European Telecoms Review

February 1999
Dow Jones Stoxx Telecoms
550

500

450

400

350

300

250

200
17-Apr-98

17-Aug-98

17-Dec-98
17-Feb-98

17-Jun-98

17-Oct-98

17-Feb-99
DJ Stoxx Telecoms Relative to DJ Stoxx

Source: IMI, Reuters

• The telecoms sector has outperformed the Dow Jones Stoxx

index by 3.7% over the past month.

• We have changed our recommendation on Vodafone from

Hold to Buy and on Olivetti from Buy to Hold.

• Data is expected to drive telecoms revenue growth, but the

local loop bottleneck is limiting the bandwidth available to
residential users.

Damien Chew, London, +44 171 454 4875

Stefanie Mollin, Milan, +39 02 7751 2253 18 February, 1999
CONTENTS1
Summary Of Recommendations ........................................................................................ 3

Data Services - Breaking The Local Loop Bottleneck ....................................................... 5

Sector Round-Up ................................................................................................................ 9

Sector Performance .......................................................................................................... 10

Valuation Multiples .......................................................................................................... 12

European Telecoms – Selected Companies...................................................................... 13

Incumbents ..................................................................................................................... 13
Other Fixed/Integrated.................................................................................................... 15
Mobile............................................................................................................................ 16
Share Price Performance ................................................................................................. 17

Valuation Multiples .......................................................................................................... 18

Growth And Margins ....................................................................................................... 20

Western European Cellular Subscribers ......................................................................... 21

Priced at 17 February 1999

Note: All prices are taken from Reuters; Estimates for Telecom Italia, TIM, Olivetti, British Telecom, Vodafone, Orange and
Swisscom are produced by IMI; Estimates for the other companies are consensus estimates from The Estimate Directory
(Feb 1999), IBES (Bloomberg) and Reuters.

All source references to IMI in this document refer to Banca D’Intermediazione IMI SpA.

2
SUMMARY OF RECOMMENDATIONS
Telecom Italia HOLD
Price: € 8.62 Competition is increasing in the Italian market and Telecom Italia has to
1999 YE Target: € 7.49 prepare for the fight ahead by cutting tariffs, reducing headcount and
improving service quality. In the next few months, we believe price
weakness could follow if market share losses are announced.

TIM BUY
Price: € 5.46 Pricing pressures should be offset by increasing usage, allowing Tim’s
1999 YE Target: € 8.78 ARPU to stabilise in 1999 (reversing the average 14% p.a. decline from
1996-1998). Tim is trading at a discount to its peers on P/E and P/CE
multiples, as well as a discount to its sum-of-the-parts value.

Olivetti HOLD
Price: € 2.98 The recent strong share price performance caused us to downgrade our
1999 YE Target: € 2.92 recommendation on Olivetti from “Buy” to “Hold” on 1 February.
Continued buying by the Bell holding company should support the share
price in the short-term.

Swisscom BUY
Price: SFr 553.0 After a 10.8% fall in the share price this past month, Swisscom’s
1999 YE Target: SFr 600 valuation multiples are looking more realistic. This year, the market is
expected to focus on the impact of increased competition on
Swisscom’s business. With efficiency gains continuing to come
through, we believe the company is still attractive due to its defensive
nature and as a hedge against the Euro.

Orange BUY
Price: 874p Superior network quality and a strong brand name should allow Orange
1999 YE Target: 1,000p to continue winning market share. Due to subscriber acquisition costs,
last year’s strong subscriber growth should hold back improvements in
profitability. Results next week should reveal by how much.

Vodafone BUY
Price: 1,120p Following the announcement of the merger with AirTouch, we
1999 YE Target: 1,400p upgraded our recommendation on Vodafone from “Hold” to “Buy” on
20 January. We believe Vodafone AirTouch’s strong European position
should create a solid platform from which to exploit global mobile
opportunities. A key issue which Vodfone needs to resolve is how to
improve AirTouch’s US domestic position against strong competitors
like AT&T and Sprint who have coast-to-coast network coverage.

3
CALENDAR OF EVENTS

February
19 Friday Mannesmann 1998 preliminary results
22 Monday Netcom ASA 1998 preliminary results
25 Thursday Colt 1998 full year results
25 Thursday Orange 1998 full year results
25 Thursday Telefonica 1998 full year results
26 Friday Tele Danmark 1998 full year results

March
17 Wednesday France Telecom 1998 full year results
17 Wednesday Nokia AGM
31 Wednesday Mannesmann 1998 full year results
End March Swisscom 1998 full year results

April
1 Thursday UK Mobile Q1 99 subscriber figures
14 Wednesday Mannesmann Release of 1998 annual report
15 Thursday Deutsche Telekom 1998 full year results
15 Thursday Mannesmann Analysts meeting
23 Friday Tele Danmark AGM

May
5 Wednesday CWC 1998/9 preliminary results
14 Friday France Telecom Q1 1999 revenues
20 Thursday France Telecom AGM
24 Monday Energis 1998/9 preliminary results
End May Swisscom Q1 1999 results
Source: Companies, Reuters

4
DATA SERVICES - BREAKING THE LOCAL LOOP BOTTLENECK
The local loop bottleneck Using the traditional telephone network to make a normal phone call
generally yields good results. Using the same 50-year old technology to
access the Internet is often frustrating and, at the best of times, painfully
slow. The bottleneck holding up the flow of information from the World
Wide Web is the limited capacity of the twisted pair of copper wires
running from the local telephone exchange to our homes – the “local
loop”.
The mass-market for We believe the commercial potential for high speed data services is
high-speed data huge. In most developed countries, the amount of data traffic carried on
telecoms networks is likely to surpass the amount of voice traffic this
year. While corporate users have access and choice in high bandwidth
data services via direct fibre optic connections, the cost of this kind of
broadband access is unattractive to residential users and small
businesses. The main driver of demand for high speed data connections
amongst residential customers and SMEs has been the Internet. With
the number of European households connected to the Internet expected
by the industry to more than triple by the year 2003, demand is set to
continue increasing.
Figure 1: Internet Penetration of Western Europe (1998, 2005)
60%
1998 2005E
50%

40%

30%

20%

10%

0%
ede
n UK n ce an y ain Ita
ly
ro pe
Sw Fra erm Sp Eu
G .
fW
st o
Re

Source: Ovum

Alternative technologies The current, widely available digital alternative to existing analogue
data access is ISDN. Developed over 25 years ago, it is only around two
times faster than the fastest analogue connection. The incumbent
operators, which dominate the local loop, are expected to vastly
improve the capacity of their local loops by upgrading their existing
copper networks with xDSL technologies (UDSL, ADSL, VDSL). They
are being spurred on by competition from alternative telecoms
companies. The largest threat comes from cable TV operators who are
upgrading their networks to allow their customers using cable modems
to access the Internet more than 10 times faster than at present (see
Table 1).

5
Table 1: Data Services - “Local Loop” Technologies
Downstream Upstream Shared with Maximum Comments
Speed1 Speed2 other users? distance
Analogue Up to 56.6 kb/s Up to 36.6 kb/s No Unlimited Cheap but slow
ISDN 128 kb/s 128 kb/s No Unlimited Proven technology,
equipment widely available,
limited bandwidth
Broadband wireless Up to 30 Mb/s Up to 3 Mb/s Yes 3-5 km; Not reliant on existing
(LMDS3) requires line infrastructure, requires line
of sight of sight; high end-user
equipment cost
Digital Satellite Up to 40 Mb/s Nil No Unlimited; Wide geographical reach,
Service requires line distance independent; needs
of sight to the terrestrial return path
sky
Digital Power Line Up to 10 Mb/s Up to 10 Mb/s Yes 300m Sends signals over existing
average of 1 Mb/s average of 1 electricity cables into the
per user Mb/s per user home; relatively unproven
technology
Cable modems Up to 30 Mb/s, Up to 10 Mb/s, Yes Unlimited Proven technology, aimed
average of 500 kb/s average of 300 mainly at consumers
- 1 Mb/s per user – 500 kb/s per
user
UDSL (ADSL Lite) Up to 1.5 Mb/s Up to 512 kb/s No 5.5 km ITU standard, should be
Universal Digital finalised by June 99. Easier
Subscriber Line to install than ADSL - no
voice/data splitter required
ADSL 1.5-8 Mb/s (distance Up to 1 Mb/s No 5.5 km Fast, Requires voice/data
Asymmetric Digital dependent) splitter
Subscriber Line
VDSL Up to 52 Mb/s Up to 1.6 Mb/s No 300m - 1.6 Fast; No set standards yet,
Very High-speed (distance km still under development
Digital Subscriber dependent)
Line
Source: IMI, various publications; Note: (1) Downstream = user receiving data, (2) Upstream = user sending data; (3)
LMDS = Local to Multi-point Distribution Services
In the UK, cable companies Telewest, NTL and Cable & Wireless
Communications are expected to launch high speed Internet access
services later this year. The number of digital set-top boxes containing
cable modems in the UK will reach 290,000 by the end of next year,
increasing to one million by the end of 2002, according to Datamonitor.
BT’s ADSL trials currently running in London are due to end in March
and we expect a commercial rollout to follow.
United Pan Europe Communications (UPC), the Dutch company which
just completed its IPO earlier this month, looks set to compete in
Europe where most cable operators are owned by the incumbent
telecoms operators.
Equipment manufacturers are also gearing up for this next phase of
investment. Earlier this week Nokia announced a US$ 125m deal to buy
US-based Diamond Lane Communications Corp., which specialises in
xDSL equipment.

