2013 - 2017 Business Plan

Foundations for continued value creation

Madrid, March 14, 2013

1

Disclaimer
Certain statements in this document are forward-looking and are subject to material risks
and uncertainties. These statements include, without limitation, those concerning: current
and future years outlook; the impact of regulation and regulatory decisions; network
deployment plans; competitive developments; risks associated with the Company's
growth; the development of the Company's markets; future financial projections and other
risks which are presented in the Company's filings with regulatory authorities .
Although JAZZTEL believes that the expectations reflected in these forward-looking
statements are reasonable, it can give no assurance that these expectations will prove to
be correct. Because these statements involve risks and uncertainties, future results may
differ materially from those expressed or implied by these forward-looking statements.

The information and opinions contained in this presentation are provided as at the date of
this presentation and are subject to change without notice. This presentation does not
constitute or form part of and should not be construed as, an offer to sell or issue or the
solicitation of an offer to buy or acquire securities of the Company or any of its subsidiaries
in any jurisdiction or an inducement to enter into investment activity in any jurisdiction.
Neither this presentation nor any part thereof, nor the fact of its distribution, shall form
the basis of, or be relied on in connection with, any contract or commitment or investment
decision whatsoever.
2

Agenda

SOLID TRACK RECORD AND BP STRATEGY

KEY BUSINESS DRIVERS

FINANCIAL PROJECTIONS

JAZZTEL has out-performed its 2010 2012

Business Plan
2009

2012

Initial 2012
guidance

Broadband subscribers
(000s)

582

x2

1,318

1,200 1,250

Market share
%

6%

x2

11.4%

11%

Revenues
m

454

x2

909

850 - 890

EBITDA
m

41

x4

173

145 - 165

Net profit
m

-24

62

50 - 65

0.27x

n.a.

Net debt / EBITDA

ratio

1.48x

-81%

Achieved
guidance

JAZZTEL has achieved Business Plan guidance in five consecutive years

4

Top-rated ADSL operator thanks to a high-quality

network and a superior customer service
Leader in customer
satisfaction

Best-in-class
customer
service

Operator with lowest incidence faults

2010

Highest first call resolution >80%

In-house and fully owned call-centres

2011

2012

Largest ULL
network
operator

Fastest VDSL offer with 30 Mb/s download

and 3 Mb/s upload

2013

Over 1,000 ULL local exchanges

75% fixed line coverage
5,423km of local access fiber

Average satisfaction level

(from 0 to 10): 7.68
Source: Brain Trust

JAZZTEL provides best-in-class customer care and best value-for-money:

I changed over to JAZZTEL for the savings and I am staying because of the service
5

In 2012, JAZZTEL became a fully integrated

service provider
Customer
base

Y-o-Y growth

Broadband
k, EoP 2012

1,318 k

Mobile
K, EoP 2012

343 k

+141%

Convergent offers*
K, EoP 2012

276 k

114%

+20%

Fastest-growing broadband services

provider in Spain
Fibre roll-out agreement signed with
Telefnica to pass 3m homes
Secured bank finance facility for the
FTTH deployment

One of the fastest growing MVNOs

First player to offer a fully convergent

service in Spain

*Broadband connections with mobile

convergent offer, excluding second lines

After a successful 2012, JAZZTEL is laying the foundations for profitable future growth,
leveraging its core assets
6

JAZZTEL was the first operator to successfully

launch a truly convergent offer
The first fully convergent offer in Spain

achieving rapid customer growth

x4

Mobile net
adds - k

26

Q4 2011

Q4 2012

+141%

Mobile subscriber
base - k

107

343

142

Q4 2011

Q4 2012

JAZZTEL was the first operator to launch a fully convergent offer in the Spanish market and
has added over 200k mobile subscribers in the last 12 months
7

JAZZTELs FTTH rollout is the foundation for

continued profitable growth
Telefnica - JAZZTEL vertical FTTH agreement and FTTH
deployment project

Fully - owned network

Scope of Telefnica JAZZTEL agreement

3m households in strategic areas

passed during 2013 and 2014

1.5M homes passed by

JAZZTEL

Vertical

1.5M homes passed by

Telefnica

Key advantages for JAZZTEL

Rapid and efficient roll-out

FTTH deployment already started

Backbone Horizontal

Reduced CAPEX
JAZZTELs
infrastructure
Telefnicas
infrastructure

Telefnica

JAZZTEL

Faster and more efficient fibre rollout by leveraging Telefnicas

expertise
First-mover advantage
FTTH deployment fully financed with
a facility of up to 450m

Thanks to the co-investment agreement, JAZZTEL will gain rapid and efficient access to 3m
households with a fully-owned end-to-end fibre network
8

JAZZTEL is well prepared for future profitable

growth
Recent milestones

Profitable growth in the ADSL business

Succesful MVNO operations

First convergent offer

FTTH rollout already under way

Achievement

Solid track record

JAZZTEL has laid the

foundations for the
future

JAZZTEL has laid the foundations to drive further value creation in the new convergent and
ultra-fast broadband market
9

JAZZTEL aims for 2m broadband and 2.5m

mobile customers by 2017
2012
actual

2017e
guidance

1,318

1,950 - 2,000

+8%

343

2,300 2,500

+48%

BB market share - %

11.4

15 - 16

+4 p.p.

Revenues - m

909

1,500 1,600

+11%

EBITDA - m

173

380 - 420

+18%

Net profit- m

62

180 - 220

+26%

Broadband
k

CAGR
12 17

Subs
Mobile
k

10

Agenda

SOLID TRACK RECORD AND BP STRATEGY

KEY BUSINESS DRIVERS

FINANCIAL PROJECTIONS

11

The Spanish market will be driven by

convergence and very-high speed Internet
Main drivers

Market projections
Spain

Strong market momentum due to

marketing push especially from the
incumbent
Convergence

Major price reductions compared to

stand-alone products

Convergent
BB lines

All operators have started to offer

convergent products
Internet traffic increase driven by new
services (cloud, streaming) in higher
quality (Full HD)
High speed
Internet

Strong growth of connected devices

Tablets
Smartphones
Smart TVs

2015

2013
25%

40%
60%

75%
Convergent

Non-convergent

2016

2011
Internet
traffic per
user per
month

15.7GB

x3

55GB

Networked
devices per
capita

2.8

+82%

5.1
Sources: BBVA, Cisco

Fixed-mobile convergence, user demand for ultra-high speed Internet and the growth of
data volumes are driving the Spanish telecommunications market
12

The Spanish market will be driven by

convergence and very-high speed Internet
Main drivers

Market projections
Spain

Strong market momentum due to

marketing push especially from the
incumbent
Convergence

Major price reductions compared to

stand-alone products

Convergent
BB lines

All operators have started to offer

convergent products
Internet traffic increase driven by new
services (cloud, streaming) in higher
quality (Full HD)
High speed
Internet

Strong growth of connected devices

Tablets
Smartphones
Smart TVs

2015

2013
25%

40%
60%

75%
Convergent

Non-convergent

2016

2011
Internet
traffic per
user per
month

15.7GB

x3

55GB

Networked
devices per
capita

2.8

+82%

5.1
Sources: BBVA, Cisco

Fixed-mobile convergence, user demand for ultra-high speed Internet and the growth of
data volumes are driving the Spanish telecommunications market
13

Following JAZZTELs lead, all operators have

launched convergent offers
2011

ADSL & Fixed

Only fixed & ADSL bundles
Market driven by promotions
Isolated convergent offers
without significant price
advantage
Mobile
Handset subsidy as key driver
in mobile

Promotions driven

2012

2013
Pack ahorro total

27%

Fusin

27%

Todo en uno

In only
five
months

Convergent
customer base
(% of BB lines)

Todo en Ono
Combina
y ahorra

Convergence driven
Source: JAZZTEL, Telefnica, Arthur D. Little analysis

Over the last 6 months, operators have launched convergent offers, completely changing the
dynamics of the Spanish telecoms market
14

