1. Telecom versus Online - Worlds in collision
Telecom Media & Entertainment
Vienna, 30 August 2007

2. Operators in Europe are faced with slowing growth in voice and Internet
access revenues
Mobile Revenue Growth, Fixed Voice Revenue Broadband Revenue
%, 2006-2010 Growth, %, 2006-2010 Growth, %, 2006-2010
16% 25%
10% 22%
8%
20%
12% 6%
16%
4%
9% 15% 14%
13%
2%
11%
8% 2006 2007 2008 2009 2010
6% 0% 11%
-2% 10% 8%
-2% -3% -3% 7% 8%
4%
-4% -4%
4% 3% 3% 3% -4% -3% -3% 5%
2% -4% 5%
-6% -5% -5%
1% 2% 1%
-8%
0% 0%
-10%
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010
2006 2007 2008 2009 2010
Western Europe
North America
Source: “Voice: A vision of the future”, Ovum, March 2006
© 2007 Capgemini – All rights reserved
Telecom Media and Entertainment
C4Lab_Research_Innovation_May2007 I 2

3. Launch of new services is also not expected to significantly improve
revenue growth prospects
IPTV will not stem the overall losses in fixed Revenues from new mobile services are
line revenues not expected to offset falling growth rates
Wireline and IPTV Revenue Forecast, Europe, Year-on-year Mobile Revenue Growth – Western
a
(€ million) Europe (€ million)
IPTV will account for only
IPTV as % 10% of the broadband
of overall 0.3% subscriber base by 2010
1% 154
revenues 146
New Services
336 9 CAGR 19
3% 18 22 Consumer
Messaging
3,000 IPTV
111,664
119 113 Voice
99,000 Voice and
Access
2006 2010
2006 2010
Source: Capgemini TME Lab analysis. Credit Suisse “European Telecoms 2007”, January 2007; Yankee Group “Mobile Data Applications Forecast”, September 2006; Gartner, “Forecast: IPTV Subscribers and
Service Revenue Worldwide 2004 – 2010”, 2006; Strategy Analytics “Broadband in Western Europe”, August 2006; Datamonitor “The Evolving Broadcast Sector”, August 2006.
Note: a. New services includes all non-voice services except messaging
© 2007 Capgemini – All rights reserved
Telecom Media and Entertainment
C4Lab_Research_Innovation_May2007 I 3

4. Online players are launching new communication and content services at
a rapid pace...
Selected Internet Players’ Telecom Initiatives, 2004–2006
© 2007 Capgemini – All rights reserved
Telecom Media and Entertainment
C4Lab_Research_Innovation_May2007 I 4

5. …which are successfully capturing consumer attention and
interest
In France, the time spent on telco services now constitutes only 53% of the total time
spent on communication
Estimated time spent on communications per person in France per week (%)
2 hrs 23 mins X1.9 4 hrs 25 mins
1% Online
5% 2% Players
18% 30% IM Google Skype
Yahoo AOL
MSN
Telcos 15% Email 47%
47%
95% 8% SMS
95%
75% Wireless Telcos
21%
Voice
53%
53%
26% Wireline
(incl. VoIP)
2000 2005
Source: Capgemini estimates based on Arcep reports, IDATE, “Telecom 2.0: emerging usages and implications for carriers”, June 2006. MSN Report, “Europe’s Online Youth”; Comscore Media Metrix, Worldwide
IM usage, May 2006.
© 2007 Capgemini – All rights reserved
Telecom Media and Entertainment
C4Lab_Research_Innovation_May2007 I 5

6. Moreover, innovative business models are emerging, which
challenge telcos’ fee-based revenue structures
Examples of Disruptive Business Models for Providing Telecom Services
Blyk is an MVNO, which will Jajah has partnered with large
offer completely free mobile media companiesa in Germany
services funded through and Austria
advertising These media companies allow
It intends to start offering their customers to make free voice
services in the UK beginning calls using Jajah’s VoIP service,
mid-2007 Free Voice and in turn share advertising
Ad-subsidized revenues with Jajah
Telephony
Mobile Services
Google is providing free Internet
Fon allows users to earn revenues
access funded by advertising in
by sharing their fixed Internet
San Francisco and Mountain
connection with non-Fon users
View, California
Google and Skype are investing in
Fon, mainly to extend the reach of It plans to serve focused
Wi-Fi Community their services to Fon’s wide advertising and services to users
Ad-Subsidized
with Innovative network of WiFi access points based on their location within the
Internet Access
Revenue Model access network
Source: Capgemini TME Lab analysis. Company Websites. NY Times, “Free, Ad-Supported Mobile Service”, January 2007; Market Wire Press Release, “JAJAH Unveils Ad-Supported Business Model for Free
Telephony”, December 2006
Note: a. Jajah’s media partners include Pro7Sat1 (German TV station), Bild-T Online (German news portal) , and News Austria
© 2007 Capgemini – All rights reserved
Telecom Media and Entertainment
C4Lab_Research_Innovation_May2007 I 6