6
Mobile data – A viable Mobile operators are already taking market share in voice traffic away
alternative to the fixed from the fixed networks. With improved data capabilities, mobile
network? networks might get a decent share of data traffic as well. Within 12-18
months, mobile operators should be able to offer GPRS data services at
ISDN-type speeds (see Figure 2). GPRS is a form of packet switched
data, which makes interfacing it with Internet Protocol standards very
easy. Within two years, mobile networks should be able to offer speeds
close to 400 kbit/s, and with the flexibility of mobility as well. Fixed
network operators should be wary.
Figure 2: Evolution of Data over GSM
Transmission Speed

UMTS
2 Mb/s

EDGE
384 kb/s
GPRS
115 kb/s

HSCD
57.6 kb/s
GSM
9.6 kb/s

SMS
160 characters

1994 1999 2000 2001 2002 2003

Source: IMI

A flurry of wireless In recent weeks, there have been a host of deals in the wireless data
Internet, data deals arena, signalling the rapid convergence of data and voice services in
wireless communications:
• BT and Microsoft: to develop wireless Internet and data services
outside North America. Microsoft already has a deal with
Qualcomm in North America.
• Motorola and US computer-networking giant Cisco Systems: to
invest US$ 1bn to develop wireless Internet standards. On Monday,
Omnitel and Cisco said they had also agreed to develop an Internet
wireless service together.
• US wireless operator Nextel, software companies Netscape and
Unwired Planet: to offer Internet access and data services to
Nextel’s customers.
• Qualcomm and US West: to test high speed internet access via
cellular networks.

7
Regulation is just a step The potential for data is huge, but there is regulatory risk. As operators
behind are weighing up their options for broadband access, so are the
regulators. In 1999, EU telecommunications law is to be reviewed.
Local loop unbundling is likely to high on the agenda. OFTEL, the UK
regulator, has already launched a consultation process on competitive
access to high bandwidth services.
We believe there are two main possible regulatory alternatives:
• Forcing the incumbents to unbundle the local loop and allow their
competitors direct access to the copper infrastructure would be one
approach. New entrants could then install their own xDSL modems
(or similar equipment) at the local exchange to offer their customers
standard telephony and high bandwidth data services.
• Indirect access is the other major alternative. There are several
possible variations but essentially the incumbent would run the high
bandwidth infrastructure and charge new entrants a usage related
fee. This would allow the incumbent to continue to provide standard
telephony services.
The regulator has to be careful to balance the benefits of competition
while maintaining an incentive for operators to invest in new
infrastructure. Last month, the US regulator, the FCC, declined to allow
Internet service providers, like America OnLine, “open access” to the
broadband infrastructure of cable companies. This removed the cloud of
uncertainty hanging over AT&T’s takeover of cable company TCI, and
gives cable companies the incentive to invest in their networks.

8
SECTOR ROUND-UP
Telecom Italia Telecom Italia proposed to cut fixed-mobile charges by an average
10%. The Italian regulator is likely to rule on the proposal by 1 March.
Tim Although Wind announced a 15% average tariff cut against Tim and
Omnitel, we confirm our expectations of only an average 9% decline in
outgoing average revenue per minute for Tim.
Olivetti Infostrada customer figures reached 1.1m at the end of January,
revealing stronger than expected growth. This pace of growth is likely
to be unsustainable as Wind is planning to enter the market on 1 March.
Infostrada’s usage per customer (7.1 minutes per day) is still below our
estimate of 10.8 million minutes per day for the full-year 1999.
British Telecom BT’s 3Q 1998/99 results exceeded market expectations. Profitability
was driven by higher traffic volumes in its core business, mainly
coming from Internet and fixed-to-mobile calls. Earlier, BT announced
a £5bn investment in its UK data network and a deal with Microsoft to
develop mobile data and Internet services. To top it all, the European
Commission said that the company’s joint venture with AT&T is likely
to be cleared.
Vodafone After starting 1999 with an aggressive takeover bid, Vodafone’s merger
with AirTouch was confirmed, creating the world’s largest mobile
operator by market capitalisation. AirTouch’s 4Q 1998 profits rose 34%
and the US domestic business’ performance was better than expected.
Orange Orange topped an independent UK moble network performance survey
commissioned by OFTEL, the UK regulator.
Swisscom Swisscom announced 1999 interconnection rates for its competitors
26% lower than the initial June 1998 charges, broadly in line with
expectations. The company has also announced a usage-related discount
scheme for residential users called “Joker”.
Deutsche Telekom The German regulator announced that Deutsche Telekom could charge
its competitors DM 25.4 a month to use its local phone connections.
Germany is the first country in Europe to allow local loop unbundling
(see page 8).
France Telecom 1998 revenues were up 5.2%, disappointing the market. Revenue
growth was driven primarily by the mobile business, which saw
customers increase by 82% last year and revenue increase by 44%.
Telefonica Telefonica is expected to post a strong rise in 1999 profits, 15.3%
(consensus estimates) despite an expected decline of c. 30% in the
profits of Telefonica’s international arms, TISA.
Equipment Nokia’s 1998 results revealed a net profit increase of 72% to € 584m,
manufacturers driven mainly by mobile phone and equipment sales. Ericsson unveiled
the world’s slimmest phone at its results meeting, with profits falling
3%, less than expected, to € 535m. Alcatel showed it was still
struggling with 1998 second half profits increasing 7.7%, but before a €
390m charge to cut costs. According to Dataquest, worldwide sales of
cellular phones rose 51% to 163m units last year, with Nokia’s market
share doubling to 23% to take top spot.

9
SECTOR PERFORMANCE
Table 2: Leaders and Laggards
Stock Closing Absolute Performance Rel to Local Market Relative to DJ Stoxx
(%) Price -1m -3m -12m -1m -3m -12m -1m -3m -12m
5 Strongest Performers
Mobistar € 76.9 39.7 90.8 - 37.8 68.1 - 39.0 73.0 -
Panafon Dr 9,695.0 17.6 - - -1.2 - - 17.5 - -
British Telecom 1,089.5p 16.8 32.7 84.7 13.2 20.7 75.4 18.2 22.9 63.0
Colt Telecom 1,210.0p 13.1 69.9 336.6 9.6 54.6 314.8 14.5 57.4 285.3
Energis 1,587.5p 12.6 82.5 334.3 9.2 66.0 312.6 14.0 69.0 283.3
5 Weakest Performers
KPN € 44.70 -10.7 33.1 72.1 -8.2 29.4 66.1 -11.2 20.7 57.6
Swisscom SFr 553.0 -10.8 15.6 - -9.2 10.9 - -11.2 6.2 -
Tele Danmark DKr 800.0 -11.1 11.4 73.9 -8.1 11.7 98.8 -11.5 1.6 61.3
Netcom AB 'B' SKr 298.0 -12.4 -4.0 54.0 -13.5 -10.5 50.9 -10.8 -7.5 39.6
STET Hellas ADS US$ 38.94 -14.7 29.8 - -13.3 20.8 - -15.1 17.4 -
Source: IMI, Reuters; Note: Ranked by absolute performance over the past month. See Page 17 for complete performance
tables.
Gainers British Telecom’s share price jumped 10% on the day better than
expected 3Q 1998/9 results were announced. The numbers show that
the UK market is showing stronger than expected growth, pushing Colt
and Energis higher. Mobistar was up after the company said mobile use
in Belgium was growing faster than expected.
Losers KPN lost ground after the Dutch regulator said recent proposed price
cuts were not enough. Swisscom and Tele Danmark shares were
amongst the worst hit by profit taking as investors evaluated
competitive pressures in the sector.
Table 3: Trend Reversals
Stock Closing Absolute Performance Rel to Local Market Relative to DJ Stoxx
(%) Price -1m -3m -12m -1m -3m -12m -1m -3m -12m
Recent Outperformers
Portugal Telecom € 44.80 9.3 16.5 -5.3 11.0 13.9 -12.1 8.7 5.6 -13.3
Siemens € 59.7 6.9 1.8 -0.2 8.8 -1.6 -4.8 6.3 -7.6 -8.6
Recent Underperformers
Telefonica € 39.90 -0.3 9.9 46.0 -3.2 0.4 21.5 -0.8 -0.3 33.6
C&W Comms. 717.0p -1.0 42.5 116.0 -4.1 29.7 105.1 0.2 32.0 90.6
Cable & Wireless 861.0p -1.5 23.7 34.5 -4.5 12.5 27.8 -0.3 14.6 18.7
TIM (Ord) € 5.46 -6.0 1.1 22.8 -5.7 -7.7 6.2 -6.5 -8.3 12.4
Europolitan SKr 840.0 -4.8 18.6 119.9 -6.0 10.6 115.5 -3.0 14.4 99.3
Olivetti (Ord) € 2.98 -7.8 38.4 220.8 -7.5 26.4 177.5 -8.3 25.5 193.7
Tele Danmark DKr 800.0 -11.1 11.4 73.9 -8.1 11.7 98.8 -11.5 1.6 61.3
Telecel € 170.1 -9.5 9.6 38.9 -8.1 7.2 29.0 -10.0 -0.6 27.2
KPN € 44.70 -10.7 33.1 72.1 -8.2 29.4 66.1 -11.2 20.7 57.6
Orange 874.0p -5.4 46.2 155.6 -8.3 33.0 142.8 -4.2 35.4 125.5
Netcom AB 'B' SKr 298.0 -12.4 -4.0 54.0 -13.5 -10.5 50.9 -10.8 -7.5 39.6
Source: IMI, Reuters; Note: Companies for which performance relative to the local market over the past month has changed
direction relative to its twelve month performance relative to the local market. Ranked by relative performance over the past
month. See Page 17 for complete performance tables
Sub-sector performance The incumbents gained 5.4%, with British Telecom, Deutsche Telekom
and Telecom Italia performing the best. With the exception of Colt and
Energis, it was quiet amongst the new entrants and mobile operators as
the market reassessed the telecoms sector’s position after strong gains at
the beginning of the year (see Table 4).

