Analysys Mason Overview of upcoming mergers and aquisitions opportunities in the TMT space in Asia (February 2010)

Ref: 5445-66Introduction  With the thawing of capital markets in the wake of the financial crisis, M&A activity worldwide, including in Asia, is expected to pick up in 2010  Within th

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TMT space in Asia

Amrish Kacker, Lim Chuan Wei

February 2010

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Contents

Introduction About Analysys Mason M&A opportunities in the Asia–Pacific region

Our general methodology Our due diligence expertise

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Introduction

 With the thawing of capital markets in the wake of the financial crisis, M&A activity worldwide, including in

Asia, is expected to pick up in 2010

 Within the TMT sectors, M&A opportunities – both new and those postponed previously due to the crisis –

should emerge or resurface quickly in the immediate period

 This brief presents Analysys Mason’s perspectives and insights into the M&A opportunities for the TMT

sectors in Asia

 The remainder of this document is structured as follows:

 About Analysys Mason – a short introduction on who we are and what we do

 M&A opportunities in the Asia–Pacific region – our views on what M&A opportunities may be

available, why they would interest financial institutions, and which are the most attractive to pursue

 Our general methodology – our analytical methods for supporting such opportunities

 Our due diligence expertise – our capabilities and experience in transactional support and due

diligence

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Introduction About Analysys Mason M&A opportunities in the Asia–Pacific region

Our general methodology Our due diligence expertise

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Analysys Mason is the world’s premier adviser in

telecoms, IT and media

Analysys Mason officeAssignments completed

Market intelligence

Strategy

Planning

Implementation Review

 Through our global presence, we deliver strategy advice, operations support and market intelligence to leading operators,

regulators, financial institutions, broadcasters, vendors and enterprises in over 80 countries

 Our people have had a major influence on the industry for more than 20 years:

 led the liberalisation of telecoms across Europe and Asia and mediated in policy issues for operators and regulators

 supported several hundred transactions and licence acquisition processes for operators and financial institutions

 provided strategic and operational support to major operators in the roll-out and expansion of businesses across the

sector, enhancing enterprise value

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Our consulting advice is valued across all sectors

Enterprise users

Helping to maximise returns from investment in ICT institutions Financial

Supporting vendors, sellers and financiers

of industry transactions

Public sector

Providing ICT and procurement advice for emergency services and public bodies

Mobile operators

Delivering value through strategy planning and implementation

Fixed operators

Defining new strategies, optimising service portfolios and supporting policy development

Media companies

Helping to maximise revenue

in converging markets

Regulators

Establishing and implementing policy frameworks

in telecoms and media markets

In particular, we have provided commercial and technical due diligence services to financial institutions and mobile and fixed

operators worldwide

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Our success is built upon a deep and rigorous understanding

of key sector issues

 ICT consolidation and cost optimisation

 Service fulfilment and assurance

 OSS/BSS legacy migration

 RAN sharing and other cost reduction strategies

 Impact of mobile broadband

 WiMAX – threat or opportunity?

 Revenue-maximising pricing propositions

 Content distribution strategies in a converging market

 Creation and distribution of ‘three-screen’

services

 Maximising value of advertising inventory

Media

 Delivery of end-user experience

 Regulation for a converged industry

 Assessing the impact of media players entering the telecoms market

 Next-generation access strategies: FTTx versus wireless

 Wholesale product definition in NGNs

 Strategies for fixed–mobile convergence

 Value migration from infrastructure to services and content

 Efficient NGN procurement processes

 OSS/BSS and customer support

 Capitalising on the digital dividend

 Regulatory environments to deliver NGA and NGN

 TV regulation in a converging market

 Effective spectrum management strategies

 Licence allocation and acquisition processes

 OSS/BSS process optimisation

 WAN acceleration

 Construction, location and optimisation of contact centres and control rooms

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We have an established track record of working with the

major financial institutions

Selection of businesses on which we have undertaken due diligence

BTC, Bahamas (2009) • JTL, Kenya (2009) • Avea, Turkey (2008) • Aktel, Bangladesh (2008) • MTN, Africa (2008) • ONI, Portugal (2008)