As the market moves towards convergence,

churn will decrease
Convergence market dynamics
2011

Today

Future
Illustrative

Mobile

BB

Mobile

Mobile

BB

BB

BB = Broadband
C = Convergence

Market without convergence

Transition phase

Convergent market

Broadband and mobile market

mostly separated
Mobile and fixed customers signon/sign-off decisions separate and
more frequent
Average churn rates

Convergence arises
Customers move both of their
services to the same operator
Increased churn rate during transition
phase as the market readjusts
Market dynamics create
opportunities

60% of broadband market

convergent
Customers commit to contract
periods; 1 or more mobile users per
contract
Lower churn rate after the market
stabilizes
Source: CMT, BBVA, Arthur D. Little analysis
15

In a convergent market, JAZZTEL leverages its

proven value-for-money strategy
Benchmark of convergent offers ARPU ( per month)
(line and VAT included, Feb 2013)
Value for money
Highest speeds
More mobile min.
No commitment

Light user
< 200 mobile min

Medium user
> 200 < 500 mobile
min
Heavy user
500 or more
mobile min
ADSL speed
Mbit/s
Engagement
months

JAZZTEL Movistar

Ono

Orange Vodafone

JAZZTELs key strengths

Segmentation

42

54

60

53

52

42

JAZZTEL offers 3 convergent

products, adapted to different
usage profiles

Fixed

60

59

54
67

30

10

12

20

20

No

12

12

12

24

Largest ULL footprint of any

alternative DSL provider (95% of
customer base)

Mobile

Fully-owned provisioning
platform to deliver consistently
high customer experience

MVNO agreement in place

Source: Operators websites

JAZZTELs convergent offer builds on its value-for-money proposition, addressing all

customer segments with a wide product range
16

JAZZTEL is in a unique position to benefit from

convergence
ADSL only vs. Convergent EBITDA - 2012
Per customer

Key drivers

Illustrative

Indexed

x2
60
100

76

16

100

ADSL only
EBITDA

Mobile
margin

Churn
reduction

Convergent
EBITDA

Value creation: mobile customers

provide positive margin
contribution, creating value for
JAZZTEL
Churn reduction: convergent
customers show lower-than average
churn rates
Additional gross adds: success of
JAZZTELs convergent offer shows
customer acquisition potential
No cannibalization: JAZZTEL does
not cannibalize its own customer
base as it does not have a mobileonly business
Source: JAZZTEL

JAZZTEL will fully benefit from the advantages of convergent offers and is not exposed to
cannibalization
17

Fixed market business models are better suited

to convergence
JAZZTEL going
convergent
Starting
point

Regulation

Investment
required

Margin

Mobile operator going

convergent

Fully operational mobile activities

via MVNO agreement and in-house
provisioning platform (HLR)

Pure MNO only with ADSL, limited

ULL footprint and no FTTH network

Favourable regulatory environment

to roll-out FTTH

Unfavorable conditions: 30 Mbit/s

speed cap as FTTx reseller

Scalable business platform with

low CAPEX requirements, rapid
roll-out and first-mover advantage

Convergent
Operator

Investment in fibre network capital

intensive and sub-scale

Positive margin contribution from

mobile

Low margins from regulated fixed

BB resale

Faster and easier

Slower and more

complicated

Source: Arthur D. Little analysis

Access to fixed-line networks is crucial, given a future strategy around bundling mobile, TV
and broadband services as a single package for customers
Source: CEO Vodafone group
18

The Spanish market will be driven by

convergence and very-high speed Internet
Main drivers

Convergence

Strong market momentum due to

marketing push especially from the
incumbent
Major price reductions compared to
stand-alone products
All operators have started to offer
convergent products
Internet traffic increase driven by new
services (cloud, streaming) in higher
quality (Full HD)

High speed
Internet

Strong growth of connected devices

Tablets
Smartphones
Smart TVs

Market projections
Spain

2015

2013
Convergent
BB lines

25%

40%
60%

75%
Convergent

Non-convergent

2016

2011
Internet
traffic per
user per
month

15.7GB

x3

55GB

Networked
devices per
capita

2.8

+82%

5.1
Source: BBVA, Cisco

Fixed-mobile convergence, user demand for ultra-high speed Internet and the growth of
data volumes are driving the Spanish telecommunications market
19

