3 Q11 Spain Mobile Operator Forecast Executive Summary

3Q.2011 Spain Mobile Operator ForecastSpain to have 60.2 million mobile subscriber connections in 2015 with Vodafone España taking 30% market share

October 2011

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© 2011 IE Market Research Corp.All rights reserved.

Source: IEMR

INDUSTRY AVERAGE SUBSCRIBER GROWTH IN THE SPANISH WIRELESS MARKET IS ABOUT 6%

The operator-wide average subscriber growth (YoY) was 5.8% in 2Q.2011, up from 1.5% in 2Q.2010.

The largest operator, Movistar(Telefonica Moviles), saw its subscriber growth (YoY) rise from 0.7% in 2Q.2010 to 2.1% in 2Q.2011.

Vodafone España’s subscriber growth rose from -1.0% in 2Q.2010 to 3.1% in 2Q.2011

Orange España (France Telecom)'ssubscriber growth increased from 1.5% in 2Q.2010 to 10.2% in 2Q.2011.

-4%

-2%

0%

2%

4%

6%

8%

10%

12%

4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

Movistar (Telefónica Móviles España, S.A.U.) Vodafone España SAU

Orange España (France Telecom España S.A.) Industry Total

Chart 1: Subscriber Growth (4Q08 – 2Q11), %

Stable subscriber growth continues in Spain5.8% industry average subscriber growth in 2Q.2011

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Source: IEMR

INDUSTRY AVERAGE ARPU IN SPAIN CONTINUES TO DECLINE

The industry average monthly ARPU was US$ 31.62 in 2Q.2011, down -12.2% YoY.

All of the major operators - Movistar, Vodafone, Orange, and Xfera - continue to lower their ARPUs in Spain.

In particular, Vodafone’s monthly ARPU declined by -12.9% (YoY) to reach US$ 33.26 in 2Q.2011.

Chart 2: ARPU Growth (4Q08 – 2Q11), %

ARPU growth in Spain remains negative-12.2% industry average ARPU growth in 2Q.2011

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

-2%

0%

4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11

Movistar (Telefónica Móviles España, S.A.U.)Vodafone España SAUOrange España (France Telecom España S.A.)Industry Total

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Source: IEMR

MOU PER SUBSCRIBER IN THE SPANISH WIRELESS MARKET IS ABOUT 160 MINUTES

The operator-wide average Minute of Use (MOU) per subscriber was 160 minutes per month in 2Q.2011, up+4.7% YoY.

MOU per subscriber at Movistar, Vodafone and Orange were 140 minutes, 187 minutes, and 164 minutes respectively in 2Q.2011.

Movistar had the lowest MOU/Sub growth at -5.2% in 2Q.2011 (down from 0% in 2Q.2010).

Chart 3: MOU/Sub Growth (4Q08 – 2Q11), %

Minutes of Use per Subscriber is increasingIndustry average MOU/Sub is approximately 160 minutes per month

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11


Orange España (France Telecom España S.A.) Industry Total

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Source: IEMR

INDUSTRY AVERAGE EBITDA GROWTH IN 2Q.2011 IS ABOUT -3.6%

The industry average EBITDA growth rate (YoY) in 2Q.2011 was -3.6%, up from -12.7% in 2Q.2010.

EBITDA growth rate at Movistardeclined from -7.7% in 2Q.2010 to -9.5% in 2Q.2011.

EBITDA growth rate (YoY) at Vodafone was 2.7% in 2Q.2011 (up from -27.2% in 2Q.2010).

Orange's EBITDA growth declined from 0.5% in 2Q.2010 to -2.9% in 2Q.2011.

Chart 4: EBITDA Growth (4Q08 – 2Q11), %

EBITDA growth in Spain remains negative-3.6% industry average EBITDA growth in 2Q.2011

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11


Orange España (France Telecom España S.A.) Industry Tatal

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Source: IEMR

We forecast that the number of total wireless subscriber connections in Spain will increase from 55.5 million in the end of 2010 to 60.2 million in the end of 2015.

Given the latest quarter numbers, our model predicts that Movistar will have approximately 25 million mobile subscribers in 2015.

In our view, Movistar will continue to be the largest operator in Spain with a 41.3% market share in 2015.

We expect that Vodafone will have 18.1 million wireless subscriber connections in Spain in 2015 (30.2% market share).

Chart 5: Subscribers by operator (CY09 – CY15F)

So what is IEMR’s Forecast? Total mobile subscriber connections in Spain to reach 60.2 million in 2015

0

5,000

10,000

15,000

20,000

25,000

CY09 CY10 CY11F CY12F CY13F CY14F CY15F

subs

crib

ers

(000

s)

Movistar (Telefónica Móviles España, S.A.U.)

Vodafone España SAU

Orange España (France Telecom España S.A.)

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Source: IEMR

WE EXPECT THE OPERATOR-WIDE AVERAGE ARPU LEVEL TO REMAIN AT EUR 23 – EUR 24 OVER THE NEXT TWO YEARS

Our forecasting model does not predict major changes in the industry average ARPU for the next two years.

According to our model, the industry average ARPU will be EUR 23.50 per month in 2013.

We expect that Vodafone’s ARPU level will be higher than those of Movistar and Orange over the next two years.

Chart 6: Average Revenue per User (ARPU) per month (CY09 – CY13F), EUR

So what is IEMR’s Forecast?ARPU levels in Spain to remain stable

0

5

10

15

20

25

30

CY09 CY10 CY11F CY12F CY13F

EU

R (€

)

Movistar (Telefónica Móviles España, S.A.U.)Vodafone España SAUOrange España (France Telecom España S.A.)Average

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Source: IEMR

Our model is predicting that, over the forecast period of 2011-2013, