Étude 2019 Arthur D. Little sur l'économie des Télécoms (EN)

1. Fédération Française des Télécoms Economics of telecoms industry in France 2019 Edition

2. 2 Agenda 1 Telecom operators contribution to the digital sector 1.1 Evolution of the global digital ecosystem 1.2 Dynamics of the French digital ecosystem 2 European benchmark 3 The role of telecom operators in the digital economy of 2030

3. 3 Telecom operators are no longer the main contributor to the digital ecosystem in terms of revenue, by passed by device manufacturers Source Thomson Reuters, Arthur D. Little Note 1) Panel of 180 companies corresponding to the top 30 by sector in terms of turnover, 2) Constant euro 2018 Evolution of the global digital ecosystem Illustrative companies 890 907 970 986 1 030 1 070 1 168 1 260 1 285 1 317 147 155 149 167 172 178609 766 841 1 012 1 048 1 038 1 122 1 090 1 221 1 364 316 339 376 394 403 430 442 456 472 526 184 185 191 183 179 184 195 214 227 253 78 92 132 167 202 249 303 390 508 650 201820152011 2 667 2010 2016 137135 2012 3 577 2013 139 2014 135 2017 Content IT and Software Services 2 999 Device 2009 Equipment manufacturers Internet Telecom Operators 2 212 2 436 2 878 3 379 3 111 3 886 4 288+8% per year +10% Revenue of the digital ecosystem1 Global, 2009-2018, Billions of euros2 2009-18 (Average) +4% +3% +9% +6% +27% +4% 2017-18 +11% +3% +12% +11% +28% +2% Annual Growth

4. 4 North America and Asia are driving the digital ecosystem’s growth, while the European ecosystem is not taking off Source Thomson Reuters, Arthur D. Little Note Panel of 180 companies corresponding to the top 30 by sector in terms of turnover 2) Constant euro 2018 3) Includes Top30 players (Oceania, Africa, Middle East, South America) Evolution of the global digital ecosystem 462 472 484 445 424 417 463 491 495 503 893 1 035 1 206 1 341 1 411 1 443 1 545 1 641 1 794 2 052 794 863 906 1 019 1 089 1 170 1 285 1 356 1 506 1 643 2013 71 3 577 Asia 2010 65 20142009 73 2011 20182012 2016 75 81 85 63 89 2 667 91 2017 2 436 89 Other3 North America Europe 3 111 2 212 2 878 2 999 3 379 3 886 4 288 2015 +8% per year +10% +9% +2% +14% -2% +8% +1% +10% +4% 2009-18 (Average) 2017-18 Annual Growth Digital ecosystem revenue1 Global, 2009-2018, Billions of euros2

5. 5 Globally the digital ecosystem is growing three times faster than the GDP, excepted in Europe Source Thomson Reuters, World Bank, Arthur D. Little Note Panel of 180 companies corresponding to the top 30 by sector in terms of turnover, 2) Constant euro 2018 , based on countries included in the digital ecosystem (representing 75 of the world GDP, or 70% of the European GDP) Evolution of the global digital ecosystem Global GDP2 Global digital ecosystem2 +8% +3%130 194 115 109 80 100 120 140 160 180 200 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Digital ecosystem growth1 vs GDP Global, 2009-2018, base 100 in 2009 European GDP2 European digital ecosystem2 +2% +1% 2009-18 (Average) 2017-18 Annual Growth +10% +3% +2% +2%

6. 6 Over the last 10 years, the market capitalization of European Telcos has decreased, while other regions has steadily increased Source Thomson Reuters, Arthur D. Little Notes Note 1) Nationality depend on the localization of the head quarter 2) Panel of 180 companies corresponding to the top 30 by sector in terms of turnover, 3) Constant euro 2018 4) Includes Top30 players (Oceania, Africa, Middle East, South America) Evolution of the global digital ecosystem 310 311 287 250 340 321 351 322 307 255 299 328 352 403 519 557 579 764 762 683 420 402 408 432 523 538 564 558 579 571 110 124 111 121 135 146 143 148 144 140 1 649 20142009 1 138 201620112010 2012 North America 2013 2015 2017 2018 Other4 Asia Europe 1 166 1 158 1 205 1 516 1 561 1 637 1 792 1 792 +7% per year +4% per year -8% -1% -17% -10% -3% Telecom operators’ market capitalization by region1,2 Global, 2009-2018, Billions euro3 Annual growth 2009-13 (Average) 2017-182013-17 (Average) 3% -3% 10% 2% 6% 2% 15% 5% Market value loss of European telecom operators for 10 years