10
Table 4: Contribution to Sector Portfolio
Stock Price Market Value Abs Perf (€) Contribution to Perf of
17 Feb 99 Current Weight -1m YTD Sector Subsector
(€ bn) (%) (%) (%) -1m YTD -1m YTD
Incumbents
British Telecom 1,089.5p 102.45 11.2 18.8 24.0 143.1 93.5 246.0 152.7
Deutsche Telekom € 36.20 99.31 10.8 11.1 29.0 72.7 129.4 107.2 225.0
France Telecom € 75.8 77.67 8.5 1.7 12.0 -15.5 -12.0 -60.2 -48.7
KPN € 44.70 21.45 2.3 -10.7 4.8 -37.4 -19.6 -82.5 -45.7
OTE Dr 7,900.0 12.40 1.3 -0.5 8.4 -5.6 -6.5 -15.9 -16.8
Portugal Telecom € 44.80 8.52 0.9 9.3 14.7 4.8 0.9 6.4 -0.9
Sonera € 16.13 11.65 1.3 0.8 6.6 -3.5 -8.3 -11.4 -20.3
Swisscom SFr 553.0 25.47 2.8 -10.7 -3.0 -44.4 -47.5 -98.1 -102.4
Tele Danmark DKr 800.0 11.65 1.3 -11.1 -6.2 -20.9 -26.7 -46.1 -56.7
Telecom Italia (Ord) € 8.62 45.32 4.9 9.0 18.7 24.3 21.2 31.2 27.6
Telecom Italia (Sav) € 5.55 12.02 1.3 -4.0 3.7 -10.4 -12.5 -25.2 -28.7
Telefonica € 39.90 41.71 4.5 -0.3 5.2 -17.9 -36.1 -51.4 -85.0
Subsector Total 469.61 51.1 5.4 15.3 89.3 75.9 0.0 0.0
Other Fixed/Integrated
Cable & Wireless 861.0p 30.15 3.3 0.3 20.0 -11.0 17.7 -36.8 -4.1
C&W Comms. 717.0p 15.54 1.7 0.7 34.6 -4.8 26.4 -13.9 116.2
Colt Telecom 1,210.0p 10.43 1.1 15.1 39.1 11.3 20.8 83.5 99.2
Energis 1,587.5p 3.46 0.4 14.6 21.6 3.6 2.5 26.7 2.7
Equant € 65.9 13.02 1.4 -3.1 11.1 -9.8 -3.1 -48.1 -75.3
Mannesmann € 113.3 44.17 4.8 2.5 14.8 -5.0 5.2 16.2 -147.5
Mobilcom € 376.0 5.24 0.6 6.2 38.8 1.4 10.4 14.6 49.1
Netcom AB 'B' SKr 298.0 2.87 0.3 -10.3 -3.6 -4.8 -5.6 -27.7 -50.0
Netcom AB 'A' SKr 290.0 0.59 0.1 -11.7 -4.7 -1.1 -1.2 -6.4 -10.9
Olivetti (Ord) € 2.98 8.06 0.9 -7.8 0.1 -10.9 -11.9 -60.5 -114.5
Olivetti (Sav) € 2.68 0.21 0.0 -10.1 -2.8 -0.4 -0.4 -2.0 -3.5
Olivetti (Pref) € 2.99 0.05 0.0 -8.6 2.6 -0.1 -0.1 -0.4 -0.6
Telewest 266.0p 8.28 0.9 12.6 58.0 7.2 25.3 54.7 139.1
Subsector Total 142.06 15.5 2.0 20.3 -24.3 86.1 0.0 0.0
Mobile
Europolitan SKr 840.0 3.85 0.4 -2.5 12.8 -2.6 -0.3 -9.8 11.9
Mobistar € 76.9 4.76 0.5 39.7 78.7 13.4 18.9 96.6 137.3
Netcom ASA NOK 235.0 1.28 0.1 4.2 22.1 0.1 1.0 2.9 10.8
Orange 874.0p 15.23 1.7 -3.7 28.9 -12.6 19.7 -53.0 179.9
Panafon Dr 9,695.0 7.73 0.8 18.1 32.1 10.4 11.8 82.3 102.9
Securicor 596.3p 5.22 0.6 5.5 21.9 1.0 3.9 16.8 43.3
STET Hellas ADS US$ 38.94 2.39 0.3 -14.7 19.4 -5.6 1.3 -31.7 16.6
Telecel € 170.1 3.66 0.4 -9.5 -2.3 -5.8 -6.5 -30.6 -28.1
TIM (Ord) € 5.46 36.24 3.9 -6.0 -13.4 -40.3 -122.8 -192.7 -652.2
TIM (Sav) € 3.31 5.18 0.6 -13.0 -17.4 -10.8 -21.1 -60.1 -116.0
Vodafone 1,120.0p 50.47 5.5 6.7 18.2 15.8 21.6 200.3 317.7
Millicom US$ 29.88 1.22 0.1 -18.4 -15.0 -3.6 -4.5 -21.1 -24.1
Subsector Total 137.24 14.9 0.9 8.0 -40.6 -77.0 0.0 0.0
Equipment
Alcatel € 93.4 18.55 2.0 -10.2 -10.5 -31.2 -54.3 -152.5 -233.0
Ericsson 'B' SKr 206.0 41.33 4.5 10.4 14.0 27.7 1.5 179.9 115.5
Ericsson 'A' SKr 214.5 3.95 0.4 9.5 9.3 2.3 -1.7 15.4 1.6
Nokia 'A' € 116.5 56.55 6.2 -1.1 11.7 -29.3 -10.2 -113.4 94.2
Nokia 'K' € 116.8 14.03 1.5 0.0 12.0 -5.6 -2.1 -19.0 25.4
Siemens € 59.7 34.93 3.8 6.9 8.4 11.7 -18.2 89.6 -3.7
Subsector Total 169.34 18.4 2.3 8.6 -24.3 -85.0 0.0 0.0
Sector Total 918.26 100.0 3.6 13.6 0.0 0.0 0.0 0.0
Source: IMI, Reuters; Note: Contribution to performance is in basis points. Portfolio weighting shown is based on current
market capitalisation. Calculation assumes shares currently in issue were in issue throughout the period.

11
VALUATION MULTIPLES
Table 5: Ranked Valuation Multiples
1999E P/E 1999E P/CE 1999E Dividend Yield (%)
1 OTE 15.7 1 Telefonica 6.7 1 OTE 3.19
2 Portugal Telecom 17.5 2 Portugal Telecom 7.5 2 Portugal Telecom 2.83
3 Swisscom 21.7 3 Telecom Italia 7.8 3 Tele Danmark 2.50
4 Telecom Italia 22.2 4 Deutsche Telekom 8.6 4 KPN 2.37
5 KPN 24.2 5 KPN 9.1 5 Swisscom 2.23
6 Cable & Wireless 24.7 6 Tele Danmark 9.6 6 TIM 2.19
7 Tele Danmark 24.8 7 OTE 10.2 7 British Telecom 2.11
8 Telefonica 26.3 8 France Telecom 10.7 8 Deutsche Telekom 1.69
9 Netcom ASA 26.6 9 Swisscom 11.5 9 Telecel 1.62
10 TIM 28.4 10 C&W Comms 12.2 10 Telecom Italia 1.46
11 British Telecom 29.0 11 Olivetti 12.6 11 France Telecom 1.42
12 Telecel 30.4 12 British Telecom 13.0 12 Telefonica 1.23
13 France Telecom 30.7 13 Netcom ASA 16.1 13 Europolitan 1.12
14 Europolitan 31.9 14 Telecel 16.2 14 Mobilcom 0.85
15 Netcom AB 32.7 15 TIM 18.7 15 Vodafone 0.80
16 Sonera 35.4 16 Mannesmann 19.8 16 Netcom AB 0.67
17 Olivetti 35.4 17 Netcom AB 20.7 17 Mannesmann 0.59
18 Deutsche Telekom 42.1 18 Europolitan 24.7 18 Securicor 0.36
19 Securicor 44.3 19 Securicor 24.8 19 C&W Comms 0.06
20 C&W Comms 46.2 20 Orange 25.7 20 Olivetti 0.02
21 Vodafone 52.7 21 Vodafone 32.2 21 Colt Telecom 0.00
22 Mannesmann 54.0 22 Mobilcom 80.0 22 Energis 0.00
23 Mobilcom 56.7 23 Energis 87.9 23 Mobistar 0.00
24 Netcom ASA 0.00
25 Orange 0.00
26 Telewest 0.00
Average 32.8 Average 21.1 Average 1.13