7. Telcos need to revisit their innovation strategy in light of a changing
business environment
Why do Telcos Need to Innovate Differently?
Fast Pace of Innovation
• Online players are launching
communication products and
services at a rapid pace
Need to
Change
Innovation
Strategies
Emergence of Consumer Innovative Business Models
Created Innovative Services
• Consumers are increasingly • New players have introduced
modifying online content, as radically different business
well as creating their own models such as free Internet
content using openly available access and ad-subsidized mobile
Web 2.0 tools services
Source: Capgemini TME Lab analysis
© 2007 Capgemini – All rights reserved
Telecom Media and Entertainment
C4Lab_Research_Innovation_May2007 I 7

8. Online players are also expanding their presence to tap creative talent
across the world
Leading Internet players have developed global networks of research and
development centers
Europe
Google Zurich 2004
Ireland 2004
London 2005
Microsoft Cambridge 1997
Yahoo! Barcelona 2006
North America
Google Mountain View 1999
Seattle 2004
Asia, Middle East and Africa
New York 2003 Google Bangalore 2003
Washington 2005 Israel Planned in
2007
Pittsburgh 2006
Microsoft Beijing 1998
Microsoft Redmond 1991
Microsoft Bangalore 2005
Mountain View 2001
Yahoo! Bangalore 2003
Yahoo! Santa Clara 1995
Berkeley 2005
Chile 2006
South East Asia and Pacific
Google Singapore Planned in
2007
Sydney 2006
Tokyo 2004
Source: Capgemini TME Lab analysis. Company websites and news releases.
© 2007 Capgemini – All rights reserved
Telecom Media and Entertainment
C4Lab_Research_Innovation_May2007 I 8

9. To launch new products rapidly, online players have acquired a large number
of start-ups…
Key Acquisitions made by Yahoo! and Google to Grow and Improve Service Offerings
DoubleClick TrendAnalyzer Adscape MyBlogLog
2007 Internet ad serving Data visualization Video game Blog communities
software software advertising service
Writely YouTube Measure Map Sketchup Del.icio.us Kenetworks
3D modelling
2006 Integrated into Docs User-generated video Blog search and
capabilities for
Social Tagging and
Bookmarking
Mobile content and
applications
and Spreadsheets sharing site analytics tool Google Earth
Android Reqwireless Urchin 2Web Ludicorp Dialpad
Web statistics tool
2005 Mobile applications Mobile email software
launched as Google
Launched as Google Photosharing site VoIP capabilities for IM
developer developer Spreadsheets (Flickr.com) client
Analytics
Where2 LLC ZipDash Keyhole Picasa OddPost
Core mapping
2004 Mapping capabilities Launched as Google
capabilities in Google
Picture management Launched as new
for Google Earth Ridefinder tools version of Yahoo mail
Earth
Kaltix Pyralabs Applied Semantics Sprinks Alltheweb OddPost
Context sensitive ads Ads technology, Keyword-based pay-
2003 Personalized Search
Blog Site
technology, integrated integrated into Search Engine per-click Internet
(blogger.com) into Adsense Adsense advertising
Hotjobs Inktomi
2002 Online Job Search
Search Engine
Portal
Source: Capgemini TME Strategy Lab analysis. Company Websites
© 2007 Capgemini – All rights reserved
Telecom Media and Entertainment
C4Lab_Research_Innovation_May2007 I 9

10. Telcos will need to address a number of challenges while adopting
online players’ innovation practices
Key Questions Faced by Telcos Pertaining to their Innovation Strategy
Which methods and tools can telcos use to build and sustain employee
generated innovation?
Driving
Innovation How can telcos create a start-up like environment conducive to creativity,
Internally given their large existing structures and processes?
How can telcos provide more attention and resources to innovation?
How can telcos leverage external innovation?
How can telcos effectively use consumer feedback in pre-launch stage
Benefiting from (private beta, lab, public beta, non-branded)?
External
Innovation For which services can telcos involve the open developer community?
How can telcos effectively use the innovative capabilities of acquired start-
ups?
Source: Capgemini TME Strategy Lab analysis
© 2007 Capgemini – All rights reserved
Telecom Media and Entertainment
C4Lab_Research_Innovation_May2007 I 10