PCCW, Hong Kong (2008) • Zain, Nigeria (2008) • Excelcomindo, Indonesia (2007) • Safaricom, Kenya (2007) • Lattelecom, Latvia (2007)

ONE, Austria (2007) • Camtel, Cameroon (2007) • MTC, Saudi Arabia (2007) • National Grid Wireless, UK (2007) • Vivatel, Bulgaria

(2007)TIM, Greece (2006) • Magticom, Georgia (2006) • Bite, Lithuania, Latvia (2006) • Armentel, Armenia (2006)

Selection of financial institutions that have chosen Analysys Mason for due diligence assignments

ABN AMRO • Apax Partners • Bank of Ireland • BBVA • BC Partners • BNP Paribas • Capital Partners • Carlyle • CDC Group Citigroup

Credit Suisse • Deutsche Bank • EBRD • Export Development Canada • Eurazeo • Finnvera • GE Capital • HSBC • ING • JP Morgan

Kohlberg Kravis Roberts • Lazard • Lloyds TSB Bank • NM Rothschild & Sons • The Royal Bank of Scotland Group • SACE

Société Générale • Standard Bank • TecCapital Investments • TD Bank Financial Group • UniCredit Banca Mobiliare

WestLB • World Bank Group

Selection of operators that have chosen Analysys Mason for due diligence assignments

Telkom South Africa • Telstra Europe • Zain Nigeria • Bahamas Telecommunications Company • Cable & Wireless UK • ONI Portugal

Mauritius Telecom • Reliance • National Grid • Safaricom • Etisalat • Vodafone Australia • Thus

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We have in-depth market experience in the Asia–Pacific

region to help financial institutions evaluate opportunities …

Mobile Broadband Fixed Media Regulatory ICT

East Asia

China & Mongolia

Japan & South Korea

Hong Kong & Macau

Company experience Additional project experience of core Singapore team

Project experience in the Asia–Pacific region by sector

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… having worked on a variety of projects across the region

Development of a detailed cost accounting system

Estimation of revenue forecast in China for mobile broadband services

Comprehensive mobile LRIC cost study for a mobile operator, to calculate

termination

(a) Several studies for a mobile operator, including assessment of

telematics and FMC (b) For a content player, devised an entry strategy

into the European market

Review of strategic rationale for proposed merger between two operators

(a) Assessed a mobile operator’s business model to evaluate a 3G

opportunity (b) Due diligence of integrated telecoms and media operator

Due diligence of cellular operator

(a) Due diligence of an integrated wireline and wireless operator (b)

Supported an integrated operator in growing its international voice

business

Study of regulation and competition in the wireless local loop market

Business planning for WiMAX new entrant

A range of projects for a mobile operator, including business planning,

compensation negotiation and 3G licence support

(a) Evaluated the 3G opportunity and alternate business structures for a

mobile operator (b) Mobile operator’s MVNO strategy and wholesale

pricing (c) WiMAX business planning for new entrant

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(a) Pricing strategies for an incumbent operator

(b) Due diligence of CDMA WLL operator / WiMAX licence holder(a) Due diligence of a mobile operator (b) Assessed strategic options in infrastructure sharing / MVNOs for new 3G operator (c) WiMAX business plan for a new entrant

For Vodafone Australia, undertook a critical review of a bottom-up mobile network cost model developed on behalf of the regulator Provided expert advice on the TSLRIC for both LLU and co-location services

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Introduction About Analysys Mason M&A opportunities in the Asia–Pacific region

Our general methodology Our due diligence expertise

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M&A activity is widely expected to heat up in 2010

Effective M&A deal value in Asia-Pacific,

by quarter (USD billion)

With the thawing of capital markets in the second half of

2009, M&A activity has begun to pick up

There was reportedly a 32% increase in number of worldwide M&A transactions in 4Q 2009