7. 7 Agenda 1 Telecom operators contribution to the digital sector 1.1 Evolution of the global digital ecosystem 1.2 Dynamics of the French digital ecosystem 2 European benchmark 3 The role of telecom operators in the digital economy of 2030

8. 8 The French mobile market continues its transition to data, with 77% of users with a smartphone and consuming 8+GB per month Source ARCEP, Operators, Arthur D. Little Note 1) Total population aged 12 and over excluding M2M, "Face to face" survey conducted in June 2019 2) Active 3G or 4G internet client French digital ecosystem dynamics Average monthly 4G data consumption Active 4G Sim Card (Millions of Sim Card, excluding M2M) 27 37 45 51 T2 2018 T2 2017 T2 2016 T2 2019 +24% per year X% 50% 60% % of total Sim Card 1,9 Go 4,6 Go 6,6 Go 8,3 Go T2 2016 T2 2017 T2 2018 T2 2019 +63% per year 67% Equipment and connectivity in France – Mobile France, 2016-2019 As illustrative 305h of streaming music or 8h of video streaming 37% 2016 2017 2018 2019 93% 65% 94% 73% 94% 75% 95% 77% Mobile phone penetration rate1 Smartphone Mobile phone

9. 9 More than 50% of the French population has now access to fixed high speed broadband Source ARCEP, Arthur D. Little, data.gouv Note 1) Downloading Speed> = 30 Mbps, 2) Subscriptions subscribed as part of a "multiplay" subscription that includes internet access or several services in addition to television are counted 3) HSB High Speed Broadband, VHSB Very high speed Broadband French digital ecosystem dynamics Fixed High speed Broadband subscription1 (Millions of subscriptions) Equipment and connectivity in France - Fixed France, 2018-2019 +29% 7,8 10,1 T2 2018 20,8 19,3 T2 2019 28,7 29,4 +2% High Speed Broadband Very High Speed Broadband 27% Very High Speed Broadband 34% VHSB 23,6 27,3 T2 2019T2 2018 +16% Premises eligible for aVery High speed Broadband offer (Millions of premises) 3,7mn additional premises eligible to Very High Speed Broadband in 2019 vs 2018 45% 51% xx% % Eligible premises

10. 10 83% 1%1% 1% 82% 8%2% 4% 74% 5% 5% 3% 51% 15% 11% 19% 3% Telecom operators are essential to the French digital ecosystem 5 telecom operators Revenue1,2 77 billion€ (+2,7 Bn€ vs 2017) Direct Employment 157 000 (-5 700 vs 2017) Investments3 10 billion€ (+0,2 Bn€ vs 2017) Taxes4 4 Billion€ (-0,16 Bn€ vs 2017) Relative size of players in the digital ecosystem and their evolution 2018-2017 France, 2018 (vs. 2017) Source Diane, annual reports, Arthur D. Little Note 1) Revenue declared in France or from literature search, 2) Data adjusted to take into account the estimated actual turnover of international players in France, 3) Nokia's mobile division investments are integrated into Microsoft following the acquisition of the mobile division in 2014, 4) Corporation tax, taxes and similar disbursements French digital ecosystem dynamics R EI T y compris filiales 14% 4% 14% 5 content providers 5 Internet OTT players 5 Device vendors 5 Equipment manufacturers

11. 11 French telecom operators have faced a sharp increase in their tax rates, as opposed to equipment manufacturers and internet players Source Diane, Annual Reports, Arthur D. Little Note 1) Corporate income tax, taxes and similar payments, 2) Sales reported in France or documentary research, 3) Adjusted data to take into account the estimated effective turnover of international players in France French digital ecosystem dynamics Telecom operators Equipment manufacturers Device manufacturers Internet OTT players 7,6% 6,2% 2,0% 1,4% 0,2% 0,2% 6,9% 5,8% 0,5% 0,3% Content providers +1,4 pp -0,6 pp +0 pp -1,1 pp -0,2 pp 2013 2018 Tax level as % of income for the major players of the digital ecosystem in France, 2013 vs 2018 R EI T With subsidiaries

