This report is a reminder that telecom operators are the pillars of the digital economy. It also stresses that France and Europe are at risk of a "digital slip" despite recent initiatives. It calls for public authorities to restore a balance in digital-related policies, by benchmarking against best practices from around the world.

1. “The Economics of
Telecoms” Report
2015 edition
November 2015
Arthur D. Little
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75116 Paris
France
T: + 33 1 55 74 29 00
www.adlittle.com

2. 2
Key messages
Proposals from the Fédération Française des Télécoms to strengthen telecom
operators and digital in France and Europe
5
European and French digital demand is highly developed enabled by high quality
networks
2
Telecom operators are the basis of the current and future digital supply3
5 key levers to develop a strong digital offer in France and in Europe4
Unlike other regions, Europe suffers from a significant digital imbalance1

3. 3
Unlike other regions, Europe suffers from a significant digital imbalance
Source: Digiworld Economic Journal 1 Includes social networks, search engines, cloud computing, mobiles applications, advertising,
e-commerce and non-managed VoIP
% = (regional consumption – global revenue of regional players) / regional consumption
2009 2010 2011 2012 2013
50%
-50%
-100%
100%
150%
EU28
United States
Asia
Imbalance between supply and demand in the Internet services sector1
Asia-USA-Europe, 2009-2013
Regional
supply
>
Regional
demand
Regional
demand
>
Regional
supply
Supply | Demand

4. 4
Key messages
Proposals from the Fédération Française des Télécoms to strengthen telecom
operators and digital in France and Europe
5
European and French digital demand is highly developed enabled by high
quality networks
2
Telecom operators are the basis of the current and future digital supply3
5 key levers to develop a strong digital offer in France and in Europe4
Unlike other regions, Europe suffers from a significant digital imbalance1

5. 5
Appetite for telecom and digital services is especially strong in France – the French
are « early adopters »
Source: IHS, European Commission, desk research, Arthur D. Little analysis
Internet wave Digital wave
country worldwide for
IPTV penetration
European country for
VoD penetration
Market worldwide for Airbnb
and 2nd in Europe for Uber
1st 1st 2nd
Origin of
champion players
Appetite for
innovative services
in France
?+
Supply | Demand

6. 6
The French have strong expectations regarding new digital services
Source: Ipsos, Future Source Consulting, Opinion Way, Arthur D. Little analysis
 e-Administration
 Mobile payment
of the French are ready to use their mobile
phone as a payment method
˃ Among advantages highlighted by respondents, speed of payment
is the first reason
of the French consider that connected devices
help prevent fires
˃ 71% expect that connected devices improve safety for children
89%
26%
74% Connected homes
 Connected stores 61%
of the French would be willing to access
services of geolocalisation to get directions
when shopping
˃ 59% are interested in virtual fitting rooms
 Video on Demand 750,000
Netflix subscribers in France in less than a
year
˃ Canalplay had 700,000 subscribers in France as of S1 2015, 4
years after launch
of the French are ready to conduct their
administrative procedures online
˃ 86% for 65+ year old people
Supply | Demand

7. 7
Very High Speed fixed broadband subscriptions grew strongly in France in
2014 – with a high level of quality
Source: ARCEP, OECD, companies, Arthur D. Little analysis
Connectivity and equipment in France – Fixed broadband
1 Bundle subscriptions with TV and Internet access
2 Speed >= 30 Mbps
3 Fixed broadband and other subscriptions
+63%
Q2 2015
3.8
Q2 2014
2.4
Very High Speed2 broadband
subscriptions
(Millions of subscriptions)
Multiplay1 subscriptions
(% fixed broadband subscriptions)
+4%
Q2 2013
65%
69%
Q2 2014
68%
Q2 2015Q2 2012
62%
Average speed3
(Mbps)
27 Mbps
+6 Mbps
21 Mbps
USAFrance
Required
speed
4K video
1-5 Mbps
2-5 Mbps
(SD or HD)
25 Mbps
Supply | Demand

8. 8
The French mobile market is very dynamic with a rapid development
of data usage and equipment
Source: WCIS, ARCEP, operators, Arthur D. Little analysis
Average monthly data
consumption
Smartphone penetration
(Millions of smartphones)
Connectivity and equipment in France – Mobile
4G active cards
(Millions of active cards)
39
33
22
+35%
201420132012
+186%
Q2 2015
15.6
Q2 2014
5.5
X%
34% 51% 60% 8% 24%
% of the population
1.5 Go
400%
4G3G
300 Mo
Supply | Demand

9. 9
€47€45
€30€26
€20€20
French telecom operators continue to offer the cheapest services vs. other large
countries
Source: operators, Arthur D. Little analysis
60 offerings compared
USSPUKITAL
In € / month incl. taxes
€20 €43€30 €692014 › €39 €43 €20 €24€29 €54€45€28
Fixed (Triple Play)1 Mobile2
Offer benchmark – Main operators
October 2015
€74
€47
€42
€30
€25
€202015 ›
1 Triple play offers only; unlimited calls to fixed lines at least; unlimited high-speed Internet via xDSL or fibre; TV included, except for additional
packages; operators with > 10% market share; 2 Unlimited calls when available (otherwise >500 minutes), unlimited SMS/MMS,
2 Go Internet at least; offers excluding device, free of engagement when available; operators with > 10% market share
Supply | Demand

10. 10
Key messages
Proposals from the Fédération Française des Télécoms to strengthen telecom
operators and digital in France and Europe
5
European and French digital demand is highly developed enabled by high quality
networks
2
Telecom operators are the basis of the current and future digital supply3
5 key levers to develop a strong digital offer in France and in Europe4
Unlike other regions, Europe suffers from a significant digital imbalance1

11. 11
Europe is the only region which does not benefit from the growth of the digital
ecosystem
Source: Thomson Reuters, Arthur D. Little analysis
South
America
Europe
Oceania
Asia
North
America
681 694 700 668
1 316 1 494 1 614 1 721 1 825
1 371
1 521
1 638 1 656 1 674
590
2014
+5%
4 179
66
24
2013
4 137
68
24
2012
4 045
67
26
2011
3 790
54
27
2010
3 446
56
21
Revenues of the digital ecosystem (telecoms + other players1) per region2,3
World, 2010-2014
$ billion CAGR
2010-2014
+4%
-4%
+5%
+9%
+3%
1 Includes Internet, content, software, devices and telco equipment
2 Top 30 per category by 2014 revenues
3 Nationality according to HQ location
Supply | Demand

12. 12
Telecom operators are the basis of the current and future digital supply but their
revenues decreased in Europe, as opposed to those in other regions
Source: Thomson Reuters, Arthur D. Little analysis
382 343
299 247
2014
590
2010
681
Europe
Network
operators
Other Internet
players1
410 541
961
2014
1 674
1 133
2010
1 371
Asia
354 500
962
2010
1 316
1 825
2014
1 325
North
America
CAGR 2010-2014
Network operators
-3% +7% +9%
Revenues of the digital ecosystem (telecoms + other players1) per sector2,3
World, 2010-2014
$ billion
1 Includes Internet, content, software, devices and telco equipment
2 Top 30 per category by 2014 revenues
3 Nationality according to HQ location
Supply | Demand

13. 13
The decrease in revenue in the telecom sector is starting to result in a decline of
investments
Source: ARCEP, Arthur D. Little analysis
108
83
129
70
80
90
100
110
120
130
140
2010 2011 2012 2013 2014
Revenues
Operators investments
(excluding frequency acquisition)
Telecom operators investment and revenue evolution
France, 2010-2014
Base 100 in 2010
Investment effort
Operators investments (excluding frequency
acquisition) / operators revenues
Supply | Demand

14. 14
Connected warehouse Advanced Collaboration at work
Remote caring
Secure
Home Delivery
Ambient presence for telemedicine
Immersive Gaming
Future advanced services will emerge and will require high performing telecom
networks
Source: Corning, Microsoft, Sprint, DHL, Arthur D. Little analysis
Examples of future advanced services
Supply | Demand

15. 15
Overall, the generalization of digital raises three major challenges which require a
crucial contribution from telecom operators
Source: Arthur D. Little analysis
Network
security
Connection speed
and latency
Service
reliability
Network
capacity
Driverless trucksImmersive GamingRemote surgery
Telecom operators contribution (examples)
Challenges of the « digital wave »
Value creation
Capacity and quality
of networks
Users trust
New revenue from substitution
and creation of value
generated by digital
Trust in digital services,
reliability and security of the
data transferred and stored
Quality of the connection, in
line with needs related to
innovative services
1 2 3
Supply | Demand

16. 16
Key messages
Proposals from the Fédération Française des Télécoms to strengthen telecom
operators and digital in France and Europe
5
European and French digital demand is highly developed enabled by high quality
networks
2
Telecom operators are the basis of the current and future digital supply3
5 key levers to develop a strong digital offer in France and in Europe4
Unlike other regions, Europe suffers from a significant digital imbalance1