M&A activity is expected to continue heating up into 2010

“The future looks encouraging for M&A with strong indicators in the last quarter…we anticipate deal activity to increase in 2010…”

Neil Masterson, Global Managing Director of Investment Banking,

Thomson Reuters

“Global M&A activity would rise as much as 35% in 2010 as improving economic conditions bolster dealmaking…”

Research firm Sanford C Bernstein

"The relatively high volume of deals recorded in the fourth quarter of 2009 hints at a resurgence of M&A activity for the new year…"

Research firm Dealogic

Quotations from industry

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Current macro-trends in the TMT sectors, in particular,

present opportunities for M&A

Maturing markets

 In some markets, especially developed ones, the telecoms industry has

reached substantial maturity

 Operators in these markets tend to have relatively stable cash-flows, low debt, and are in possession of

significant assets, making them potentially attractive LBO targets

Industry consolidation

 In more fragmented sectors and

across sectors, there is a move

towards consolidation, e.g.:

 fragmented telecom markets

 between telcos and media players

 between fixed and mobile operators

 between telcos and ICT players

New technologies

 Technological trends present further opportunities for M&A activity, as operators make strategic shifts in response

 Key trends include:

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At a regional level, there are several trends further

fuelling M&A activity

Regional operators are consolidating down the

value chain in enterprise services

Some technologies have the potential for a

regional play

 Some telcos are moving into the ICT space to better

serve enterprise clients

 These players have sought acquisitions of system

integrators, software/application companies and other

service providers down the value chain to bridge

capability gaps and provide end-to-end solutions

 WiMAX is being explored as a regional proposition for wireless broadband in parts of Asia

 DTH players have gone regional in the Middle East, and can potentially do so in Asia (barring regulatory issues)

Operators are seeking greater cost economies by

regionalising network outsourcing, call centres

Regional operators continue to be a source of

M&A activity in emerging markets

 Operators with multi-market presence are consolidating

their cost centres (e.g network operations, customer

service operations)

 These efforts are helping to drive regional ambitions

 Regional operators such as NTT, SingTel, Axiata, etc

continue to be amongst the more visible players in the M&A space, as they pursue investment

opportunities in emerging markets within Asia

 Other regional players from outside the Asia–Pacific (e.g Etisalat) are seeking to increase their presence

in Asia

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We see a number of market-specific opportunities

requiring financing, and potentially an equity injection

South Asia

 India’s mobile market remains

fragmented and poised for further

consolidation…

 …particularly with the onset of 3G and

opportunities for national expansion

 Players in Bangladesh are still

seeking external funding support

South-East Asia

 Consolidation is expected in

Indonesia’s mobile sector

 In Thailand, operators are preparing

to push more strongly into data

services

 In Singapore and Malaysia, operators

are making forays into convergence

 In Vietnam, there is strong interest for

foreign investment in the mobile

space

East Asia

 China has entered into 3G, and operators are consolidating their presence in the content/VAS space

 In Hong Kong, there is potential for restructuring plays in the telecoms and media sectors

 Fragmented subsectors in Taiwan and Korea are likely to see more consolidation, though this might be marginal

Oceania

 Government pressure on Telstra for restructuring opens the possibility of a divestment of its fixed and broadband assets

Restructuring of PCCW Hong Kong

Spin-off of handset manufacturing

operations of Huawei and/or ZTE

China

Consolidation and/or acquisition of mobile

VAS providers

China Sale of Shaw Brothers’ stake in TVB Hong Kong

Buyout of Vibo Telecom Taiwan

Marginal consolidation of cable operators Taiwan

Consolidation of pay TV operators Korea

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If you are interested in discusssing any of these opportunities further, please contact Amrish at amrish.kacker@analysysmason.com or Chuan Wei at lim.chuan.wei@analysysmason.com

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The possible restructuring of PCCW remains an

opportunity to watch

What is happening?