12. 12 The share of telecom services in the budget of French household has decreased over the last years, contrary to other expense items Source INSEE, Arthur D. Little Note 1) Leisure including digital entertainment 2) Telecommunication Telecommunication services 3) Other Education, miscellaneous goods and services, postal services, telephony equipment and facsimile French digital ecosystem dynamics Share of telecom services in French households’ total spending France, 2009-2018, % of total spending Housing ClothingFoodTransportation 13,6% Leisure 15,5% Health Telcom Services Others 25,3% 26,3% 14,1% 16,5% 16,8% 15,2% 4,1% 4,0% 9,4% 8,4% 2,9% 1,9% 13,0% 13,2% 2009 2018 R EI T 1 2 3

13. 13 Contrary to other regulated sectors in France, telecom services have witnessed a sharp fall in prices over 2009–2018 Source INSEE, Arthur D. Little French digital ecosystem dynamics Consumer price index evolution on selected products France, 2009–2018, Base 100 in 2009 139 143 135 118 110 58 50 60 70 80 90 100 110 120 130 140 150 2010 201620112009 20142012 2013 2015 2017 2018 Electricity Postal services City Gaz Rail Inflation Telecom Services R EI T

14. 14 The telecom sector brings the largest investments in infrastructure in France which gives it a considerable economic weight French digital ecosystem dynamics R EI T Source Companies, Documentary Research, Arthur D. Little Note 1) Telecom ARCEP figures (excluding purchase of frequencies); Electricity RTE (2009 to 2018) and ERDF; RFF; Highways ASFA (Sanef, SAPN, ASF ....) Investments of network operators1 vs. other sectors France, 2014 – 2018, billions of euros, average over 5 years 1,4 5,1 5,7 8,6 Highways Rail Transportation & distribution of Electricty Telecoms 2018 investments are equivalent to… ou ou ou ou 577 High Schools 95 Hospitals 86 Airbus A320 Neo 1 969 Wind turbines x2 vs. today 224 TGV trains (high speed trains)

15. 15 French telecom operators have increased significantly increased their investments despite lower turnover, but could not maintain employment Source ARCEP, DARES, INSEE, Arthur D. Little Note 1) Investment effort operator investments (excluding frequency purchases) / operator revenue, 2) Provisional ARCEP figures for 2018 3) ARCEP figure 4) ARCEP figure including part of the indirect jobs, 5) Provisional ARCEP figures for the year 2017 corresponding to the income received from the end customer French digital ecosystem dynamics Employment, revenue and investments of French telecom operators France, 2010-2018, base 100 in 2010 R EI T 86 81 82 153 186 60 70 80 90 100 110 120 130 140 150 160 170 180 190 2010 2011 2012 2013 2014 2015 2016 2017 2018 100 Revenue5 Operators’ direct jobs3 TCAM 2010-2018 - 1,9 % - 2,4 % Sector Job4 - 2,5 % Operators’ investments (excluding frequency acquisition)2 5,4 % Investment effort1 8,1 %

16. 16 Thanks to the new technologies, the telecom sector reduces its energy footprint Source FFT, ARCEP Note 1) ARCEP estimate of average consumption over one year based on the observation of consumption operators per GB of their users 2) Public switched telephone network French digital ecosystem dynamics 19 kWh 16 kWh 5 kWh PSTN 2 ADSL FTTH /3 2016 2017 2018 6 0 2 4 8 1,35 6,69 7,93 1,49 # new mobile phones put on the market # mobile collected (recycling, reuse) -16% +10% Mobile phone Broadband New mobile phones put on the market and mobile recycling by FFT operators France – 2016 / 2018, in millions Annual consumption of a user according to his telecom connection 1 France

17. 17 Agenda 1 Telecom operators contribution to the digital sector 2 European benchmark 3 The role of telecom operators in the digital economy of 2030

