Telefonica Sa · BME:TEF
Telefonica Sa — Telefonica S A — Third Telefónica Investor Conference 2003
47 slides from Telefonica Sa's conference presentation, Oct 14, 2003
Slide 1: Third Investor Conference
Julio Linares Executive Chairman Telefonica de Espafia, SAU THIRD INVESTOR CONFERENCE | maprip 2 O O 3 Telefonica
Slide 2: Safe harbor
Safe harbor "This presentation contains statements that constitute forward looking statements in its general meaning and within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this document and include statements regarding the int
Slide 3: Commercial innovation and efficiency for profitable growth
Commercial innovation and efficiency for profitable growth
Slide 4: Contents
Contents * We have a clear program that will keep us ahead Commercial innovation leveraging on our efficient operational model for profitable growth * We will accelerate our performance Strengthening our transformation to deliver sound results
Slide 5: We are overachieving the Free Cash Flow commitment
We are overachieving the Free Cash Flow commitment announced in Seville though we are below the growth path in Revenues and EBITDA (1) sevitie range 0105 GD exvected cAGR 01108 1to4% Operating revenue* Oto -0.5% Free Cash Flow* -2 to 0% Capex* 2to 5% 4 to 6% EBITDA‘ x i Oto-1% 10 to 12% 12 to -13% *
Slide 6: We are in the upper part of the guidance communicated for 2003
Operating revenue* EBITDA* * TdE Group Note: FCF expected: EBITDA ~ We are in the upper part of the guidance communicated for 2003 W) cuisance 0203 GR Sv ected growth 02103 Oto -3% 0.5 to — % | -1 to -4% 0 to-2% -15 to -20% -17 to -18% Capex — redundancy payments Free Cash Flow* Y)
Slide 7: These results have been achieved in a tougher environment than expected
These results have been achieved in a tougher environment than expected To date (Dec 01-Sept 03) * Tough regulation focused on incumbent market share erosion and price reduction (~7% nominal price)
Slide 8: A highly demanding regulatory environment has significantly affected our results
A highly demanding regulatory environment has significantly affected our results Average European Scenari Spanish Scenario Compensation Fund * Implemented in several * Not countries plemented Universal Service Scope * Limited obligation* * Obligation to provide most requests Price-cap structures s %
Slide 9: These results have been achieved in a tougher environment than expected
These results have been achieved in a tougher environment than expected Environment To date (Dec 01-Sept 03) * Tough regulation focused on incumbent market share erosion and price reduction (~7% nominal price) * Strong focus on Opex and Capex efficiency * Significant progress in Company Transformati
Slide 10: Environment: tougher than expected
Environment These results have been achieved in a tougher environment than expected To date (Dec 01-Sept 03) Looking forward * Tough regulation focused on * New regulatory incumbent market share erosion and environment fostering price reduction (~7% nominal price) novation and investment * Increase
Slide 11: Regulatory evolution will offer new growth opportunities
Universal Service fund Commercial flexibility Pricing liberalization process Review of interconnection conditions Regulatory evolution will offer new growth opportunities for the industry Regulatory changes * Open a possible implementation of Universal Service fund * Tacit regulatory approval of new
Slide 12: We are confident about our future
To date (Dec 01-Sept 03) * Tough regulation focused on incumbent market share erosion and price reduction (~7% nominal price) * Increase of competitors market share: — Access: 4.8pp (cable 85% of competitors share) — Traffic: 7.6pp (pre-selected customers 12%) © Lower market growth than expected: —
Slide 13: Contents
Contents ¢ We are confident about our future Strong delivery to date in a complex environment and more positive outlook * We will accelerate our performance Strengthening our transformation to deliver sound results 10
Slide 14: A clear program structured around four major priorities
We have a clear program structured around four major priorities that will keep us ahead Commercial @ Model ® Obtain maximum value from massive Broadband deployment Revitalize the wireline voice business Differentiated solutions for each customer » a oy Keep efficiency as a true Deepen our capex diff
Slide 15: Four priorities: revitalize wireline voice business
We have a clear program structured around four major priorities that will keep us ahead Commercial | Model @ Revitalize the wireline voice business Operational Model Note: Revenues not including wholesale 12
Slide 16: Shift in the market trend of access and traffic
We are observing a shift in the market trend of access and traffic Like other European incumbents TdE has suffered access and traffic erosion ... ... however we foresee a moderation in this trend Access variation Traffic variation June 03/Dec 01 1H03/1HO1 Thousand lines Million minutes * Mobile pene
Slide 17: Differentiated actions to revitalize the wireline voice business
