© Oliver Wyman

TELCO 2025: TOWARDS A NEW DNATRUST IN THE DATA WORLD: THE NEW FRONTIER

HTTPS://WWW.OLIVERWYMAN.COM/OUR-EXPERTISE/INSIGHTS/2019/FEB/TELCO2025-INSIGHTS.HTML

FEBRUARY 14TH ,2019

© Oliver Wyman 2

8 markets

Age groups

We surveyed 8,000 consumers on their perception of Tech and Telcos’ role

How is digital changing daily lives?

Which feeling about data security?

How are Telcos perceived in this world?

15%

24%

16%

21% 24%

18–24

25–34

55–65

35–44

45–54

FocusSample

×1,000

Per market

48% 52%

© Oliver Wyman 3

53

4240

3938

36

51

31

27

31

28 28

Saving for laterGym

Membership

Eating out Buying

presents

for a family

Shopping for

new clothes

Travelling

Phones are life platforms, and are gaining weight in budget arbitrage

What best describes your smartphone usage?% of all, total respondents

I’d rather spend money on phones & contracts than…% of all, total respondents

51%

35%

14% It’s a necessity

It’s my life

It’s a tool

FranceAll countries

44%

37%

19%

All countries France

Source: Oliver Wyman Telco 2025 survey, including 8,000 participants from 8 countries (2018)

© Oliver Wyman 4

Consumers are excited by new technologies, yet some fear personal data services

How do you feel about the following services and technologies being developed and soon being available?Share of ‘excited’ consumers minus share of ‘scared’ consumers, % of total

3rd generation care

Autonomous driving

Fitness & health

Virtual reality

Connected home security

Augmented reality

Smarter AI

Connected devices at home

50

54

61

50

47

46

41

20 19

69

78

62

62

46

70

47

FranceVery scared Rather scared Excited

Source: Oliver Wyman Telco 2025 survey, including 8,000 participants from 8 countries (2018)

© Oliver Wyman 5

Are OEMs credible alternatives to Telcos as connectivity services provider?

Should all the following companies provide mobile or internet services, which one would you prefer? % of respondents who rated the respective player with “1”

26

9

49

4

6

5

Other telco

operator

Your current

mobile/telco

operator

Other tech

companies

(Google,

Facebook)

OEM

(Apple,

Samsung)

Amazon

Other non-tech

companies

(bank,

grocieries, etc)

33

10

38

5

8

6

42

5

33

7

7

6

59

11

20

3

3

4

65

8

16

2

1

8

45

9

31

4

5

6

> 30% 10–30% < 10%

France

18–24 25–34 35–44 45–54 55–65 Avg.

Source: Oliver Wyman Telco 2025 survey, including 8,000 participants from 8 countries (2018)

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2%

4%

6%

8%

10%

12%

14%

16%

RO

CE

cu

rve

s

+

-

Net revenue/Capital employed (%)

Telcos and Media need more capital for the same $1 revenues with less margin vs. Tech giants…

Decreasing value of tangible assets

Breakdown of S&P 500 market value

Evolution of Return on Capital Employed

2013–2016

Tangible

Assets

Intangible

Assets

1975 1995 2015

17%

83%

68%

32%

84%

16%

8

20

18

1000 20050 150

10

6

0

2

4

14

12

16

2016

201620152014

2013

2013

2015

2014

2016 2015

2014

2013

Tech TelcoMedia

NOPAT1 Margin (%)

1. NOPAT = EBIT less income taxes; Capital employed = Total assets – current liabilities excluding short term debt – Cash, equivalents and short term investments – long term investments

2. Amount investors pay for every $1 of revenue | 3. % physical assets as vs total assets

Source: Taival, Symbol surfing, Annual reports and Factiva financials. Selected companies: TEF - Spain, Cellnex - Spain, Verizon - US, AT&T - US, Orange - France, SFR France, Turkcell – Turkey, Turk Telekom - Turkey, MegaFon - Russia, MTS -

Russia, ChinaUnicorn - China, China Mobile - China, Vivo - Brazil, TIM – Brazil and Oi – Brazil, Oliver Wyman analysis

© Oliver Wyman 7

Yet Telcos continue to have massive Capex needs to invest in 4G, Fibre and 5GExample for France

Source: Cisco; Oliver Wyman analysis

54

357

20202015

Mobile traffic 2015-2020, in PB/mo

500

1,000

1,500

2017 2018 19 - 22

x7 Mobile data traffic from ‘15 to ‘201

Number of new mobile sites per operator

7000New 4G sites per operator to deploy

in rural area

Target HH connectable in France, in million

X1,6 Connectable HH from 2018 to 2022

Estimated yearly investment in France, in €Bn

+20%yearly investments on FTTH

deployment

Ambitious deployment plan in France

Maximum speed versus distance, in Mbps & km

x2sites density

for 5G vs 4G x4to

19

30

20222018

6.78.1

2018 2020

Spectrum

attribution

Pilot city

covered

All transport

axes covered

2020 2022 2025

10.000

100

15

0,3

5G (3,5 GHz)

