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UK, London - 27 March 2008

In the eye of the telecom-media storm

Seventh annual report by Arthur D. Little and Exane BNP Paribas about the telecom sector in Europe forecasts 50 per cent mobile broadband penetration within five years

As consumer demand for mobile broadband services reaches critical mass telecom operators can expect that 50 per cent of the European population will access the internet through broadband on their mobile phones by 2012, according to the seventh annual research report, "In the eye of the telecom-media storm". Published today by Exane BNP Paribas and Arthur D. Little, the report is based on 71 interviews with managers from leading telecom and media companies in 12 countries in Europe and the USA.

At this stage, mobile service providers have a job to do in catching up with consumer expectations regarding mobile broadband, and part of that work will lead to greater fixed-mobile network integration. Mobile operators will experience huge growth in mobile broadband traffic - as is already seen in some advanced countries like Austria.

Wireless technology is progressing fast, but it will not be able to bring the same performance at the same price as fixed networks.  To cope with the fast-growing traffic and to make sure that customer devices are always connected to the best available network, mobile operators will be partnering with fixed-infrastructure providers. Arthur D. Little and Exane BNP Paribas forecast that 20 per cent of mobile broadband traffic could be carried through fixed networks. As such, in this upcoming "all-mobile" world, fixed infrastructure will remain key. Wireless providers can expect to enjoy re-accelerating revenue growth (2.6 per cent per year over 2007-2012), but the integration of fixed infrastructure into their networks will have a negative impact on their margins. Revenue streams from products that converge fixed and mobile broadband will increasingly be the focus of new product development for both mobile operators and fixed broadband providers.

New competition has arrived. In the 2007 Exane BNP Paribas report, "Caution - Work ahead", the authors expected that within the next two to three years, Internet players could compete with mobile operators. This year, the report concludes that telecoms providers are facing the tightening grip of fast-growing global Internet giants on Internet services and on the monetisation of online advertising, plus the increasing pressure from global hardware manufacturers who also want to develop revenue streams from Internet and content service. As such, operators will struggle with developing revenue streams from Internet services and advertising. The bulk of their revenues and profits will continue to come from connectivity.

"We believe that mobile broadband offers large opportunities for value creation at all levels of the value chain, but while telecom operators have traditionally occupied a prime spot in the value chain, they face fast-moving competition from sophisticated global giants coming from the Internet and hardware worlds", says Jean-Luc Cyrot, co-author of the report and director in Arthur D. Little's TIME Practice.  In order to create opportunities for growth in an "all-IP" environment, telecom operators cannot avoid collaboration with these global giants.

Towards market consolidation. Domestic consolidation will continue in 2008, especially amongst fixed providers.  As a result, the report forecasts that the number of fixed and mobile network operators in each of the European markets will fall progressively from seven to four - on average.  In particular, sub-scale broadband providers will be under mounting pressure as a result of the move to triple-play, fibre and mobile broadband competition.

Beyond local market consolidation, a wider-ranging pan-European consolidation could be on the cards. The report outlines two scenarios for the sector: the "Access Specialisation" scenario, which could benefit small, aggressive providers, and a scenario of "Pan-European Consolidation," which would see larger operators scoop up the smaller providers. According to Antoine Pradayrol, author of the report and Head of the Telecom team at Exane BNP Paribas in London, "It is increasingly clear that larger multi-country operators have an advantage in negotiating with Internet giants and device manufacturers. This could become a very powerful rationale for pan-European consolidation of telecom operators".

Notes to Editors

About Exane BNP Paribas
Exane is a leading independent investment company in Europe, specialising in three businesses: cash equities, equity derivatives and asset management.

Our cash equities business, carried out under  the Exane BNP Paribas brand, covers research, distribution and execution on European stocks. Our business is underpinned by a strong culture of investigation and performance, which is regularly rewarded in the key industry surveys, in which our teams shine consistently.

With 900 employees, the Group has offices in eight financial capitals: London, Paris, Frankfurt, Geneva, Milan, New York, Singapore and Zurich.

About Arthur D. Little
Arthur D. Little (ADL), founded in 1886, is a leading global management consulting firm that links strategy, innovation and technology to master complex business challenges while delivering sustainable results to our clients.  Arthur D. Little has a collaborative client engagement style, exceptional people, and a firm wide commitment to quality and integrity.  ADL is proud to serve many of the Fortune 100 companies globally in addition to many other leading firms and public sector organizations. 

Arthur D. Little has over 30 offices worldwide, employing over 1,000 people.

TIME (Telecommunications, Information Technology, Media, Electronics)
The global TIME Practice of Arthur D. Little advises companies in the telecommunications, information technology, media and electronics sectors. ADL consultants assist their clients around the world in solving strategic, operational and technological problems. The range of advice extends from concept development (strategy, organisation, processes, IT) to implementation. In addition, the TIME practice works with investors on major financing projects and corporate purchases and sales.

Further information

Sue Glanville/ Maita Soukup
Say Communications
Tel: +44 (0)208 971 6423 / 6421
sglanville(at)saycomms.co.uk
msoukup(at)saycomms.co.uk

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Marketing & Communication Director

Francois Valraud
Chief Operating Officer
Arthur D. Little Services

+33 1 55 74 29 20
valraud.francois(at)adlittle.com

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