18. 18 Prices of telecom services in France remain the lowest among large Western countries Source Operators, Arthur D. Little Note 1) Triple play offers only; unlimited calls to landline at least; unlimited broadband internet through xDSL or FTTH; television included, excluding additional packs; operators with market share > 10%, 2) Unlimited calls (whenever possible or else >500 minutes), unlimited SMS/MMS, at least 50 GB Internet; packages without devices, packages without commitment;, without a mobile phone, operators with market share > 10% French digital ecosystem European benchmark 12€ 12€ 13€ 27€ 41€ 45€ 65€ 24€ 16€ 28€ 32€ 35€ 50€ 108€ Offer benchmark – Main operators Selection of countries, November 2019, € incl. taxes per month Fixe (Triple Play)1 Mobile2 Benchmark Mobile 50 Go Excluding promotions, excluding connection fees By country, selection of the most competitive package in terms of price among operators with> 10% of Market share

19. 19 Despite a highly competitive environment, French operators manage to provide an infrastructure that connects homes, people and objects Source Global Data, European Commission, Arthur D. Little French digital ecosystem European benchmark 4G Coverage Coverage in terms of % of household 2018 98,87%99,87%99,95% 99,53% 97,50%99,34% High speed Broadband subscriptions as% of Internet subscriptions (>10 Mbps) - 2018 98% 96% 95% 86% 78% 74% M2M base (millions of Sim cards) - 2018 23,1 21,1 18,2 8,1 5,9 3,4

20. 20 The investment effort of French operators is superior to all other major European markets Source Arthur D. Little annual report Note Turnover, CAPEX and EBITDA of telecom operators with a fixed or mobile market share> 10% French digital ecosystem European benchmark Investment effort rate by country (CAPEX /Turnover) United Kingdom, France, Spain, Germany, Italy, 2018 15% 23% 16% 16% 18% Capex/Turnover 81€88€83€130€139€ x€ Capex/Inhabitant

21. 21 The investment effort of French Telcos is especially remarkable as their margin levels are lower than in any other European markets Source Arthur D. Little annual report Note Turnover, CAPEX and EBITDA of telecom operators with a fixed or mobile market share> 10% French digital ecosystem European benchmark Investment Effort (CAPEX /Turnover) and Margin Level (EBITDA / Turnover) by Country United Kingdom, France, Spain, Germany, Italy 2018 15% 23% 16% 16% 18% 28% 31% 33% 36% 38% Capex/Turnover EBITDA/Turnover ppts Difference (Free cash Flow) 𝟏𝟑𝐩𝐭𝐬∆ 𝟖𝐩𝐭𝐬 𝟏𝟕𝐩𝐭𝐬 𝟐𝟎𝐩𝐭𝐬 𝟐𝟎𝐩𝐭𝐬

22. 22 Agenda 1 Telecom operators contribution to the digital sector 2 European benchmark 3 The role of telecom operators in the digital economy of 2030

23. 23 The digital economy is driven by three strong trends Source Arthur D. Little The digital economy in 2030 in France the role of telecom operators Processing Power Moore’s law Processing power doubles every 24 months Data Storage Kryder’s Law Storage capacity doubles every 18 months Connection speed Nielsen’s Law The average connection speed doubles every 21 months The law of digital

24. 24 The implications for French users : more powerful digital tools allowing massive data consumption The digital economy in 2030 in France the role of telecom operators Source Apple, Akamai, ARCEP, Arthur D. Little analyzes Notes Some performance and usage data are estimated; (1) expressed in GFlops "billions of floating-point operations per second " Today In 2030In 2009 iPhone 3GS iPhone 11 Pro Next Generation? iPhone’s example Processing Power1 Storage x16032 Go 512 Go >80To ? (cloud) x16 Connection speed (avg) x781,321 Mbps 45 Mbps 3,5 Gbps ?x34 Data Monthly data consumption per Sim Card x7819 Mo 7 Go 550 Go ?x368 x451,6 Gflops 40,2 Gflops 1800 Gflops ?x25