Telefonica de Espafia In this context, we are taking differentiated actions to revitalize the wireline voice business Defend against main threats... _... and capture new opportunities... __...with actions differentiated by segment i eee deh @enhanced value offer adapted to \ i customer needs includi
Slide 18: Residential segment: upgrading our offering
@ For the Residential segment we are upgrading our offering adapted to different customer needs Broader catalogue Product example Potential Other products © Line for foreign * 2million foreign residents in * Shared line for rental houses residents (prepaid) Spain (only ~10% have fixed * Secondary li
Slide 19: SME: customized and compelling offering
Telefonica de Espafia 2 For SME, we are developing a customized and compelling offering Customized plans for the Integrated voice + data + VAS solution for a simplified specific needs of every customer and broad coverage of different needs From a fragmented ..to a complete integrated product offerin
Slide 20: Large companies: growing based on Ibercom voice solution
8 For large companies we are going to continue growing based on our Ibercom voice solution Ibercom today (Voice VPN corporate solution) lbercom future evolution Number of Ibercom lines Thousand * Move to an integrated IP based solution: —Integrated voice + data VPN —Advanced IP VAS * Customer base l
Slide 21: More client oriented company
lore client oriented company Customer focused organization ° Better tools for client management * Launch of specific commercial actions for different segments: Customer value Churn risk ° Stronger commercial capabilities * Incorporate 25% new commercial employees in 4 years * Tailored training progr
Slide 22: Actions will mitigate revenue erosion in wireline voice
Currently These actions will mitigate revenue erosion in wireline voice business Going forward Access lines 2002-03E net loss per year Thousand =: 486 Traffic loss 2002-03E per year Percentage ~T% Nominal traffic 2002-03E price reduction per year Percentage 19 * Contain access lines decrease by 50%
Slide 23: Four priorities: broadband deployment
We have a clear program structured around four major priorities that will keep us ahead Commercial @ Model @ Obtain maximum value from massive Broadband deployment Operational Model 20
Slide 24: Ambitious goals in Broadband
We have set ambitious goals in Broadband, reinforcing its role as key engine of profitable growth ... planning to continue Strong and profitable growth achieved... _ this trend in the future S006 000 * Massive ADSL deployment | ~1,600 plan: 3.5-4 million customers ADSL lines in 2006 Total market. Th
Slide 25: Different starting point in each segment
Telefonica de Espafia To achieve our ambitious goals we face a different starting point in each segment a ADSL a Sept 2002 Sept 2003 35% > FA 404%) 1057 ay 517 Sept 2002 Sept 2003 ADSL penetration* sh > 8% ADSL penetration* * Over business sites for Business segment. Over households (including SoHo)
Slide 26: Differentiated strategy per segment
Telefonica de Espafia Therefore, we plan to implement a differentiated strategy per segment Enhanced value proposition Maintain * VAS to maximize es Evolve our competitive pricing VAS offering value per schemes customer \ * Pricing schemes Develop a | and VAS to: Peete distinctive VAS | — Achieve Re
Slide 27: Business segment: maximize value per customer through VAS
lumber of VAS Thousand 500/635 148 al Sept 03 Dec 06 Total ARPU Eur/Month 90/100 74 VAS Connectivity Sept 03 Dec 06 * Intranet, web e-commerce, CRM For the Business segment, we will maximize value per customer through a compelling VAS offering Strong results from our current VAS offer Soluciones ADS
Slide 28: Residential segment: massive deployment through new pricing and VAS
‘etail ADSL Thousand ; 2,000-2. 674 Dec 06 200 ‘Sept 03 Number of VAS Thousand 96 1,500/1,700 mA Sept 03 Dec 06 Total ARPU Eur/Month 40 40/45 VAS Connectivity Sept 03 Dec 06 For the Residential segment, we will achieve massive deployment through new pricing schemes and a compelling VAS offering Alte
Slide 29: ADSL and VAS will be the source of growth
Telefonica de Espafia ADSL and VAS will be the source of growth of the wireline business Massive ADSL deployment 3.5/4 Million ADSL ° Increasing ARPU through VAS Eur 52-54 month ——— ADSL profitable growth offsets wireline voice erosion
Slide 30: Four priorities: efficiency and capex
We have a clear program structured around four major Priorities that will keep us ahead Commercial Model @ Keep effi cy as a true Deepen ot e differentiating factor imizat ffor Operational Model 27
Slide 31: Personnel reduction efforts are key to efficiency
Our personnel reduction efforts are key to becoming a more efficient and flexible company Key lever to improve efficiency TdE cost structure* icult to reduce antly without affe ues: Limited oxerall] 2002. Percentage impact 31 26 Z ca 55 Total Variable Fixed Commercial Personnel cost costs costs ando
Slide 32: Integrated efficiency program with significant results