1999E EV/EBITDA 1998E EV/EBITDA/CAGR 1998-00 1998E PE/CAGR 1998-00

1 Telecom Italia 6.5 1 Olivetti 0.67 1 Netcom ASA 0.70
2 Swisscom 9.5 2 Telecom Italia 0.72 2 Netcom AB 0.99
3 British Telecom 10.2 3 Orange 0.76 3 Portugal Telecom 1.17
4 TIM 16.7 4 TIM 0.98 4 Europolitan 1.30
5 Olivetti 19.7 5 Vodafone 1.15 5 Securicor 1.66
6 Vodafone 21.9 6 British Telecom 1.22 6 TIM 1.75
7 Orange 28.9 7 Swisscom 1.93 7 Telefonica 1.84
8 Telecel 1.88
9 Swisscom 1.90
10 Tele Danmark 2.06
11 Telecom Italia 2.24
12 Sonera 2.35
13 British Telecom 2.71
14 Vodafone 3.02
15 France Telecom 3.07
16 Mannesmann 3.10
17 Deutsche Telekom 3.10
18 Olivetti 3.58
19 KPN 6.08
Average 16.2 Average 1.06 Average 2.34

Source: IMI, Reuters, The Estimate Directory, IBES; Note: Companies have been omitted from IMI rankings where data is
unavailable or not meaningful. See Page 18 for complete valuation tables.

12
EUROPEAN TELECOMS – SELECTED COMPANIES
Incumbents
British Telecom 1,200 35
UK 1,089.5p
Mkt. Cap: € 102,373m 1,000 30
Year Net Adj Net P/ Div EV/ EV/
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales 25
800
Mar £m p p p
20
1997 2,077 33.2 68.9 55.4 32.8 15.8 5.1% 12.9 4.8
600
1998 1,706 35.2 72.5 19.1 31.0 15.0 1.8% 11.8 4.6 15
1999E 2,875 32.9 74.8 20.5 33.1 14.6 1.9% 11.1 4.3
400
2000E 2,451 37.6 83.6 23.0 29.0 13.0 2.1% 10.2 4.0 10
2001E 2,727 41.4 92.2 25.4 26.3 11.8 2.3% 9.4 3.7
Source: IMI estimates 200 5
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute 20.0 16.8 32.7 33.0 84.7 20.3 0 0

17/02/98

17/05/98

17/08/98

17/11/98

17/02/99
Rel. to FTSE All Share 14.9 13.2 20.7 22.5 75.4 15.6
Rel. to DJ Stoxx (€) 18.8 18.2 22.9 30.0 63.0 22.0

Deutsche Telekom 45 9
Germany € 36.20
40 8
Mkt. Cap: € 105,478m
Year Net Adj Net P/ Div EV/ EV/ 35 7
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales
30 6
Dec €m € € €
1996 - - - - - - - - - 25 5
1997 - 0.7 4.4 0.6 49.6 8.3 1.7% - 4.2 20 4
1998E - 0.8 4.1 0.6 44.1 8.9 1.7% - 4.1
15 3
1999E - 0.9 4.2 0.6 42.1 8.6 1.7% - 4.1
2000E - 1.1 4.2 0.7 33.8 8.5 2.0% - 3.9 10 2
Source: Consensus estimates
5 1
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute 4.6 11.1 51.3 41.6 97.3 29.0 0 0
17/02/98

17/05/98

17/08/98

17/11/98

17/02/99
Rel. to Dax Composite 4.0 13.0 46.1 56.6 88.1 31.6
Rel. to DJ Stoxx (€) 2.3 10.5 37.2 40.1 80.6 26.9

France Telecom 100 9

France € 75.8
90 8
Mkt. Cap: € 79,664m
Year Net Adj Net P/ Div EV/ EV/ 80 7
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales 70
6
Dec €m € € € 60
1996 - - - - - - - - - 5
50
1997 - 2.3 6.3 1.0 33.4 12.0 1.3% - 4.0 4
1998E - 2.3 6.7 1.0 33.5 11.4 1.3% - 3.9 40
3
1999E - 2.5 7.1 1.1 30.7 10.7 1.4% - 3.6 30
2000E - 2.8 7.5 1.2 27.3 10.2 1.6% - 3.4 20 2
Source: Consensus estimates
10 1
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute -0.9 1.7 23.4 12.5 69.6 12.0 0 0
17/02/98

17/05/98

17/08/98

17/11/98

17/02/99

Rel. to SBF250 -0.7 3.1 12.7 13.5 42.1 10.8

Rel. to DJ Stoxx (€) -3.1 1.2 11.9 11.3 55.2 10.2

Price Price Rel to Volume (m)

(LHS) Local Bencmark (RHS) Source: IMI, Reuters, The Estimate Directory, IBES

13
Swisscom BUY 700 3.0
Switzerland SFr 553.0
Mkt. Cap: € 25,460m 1999 YE Target: SFr 600.0 600 2.5
Year Net Adj Net P/ Div EV/ EV/
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales 500
2.0
Dec SFr m SFr SFr SFr
400
1996 1,830 - - - - - - 10.8 4.8
1.5
1997 -415 -6.3 46.2 19.4 -87.9 12.0 3.5% 22.3 4.7 300
1998E 1,595 24.3 47.9 10.9 22.7 11.5 2.0% 10.1 4.5
1.0
1999E 1,871 25.4 48.3 12.3 21.7 11.5 2.2% 9.5 4.4 200
2000E 2,244 30.5 53.3 14.9 18.1 10.4 2.7% 9.2 4.2
Source: IMI estimates 100 0.5
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute -1.4 -10.8 15.6 - - -3.8 0 0.0

17/02/98

17/05/98

17/08/98

17/11/98

17/02/99
Rel. to SPI -3.4 -9.2 10.9 - - -2.8
Rel. to DJ Stoxx (€) -3.7 -11.2 6.2 - - -4.6

Telecom Italia (Ord) HOLD 10 100

Italy € 8.62
9 90
Mkt. Cap: € 57,274m 1999 YE Target: € 7.49
Year Net Adj Net P/ Div EV/ EV/ 8 80
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales 7 70
Dec €m € € € 6 60
1996 1,345 0.2 0.9 0.1 44.3 9.1 1.0% 8.6 4.2
5 50
1997 1,347 0.2 1.0 0.1 40.2 8.5 1.2% 7.9 3.8
1998E 2,383 0.4 1.1 0.1 24.3 8.0 1.5% 7.2 3.6 4 40
1999E 2,604 0.4 1.1 0.1 22.2 7.8 1.5% 6.5 3.4 3 30
2000E 2,980 0.4 1.2 0.1 19.8 7.4 1.6% 6.0 3.2 2 20
Source: IMI estimates
1 10
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute 7.1 9.0 30.9 12.3 31.6 18.7 0 0
17/02/98

17/05/98

17/08/98

17/11/98

17/02/99
Rel. to BCI 3.9 9.3 19.6 14.5 13.8 22.6
Rel. to DJ Stoxx (€) 4.6 8.4 18.7 11.1 20.5 16.8

Telefonica 50 20
Spain € 39.90
45 18
Mkt. Cap: € 41,188m
Year Net Adj Net P/ Div EV/ EV/ 40 16
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales 35 14
Dec €m € € € 30 12
1996 - - - - - - - - -
25 10
1997 - 1.1 5.4 0.6 35.0 7.4 1.4% - 3.8
1998E - 1.3 5.7 0.6 30.7 7.0 1.5% - 3.3 20 8
1999E - 1.5 6.0 0.5 26.3 6.7 1.2% - 3.0 15 6
2000E - 1.8 6.1 0.5 22.5 6.6 1.2% - 2.9 10 4
Source: Consensus estimates
5 2
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute 0.5 -0.3 9.9 -4.4 46.0 5.2 0 0
17/02/98

17/05/98

17/08/98

17/11/98

17/02/99

Rel. to Madrid General -0.9 -3.2 0.4 -4.5 21.5 4.9

Rel. to DJ Stoxx (€) -1.8 -0.8 -0.3 -5.4 33.6 3.5

Price Price Rel to Volume (m)

