CAPA

January 2007Rolling out IPTV,

in a tough m

arket

landscape

Pedro Ramalho Carlos

COO Sonaecom Fixo

1 2

ÍNDICE

Who we are

Sonaecom IPTV case study

3Key messages

1 2

ÍNDICE

Who we are

Sonaecom IPTV case study

Role of IPTV

Technological &

Netw

ork drivers

a b

Technical learnings

Project road

map

c d

3Key messages

eMarketing learnings

SEPARADOR

1Who we are

5

Sonaeco

m Presentation

Setting the Scenery –Portuguese Market

Q3 2006 (000)

Population:10.235

Households: 3.651

Residential T

elephone lines: 3.202

(88% household penetration; -1,3 % 2005-10 CAGR)

Residential Internet customers: 1.587

(43% household penetration)

Broadband Accesses:1.400

(38% household penetration)

PAY TV customers:1.801

(49% household penetration)

(3% 2005-2010 CAGR)

Sources: INE, ANACOM, PT and Sonaecom reports

ADSLgrowth : 19,8 %(2005-2010 CAGR)

CABLEgrowth : 10,4%(2005-2010 CAGR)

DTH: 403

CABLE TV: 1. 398

6

Sonaeco

m Presentation

Setting the Scenery –Portuguese Market Facts

75%

25%

IncumbentOther Players

Cable Broadband MS%

67%

33%

IncumbentOther Players

ADSL Broadband MS%

81%

19%

IncumbentOther Players

PayTVMS%

•Portuguese Market is Small (10 MM inhab

itants � ���

~3,7 MM Househ

olds)

•Telco industry is about scale

•PayTvhas a high penetration on Portugal, the highest of South European Countries

•Both distribution networks Copperand Cab

leare, so far, in the hands of the incumbent:

Portugal Telecom, which has a near monopoly in broadband and paytvdistribution:

•The dominant position of the Incumbent has been eased by a soft regulation policy.

Facts

7

Sonaecom Presentation

Group Structure

LEADINGIT

&SYSTEMS

INTEGRATORS

#3MOBILE

OPERATOR

#2 FIXED OPERATOR

INTERNET AND VOICE

LEADING REFERENCE

DAILY PAPER

(1) Software and Systems Integration

SONAE SGPS 50.1%

100%

FRANCE TELECOM 19.2%

EDP 15.9%

PARPÚBLICA 3.1%

FFLOAT 11.7%

SONAECOM

TELCO M

OBILE

TELCO FIXED

MEDIA

SSI (1)

100%

100%

100%

www.sonae.com

2Sonaecom IP

TV Case Study

Role of IPTV

Technical an

d Netw

ork Drivers

a b c d e

Technical learning

Project road

map

Marketing learning

9

�How to create a competitive network, capable of unbalancing an

entrenched incumbent and at the same time

biased

market

situation

�Be able to take advantage of a technology discontinuity/advance

in order

to effectively unbalance the situation towards a

challenger overcoming all the eco

nomic and competitive hurdles

�Grab the o

pportunity of the Broadband

explosion and the n

ew

ULL regulatedmarket

�To find out if it would be possible to deliver the so far unreachable

ideal of a true converged and multi-service netw

ork

Sonaeco

m IP

TV Case Study

NetworkStrategy-The Drivers

10

�Very scalable(from home to enterprise to service providers)

�Matches the MAN/WAN backbone speedof up to 10 Gbit/s

�Sim

ple technology (leading to cheap, reliable equipment)

�Good integration with the NGN Soft Switch

ingplatforms

�Excellent support for deploying massive ADSL2+services

Good fit for IP

( ...and MPLS, VLAN,

Multicast -IP/TV )

Skipping in

term

ediateSDH and ATM legacy network in

vestm

ents

... the m

ove to GEthernet as a core technology

Sonaecom was the first Telco in Portugal to deploy a full

GEthernet co

re netw

ork for supporting

ultra-broadband services, such as, IPTV

Sonaeco

m IP

TV Case Study

NetworkStrategy-Backbone

�From N x 155 Mbps to N x Gigab

it Ethernet

�From SDH to extensive DWDMdeployment (multiple optical signals on the same fiber)

�From silo Networks (Voice / Frame Replay / ATM / IP) to trueIP/Ethernet convergence

11

2001

2002

2003

2006

2006

The short but successful story of hard work and perseverance

Fiber

optical network with a significan

t geo

graphical coverage

�> 5.000 Km of core fiberacross almost the entire country

High quality and high cap

acity tran

smission network

�Highly redundant rigs using, DWDM, NGN-SDH and GEthernet

�Installed capacity in each section ranging from 2.5 up to 10Gbps

�High network usage efficiency

Sonaeco

m IP

TV Case Study

NetworkStrategy–Optical Network Evolution

12

Sonaecom’s

national network

reaches 134+ cen

tral offices in

Q306

�Delivering Leased Linesto Mobile

network access nodes and to business

customers

�Reaching 1.6 m

illio

n homesin Portugal

~50

%of the Portuguese population

�Delivering 2Play services

�2 Play footprint already mainstream of

connected m

ost im

portan

t PT Cen

tral

Offices

�Delivering 3Play serviceson

approximately 60% of the connected

CO’s

Oporto

Lisbon

COs with Sonaecom presence

PT COs

September 2006

Sonaeco

m IP

TV Case Study

NetworkStrategy–ActualAccess Network

13

CO DSLAM

Increased Ban

dwidth Increased Reach

ADSL2+

Rem

otes

VDSL2

“Fiberization”(gradual or green

field)

Studies of FttXwith:

VDSL2/GbEth/Eth/PON

Eth/GbE

Increased Functionality in Acces

sMulti Service Node

Need for:

Ultra BB, service differentiation, multicast…

Layer 3 Functionality

“The First Mile…”

Multi-

service

access

node

ADSL2+

ADSL2+/

VDSL2

SHDSL

GSHDSL

VDSL2

GbE

GbE L2/3

Site C

Site E Site D

Site B

Site A

Metro DWDM Ring

10KM~300Km

Site C

Site E Site D

Site B

Site A

Metro DWDM Ring

10KM~300Km

Sonaeco

m IP

TV Case Study

NetworkStrategy-Access Network, the 2nd step…

14

Sonaeco

m IP

TV Case Study

TheIP Benefits

•DedicatedNetworksfor

dedicatedServices

•SeparateAccess for each

service

•Costlyand Time Consumingto

offernewservices

Industry Telco Drivers

•ServiceDeliveryOverCommonIP

Infrastructure

•SeamlessUserExperienceOverany

Access

•ReducedCapexand Opex

•FastServiceRollout

Benefits

=

15

Sonaeco

m IP

TV Case Study

TheIP Benefits

17

2Sonaecom IP

TV Case Study

Role of IPTV

Technical an

d Netw

ork Dreivers

a b

Technical learning

Project road

map

c d eMarketing learning

18

Broad

cast TV

VoD

Premium TV

VAS

SHORT RUN

Broad

cast TV

Premium TV

MyT

VOn-Dem

and

World

+

VAS

MEDIUM RUN

Broad

cast TV

Premium TV

My Favourite:

•Film

s

•Shows

•Series

•Photos

•Music

•…

LONG RUN

More control

Interaction

Even m

ore

choice

Wan

ts to be en

tertained

Wan

ts choice

Wan

ts a good value proposition

Eco

nomic

models

Advertising

Subscription

Advertising

Subscription

Some su

bsc. per service

One to One Advertising

Subscription per service

…

Couch

Potato

On Deman

dIt will

take so

me

years

to ch

ange

consu

mer

hab

its

making

MyT

Va

successful co

ncept.

Sonaeco

m IP

TV Case Study

Role ofIPTV

19

Sonaeco

m IP

TV Case Study

Role ofIPTV

�Current strength & positioning of existing players

�Is cable strong? Is satellite a factor?

�Current penetration of Pay-TV; How good is Free to Air? DTT coming?

�Propensity to spend on premium content, ARPU level

�Common ownership of cable & telecom infrastructure ?

�DSL penetration; Powerful ISP’s

�Regulatory environment

�Favors Facilities or Services based competition?

�Access to content? Content competition?

�...

Unique m

arket factors will determ

ine value of the IPTV opportunity

Adoption of a Positioning for IPTV dep

ends on your specific m

arket

factors:

20

Sonaeco

m IP

TV Case Study

Role ofIPTV

�Add an additional revenue stream;

�Increase attractiveness of 2P offer;

�Reduce 2P churn;

�Enhance the innovative positioning of the brand.

�IPTV is an interesting way to m

aximize revenues and R

oICfrom network

investments at a low-medium cost over 2P investments;

�IPTV w

ill be key to competeas all major players are positioning themselves

as triple or quadruple players.

The Role of IPTV for

21

2Sonaecom IP

TV Case Study

Role of IPTV

Technical an

d Netw

ork Drivers

a b

Technical learning

Project road

map

c d eMarketing learning

22

Q3

Q4

Commercial Test

(1.000 clien

ts)

Commercial Lau

nch

UPGRADE

2P

Commercial test with:

�Value proposition closed, but

with a work-in-progress list of

channels

�Core contents closed to test

commercialacceptance

�Test all processes and

support tools

Commercial Lau

nch

�Final offer ready for

2P clients upgrade

�Upgrade 2P

customer

�Sell trough

telemarketing, pull

and D2D

2005

Technical test:

�Get it up and running:

Headend, encoders etc

�Outsourcers: Learning curve

�Home networking

2006

Q2

Q1

Q3

Q2

Q1

Q4

Technical Test

(200 clients)

Sonaeco

m IP

TV Case Study

Project Roadmap

23

2Sonaecom IP

TV Case Study

Role of IPTV

Technical an

d Netw

ork Drivers

a b

Technical learning

Project road

map

c d eMarketing learning

24

Sonaeco

m IP

TV Case Study

MainLearnings–Technical

Eligibility Control

�Eligibility difficultieseven for 2play clients: cause-effect mechanisms and degree

of causality difficult to identify.

�Multi STBis a major challen

ge

�A reliable GEO reference toolis crucial for new customer eligibility

ADSL 2+ stability

�No consistent stabilityin Local Loops as market grows: the increase of ADSL

penetration can affect noise levels in cables: affects loop stability and causes errors;

�Speed is necessary but not enoughto ensure quality: small interferences which

do not affect 2Play service, cause pixelizationand QoSerosion in IPTV;

Provisioning and Breakdowns

�Difficult and long learning curve;

�The provisioning cycle is complex: it’s an operational challen

geto manage

installation outsourcers and the incumbent to provide good end2end customer

exp

erience

Eligibility Control

�Eligibility difficultieseven for 2play clients: cause-effect mechanisms and degree

of causality difficult to identify.

�Multi STBis a major challen

ge

�A reliable GEO reference toolis crucial for new customer eligibility

ADSL 2+ stability

�No consistent stabilityin Local Loops as market grows: the increase of ADSL

penetration can affect noise levels in cables: affects loop stability and causes errors;

�Speed is necessary but not enoughto ensure quality: small interferences which

do not affect 2Play service, cause pixelizationand QoSerosion in IPTV;

Provisioning and Breakdowns

�Difficult and long learning curve;

�The provisioning cycle is complex: it’s an operational challen

geto manage

installation outsourcers and the incumbent to provide good end2end customer

exp

erience

25

2Sonaecom IP

TV Case Study

Role of IPTV

Technical an

d Netw

ork Drivers

a b

Technical learning

Project road

map

c d eMarketing learning

f

26

Sonaeco

m IP

TV Case Study

MainLearnings–ConsumerInsights

Focus Groups and Research m

ain results

�Customers are

unsatisfied with

existing Pay-TV

offers

�Portuguese pay TV

market is considered

monopolistic

�Customers are

unsatisfied with

existing Pay-TV

offers

�Portuguese pay TV

market is considered

monopolistic

Alternative co

mpetition

�Customers say they

want an active role

in their choice of

channels

�VOD was greatly

appreciated once

tried

�Customers say they

want an active role

in their choice of

channels

�VOD was greatly

appreciated once

tried

IPTV ben

efits

�3Play is perceived

as a bundle : better

value for money

3X1

�Single invoice is

seen as an

advantage

�3Play is perceived

as a bundle : better

value for money

3X1

�Single invoice is

seen as an

advantage

3Play

Consu

mers value having m

ore contents at home and freed

om to choose.