More connected devices and data-rich services

are driving the demand for higher bandwidths
Internet traffic in Spain
GB per user per month

More
convergent
devices

Fixed

+263%

Mobile

58.2
3.2
HD video calls

Upload

Cloud services

55.0

16.0
0.3

New
services

Download

Streaming

Higher quality

15.7

2011

2016e

Source: Cisco

The fast adoption of smartphones, tablets and smart TVs is increasing the number of
connected devices, while new data-hungry services such as HD streaming and cloud services
are driving up-load and down-load data volumes
20

FTTH is the best choice for new network deployments to

accommodate the expected data traffic growth

Down-/up-load speeds by type of technology (Mb/s)

Technology Features

FTTH

FTTH

DOCSIS 3.0

Symmetrical
speeds

Yes

Architecture

Dedicated

Loop length

Up to 10 km

Current
VDSL/2

DOCSIS 3.0

No

Shared

Potential

LTE

1,000

500

Upload

500

Download

1,000

100m without
amplifier

Source: 3GPP, ITU-T, Arthur D. Little analysis

Fibre offers higher bandwidth, symmetrical speeds and much more headroom for future
bandwidth enhancements
DOCSIS 3.0 upload speeds are limited to a theoretical maximum of 108 Mb/s
21

The Spanish market offers a favourable

environment for fibre investment and deployment
Favourable factors for fibre deployment in Spain

Availability
of ducts

Vertical
housing

Low VDSL
potential

FTTH - Cost per home passed

, urban areas

Ducts already in place: laying ducts and the related

civil works normally account for up to 80% of the
roll-out costs
Favourable access conditions to ducts (MARCo
regulation)
Vertical deployment following copper installations

1,500

1,000

High-rise apartment stock

High-rise
apartments
Urban population
concentration

30%
16%
6%
Spain

France

Germany

Limited number of street cabinets makes VDSL

technology an option only in very few areas

200

220

Portugal

Spain

Germany

UK

Incumbents decision against VDSL

Limited market penetration

Ducts available

No ducts available

Source: Eurostat, WIK, CMT, Arthur D. Little analysis

The pre-installed and regulated ducts, a highly concentrated population and VDSLs lower
potential favours the roll-out of fibre in Spain, resulting in lower deployment cost
22

FTTH provides JAZZTELs EBITDA improvement

opportunities
ADSL vs. FTTH EBITDA
Per customer, 2017

Key drivers

Illustrative

Indexed

x2
80
8

151

38

100

100

Extra
Fibre
ARPU

ULL rental savings: eliminate ULL

rental and other associated fees
Network savings: FTTH provides
more efficient and reliable network
operations

25

EBITDA
ADSL

ARPU increase: fibre service

characteristics and less competitive
environment allows for ARPU
increases

ULL savings Network

savings

Churn
reduction

EBITDA
FTTH

Lower churn: lower churn rate and

consequent reduced SAC increases
customer lifetime value

Source: JAZZTEL

The switch from copper to fibre will lead to margin improvement, thanks to an increased
ARPU, ULL rental savings, network savings and a lower churn
23

Benchmarks show ARPU up-side potential

from FTTH thanks to a fibre premium
Fibre premium vs. xDSL offers in selected countries
per month, FTTH speed = 100 Mbits/s, VAT excluded

ARPU
increase
opportunity

10.00
8.40

8.13
5.00

Movistar

KPN

PT

BT

4.18

Orange

Upside potential

Most players in other European

markets charge a fibre premium
of 5 to 10 per month over
comparable ADSL offers

The incumbent in Spain has

established a FTTH premium at
10.0 per month

JAZZTEL has headroom to charge

a fibre premium, offering a
revenue upside opportunity

JAZZTEL

Source: Operators' websites

Most national and international peers charge a fibre premium of between 5 and 10 per
month, thus JAZZTEL has an opportunity to increase ARPU in FTTH services
24