4G (1800)

3G (800)

2G

© Oliver Wyman 8

5G will pave the way for new use cases; a clear killer case is yet to emerge short term

5G vs. 4GMain differentiators

Overview of potential use cases

4G Mobile Capacity/Small Cells

Enterprise Fiber Network Deployment

5G Fixed Wireless Broadband/Small Cells

Smart Cities Use Cases

5G Mobile Broadband

AR/VR/Cloud Gaming

Autonomous Vehicles

Other IOT

New Innovation /

Edge Computing

Timing

Uncertainty

of Value

20 - 50x download

speed

1/5th to 1/10th latency

5x # connected devices

© Oliver Wyman 9

Telcos need to evolve their DNA to succeed in this new world

1

2

3

Become a Data Telco

Become an ecosystem player

Build emotional ties

It is all about

Trust

© Oliver Wyman 10

Permission to data intimacy yet to be won; 13% fully trusts Telcos in France to protect personal data

How do you feel about companies storing your data

to personalize services?

I fully trust technology providers to protect my personal data

and to be transparent with its use, %

37

14

13

13

10

8

My mobile/

telco operator

My bank

Amazon

Google

44%56%

36%

56%44%

64%

Above 35

years old

All age

brackets

Below 35

years old

Reluctant and scared: Don’t trust how companies will use my data Reluctant and afraid of “Big Brother” Indifferent: Personalized services do not make a difference, Offers and deals are annoying. Open & excited: Very excited about hese offers,

Open to it as long as I get savings and deals

Source: Oliver Wyman Telco 2025 survey, including 8,000 participants from 8 countries (2018)

34

13

10

12

10

8

Reluctant and scared / Indifferent

Open & Excited

42%54%

35%

58%47%

65%

Above 35

years old

Below 35

years old

All age

brackets

FranceFrance

Become a Data Telco

Open & Excited

Reluctant and scared / Indifferent

© Oliver Wyman 11

GDPR can be a way to win data permission by going beyond the compliance play

Become a Data Telco

Rights for customers – GDPR Implications for Data players

Comply to the regulation

Leverage GDPR as a

business opportunity

Source: GDPREU.org, The Guardian, Oliver Wyman Analysis

1

2

Right to access

and inspect

Right

to erase

Right

to edit

Right to

Transfer data

Data breach for ~ 500 M

customers

Example companies at risk

Customers “OWN”

their personal data

GDPR

Security bug for ~ 50M

account, $1.6 Bn fine risk

© Oliver Wyman 12

AI muscles build up is a high stakes game: 77% of total A.I. investments in 2016 were made by a few digital giants

A.I. funding, number of patents per country(From Q1 2012 to Q2 2016)

Funding ($US BN)

0.80.21.40.3

4.8

0.50.50.5

4.9

14.915.7

27.0

17.0

2.6

# of patents (’000)

Source: Goldman Sachs, New York Times

Become an ecosystem player

Digital giants made

77%of total A.I. investments in 2016

© Oliver Wyman 13

Coalition might be a way to outplay limited access to data and investment capacity

Acceleration

Ecosystem

leverage

More

clients

More

data

Better

algorithms

and analytics

Virtuous data cycle

Better

infrastructure

leverage

Source: Oliver Wyman Analysis

Become an ecosystem player

© Oliver Wyman 14

Coalitions can be fully local: case in point Verimi; is there a potential for a wider European coalition such as Amadeus on Digital Identity?

Become an ecosystem player

Case of Verimi, a coalition of German multinationals on a common digital identity project

Common Digital Identity

Stored and secured dataUniversal login

User friendly interface Flexible data management

For Users

Easy and modular

integration

Increase in transaction

conversion

Enhanced customer

experience

Reduction of barriers

to entry

List of companies not exhaustive

Source: Verimi.de, lit search

© Oliver Wyman 15

In summary, for Telcos to strive as consumer behaviour changes, they need toevolve their DNA

• ~50%1 of youngsters see Apple or Samsung

as potential providers of telco services

• 75%2 of consumers are open/indifferent

to share personal data for more

personalized services

• 13%1 of consumers trust Telcos to protect

personal data

1

2

3

Become a Data Telco

Become an ecosystem

player

Build emotional ties

Key learnings

Notes: 1) France survey results 2) Across all the surveyed countries

Source: Oliver Wyman Telco 2025 survey, including 8,000 participants from 8 countries (2018)

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