17. 17
The development of a strong digital supply by a region or a country is based on 5
key levers
Source: OECD, Private Equity associations, World Bank, Compass, TechCrunch, Arthur D. Little analysis
 Significant roll out of fibre in South Korea (68% of penetration)
 Role of telecom operators in the development of the Internet of Things
Examples of best practices (benchmarks)
 Venture Capital 3.5x more developed in the USA than in Europe with a stronger
emphasis on digital companies
 Startup pool (valued at $294 B) and innovation of the Silicon Valley – inspire
telecom operators in the creation of innovative services
 Performance of Israeli startups (« Start-up Nation ») e.g. in cybersecurity
 Rapid and simple administration in South Korea (5th most competitive country
to do business vs. 31st for France)
Levers
 Strong attractiveness of computer science studies in the United Kingdom and
training programs in cybersecurity
 Ability to generate ICT specialists in Sweden (5.3% of total employment1)
Attractiveness
Infrastructures
Financing
and tax
Ecosystem
Training
1
2
3
4
5
1France: 2.8%
Supply | Demand

18. 18
France can strengthen its share of ICT in the economy by learning from best
practices of leading countries
Source: OECD, Arthur D. Little analysis
Share of the ICT sector in total value added
OECD, 2013
4%4%5%
6%6%
7%7%
11%
OECD
average: 5.5%
+7pts
South
Korea
Japan Sweden USA
United
Kingdom
Germany France Spain
% of the ICT value added in total value added
Supply | Demand

19. 19
To date, policies do not stimulate players of the three waves enough whereas a
simultaneous action could help balancing the digital supply
Source: Arthur D. Little analysis
Missed opportunity
Past lack of focused industrial policies
leading to an underdeveloped digital
supply in France and in Europe
Multiplication of taxes
Accumulation of specific telecom taxes
and continued increase of those taxes
(e.g.: « telecom tax »)
Internet
players
Telecom
players
Digital
players
Willingness to act
Multiplication of fiscal initiatives and
programs favoring the emergence of
innovative startups
Actions that strengthen / weaken
the digital supply
Develop software and
internet offers!
Support the networks
of the future!
Seize the digital
opportunity!
Current policies
(asymmetric stimulation)
Public policies
(symmetric stimulation)
Supply | Demand

20. 20
Reducing the imbalance on each wave will lead to a creation of value for the entire
economy
Source: Arthur D. Little analysis 1 10 year horizon
2 excluding a risk of value capture by non European players
FRANCE SCOPE
Value creation potential:
+€25 B
Stimulate the telecom sector /
Internet, and rebalance supply
and demand
Value creation potential:
+€150 to 200 B1,2
Seize the opportunity of
the 3rd digital wave
Digital waveInternet wave
Supply | Demand

21. 21
Key messages
Proposals from the Fédération Française des Télécoms to strengthen
telecom operators and digital in France and Europe
5
European and French digital demand is highly developed enabled by high quality
networks
2
Telecom operators are the basis of the current and future digital supply3
5 key levers to develop a strong digital offer in France and in Europe4
Unlike other regions, Europe suffers from a significant digital imbalance1

22. 22
For a Digital Act!
 Align telecom-related policies with the investment and regulatory cycles
 Allow a differentiated quality of service for new innovative services
 Reduce the tax pressure to favor investments of telecom operators in
infrastructures and in future services and remove counter productive taxes
such as IFER and taxes on investment
 Implement accelerated amortization measures for the Very High Speed fixed
and mobile broadband
 Favor the use and monetization of data extracted by telecom operators
 Promote interoperability and opening of standards and services (including
API) as well as portability of data
 Elaborate a plan aiming at developing telecom, Internet players and every
player of the digital wave
 Ensure the consistency of digital public policies across the different sectors
 Promote and create a label for a European curriculum of digital professions
(e.g.: data science, cybersecurity)
Infrastructures
Financing
and tax
Attractiveness
Ecosystem
Training
1
2
3
4
5
Source: Fédération Française des Télécoms
Infrastructures
of the future
Tax
incentives
Digital
Act
Opening
e-Erasmus

23. 23
In essence, telecom operators have a central role to play in the promotion and the
generalization of digital to the entire economy
Source: CrunchBase, Cisco, AT&T, Ipsos / Fédération Française des Télécoms, Arthur D. Little analysis 1 Roadside assistance application
Financing Distribution Service ProtectionInfrastructure
Investments in
innovative
companies through
Corporate Venture
Acceleration of the
generalization of
innovative digital
services through
partnerships
Development of
infrastructures
capable to meet the
requirements of
innovative services
Development and
launch of new digital
services
Management of
personal data of
Internet users
7m€
Amount raised by
Urgent.ly1 in part
from Verizon
Increase in the
number of subscribers
after partnership
with telecom
operators
Expected increase in
the volume of data
between 2014 and
2019
+40%
of cars connected
by AT&T in the USA
3mx3,2 Less than 5%
of the French do not
trust telecom operators
for data protection vs.
67% for « Internet
giants »

25. 25
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