FTTH networks have lower operating costs than

their copper equivalent
JAZZTEL

ULL rental
savings

Lower
operating
costs

No need to rent a ULL copper line

No ULL set-up and cancellation fees

Lower maintenance requirements due to

network architecture
Lower energy consumption
Fewer connections/disconnections due to lower
churn
Fewer faults

Lower
customer
service costs

Line rental savings

per line per month

8.32

Benchmark Portugal Telecom

Network cost
per Bit

Network
electricity cost /
customer

8.7 times
cheaper

-81%

Benchmark Portugal Telecom

Fewer customer complaints and in-bound

customer care calls

Faults & visits

Customer care
calls

Higher First Call Resolution (FCR) as many

problems can be solved remotely

-40%

-20%

Source: Portugal Telecom, Arthur D. Little analysis

Reduced network and customer care costs further improve the FTTH case
25

The improved customer experience should lead to

reduced churn compared to xDSL
Improved reliability of the Internet
connection
Better
customer
experience

Higher and more stable speeds

Overall very satisfied

FTTH

74%

Symmetrical up-load / down-load

Enables new services (e.g. HD
streaming)

Cable

54%

ADSL

Fibre-specific customer premise

installation and equipment (similar to
cable)
Higher
barriers to
churn

Value-added services available only

with very high bandwith > 100 Mb/s
Few very high bandwith alternatives

51%

JAZZTEL FTTH business case

assumption: Churn rate

PT: Churn
down by
25% with
FTTH

15%

PT

18%
12%
Reggefiber

JAZZTELs
assumption

Source: Operators financial reports, FTTH Council, Arthur D. Little analysis

JAZZTEL assumes a churn rate of 18% per annum, above the level experienced by cable and
other FTTH operators
26

JAZZTEL is aiming for a 25% market share in its FTTH

areas, bringing the total BB share to more than 15%

Broadband share
2012 %, by area

15.0 %
3 million
homes
FTTH
footprint

Broadband share
2017 %, by area

25.0 %

Broadband
Market share 2017
%, total market

+10.0 p.p..

15-16 %

11.4 %

13 %

+3.5 - +4.5 p.p..

ADSL (ULL)
areas
+1.5 p.p..

JAZZTEL has an excellent first-mover advantage opportunity to increase market

share in FTTH areas and projects an increase in its broadband market share to 15%
by 2017
27

FTTH represents an upside potential for OTT

and content agreement partners

The OTT strategy will be reinforced by the FTTH deployment

JAZZBOX

JAZZTELs customers are able to access premium

content thanks to the Canal+ agreement

FTTH very high bandwidth and

quality of service makes it an
ideal channel for OTT content

An open OTT strategy will

enable JAZZTEL to offer content
from different providers

This strategy will further

enhance the attractiveness of
JAZZTELs FTTH offer and opens
new revenue opportunities

28

Other services: business and wholesale

Wholesale

Current position

Execution strategy

Focus on profitability

Exploit spare capacity of the

network
Take advantage of new FTTH
network opportunities

Leverage residential
broadband know-how
Corporate
and SME

Leverage current state-ofthe-art network and

technology

Establish JAZZTEL as a
reference player in the SME
segment
Take advantage of the mobile
and FTTH opportunities
Consolidate growth trends in
the corporate mid-market

Other business areas will take advantage of the new mobile and FTTH opportunities
to further contribute to JAZZTELs results
29

JAZZTEL is moving towards a margin-focused

business model
JAZZTEL today

JAZZTEL 2017

Focus on growth

Focus on growth and margin development

Focus on customer acquisition

Focus on customer acquisition and customer

base management

ULL-based xDSL network

ULL xDSL and fully owned FTTH network

Internet access provider

Convergent telecommunications provider

JAZZTEL is laying the foundations to become a fully-convergent telecommunications provider

with a 100% owned end-to-end fibre infrastructure
30

Agenda

SOLID TRACK RECORD AND BP STRATEGY

KEY BUSINESS DRIVERS

FINANCIAL PROJECTIONS

31

The business plan foresees revenues in the

range of 1.5bn to 1.6bn by 2017
2012
actual

2017e
guidance

CAGR
12 - 17

1,318

1,950 2,000

+8%

343

2,300 2,500

+48%

11.4 %

15 16 %

+4 p.p.