Telefonica de Espafia We have been working on an integrated efficiency &® *sr002 employees Program with significant results in place 03.05 Transform ways of operating © Technical area program (Optima) Lean and 6-c Faults repaired per FTE (+30 to +40%) Lead time per failure (-20%) © Support activitie
Slide 33: Ready to become a more efficient and flexible company
Telefonica de Espafia . So we are now ready to become a more efficient and flexible company Workforce reduction (employees) 1 ion of Opex savings will be * Launch of a plan for captured by the end of net reduction of 1 2007 14,700 employees in E80 i the next five years 40, 7o0: 2, al e seta a “s wit
Slide 34: Four priorities: capex optimization
We have a clear program structured around four major Priorities that will keep us ahead Commercial @ Model t our capex rentiat t optimization efforts Operational Model 31
Slide 35: Advanced infrastructure ready for the future
Telefonica de Espafia We have in place a very advanced infrastructure that is ready for the future c.0 (2,400) Voice and ADSL Narrowband Internet (TDM) memeucle IT Systems pisnabera — is Commercial area coverage at I He ne \ UP 90% oflines _ntemet (IP) Ze =<) aa F aN e-company| (Broadban E Technical
Slide 36: Continue reducing Capex in a sustainable way
Going forward, we plan to continue reducing Capex in a sustainable way SD over Parent Company ~~ Btoa CAGR Clear initiatives looking forward Internet and 03-06 Broadband revenue generation ® Optimization of * 1M additional ADSL (+50%) aah incremental investment by 2006 would increase for massive Bro
Slide 37: Contents
Contents ¢ We are confident about our future Strong delivery to date in a complex environment and more positive outlook * We have a clear program that will keep us ahead Commercial innovation leveraging on our efficient operational model for profitable growth
Slide 38: Transforming our company: basic services today
Clients SME Large companies transforming our company Access Voice _ bs Copper pair Modem PABX Data we * Basic access to provide service Transport Transport Network Circuit switched Packet switched * Different network for each type of information 35 Through this four-priority program we are significa
Slide 39: Transforming our company: services and contents
Through this four-priority program we are significantly transforming our company Services and Contents Services and Applications SONY —_—e PHILI eee Contents * Delivering all kind of services and contents (1.2 VASIADSL) Note: Figures refer to 2006 i 35
Slide 40: Transforming our company: transport
Note: Figures refer to 2006 Transport Through this four-priority program we are significantly transforming our company Services and Contents IP Ready for content delivery (k Network Services and Applications Contents * Transporting all kind—— ° Delivering all kind of of information (87% IP) 35 servi
Slide 41: Transforming our company: access
Through this four-priority program we are significantly transforming our company Access Transport Services and Contents | Services and Applications SONY IP Voie 256 Kbps oo. 50 Mbps Network Multiservice Ready for access points ad content - eee | delivery Contents Voice 100 Mbps— FUER Data ” 10 Gbps
Slide 42: Transforming our company: customers
Through this four-priority program we are significantly transforming our company Access Transport Services and Contents Wei Services and my ] Copper Applications SONY pair ‘Sty. Voic 256 Kbps IP | a Penis. | 50 Mbps Multiservice | i Network i pic eady for aecessipoinis. Fre content - deiner Contents
Slide 43: Transforming our company: efficient and flexible
Through this four-priority program we are significantly transforming our company Access Transport Services and Contents i Services and ee | Copper Applications SONY Data ‘ pair ls. we 256 KOR ip acca 50 Mbps Multiservice me Network access points eee Ready, ioe .. dative Contents vee] 700 Mbps— y ey.
Slide 44: Transformation makes our company more commercial and leaner
Telefonica de Espafia : . - This transformation makes our company more commercial and leaner SD ver Reinforce our commercial focus Extract more value from customers Commercial employees Total ARPU. Euro/month md 41% ~~ 65-68 Stronger 27% +7 ST es commercial go focus 2002 2007E 2002 2006E Fixed 5 rev
Slide 45: Solid base will allow us to accelerate our performance
This solid base will allow us to accelerate our performance TdE Parent Company Operating revenue EBITDA EBIT* 8% oe 21% Internet and Broadband Voice&LL 2002 2006E margin Free Cash Flow** a CAPEX 2002 2006E CAPEX over revenues * EBIT= EBITDA — depreciation and amortization + FCF= EBITDA — Capex — red
Slide 46: In summary, setting the basis to deliver sound results
Telefonica de Espafia In summary, we are setting the basis to deliver sound results Ambitious targets... Contain wireline voice revenue erosion under 3% per year Profitable deployment of 3.5- 4 million ADSL by 2006 1 billion of Opex savings by the end of 2007 Maintain Capex over revenues between 11-
Slide 47: Signatures
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Telefónica, S.A. Date: October 13 th , 2003 By: /s/ Antonio Alonso Ureba Name: Antonio Alonso Ureba Tit
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