Developments in
Telecoms Capital Markets
3 June 2002
Rothschild CF9636SR
Contents
ROTHSCHILD

What happened?

What was the role of Government and regulator?

What are investor attitudes to telecom stocks now?

How should Government and regulators react?
Rothschild CF9636SR
What happened?
1.1 European TMT sector 1999-2002 ytd
European performance
260
240
220
200
180
160
140
120
100
80
60
40
1999
2000
Europe-DS Telecom, Media, IT - Price index
Europe-DS Telecom,Wireless - price index
Source: Datastream
ROTHSCHILD
2001
Europe-DS market - price index
2002
Rothschild CF9636SR
1.2 TMT Incumbents in CEE 1999-2002 ytd
CEE operators
250
200
150
100
50
0
01-Jan-99
07-Nov-99
Matav
Telekomunikacja Polska
Lietuvos Telekomas
ROTHSCHILD
13-Sep-00
CeskyTelecom
Eesti Telekomi
20-Jul-01
27-May-02
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1.3 Equity and equity linked issuance 1999 – 2002 ytd
No. of issues
2
1
1
1,000
0
Volume - Euro (m)
Q1 2002
Q4 2001
Q3 2001
Q2 2001
Q1 2001
Q4 2000
Q3 2000
Q2 2000
0
No. of issues
No. of issues
2
4,000
3,000
2,000
Q1 2000
0
3
3
Q4 1999
Q1 2002
Q3 2001
Q1 2001
Q3 2000
Q1 2000
5
6,000
5,000
Q3 1999
10
4
Q2 1999
15
8,000
7,000
Q1 1999
20
Euro (m)
25
No. of issues
30
Volume - Euro (m)
ROTHSCHILD
European telco sector equity
linked issuance
35
Q3 1999
20,000
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
Q1 1999
Euro (m)
European telco sector equity
issuance
Rothschild CF9636SR
1.3 Capital markets highlights


Values are
lower…
ROTHSCHILD
European DS Telecoms, Media and IT Index is

>70% lower than June 2000

>50% lower than 2001 high

>25% lower than 2002 high
CEE
Reduction from peak
Incumbents
Matav
Cesky Telecom
TPSA
Estonian Telecom
Lietuvos Telekomas
Altnets
Netia
-63%
-66%
-65%
-50%
-59%
-99%
Rothschild CF9636SR
Capital markets highlights
Valuations
are lower…
New
issuance is
down…
ROTHSCHILD

Fixed: 4.5x EBITDA now
vs nearly 4x Revenues then

Mobile: 6-7x EBITDA now
( – fixed line valuations at peak)
ˆ

Issues by BT and KPN account for 70% (€15bn)
of European equities issuance in the last 12
months

Convertible/exchangeable issuance rose in
2001 in response to low prices and interest
rates and high volatility
Rothschild CF9636SR
Capital markets highlights

Mobile
exceeded
expectations…
until 2001
Data,
broadband…
ROTHSCHILD
Further growth possible towards European
levels
BUT

Cannibalisation of fixed revenues in voice

Ceiling of  2.5% mobile spend/GDP

Concerns about 3G

Disappointing volumes
Rothschild CF9636SR
In a Nutshell - 1
350
300
250
200
150
100
50
1997
BT GROUP
Source: Bloomberg
ROTHSCHILD
1998
1999
2000
2001
2002
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In a Nutshell - 2
800
700
600
500
400
300
200
100
0
1997
BT Group
Source: Bloomberg
ROTHSCHILD
1998
Vodafone Group
1999
2000
2001
2002
Rothschild CF9636SR
In a Nutshell - 3
6000
5000
4000
3000
2000
1000
0
1997
BT Group
Source: Bloomberg
ROTHSCHILD
1998
Vodafone Group
1999
Colt Telecom
2000
2001
2002
Rothschild CF9636SR
What was the role of Government and the regulator?
Faster liberalisation
Slower liberalisation

Consumer choice/business
needs

Network development
obligations

New entrant push


EU accession
Digitalisation/broadband
vision

FCC pressure on settlement
rates

Tariff rebalancing/price
control

Labour issues

Privatisation proceeds
Most CEE Governments/regulators favoured infrastructure based competition
model
ROTHSCHILD
Rothschild CF9636SR
What are investor attitudes to telecoms stocks now?
Institutional investors


Wary, especially of
3G cost/benefits
Visibility/momentum
of earnings…

Driving dividend

High liquidity/free
float requirements
Strategic investors

Where are they now?

Beginning to play

Highly geared


3G write offs
But still relatively
few in CEE

Strategies under
attack

High rates of return

Stability of cashflow
The telco reinvented as a utility?
ROTHSCHILD
Private equity
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How should Governments / regulators react?

Infrastructure as a utility

ROTHSCHILD
Services based competition over incumbent network

Interconnection

Carrier (pre) selection

Local loop unbundling

Number portability

“Second National Operators” rarely succeed

MVNO for 3G?

Regulatory (transparent) bite

Temper price / other ambitions