3.Play bundles are seen as a potential so

urce of savings

Source: Sonaecom’s focus group

�“I don’t want to pay

too much”

�“I just want to pay for

the channels I

watch”

�“I appreciate a vast

number of channels”

�“I don’t want to pay

too much”

�“I just want to pay for

the channels I

watch”

�“I appreciate a vast

number of channels”

PayT

VBundles

27

One operator, one connection, a single bill

Sonaeco

m IP

TV Case Study

MainLearnings-Offer

10 Fixed

Chan

nels

30 Fixed

Chan

nels

+ 10 àla carte

48 Fixed

Chan

nels

+ 20 àla carte

100 Chan

nels

Over 100 live channels

available

On-demand Contents (>2.500)

Movies

Anim

ation

Docu

men

taries

Adult ContentMusic Concerts

X

28

Sonaeco

m IP

TV Case Study

MainLearnings-Offer

User Interface

ORCA

Middleware

29

Sonaeco

m IP

TV Case Study

Main Learnings–Video on Demand

1.

Don´texp

ect high usage from day 1:

2.

VoDreach

ed ju

st over 20% of clien

t base.

Dom, 19 Março

18:31

VOD

“UmaCasa no Fimdo

Mundo“

com Collin Farrell, de Michael Myer

Género: Drama, Novidade, Romance

Filmeda Semana

Novidades

MENU

OKSeleccionar

Voltar

Brevemente

MaisVistos

SugestõesClix

Catálogo

Novidades

Ver

trailer

pesquisar

Adicionar

a Favoritos

What's New

Catalogue

Top

Suggestions

Coming soon

Create the Habit for

ON DEMAND

BEHAVIOUR

30

Sonaeco

m IP

TV Case Study

MainLearnings–Video on Demand

Promote Promote

Promote:

�Coach potatoes do not have on demand behavior

�Create the habit !

�Provoke trial

Top rated

Most

Seen

31

Sonaeco

m IP

TV Case Study

MainLearnings–Video on Demand

Intuitive navigation : easy to use:

�Good “Search Engine”: Artist / Title etc

�Navigation on menus intuitive : 1 stop shop

“Action”

pag

e

Search

engine

32

Sonaeco

m IP

TV Case Study

MainLearnings–Video on Demand

60%

25%

10%

3%2%

Movies

Adult content

Anim

ation

Concerts

Docu

mmen

taries

VOD split per categories :

�Movies /Adult content = Revenues

�Concerts, Animation & Documentaries = Differentiation &

Segmentation

33

�Mature Content Industry : PAYTV = CABLE

�Tough negotiations -contracts take a long time

�Industry has barriers to retain vertical power…

Sonaeco

m IP

TV Case Study

MainLearnings–Content Insights

Watch Out for Telcos:

Do Not Rush

Neg

otiations

Main contractual negotiation

variables:

�Monthly fee per subscriber

�Revenues Share

�Minimum guarantee &/or Minimum %

over client base

�A la carte subscription

�Flat rates

�Buy rates per title

�Window Availability

35

Sonaeco

m IP

TV Case Study

MainLearnings–VOD Offer

MainChallenges

�Make “search”more in

tuitive

�With abundance comes more choice and more complexity : MAKE IT S

IMPLE

AND INTUITIVE FOR CONSUMERS

�Quantity Vs Quality

�5% of blockb

usterswill be responsible for the majority of revenues

�Perm

anently promote and highlight what's new

on the service

�Keep Consumers coming back

�Create user habits

�PROMOTE and PROVOKE TRIAL

36

Sonaeco

m IP

TV Case Study

MainLearnings-Offer

TRIAL IS KEY

37

Sonaeco

m IP

TV Case Study

Wrapup–Marketing/Offer

�The choice of TV packages shows a sim

ilar pattern of

cable offers

�Main reasons for sign-up are dissatisfaction with

previous operator and/or price savings

�Trial is keyto sell: image quality must be seen and

VOD must be experienced

�Consumers

value personalization: VOD & a flavour

of “a la carte”

�The availability of all p

remium channelsin every

STB is greatly appreciated

�New

features(VoD, EPG)need to be properly

communicated & experien

ced

�Over 80% of current users are advo

catesof the

service and recommend it

SEPARADOR

3Key Messages

39

�The TV business is a different industry to Telcos

�Don't rush on content acquisition � ���

it can

be a

very expen

sive m

istake

�VoD

and other V

AS are key differentiators vs.

traditional Cab

le

�PAYTV C

onsumers are passive � ���

Don't exp

ect

immed

iate uptake an

d usage of powerful VAS

services

�Service need

s to be user-friendly

�PROVOKE TRIAL & CREATE THE HABIT

Key Messag

es ab

out IPTV

40

ped

ro.carlos@

sonae.com

Thank You

☺ ☺☺☺

COO Sonaecom Fixo