Revenues
m

909

1,500 1,600

+11%

EBITDA
m

173

380 - 420

+18%

Net profit
m

62

180 - 220

+26%

Capex
m

109

125 - 150

Broadband
k
Subs
Mobile
k
Market share
%

32

FTTH subscribers are forecast to reach 600k by

2017, partially driven by migrations
Broadband subs
EoP in k

Mobile subs
EoP in k

FTTH
xDSL
2,300-2,500

CAGR +8%

CAGR +48%

1,9502,000
1,8251,875

1,700-1,750
1,5751,600
1,4251,450
1,318

1%

15%

99%

85%

27%

28%

2,000-2,100

1,650-1,750

30%
1,200-1,300

1,103
750-850

73%

72%

70%
343
142

2011

2012

2013e

2014e

2015e

2016e

2017e

2011

2012

2013e

2014e

2015e

2016e

2017e

FTTH subscribers estimated to reach 600k by 2017, while the xDSL customer base
remains flat
Mobile subscribers should reach almost 2.5m by 2017, after having more than doubled
in the last year

33

Broadband ARPUs should only decrease slightly, as

FTTH mostly offsets ARPU reductions in ADSL
Broadband ARPU
, blended xDSL and FTTH

Mobile ARPU (excluding handset revenues)

FTTH extra ARPU

xDSL ARPU
CAGR -2%
39.5

37

CAGR -7%
13.0
9.2

2012

2017e

2012

2017e

The blended broadband ARPU should decrease only slightly , as FTTH helps to offset the
reduction in xDSL ARPU
Pressure on mobile ARPUs is expected to continue
34

JAZZTELs overall revenues forecast to top 1.5bn

by 2017, driven by the core residential business
Revenues per business unit
m
CAGR
2012 2017

Residential
Wholesale
CAGR +11%

Business

754
6%
21%

73%

2011

909
5%
20%

75%

2012

1,000-1,025
5%
19%

76%

2013e

1,100-1,150
5%
17%

78%

2014e

1,200-1,300
4%
16%

80%

2015e

1,350-1,450
4%

1,500-1,600
4%

+5%

14%

+4%

82%

+13%

15%

81%

2016e

2017e

Overall revenues estimated to reach more than 1.5bn by 2017, thanks to the performance
in the residential area
35

Residential revenues are projected to double

to 1.3bn by 2017
Residential revenues
m
CAGR
2012 2017

Broadband
Mobile

1,230-1,310
CAGR +13%

1,095-1,175

960-1,040
860-900
760-780
547
18

529

2011

679
46

27%

+50%

25%

22%

19%

14%

+8%
633

86%

81%

78%

75%

73%

2012

2013e

2014e

2015e

2016e

2017e

Residential revenues estimated to grow twofold to 1.3bn by 2017, driven by the mobile
and FTTH businesses
1) CAGR 2013 - 2017

36

The gross margin should continue to improve,

both in relative and absolute terms
Gross margin
m

875-925

CAGR +13%

775-825

675-725
600-625
494

530-550

418

Gross
margin

2011

2012

2013e

2014e

2015e

2016e

2017e

55%

54%

53%

54%

56%

57%

58%

In absolute terms, the gross margin is estimated to grow by an annual 13% to reach
900m by 2017
The gross margin should be above 55% from 2015 on, thanks to the contribution of the
FTTH business, which enjoys gross margins in excess of 90%

37

JAZZTEL will continue to leverage its efficient SG&A

cost structure to generate incremental profit
SG&A
m
CAGR
2012 2017

Operational opex
Mobile SAC & opex

CAGR +9%

BB marketing & SAC

~ 425

~ 450

~ 500

~ 400
322

~350
50%

279
50%

%
revenues

50%

49%

+8%

51%
50%

50%
14%

19%

21%

+58%

37%

36%

31%

30%

+0%

2013e

2014e

2015e

2016e

2017e

35%

35%

34%

32%

32%

1%

3%

6%

12%

49%

47%

44%

2011

2012

37%

35%

SG&A as share of overall revenues should decrease, despite the growth of mobile-related
costs (mainly devices & customer service)
38