(LHS) Local Bencmark (RHS) Source: IMI, Reuters, The Estimate Directory, IBES

14
Other Fixed/Integrated
Cable & Wireless 1,200 25
UK 861p
Mkt. Cap: € 28,550m 1,000
20
Year Net Adj Net P/ Div EV/ EV/
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales
800
Mar £m p p p 15
1997 - - - - - - - - -
600
1998 - 57.0 87.0 12.3 15.1 9.9 1.4% - 3.2
1999E - 32.7 - - 26.3 - - - - 10
400
2000E - 34.9 - - 24.7 - - - -
2001E - - - - - - - - - 5
Source: Consensus estimates 200
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute 11.0 -1.5 23.7 13.9 34.5 16.5 0 0

17/02/98

17/05/98

17/08/98

17/11/98

17/02/99
Rel. to FTSE All Share 6.4 -4.5 12.5 4.9 27.8 12.0
Rel. to DJ Stoxx (€) 9.9 -0.3 14.6 11.3 18.7 18.1

Mannesmann 140 3.0

Germany € 113.3
Mkt. Cap: € 45,612m 120 2.5
Year Net Adj Net P/ Div EV/ EV/
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales 100
2.0
Dec €m € € €
80
1996 - - - - - - - - -
1.5
1997 - 1.33 3.84 0.51 85.2 29.5 0.5% - 2.3 60
1998E - 1.70 4.74 0.60 66.6 23.9 0.5% - 2.0
1.0
1999E - 2.10 5.73 0.67 54.0 19.8 0.6% - 1.9 40
2000E - 2.51 6.44 0.82 45.1 17.6 0.7% - 1.8
Source: Consensus estimates 20 0.5
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute 3.9 2.5 30.8 30.4 115.5 14.8 0 0.0
17/02/98

17/05/98

17/08/98

17/11/98

17/02/99
Rel. to Dax Composite 3.3 4.3 26.3 44.2 105.5 17.1
Rel. to DJ Stoxx (€) 1.6 2.0 18.6 28.9 97.3 13.0

Olivetti (Ord) HOLD 4.0 200

Italy € 2.98
3.5 180
Mkt. Cap: € 8,553m 1999 YE Target: € 2.92
Year Net Adj Net P/ Div EV/ EV/ 160
3.0
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales 140
Dec €m € € € 2.5 120
1996 -473 -0.1 -0.0 - -22.9 -86.2 - NM 6.8
2.0 100
1997 8 0.0 0.1 - NM 23.6 - NM 8.5
1998E 125 0.0 0.2 - 83.9 18.4 - 37.0 8.1 1.5 80
1999E 290 0.1 0.2 0.0 35.4 12.6 0.0% 19.7 5.3 60
1.0
2000E 186 0.1 0.2 0.0 55.1 12.5 0.9% 15.3 4.6 40
Source: IMI estimates 0.5 20
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute -4.5 -7.8 38.4 46.4 220.8 0.1 0.0 0
17/02/98

17/05/98

17/08/98

17/11/98

17/02/99

Rel. to BCI -7.4 -7.5 26.4 49.3 177.5 3.4

Rel. to DJ Stoxx (€) -6.7 -8.3 25.5 44.8 193.7 -1.6

Price Price Rel to Volume (m)

(LHS) Local Bencmark (RHS) Source: IMI, Reuters, The Estimate Directory, IBES

15
Mobile
Orange BUY 1,200 160
UK 874p
Mkt. Cap: € 14,813m 1999 YE Target: 1,000p 140
1,000
Year Net Adj Net P/ Div EV/ EV/ 120
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales 800
Dec £m p p p 100
1996 -229 -20.8 -3.6 - -42.1 NM - -83.4 16.9
600 80
1997 -139 -11.5 10.2 - -75.9 85.5 - NM 11.5
1998E -109 -9.1 19.7 - -96.5 44.3 - 60.7 8.3 60
400
1999E -58 -4.8 34.0 - NM 25.7 - 28.9 6.4
40
2000E 1 0.1 41.7 - NM 21.0 - 18.7 5.4
Source: IMI estimates 200
20
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute 7.1 -5.4 46.2 20.6 155.6 25.1 0 0

17/02/98

17/05/98

17/08/98

17/11/98

17/02/99
Rel. to FTSE All Share 2.6 -8.3 33.0 11.0 142.8 20.3
Rel. to DJ Stoxx (€) 6.0 -4.2 35.4 17.8 125.5 26.8

TIM (Ord) BUY 8 60

Italy € 5.46
Mkt. Cap: € 38,798m 1999 YE Target: € 8.78 7
50
Year Net Adj Net P/ Div EV/ EV/ 6
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales 40
Dec €m € € € 5
1996 479 0.06 0.12 0.03 89.9 45.1 0.5% 53.0 9.4
4 30
1997 802 0.10 0.16 0.04 54.8 33.8 0.8% 27.8 7.3
1998E 1,265 0.15 0.23 0.07 35.5 23.6 1.3% 20.6 5.7 3
20
1999E 1,579 0.19 0.29 0.12 28.4 18.7 2.2% 16.7 4.6
2
2000E 1,826 0.22 0.32 0.14 24.5 16.8 2.6% 14.0 4.2
Source: IMI estimates 10
1
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute 2.1 -6.0 1.1 -12.2 22.8 -13.4 0 0
17/02/98

17/05/98

17/08/98

17/11/98

17/02/99
Rel. to BCI -0.9 -5.7 -7.7 -10.5 6.2 -10.5
Rel. to DJ Stoxx (€) -0.2 -6.5 -8.3 -13.2 12.4 -14.8

Vodafone BUY 1,400 90

UK 1,120p
80
Mkt. Cap: € 48,409m 1999 YE Target: 1,400p 1,200
Year Net Adj Net P/ Div EV/ EV/ 70
End Profit EPS CEPS DPS P/E CEPS Yield EBITDA Sales 1,000
60
Mar £m p p p
800 50
1997 364 11.3 16.3 4.8 99.3 68.7 0.4% 49.4 18.4
1998 419 13.0 20.8 5.5 85.9 54.0 0.5% 37.1 13.0 600 40
1999E 596 17.7 28.2 7.7 63.5 39.6 0.7% 27.4 9.5
30
2000E 664 21.3 34.8 8.9 52.7 32.2 0.8% 21.9 7.8 400
2001E 811 25.8 41.9 11.4 43.3 26.7 1.0% 17.9 6.5 20
Source: IMI estimates 200
10
Performance (%) 1wk 1m 3m 6m 12m YTD
Absolute 5.3 4.8 33.7 43.1 108.3 14.8 0 0
17/02/98

17/05/98

17/08/98

17/11/98

17/02/99

Rel. to FTSE All Share 0.8 1.6 21.6 31.8 97.8 10.3
Rel. to DJ Stoxx (€) 4.2 6.1 23.8 39.9 83.8 16.3

Price Price Rel to Volume (m)

