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- Incumbents need to define their strategic options now but build in
flexibility and take some measured risks: scenario planning is key

- Europe's telecoms market continues to grow, but critical factors
surrounding demand, success of 3G and regulation add to uncertainty

- Incumbents are adopting one of three approaches - Globetrotter,
Eurovisionary or Homebody - but all are focusing on fixed broadband to
bolster domestic margins.

CAMBRIDGE, UK, July 18, 2002 - Western Europe's incumbent telecoms operators
must look beyond their collective EUR240 billion long-term debt and define
their strategic options now, says a new report released by Analysys, the
global adviser on telecoms and new media (

According to the report, The Future of Telecoms Incumbents: the impact of
competition, regulation and customer demand, 14 incumbents had long-term
debt at the end of 2001 ranging from around EUR1 billion to EUR67 billion,
and half of these operators had gearing of more than 95%.

A table of Western European incumbents' long-term debt and gearing at
December 2001 - featuring (ranked in order of debt level) Deutsche Telekom,
France Telecom, BT Group, Telefónica, Royal KPN, Telecom Italia, Portugal
Telecom, TDC, Telia, Telenor, Sonera, Telekom Austria, OTE and Swisscom - is
available to the media on request.

"Management of long-term debt is clearly the principal driver of incumbents'
decision-making today, as they attempt to restore shareholder value," says
Tamsin Pert, the report's author. "But they also need to consider how they
can create value and maintain competitive advantage in the longer term. In
this respect, scenario planning will be key to assessing the potential
impact of the decisions they take."

According to Analysys, despite the difficulties faced by incumbent and
alternative operators alike, the European telecoms market is still growing
(by 9.5% in 2001), but is characterised by unpredictable demand, weak
competition and confused regulation. The success or otherwise of GPRS and 3G
networks will be a crucial factor for most incumbents, many of which are
already under financial constraints and have capped capital expenditure for
the next few years.

"If GPRS or 3G networks and services do not perform as customers expect, or
if costs are higher than planned, there will be huge implications for many
incumbents," adds Pert.

After a period dominated by a rationale of vertical integration and
globalisation, incumbents are now being forced to adopt a more modest
approach based on achieving financial stability and increasing margins in
what is likely to remain a very uncertain market for the next five years,
says Analysys. This has led many incumbents to restructure their portfolios
and dispose of what they consider to be non-strategic assets.

The report sees three broad groupings emerging among incumbents as these
measures are implemented: those that are trying to maintain a global
strategy (Globetrotters); those that have ambitions in a more defined market
area (Eurovisionaries); and those that are downsizing to focus on a core
domestic market (Homebodies). One common theme across all these groupings is
that incumbents are putting fixed broadband at the heart of their domestic
strategies to bolster margins.

"Incumbents are now having to reshape their service portfolios as quickly as
possible to focus on cash generation in the short term and to build revenue
growth and market share over the longer term," explains Pert. "The challenge
is do this while taking account of the expectation of numerous stakeholders,
especially the financial markets, and management teams will need to have a
clear understanding of what investment and divestment decisions will be
acceptable in the current climate."

The report examines the ways in which incumbents are reacting to the
constraints and opportunities in today's market. It evaluates the impact of
competition, regulation and customer demand, and considers how incumbent
service portfolios are changing as a result. It uses three pre-defined
scenarios - Championship Bout, Prize Fight and Free for All (see Scenarios
for the European Telecoms Market 2002-2007: forecasts and analysis,
published by Analysys in May 2002) - to consider how incumbents can plan for
a more secure future and anticipate the effect of different environmental
factors on their chosen strategy.

Report pricing starts from EUR1105. For more information, telephone Analysys
Research on +44 (0) 1223 460600 or email .

About Analysys (

Analysys, the global adviser in telecoms, IT and new media, works at the
forefront of the communications revolution, delivering advice and insight to
established and new entrant players. From offices in Cambridge, London,
Glasgow, Madrid, Milan, Paris, San Francisco and Washington DC, Analysys
staff provide strategy and systems consultancy, information services and
start-up support to the companies that are creating the networked economy.
Analysys Research reports and database services provide authoritative
coverage of this convergent industry, based on an unrivalled ability to fuse
real-world experience, rigorous research and forward-looking analysis.

Recent reports include:

* Charging and Revenue Sharing for Mobile Content and Entertainment (June 2002)

* Enabling Prepaid Mobile Content and Data Services: strategies for
operators and vendors (June 2002)

* IP Voice Services: European corporate market forecasts 2002-2007 (May 2002)

* Scenarios for the European Telecoms Market 2002-2007: forecasts and
analysis (May 2002)

* Benchmarks and Key Performance Indicators: lessons from the European
telecoms market (April 2002)

* The Reality of GPRS in Europe: subscribers and revenue (April 2002)

* Western European Mobile Forecasts and Analysis 2002-2007 (March 2002)

* Session Initiation Protocol: SIP-related European revenue forecasts
2002-2007 (February 2002)

* Public Wireless LAN Access: US market forecasts 2002-2007 (January 2002)

* Video Streaming for Enterprises: forecast revenues for service providers
(December 2001)

* GPRS Roaming: technical options and strategic implications (December 2001)

* Storage Area Networks: new revenues for optical carriers? (November 2001)

* Public Wireless LAN Access: market forecasts (November 2001)

* Pricing GPRS Services (October 2001)

* FRIACO: how capacity-based interconnection strengthens the Internet market
(October 2001)

* Meeting the Challenges of GPRS Billing (September 2001)

* The Bandwidth Exchange: herald of a new carrier age (August 2001)

* Public Wireless LAN Access: a threat to mobile operators? (August 2001)

* Controlling the 3G Value Chain (July 2001)

* Successfully Marketing Mobile Data Services to SMEs (July 2001)

* Gigabit Ethernet: the solution to the MAN bandwidth bottleneck? (July 2001)

* Market Realities of IP-VPNs (July 2001)

Media contacts (for author photography, executive summaries and interviews)

Louise Nunn
Analysys Research
Tel: +44 (0)1223 460600

Martin Brooke
Martin Brooke Associates
Tel: +44 (0)1223 264050

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