EBITDA margin is projected to increase to 26%

by 2017
EBITDA
m
EBITDA margin 2012
380-420

CAGR +18%

325-375

250-275
200-225
173

175-195

140

ULL network operators

Iliad

29%

Tiscali

22%

TalkTalk

19%

Peer average

23%

Cable network operators

Margin

Kabel
Deutschland

47%

2011

2012

2013e

2014e

2015e

2016e

2017e

Ono

50%

19%

19%

18%

19%

21%

25%

26%

Virgin Media

40%

Peer average

46%

Source: Standard & Poors, Operators websites

The EBITDA margin is expected to improve after the fibre roll-out and to reach 26% by 2017
39

Net profit forecast to reach 200m by 2017, up

from 62m today
Net profit
m

180-220
150-175

CAGR +26%

90-110

51

Net
profit margin

62

65-75

75-90

2011

2012

2013e

2014e

2015e

2016e

2017e

7%

7%

7%

7%

8%

12%

13%

The net profit margin is expected to increase at a CAGR of 26%, to exceed 13% of revenues
by 2017
40

Capital expenditure will peak in 2013 and 2014

due to the fibre roll-out
Capex
m
FTTH Coverage
FTTH customer growth
ULL Capex

350-375

350-375

63%
71%
150-175
91

Capex /
revenues %

109

125-150

125-150

36%

42%

1%

17%

52%

28%

20%

48%

64%

58%

2011

2012

2013e

2014e

2015e

2016e

2017e

12%

12%

36%

32%

13%

10%

9%

Capital expenditure for ULL forecast to remain stable, while fibre investments are
concentrated in 2013 and 2014
41

JAZZTEL will yield positive cash returns by 2017

EBITDA - Capex
m

+310m

- 330m

230-295

175-250

75-125
48

64

(125)-(175)
(155)-(200)
2011

2012

2013e

2014e

2015e

2016e

2017e

Cash consumption in 2013 and 2014 will be fully-financed with the already signed bank
financing lines
42

JAZZTELs investment in fibre should not

compromise its stable financial position
Net debt *
m

<425
<350

<200
<175
78

48

<(75)

Net Debt/
EBITDA

2011

2012

2013e

2014e

2015e

2016e

2017e

<0.6

<0.3

<1.1

<2.0

<1.3

<0.5

<-0.2

JAZZTEL can pursue the fibre project while maintaining its strong financial position with a
net debt/EBITDA ratio below 2x
(*): excluding IRUs

43

Conclusions

JAZZTEL is building solid foundations

5-year proven operational and financial track

record

Fast-track fixed-mobile strategy to consolidate as a

leading convergent service provider

3 million households rapid roll-out FTTH strategy

for continued profitable growth and shareholder value

creation
44

Backup

45

Benchmark of convergent offers as at February

2013
Low-user plan
< 200 min mobile

ADSL

Medium-user plan
> 200 < 500 min mobile

Mobile

Price

ADSL

Mobile

Mbit/s

Min

High-user plan
> 500 min mobile

Price

ADSL

Mobile

Price

MB

Mbit/s

Min

MB

Mbit/s

Min

MB

JAZZTEL

30

100

100

42,2

JAZZTEL

30

300

500

54,3

JAZZTEL

30

600

1000

60,4

Movistar

Movistar

Movistar

10

500

1000

60,4

Ono

12

100

100

53,1

Ono

Ono

12

500

500

59,2

Orange

20

200

500

52,0

Orange

Orange

Vodafone 20

100

750

42,4

Vodafone 20

250

1000

54,5

Unltd

1500

66,6

Vodafone 20

Source: Operators' websites

Line rental and VAT included

Customer contract
months

JAZZTEL

Movistar

Ono

Orange

Vodafone

12

12

12

24
46

JAZZTEL is in a unique position to benefit from

convergence
Benefits & risks of convergent offers

Churn reduction

Impact JAZZTEL

JAZZTEL is seeing reduced churn rates among its convergent

customers

The success of JAZZTELs convergent offer shows the customer

acquisition potential

Benefits
Additional gross adds

Value destruction

No

From selling ADSL only to selling ADSL + mobile products,

convergence is a source of value creation for JAZZTEL

No

Due to JAZZTELs current relatively small mobile customer base,

JAZZTEL is not cannibalizing its existing mobile customer base

Risks
Cannibalization of customer
base

JAZZTEL fully benefits from the advantages of convergent offers, while not being exposed to
their risks
47