(LHS) Local Bencmark (RHS) Source: IMI, Reuters, The Estimate Directory, IBES

16
SHARE PRICE PERFORMANCE
Stock/Index Country Price Absolute Performance (%) Rel. to Local Benchmark (%) Rel to DJ Stoxx - € (%) Rel to DJ Stoxx Tel - € (%)
of Listing 17-Feb -1m -3m -12m YTD -1m -3m -12m YTD -1m -3m -12m YTD -1m -3m -12m YTD
Dow Jones Stoxx Europe 283.8 0.5 10.3 9.2 1.6
DJ Stoxx Telecoms Europe 469.2 4.2 27.7 60.3 13.7 3.7 15.8 46.7 11.9
Incumbents
British Telecom UK 1,089.5p 16.8 32.7 84.7 20.3 13.2 20.7 75.4 15.6 18.2 22.9 63.0 22.0 14.0 6.1 11.0 9.0
Deutsche Telekom Germany € 36.20 11.1 51.3 97.3 29.0 13.0 46.1 88.1 31.6 10.5 37.2 80.6 26.9 6.6 18.5 23.1 13.4
France Telecom France € 75.8 1.7 23.4 69.6 12.0 3.1 12.7 42.1 10.8 1.2 11.9 55.2 10.2 -2.4 -3.4 5.8 -1.6
KPN Netherlands € 44.70 -10.7 33.1 72.1 4.8 -8.2 29.4 66.1 10.7 -11.2 20.7 57.6 3.1 -14.3 4.2 7.4 -7.9
OTE Greece Dr 7,900.0 -1.0 22.5 52.7 6.0 -16.8 -17.7 -34.2 -15.4 -1.1 14.6 35.6 6.6 -4.6 -1.1 -7.6 -4.7
Portugal Telecom Portugal € 44.80 9.3 16.5 -5.3 14.7 11.0 13.9 -12.1 13.1 8.7 5.6 -13.3 12.9 4.9 -8.8 -40.9 0.9
Sonera Finland € 16.13 0.8 53.2 - 6.6 2.6 16.7 - 2.0 0.3 38.9 - 4.8 -3.3 20.0 - -6.3
Swisscom Switzerland SFr 553.0 -10.8 15.6 - -3.8 -9.2 10.9 - -2.8 -11.2 6.2 - -4.6 -14.3 -8.3 - -14.7
Tele Danmark Denmark DKr 800.0 -11.1 11.4 73.9 -6.9 -8.1 11.7 98.8 -2.4 -11.5 1.6 61.3 -7.7 -14.7 -12.2 10.0 -17.5
Telecom Italia (Ord) Italy € 8.62 9.0 30.9 31.6 18.7 9.3 19.6 13.8 22.6 8.4 18.7 20.5 16.8 4.6 2.5 -17.9 4.3
Telefonica Spain € 39.90 -0.3 9.9 46.0 5.2 -3.2 0.4 21.5 4.9 -0.8 -0.3 33.6 3.5 -4.4 -13.9 -8.9 -7.5
Other Fixed/Integrated
Cable & Wireless UK 861.0p -1.5 23.7 34.5 16.5 -4.5 12.5 27.8 12.0 -0.3 14.6 18.7 18.1 -3.8 -1.1 -19.1 5.5
C&W Comms. UK 717.0p -1.0 42.5 116.0 30.6 -4.1 29.7 105.1 25.5 0.2 32.0 90.6 32.4 -3.4 14.0 29.9 18.3
Colt Telecom UK 1,210.0p 13.1 69.9 336.6 35.0 9.6 54.6 314.8 29.7 14.5 57.4 285.3 36.8 10.4 35.9 162.6 22.2
Energis UK 1,587.5p 12.6 82.5 334.3 18.0 9.2 66.0 312.6 13.4 14.0 69.0 283.3 19.6 9.9 45.9 161.2 6.9
Equant France € 65.9 -3.1 49.1 - 11.1 -1.8 36.2 - 9.9 -3.6 35.2 - 9.3 -7.0 16.8 - -2.3
Mannesmann Germany € 113.3 2.5 30.8 115.5 14.8 4.3 26.3 105.5 17.1 2.0 18.6 97.3 13.0 -1.6 2.4 34.4 0.9
Mobilcom Germany € 376.0 6.2 61.6 - 38.8 8.1 56.1 - 41.5 5.7 46.6 - 36.5 1.9 26.6 - 22.0
Netcom AB 'B' Sweden SKr 298.0 -12.4 -4.0 54.0 -9.7 -13.5 -10.5 50.9 -10.5 -10.8 -7.5 39.6 -5.1 -13.9 -20.1 -4.9 -15.2
Olivetti (Ord) Italy € 2.98 -7.8 38.4 220.8 0.1 -7.5 26.4 177.5 3.4 -8.3 25.5 193.7 -1.6 -11.6 8.4 100.1 -12.0
Telewest UK 266.0p 10.6 107.8 253.5 53.3 7.2 89.0 235.8 47.3 12.0 92.5 211.9 55.4 8.0 66.2 112.6 38.9
Mobile
Europolitan Sweden SKr 840.0 -4.8 18.6 119.9 5.7 -6.0 10.6 115.5 4.8 -3.0 14.4 99.3 11.0 -6.5 -1.2 35.8 -0.8
Mobistar Belgium € 76.9 39.7 90.8 - 78.7 37.8 68.1 - 76.4 39.0 73.0 - 75.8 34.1 49.4 - 57.1
Netcom ASA Norway NOK 235.0 4.4 32.0 20.5 18.7 2.1 21.4 46.3 13.0 3.6 20.6 4.5 20.2 -0.1 4.1 -28.8 7.4
Orange UK 874.0p -5.4 46.2 155.6 25.1 -8.3 33.0 142.8 20.3 -4.2 35.4 125.5 26.8 -7.6 16.9 53.7 13.3
Panafon Greece Dr 9,695.0 17.6 - - 29.3 -1.2 - - 3.2 17.5 - - 30.0 13.3 - - 16.2
Securicor UK 596.3p 3.7 25.5 61.6 18.3 0.5 14.2 53.5 13.7 5.0 16.3 42.6 19.9 1.3 0.4 -2.8 7.1
STET Hellas ADS USA US$ 38.94 -14.7 29.8 - 20.3 -13.3 20.8 - 20.8 -15.1 17.4 - 17.4 -18.1 1.4 - 4.9
Telecel Portugal € 170.1 -9.5 9.6 38.9 -2.3 -8.1 7.2 29.0 -3.7 -10.0 -0.6 27.2 -3.9 -13.2 -14.1 -13.3 -14.1
TIM (Ord) Italy € 5.46 -6.0 1.1 22.8 -13.4 -5.7 -7.7 6.2 -10.5 -6.5 -8.3 12.4 -14.8 -9.8 -20.9 -23.4 -23.9
Vodafone UK 1,120.0p 4.8 33.7 108.3 14.8 1.6 21.6 97.8 10.3 6.1 23.8 83.8 16.3 2.4 6.9 25.2 3.9
Equipment
Alcatel France € 93.4 -10.2 -0.3 -20.8 -10.5 -9.1 -8.9 -33.6 -11.4 -10.7 -9.6 -27.5 -11.9 -13.9 -21.9 -50.6 -21.3
Ericsson 'B' Sweden SKr 206.0 7.9 4.6 16.1 6.7 6.4 -2.5 13.7 5.8 9.8 0.8 5.2 12.1 5.9 -12.9 -28.3 0.2
Nokia 'A' Finland € 116.5 -1.1 52.9 164.9 11.7 0.6 16.5 79.6 7.0 -1.6 38.7 142.5 9.9 -5.1 19.7 65.3 -1.8
Siemens Germany € 59.7 6.9 1.8 -0.2 8.4 8.8 -1.6 -4.8 10.5 6.3 -7.6 -8.6 6.6 2.6 -20.2 -37.7 -4.7
Source: IMI, Reuters; Note: Absolute performance and performance relative to local markets are in local currency terms.
VALUATION MULTIPLES
Company Rec. Price Mkt Cap Net Debt/ EV to Sales EV to EBITDA Price Earnings Ratio Price to Cash Earnings
17-Feb €m Mkt Cap 1997 1998E 1999E 2000E 1997 1998E 1999E 2000E 1997 1998E 1999E 2000E 1997 1998E 1999E 2000E
Incumbents
British Telecom 1,089.5p 102,373 3.2% 4.6 4.3 4.0 3.7 11.8 11.1 10.2 9.4 31.0 33.1 29.0 26.3 15.0 14.6 13.0 11.8
Deutsche Telekom € 36.20 105,478 36.4% 4.2 4.1 4.1 3.9 - - - - 49.6 44.1 42.1 33.8 8.3 8.9 8.6 8.5
France Telecom € 75.8 79,664 19.3% 4.0 3.9 3.6 3.4 - - - - 33.4 33.5 30.7 27.3 12.0 11.4 10.7 10.2
KPN € 44.70 20,207 10.0% 3.2 2.9 2.8 2.7 - - - - 28.3 23.5 24.2 21.8 14.2 10.0 9.1 8.9
OTE Dr 7,900.0 13,225 -0.9% 5.2 - - - - - - - 18.7 17.5 15.7 - - 12.3 10.2 -
Portugal Telecom € 44.80 8,531 11.1% 3.5 - - - - - - - 23.7 20.6 17.5 14.9 - 8.3 7.5 7.2
Sonera € 16.13 10,830 -0.4% 8.0 - - - - - - - 53.8 42.6 35.4 30.5 27.3 - - -
Swisscom BUY SFr 553.0 25,460 15.9% 4.7 4.5 4.4 4.2 22.3 10.1 9.5 9.2 -87.9 22.7 21.7 18.1 12.0 11.5 11.5 10.4
Tele Danmark DKr 800.0 12,002 0.0% 3.1 2.7 2.5 2.4 - - - - 67.8 28.2 24.8 21.8 17.9 10.6 9.6 8.7
Telecom Italia HOLD € 8.62 57,274 14.2% 3.8 3.6 3.4 3.2 7.9 7.2 6.5 6.0 40.2 24.3 22.2 19.8 8.5 8.0 7.8 7.4
Telefonica € 39.90 41,188 30.3% 3.8 3.3 3.0 2.9 - - - - 35.0 30.7 26.3 22.5 7.4 7.0 6.7 6.6
