assuming 50% household coverage by 2014

Fixed Internet Network ~26

~ 65

CapEx Trendlineat current level

A.T. Kearney EU 27 Capex required estimationCumulated 2010 - 2014

Mobile Networks(3G and LTE)

~ 10 +~ 116 in FTTx

~ 21 Bn€

Additional CapEx requiredBn €

accesses

International Office

Telcos are the main contributors to investment and employment inour industry

Telco

IT

37 billion€1

3 billion€1

Investment (CAPEX)

2.0 million2

2.9 million3

Employment

0.03 billion€1 10,0005Internet

1 The 2009 EU Industrial R&D Investment Scoreboard2 European Business. Facts and figures. Edition 2009. Eurostat. EU-27 in 20053 European Business. Facts and figures. Edition 2009. Eurostat. EU-27 in 2006 for Business services-Computer and related activities4 Digiworld-2009. IDATE

5 Estimated Google’s employees in Europe from 20,222 worldwide (December 2008) http://investor.google.com/releases/2008Q4_google_earnings.html

6 Online advertising – Western Europe – Strategy Analytics

30

European MarketIllu

strative

13 billion€

0.4 billion€

Investment (CAPEX)

0.7 million

0.5 million

Employment

0.01 billion€ >3,000

30

Latam Market

Content and service providers hardly contribute to network costs

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Current regulation doesn’t guarantee necessary investments

32

Communications, Apps. & Services

Telco operators

Regulated

Not regulated

Internet playersDevice suppliers

Fragmented

Concentrated

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Our industry has very positive growth prospects, driven by mobile data

New business models are needed to finance network investments that will make sustainable the whole internet ecosystem based on a virtuous circle of growth . Cooperation within the industry is essential to get the most of the digital world

New engagement of telecom operators with content providers is needed to be able to deliver contents with new quality requirements

Regulation should allow the recovery of network costs, promoting investment, traffic efficiency and fostering new services development

Conclusions