In more advanced markets, FTTH has been driven by

the growth of broadband, while cable has stagnated
Japan: Fixed broadband by technology
#m
32.0
FTTH

Cable

26.0
22.0
19.0

10.6

2.8

13.3

3.1

14.4

3.5

14.5

13.8

14.5

15.0

xDSL
11.0

13.0

16.0

17.5

+56%

11.2
10.4 0.9
1.1

4.5

3.0
14.0
1.0
2.4

8.0

15.9

FTTH

28.0

xDSL

2.0

16.7 CAGR

CAGR

30.0

Cable

8.0
0.5

33.0

South Korea: Fixed broadband by technology

#k

3.9

13.1

4.3

12.8

4.6

11.4

7.9
0.6
5.0

10.5

5.5

2001 2002 2003 2004 2005 2006 2007 2008 2009

+12%

+8%

3.8

11.9 12.2
1.5
1.1

4.0

4.1

3.5

3.4

5.0

4.8

4.6

6.5

6.8

6.5

5.4

7.5

8.7

+34%

5.1

+7%

2.9

-5%

5.0

2.7

5.8

6.5

4.7

4.9

5.0

3.6

3.4

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Exane BNP Paribas, Arthur D. Little analysis

The experience in Japan and South Korea shows that very-high speed Internet is mainly
driven by FTTH
Cable has been stagnating, as operators have held-back from increasing their coverage
48

A similar trend can be observed in Spain, where

FTTH is growing strongly while cable stagnates
Net adds by technology
#k

Customer base by technology

#k

Cable

61

FTTH

Cable
FTTH
2,049

37

2,045

2,037

2,048

2,035

37
33

30
332

16

241

13

271

208
171

-2

-4
-8

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Q4 2011

Q1 2012

Q2 2012

Q3 2012

Q4 2012

Source: CMT, Arthur D. Little analysis

FTTH is seeing strong net adds, while cable net adds were negative for most months in
2012
The cable customer base has remained virtually flat, whereas FTTH has almost doubled
its customer base over the last year

49

The agreement with Telefnica gives JAZZTEL

fast and cost-efficient access to 3M households
Overview

JAZZTEL is building vertical

networks for Jazztel and
Telefnica (1.5m
households) in areas not
covered yet by fibre

Telefnica is building
vertical network for Jazztel
(1.5m households) in areas
already covered with fibre

Fully Jazztel-owned endto-end FTTH network

passing 3m households

Vertical co-investment agreement

Combined 3 million households
passed
Rapid roll-out
Reduced capital investment
Provides JAZZTEL faster access to
prospective customers
Project fully financed
JAZZTEL has signed a finance facility
of up to 450m for this project
under the following terms:
2.5 year availability
2.5 year grace period
7 year repayment
Interest spread: < 400 bps

Source: Jazztel, Arthur D. Little analysis

As a result of this co-investment agreement, JAZZTEL and Telefnica will each own a
separate FTTH vertical infrastructure, each passing 3 million homes
50

Internet traffic volumes forecast to continue to

grow exponentially
Internet traffic in Spain
GB per user per month

Fixed broadband speed

Mbit/s

+263%

Connected devices
# per capita
+82%

+292%
58.2
3.2

5.1

40.0

2.8
55.0
16.0
0.3

10.2

15.7
2011
Fixed

2016e

2011

2016e

2011

2016e

Mobile

Source: Cisco, Arthur D. Little analysis

Internet traffic in Spain is expected to more than triple by 2016, and the average fixed access
speed will reach 40 Mb/s to accommodate the growing number of connected devices
51