Average 12.6% 4.4 3.7 3.5 3.3 14.0 9.5 8.7 8.2 26.7 29.2 26.3 23.7 13.6 10.3 9.5 8.9
Other Fixed/Integrated
Cable & Wireless 861p 28,550 15.7% 3.2 - - - - - - - 15.1 26.3 24.7 - 9.9 - - -
C&W Comms 717p 15,353 23.4% 5.7 5.0 4.4 - - - - - NM 61.5 46.2 - 14.6 14.4 12.2 -
Colt Telecom 1,210p 9,249 -0.2% 78.4 32.6 17.9 - - - - - NM NM -79.6 - - NM NM -
Energis 1,587.5p 3,455 3.1% 14.6 8.9 6.2 - - - - - -56.7 NM NM - - NM 87.9 -
Equant € 65.9 14,988 1.3% 32.3 - - - - - - - -29.7 NM NM - - - - -
Mannesmann € 113.3 45,612 0.6% 2.3 2.0 1.9 1.8 - - - - 85.2 66.6 54.0 45.1 29.5 23.9 19.8 17.6
Netcom AB SKr 298.0 3,571 11.3% 8.8 5.8 4.5 3.8 - - - - NM 63.3 32.7 23.6 43.8 29.2 20.7 16.4
Olivetti HOLD € 2.98 8,553 11.8% 8.5 8.1 5.3 4.6 NM 37.0 19.7 15.3 NM 83.9 35.4 55.1 23.6 18.4 12.6 12.5
Telewest 266p 7,746 26.1% 17.4 12.2 8.0 - - - - - -8.1 -14.7 -15.4 - - -27.0 -85.6 -
Average 9.7% 21.0 10.7 6.9 3.4 - 37.0 19.7 15.3 -2.3 52.1 12.2 41.3 27.9 11.8 11.3 15.5
Pure Mobile
Europolitan SKr 840.0 3,655 1.2% 15.0 10.1 7.7 6.4 - - - - 97.7 45.8 31.9 25.1 54.2 31.8 24.7 20.2
Mobistar € 76.9 4,755 6.8% 38.5 - - - - - - - - -58.7 -68.6 NM - NM NM 39.2
Netcom ASA NOK 235.0 1,330 17.8% 8.0 6.8 5.8 5.1 - - - - -59.3 69.1 26.6 17.5 NM 25.8 16.1 12.4
Orange BUY 874p 14,813 12.6% 11.5 8.3 6.4 5.4 NM 60.7 28.9 18.7 -75.9 -96.5 NM NM 85.5 44.3 25.7 21.0
Panafon Dr 9,695.0 8,041 1.8% 20.2 - - - - - - - 97.7 - - - - - - -
STET Hellas US$ 38.94 2,923 6.3% 10.7 - - - - - - - NM - - - - - - -
Telecel € 170.1 3,913 1.7% 9.1 - - - - - - - 55.1 38.7 30.4 26.6 - 21.7 16.2 14.4
TIM BUY € 5.46 38,798 -0.9% 7.3 5.7 4.6 4.2 27.8 20.6 16.7 14.0 54.8 35.5 28.4 24.5 33.8 23.6 18.7 16.8
Vodafone BUY 1,120p 48,409 3.8% 13.0 9.5 7.8 6.5 37.1 27.4 21.9 17.9 85.9 63.5 52.7 43.3 54.0 39.6 32.2 26.7
Average 5.7% 14.8 8.1 6.5 5.5 32.5 36.2 22.5 16.9 36.6 13.9 16.9 27.4 56.9 31.1 22.3 21.5
Average - All Operators 9.6% 12.5 7.2 5.4 4.0 21.4 24.9 16.2 12.9 24.6 29.5 20.2 27.7 27.2 16.6 13.4 14.6
Source: IMI, Reuters, The Estimate Directory, IBES (see note on page 2)
 97x / CAGR 1997-2002 98x / CAGR 1998-2003 98x / CAGR 1998-2000
Company Rec. Price Mkt Cap Net Debt/ Dividend Yield EV/ EV/ P/E Price / EV/ EV/ P/E Price / EV/ EV/ P/E Price /
17-Feb €m Mkt Cap 1997 1998E 1999E 2000E EBITDA OpFCF CEPS EBITDA OpFCF CEPS EBITDA OpFCF CEPS
Incumbents
British Telecom 1,089.5p 102,373 3.2% 1.8% 1.9% 2.1% 2.3% 1.45 1.62 3.60 1.70 1.04 NM 2.08 1.17 1.22 NM 2.71 1.32
Deutsche Telekom € 36.20 105,478 36.4% 1.7% 1.7% 1.7% 2.0% - - - - - - - - - - 3.10 4.87
France Telecom € 75.8 79,664 19.3% 1.3% 1.3% 1.4% 1.6% - - - - - - - - - - 3.07 1.95
KPN € 44.70 20,207 10.0% 1.9% 2.3% 2.4% 2.8% - - - - - - - - - - 6.08 1.67
OTE Dr 7,900.0 13,225 -0.9% 2.8% 2.8% 3.2% - - - - - - - - - - - - -
Portugal Telecom € 44.80 8,531 11.1% 2.0% 2.4% 2.8% 3.2% - - - - - - - - - - 1.17 1.12
Sonera € 16.13 10,830 -0.4% - 0.6% - - - - - - - - - - - - 2.35 -
Swisscom BUY SFr 553.0 25,460 15.9% 3.5% 2.0% 2.2% 2.7% 1.08 NM NM 2.07 2.36 1.26 1.68 1.51 1.93 0.70 1.90 2.11
Tele Danmark DKr 800.0 12,002 0.0% 2.3% 2.4% 2.5% 2.6% - - - - - - - - - - 2.06 1.03
Telecom Italia HOLD € 8.62 57,274 14.2% 1.2% 1.5% 1.5% 1.6% 0.92 0.90 2.08 1.71 0.74 0.81 2.19 1.45 0.72 0.69 2.24 1.98
Telefonica € 39.90 41,188 30.3% 1.4% 1.5% 1.2% 1.2% - - - - - - - - - - 1.84 2.25
Average 12.6% 2.0% 1.8% 2.1% 2.2% 1.15 1.26 2.84 1.83 1.38 1.03 1.98 1.38 1.29 0.70 2.65 2.03
Other Fixed/Integrated
Cable & Wireless 861p 28,550 15.7% 1.4% - - - - - - - - - - - - - - -
C&W Comms 717p 15,353 23.4% - 0.0% 0.1% - - - NM - - - - - - - - -
Colt Telecom 1,210p 9,249 -0.2% 0.0% 0.0% 0.0% - - - NM - - - NM NM - - NM NM
Energis 1,587.5p 3,455 3.1% 0.0% 0.0% 0.0% - - - - - - - NM NM - - NM NM
Equant € 65.9 14,988 1.3% 0.0% - - - - - - - - - NM - - - NM -
Mannesmann € 113.3 45,612 0.6% 0.5% 0.5% 0.6% 0.7% - - - - - - - - - - 3.10 1.44
Netcom AB SKr 298.0 3,571 11.3% 0.0% 0.0% 0.7% 1.0% - - NM - - - - - - - 0.99 0.87
Olivetti HOLD € 2.98 8,553 11.8% 0.0% 0.0% 0.0% 0.9% NM NM NM 1.57 0.92 NM 6.42 1.16 0.67 NM 3.58 0.86
Telewest 266p 7,746 26.1% 0.0% 0.0% 0.0% - - - - - - - - - - - - -
Average 9.7% 0.1% 0.1% 0.2% 0.9% - - - 1.57 0.92 - 6.42 1.16 0.67 - 2.56 1.06
Pure Mobile
Europolitan SKr 840.0 3,655 1.2% 0.5% 0.7% 1.1% 1.5% - - - - - - - - - - 1.30 1.26
Mobistar € 76.9 4,755 6.8% - 0.0% 0.0% 0.0% - - - - - - - NM - - NM NM
Netcom ASA NOK 235.0 1,330 17.8% 0.0% 0.0% 0.0% 0.0% - - - NM - - - - - - 0.70 0.59
Orange BUY 874p 14,813 12.6% 0.0% 0.0% 0.0% 0.0% NM NM NM 1.93 1.05 NM NM 1.08 0.76 NM NM 0.98
Panafon Dr 9,695.0 8,041 1.8% - - - - - - - - - - - - - - - -
STET Hellas US$ 38.94 2,923 6.3% - - - - - - NM - - - - - - - - -
Telecel € 170.1 3,913 1.7% 0.9% 1.2% 1.6% 2.1% - - - - - - - - - - 1.88 0.95
TIM BUY € 5.46 38,798 -0.9% 0.8% 1.3% 2.2% 2.6% 1.53 1.20 2.55 1.81 1.45 1.00 2.33 1.65 0.98 0.77 1.75 1.27
Vodafone BUY 1,120p 48,409 3.8% 0.5% 0.7% 0.8% 1.0% 1.55 2.74 3.71 2.37 1.08 1.77 2.51 1.66 1.15 1.75 3.02 1.82
Average 5.7% 0.5% 0.6% 0.8% 1.0% 1.54 1.97 3.13 2.04 1.20 1.38 2.42 1.46 0.96 1.26 1.73 1.14
Average - All Operators 9.6% 1.0% 1.0% 1.2% 1.6% 1.31 1.61 2.99 1.88 1.24 1.21 2.87 1.38 1.06 0.98 2.38 1.57
Source: IMI, Reuters, The Estimate Directory, IBES (see note on page 2)
GROWTH AND MARGINS
Company Revenue Growth (%) CAGR Adj. EPS Growth (%) CAGR EBITDA Margin (%) Pre-tax Profit Margin (%) Net Profit Margin (%)
1997 1998E 1999E 2000E 1997-02 1997 1998E 1999E 2000E 1997-02 1997 1998E 1999E 2000E 1997 1998E 1999E 2000E 1997 1998E 1999E 2000E
Incumbents
