1AIG New Europe Fund

Bundling the Local Loop Financing

Doina Popescu AIG New Europe Fund

June, 2004

2AIG New Europe Fund

AIG New Europe Fund

Committed capital: $320 million

Focus region: Primary: Poland, Romania, Czech Republic, & Hungary

Secondary: Bulgaria, Croatia, Macedonia, Moldova, Slovakia, Slovenia, Ukraine, & Yugoslavia

Investment thesis: Dynamic investment environment created by shift to market economies & prospective integration with EU

Opportunity: • Shortage of long-term capital• FDI increases stability• Capital markets development facilitates liquidity• Consolidation & regional platforms

3AIG New Europe Fund

Portfolio Summary

Country Diversification

Sector Diversification

Bulgaria3%

Hungary16%

Poland37%

Romania33%

Slovakia11%

CATV12%

Telecom34%

Financial Services

15%

Retail23%

Real Estate

Development

6%

Transportation &

Logistics

10%

4AIG New Europe Fund

Orange Romania S.A.

Company:• Leading GSM provider• 48% market share• Orange as operator

Strategy:• Participate in rapidly increasing wireless

penetration• Retain leading market position

Strong 2003 performance:• Revenues over $ 527 M

• EBITDA margin over 50%

• stable ARPU despite increased penetration

• Subscribers over 3.7 M0

250

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

3,000

3,250

3,500

3,750

4,000

Dec- 99 Dec- 00 Dec- 01 Dec- 02 Dec- 03 Apr- 04

Orange Romania Subscriber Base (000’s)

5AIG New Europe Fund

Astral Telecom S.A.Company:• Leading cable TV & Internet service provider in Romania

• 800,000 cable subscribers

• 40,000 Internet subscribers

Strategy:• Further consolidate market domestically and regionally

• Exploit economies of scale by upgrading service platforms

• Expand ISP/data transmission business

Recent Developments:• Launched IP telephony

• ISP division profitability ahead of plan;

• $20 million debt raised from EBRD to finance investments

Astral Subscriber Base (000’s)

0100200300400500600700800

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

1Q

20

04

6AIG New Europe Fund

Local Loop - Legislative

Framework • Legislative Framework

– Law 304 / July 2003 re. Universal Service – Law 591/2002 General Framework for Communications– Law 527 /202 Access to telecom infrastructure and interconnection

• Can legislation be a driver force for communication development:– Differentiate between Service providers vs. Provider of infrastructure – Consumer Centric – short term view vs. medium/ long term – Incentives for investments in infrastructure

• Is the new legislation adapted for Romanian infrastructure?

7AIG New Europe Fund

Telecom Market in Romania • Penetration

• 2003 Revenues vs. Investment

• Investments in Backbone vs. Local Loop

Population(million)

Penetration(subs @ 100 inhabitants)

Population(million)

Penetration(subs @ 100 inhabitants)

Households('000)

Penetration(subs @ 100 households)

21.7 20 21.7 37 740 51All data as of December 2003, except for Mobile telephony that are as of May 2004

Landline telephony Mobile telephony Cable TV

2003World telecom services (e)

(USD m)Romania(USD m)

Revenues 1,070,000 3,174CapEx 205,000 500

19% 16%Sources: ITU, EITO, Romanian companies

8AIG New Europe Fund

EU / US Local Loop Unbundling

• US – Mandatory in US since 1997: approval of Telecom Act – FCC focused on voice services (UNE-P) unbundled network

element platform

• EU– EC Regulation – unbundled access to local loop Dec 2000– L336/4 “in order to bring substantial reduction in costs of using

Internet”as of 2002, million EU USMain telephony lines 209 190Broadband 8.3 16.2

4.0% 8.5%DSL in total, 6.0 5.1 of which unbundled 4.0% 4.4%

9AIG New Europe Fund

Investors DriversInvestors:

– Short Term vs. Long Term– Financial vs. Strategic

Drivers– Attractive market - Return of Investment– Stable Legislative Framework – Incentives for Investments – Reasonable Competition

Risks – Technological e.g. WiMAX– Legislative / Implementation