25. 25 The digital ecosystem will be at the heart of the French society by 2030 The digital economy in 2030 in France the role of telecom operators – Remote enhanced training – Network coverage handled by Drone – New Smart Telecommunication Networks (Software Defined Network) Augmented Discovery Automated Living Virtual Telepresence 2030 Use cases from Arthur D. Little's sector studies, especially the study "Unlocking the GigaWorld innovation" Industry 4.0 Smart Cities – Smart Tractors and autonomous agricultural robot thanks to AI – Drones and IoT sensors to monitor, water and protect crops – Predictive solutions for seedlings based on Advanced Analytics – Remote surgery enhanced by robots – Home hospitalization – Predictive and personalized medicine – Smart Glasses for intervention units – Autonomous machines and smart robots – Advanced Predictive Maintenance Solutions – Exoskeletons Environmental Care – Mastery of resource consumption – Smart power generation systems – Ocean cleaning drones – Fire prevention drones – Autonomous urban service vehicles – Smart and automated lighting by IoT – Advanced urban safety solutions via AI Agriculture 4.0 Augmented communication Smart Health A throng of digital use cases

26. 26 These future digital use cases will be essential to address the main societal challenges for France over the next 10 years The digital economy in 2030 in France the role of telecom operators 2030 The digital ecosystem Demographic and societal challenges Aging of the population Individualization Territorial dynamics Rural desertification (attractiveness of territories) Urbanization and urban sprawl Ecological transition Durability (mobility, consumption, etc.) New energies (and impacts on the environment)

27. 27 Facing this digital transformation, two models are possible for the Telecom sector in France The digital economy in 2030 in France the role of telecom operators Today’s model A shif of paragdim model Operators’ Role in 2030 "Connectors" Operators ◼ Sector’s underperformance (Cash Flow) ◼ Constrained investment capabilities ◼ Infrastructure-oriented investments ◼ Role of telecom services limited to “Commodities" Digital environment ◼ High taxation regime for Telecom Operators compared to GAFA and other digital ecosystem Players ◼ Over regulation of the Telecom sector ◼ Tax and regulatory unpredictability ◼ Purely consumer-focused orientation ◼ Fair taxation with alignment of the different actors of the ecosystem on the telecom operators regime ◼ Adapted regulation with no-discrimination between Internet players and telecom operators ◼ Stable and predictable fiscal and regulatory framework ◼ Industrial ambition “Mastermind” Operators ◼ Government support to the industrial vision ◼ Development of investment capacities in digital services ◼ Telecom operators are innovations'’ actors and promote new uses Source Arthur D. Little

28. 28 The decision in the industrial model for the next decade is essential to create European champions for the future digital ecosystem Source Arthur D. Little Note 1) Scenario 1 similar 2019-2030 growth rates in different areas to 2009-2018 2) Scenario 2 Europe retains its market share in 2018, and in other regions, distribution according to their growth rates observed over 2009-2018 3) Scenario 3 Europe returns to a level comparable to ecosystem of 2009, other regions splitting remaining value created based on their growth over 2009-2018 The digital economy in 2030 in France the role of telecom operators Value distribution of the digital ecosystem Digital revenue captured by non-european players ◼ “Outsourced" digital ecosystem to non-europeans champions ◼ Loss over data control to the detriment of European citizens and Governments Digital revenue captured by European champions ◼ Europe is positioned as a leading region of the digital economy ◼ The innovation ecosystem is stimulated by telecoms 21% 57% 36% 3% 40% 2009 2% 38% 48% 12% Asia 2018 1% 37% 5% 20301 Others3 North America Europe Europe 2% 21% 3% 20182009 36% 40% 38% North America 31% 48% 12% 1% 20% 34% 53% 12% 2030 2 1% 48% 2030 3 Others3 Asia ? or Cruising Model Paradigm shift Model Revenue of the digital ecosystem Global, 2009-2030 Market Share Revenue of the digital ecosystem Global, 2009-2030 market share

29. Client Logo Area Remove borders Fédération Française des Télécoms Contact Ignacio GARCIA ALVES Global Chief Executive Officer garciaalves.ignacio@adlittle.com Arthur D. Little has been at the forefront of innovation since 1886.We are an acknowledged thought leader in linking strategy, innovation and transformation in technology-intensive and converging industries. We navigate our clients through changing business ecosystems to uncover new growth opportunities.We enable our clients to build innovation capabilities and transform their organizations. Our consultants have strong practical industry experience combined with excellent knowledge of key trends and dynamics.Arthur D. Little is present in the most important business centres around the world.We are proud to serve most of the Fortune 1000 companies, in addition to other leading firms and public sector organizations. For further information please visit www.adlittle.com. Copyright © Arthur D. Little 2018.All rights reserved.

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