 PCCW has been exploring potential restructuring

options for sale of its assets, but has not been

successful

 Most recently, PCCW dropped a privatisation bid in

April 2009 after regulators blocked the plan due to

allegations of shareholder manipulation

 It remains possible that PCCW will renew such efforts

in the wake of a pick-up of activity in capital markets

Why this is of interest

 A deal could present an opportunity for the acquisition

of a stake in PCCW

 PCCW could be an attractive target, given its:

 stable revenue and cash flow

 potentially higher valuation through cost-cutting

measures or management change

How Analysys Mason can provide support

 We are able to provide commercial and technical pre-due diligence, and due diligence services in support of this opportunity

 These include:

 review of the Hong Kong telecoms market

 review of the competitive environment

 review of business plan and growth prospects

 review of network assets

 review of potential synergies between fixed, mobile and pay-TV assets

 valuation of stake and review of bid

Consolidation/ regional expansion of

mobile operators in India

India Consolidation of towers India

Merger/acquisition between Africa-Indian

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If you are interested in discusssing any of these opportunities further, please contact Amrish at amrish.kacker@analysysmason.com or Chuan Wei at lim.chuan.wei@analysysmason.com

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Growing consolidation activity in the tower market in

India should be of interest

What is happening?

 As demand for towers grows in tandem with the mobile

market in India, medium-sized tower companies are

embarking on a consolidation spree to accelerate

roll-outs and compete more effectively

 in January 2009, Tata Teleservices entered into a

joint tower venture with Quippo after selling a 49% stake of its tower arm

 in March 2009, American Tower Corp acquired

Indian tower firm Xcel Telecom

Why this is of interest

 Increasingly, tower companies will be looking actively

for partners to fund their expansion

 There could also be short-term opportunities from

acquiring still-undervalued tower companies that could

be targets for acquisition by other companies

How Analysys Mason can provide support

 We are able to provide commercial and technical pre-due diligence, and due diligence services in support of potential acquisitions in the tower market

 These services include:

 review of the Indian telecoms market and its implications for tower demand

 review of the Indian regulatory environment

 review of the competitive environment

 review of the technology landscape and implications for target

 benchmarking of best practices in tower mergers

 review of target’s business plan, growth prospects and opportunities

 valuation of target and review of bid

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In South-East Asia, the main opportunities stem from

operators looking externally for capital injection

Assessment of opportunities in South-East Asia

Strategic investment into TRUE Move Thailand

Privatisation of mobile operators Vietnam

Consolidation of towers Indonesia

Strategic investment into Sun Cellular Philippines

WiMAX consolidation in Indonesia Indonesia

Acquisition/expansion of broadband

operations by mobile operators

Malaysia, Philippines, Singapore Consolidation of pay TV operators Indonesia

Consolidation of mobile operators Indonesia

Consolidation of alternative pay-TV operators Thailand

Merger of Astro and Maxis Malaysia

Divestment of towers by incumbents Thailand

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There is strong interest for greater foreign investment

into Vietnam’s mobile sector, especially with privatisation

What is happening?

 All three of Vietnam’s major mobile operators (Viettel,

Vinaphone and Mobifone) are still state-owned

 In 2005, the Vietnam government approved the

privatisation of Vinaphone and Mobifone, but this has

yet to happen, even though several foreign operators

have expressed interest

 3G licences were issued in 2009, and all three

operators are now rolling out 3G services

Why this is of interest

 The liberalisation of the mobile sector presents

opportunities for foreign investors to take a stake in the

growing Vietnam mobile market, in which each major

operator holds approximately a one-third share

 The roll-out of 3G networks and services means that

Vietnamese operators will be in need of capital and

3G-related expertise more so than ever

How Analysys Mason can provide support

 We are able to provide commercial and technical pre-due diligence, and due diligence services in support of potential investments in Vietnam

 These services include:

 review of the Vietnam mobile market

 review of the Vietnam regulatory environment

 review of the competitive environment

 assessment of new entrant threat

 review of the technology landscape, including 3G, and implications for target

 review of target’s business plan and growth prospects, especially with 3G

 valuation of target and review of bid

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Introduction About Analysys Mason M&A opportunities in the Asia–Pacific region

Our general methodology Our due diligence expertise