British Telecom 4.7 6.7 6.8 6.9 6.8 5.9 -6.5 14.2 10.3 8.6 38.7 38.4 39.3 40.0 20.6 24.8 20.1 20.9 10.9 17.2 13.8 14.3
Deutsche Telekom - 2.3 0.1 4.2 - - 12.3 4.9 24.4 - - - - - 4.9 6.5 6.9 8.6 - - - -
France Telecom - 2.9 7.1 7.4 - - -0.4 9.3 12.6 - - - - - 9.5 9.2 9.4 10.2 - - - -
KPN - 9.6 4.2 2.6 - - 20.3 -2.6 10.8 - - - - - 17.6 12.0 12.8 13.0 - - - -
OTE - - - - - - 7.0 11.8 - - - - - - 22.9 - - - - - - -
Portugal Telecom - - - - - - 15.3 17.4 17.6 - - - - - 13.0 - - - - - - -
Sonera - - - - - - 26.1 20.4 15.9 - - - - - 22.9 - - - - - - -
Swisscom 3.3 4.0 3.0 2.8 2.9 NM NM 4.6 19.9 NM 20.9 44.2 45.7 46.3 -4.2 18.9 24.7 28.1 -4.2 15.6 17.8 20.7
Tele Danmark - 15.5 6.9 5.6 - - 140.7 13.4 14.0 - - - - - 10.0 16.0 16.0 16.3 - - - -
Telecom Italia 9.9 4.9 8.2 6.1 5.5 10.4 65.0 9.8 11.9 19.3 48.5 50.3 51.9 53.1 15.8 24.2 25.5 28.2 6.1 10.3 10.4 11.2
Telefonica - 13.6 9.4 4.4 - - 14.0 16.9 16.4 - - - - - 8.0 8.3 9.0 10.0 - - - -
Average 6.0 7.4 5.7 5.0 5.1 8.1 29.4 10.9 15.4 13.9 36.0 44.3 45.6 46.5 12.8 15.0 15.5 16.9 4.3 14.4 14.0 15.4
Other Fixed/Integrated
Cable & Wireless - - - - - - -42.6 6.6 - - - - - - 31.2 - - - - - - -
C&W Comms - 14.9 14.2 - - - NM 33.0 - - - - - - -2.1 6.5 7.8 - - - - -
Colt Telecom - 140.5 82.4 - - - 56.0 39.1 - - - - - - -40.7 -31.2 -24.2 - - - - -
Energis - 63.8 43.6 - - - -56.5 -63.2 - - - - - - -36.9 -11.7 -2.9 - - - - -
Equant - - - - - - -95.3 NM - - - - - - -4.1 - - - - - - -
Mannesmann - 14.2 6.2 6.5 - - 27.8 23.5 19.5 - - - - - 1.3 2.5 3.3 3.8 - - - -
Netcom AB - 52.5 27.0 18.9 - - 236.4 93.2 38.9 - - - - - - 8.1 16.1 21.9 - - - -
Olivetti -20.4 4.4 53.2 15.5 17.7 NM 952.7 137.1 -36 60.8 -0.7 22.0 26.9 30.1 0.8 14.5 19.5 19.1 0.2 3.5 5.3 3.0
Telewest - 42.0 52.1 - - - -45.0 -5.1 - - - - - - -80.1 -58.5 -37.5 - - - - -
Average -20.4 47.5 39.8 13.6 17.7 - 153.7 36.8 7.6 60.8 -0.7 22.0 26.9 30.1 -23.1 -10.0 -2.5 14.9 0.2 3.5 5.3 3.0
Mobile
Europolitan - 49.1 30.8 19.6 - - 113.5 43.3 27.3 - - - - - 17.0 30.0 34.2 37.4 - - - -
Mobistar - - - - - - - -14.5 NM - - - - - -81.0 - - - - - - -
Netcom ASA - 17.9 16.8 14.6 - - NM 160.3 52.0 - - - - - -10.9 6.9 17.8 24.7 - - - -
Orange 47.6 38.6 28.4 18.3 22.4 -44.6 -21.3 -46.7 NM NM 5.1 13.6 22.3 29.1 -15.2 -8.6 -3.6 0.0 -15.2 -8.6 -3.6 0.0
Panafon - - - - - - - - - - - - - - 19.5 - - - - - - -
STET Hellas - - - - - - - - - - - - - - 6.2 - - - - - - -
Telecel - - - - - - 42.4 27.0 14.3 - - - - - 15.2 - - - - - - -
TIM 28.7 29.2 23.4 10.2 14.5 64.0 54.6 25.1 15.6 21.5 26.4 27.6 27.5 29.8 32.5 35.8 36.2 38.0 16.4 20.1 20.3 21.3
Vodafone 41.3 36.6 22.5 19.5 21.4 15.6 35.4 20.5 21.5 23.1 35.0 34.7 35.5 36.4 26.3 26.7 25.1 26.7 16.9 17.7 16.1 16.4
Average 39.2 34.3 24.4 16.4 19.4 11.7 44.9 30.7 26.2 22.3 22.2 25.3 28.4 31.7 1.1 18.1 22.0 25.4 6.1 9.7 10.9 12.6
Average - All Operators 16.4 28.2 22.3 10.2 13.0 10.3 72.5 23.7 17.1 26.7 24.8 33.0 35.6 37.8 -0.4 7.0 10.8 19.2 4.5 10.8 11.4 12.4
Source: IMI, Reuters, The Estimate Directory, IBES (see note on page 2)
WESTERN EUROPEAN CELLULAR SUBSCRIBERS
Country Pop Launch Pen Subscribers ('000s) Digital as Monthly Net Adds ('000s) Net Adds Digital as Subscriber Growth
As at end Dec 98 (m) Date Analogue Digital Total % of Total Analogue Digital Total Past 6 mths % of Total Annual Monthly Past 6 mths
1 Austria 8.1 Nov-84 28.0% 200 2,071 2,271 91.2% -6.7 260.5 253.8 707.2 102.6% 94.5% 12.6% 31.1%
2 Belgium 10.2 Apr-87 17.1% 8 1,740 1,748 99.5% -0.8 190.0 189.2 482.5 100.4% 77.8% 12.1% 27.6%
3 Denmark 5.3 Jan-82 33.7% 185 1,605 1,790 89.7% -2.4 88.0 85.6 293.5 102.8% 21.8% 5.0% 16.4%
4 Finland 5.2 Mar-82 57.8% 406 2,576 2,981 86.4% -11.2 125.0 113.8 517.0 109.8% 38.8% 4.0% 17.3%
5 France 59.1 Nov-85 18.7% 47 11,024 11,071 99.6% -6.1 1,304.1 1,298.0 3,385.4 100.5% 90.4% 13.3% 30.6%
6 Germany 82.1 Sep-85 17.0% 400 13,525 13,925 97.1% 35.0 862.0 897.0 3,325.0 96.1% 68.2% 6.9% 23.9%
7 Greece 10.5 Jul-93 19.3% 2,037 2,037 100.0% 190.2 190.2 696.2 100.0% 112.3% 10.3% 34.2%
8 Ireland 3.7 Dec-85 21.6% 185 609 794 76.7% -7.0 59.0 52.0 193.0 113.5% 57.4% 7.0% 24.3%
9 Italy 57.5 Sep-85 35.6% 3,600 16,890 20,490 82.4% 60.0 1,280.0 1,340.0 5,050.0 95.5% 78.8% 7.0% 24.6%
10 Netherlands 15.7 Jan-85 21.3% 90 3,257 3,347 97.3% -11.1 220.9 209.7 897.1 105.3% 95.2% 6.7% 26.8%
11 Norway 4.4 Nov-81 47.7% 311 1,810 2,121 85.4% -8.4 74.9 66.5 275.7 112.7% 26.5% 3.2% 13.0%
12 Portugal 9.9 Jan-89 29.9% 2 2,951 2,953 99.9% -0.2 180.6 180.4 950.5 100.1% 102.0% 6.5% 32.2%
13 Spain 39.4 Jun-82 17.9% 893 6,158 7,051 87.3% -2.0 697.0 695.0 1,818.0 100.3% 62.6% 10.9% 25.8%
14 Sweden 8.9 Aug-81 47.8% 575 3,683 4,258 86.5% -9.0 193.0 184.0 696.6 104.9% 32.3% 4.5% 16.4%
15 Switzerland 7.1 Jan-85 22.5% 42 1,563 1,605 97.4% -7.0 35.0 28.0 297.5 125.0% 53.7% 1.8% 18.5%
16 UK 59.2 Jan-85 22.0% 1,313 11,688 13,001 89.9% -37.0 1,658.0 1,621.0 3,403.0 102.3% 53.6% 14.2% 26.2%
Total 386.4 Aug-81 23.7% 8,257 83,186 91,443 91.0% -14.0 7,418.2 7,404.3 22,988.2 100.2% 67.2% 8.8% 25.1%

Subscribers and Penetration Subscriber Growth

100
Finland 57.8%
Sweden 47.8% 90
Norway 47.7%
Italy 35.6% 80
Denmark 33.7%
70
Portugal 29.9%

Subscribers (millions)
Austria 28.0% 60
Switzerland 22.5%
50
UK 22.0%
Ireland 21.6% 40
Netherlands 21.3%
Greece 19.3% 30
France 18.7%
20
Spain 17.9%
Belgium 17.1% 10
Germany 17.0%
0
0 5 10 15 20 Dec-90 Dec-91 Dec-92 Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98
Subscribers (millions)
Subs - end Jun 1998 Subs - end Dec 1998 X% - Penetration Analogue GSM-900 GSM-1800

Source: IMI, Global Mobile, Mobile Communications

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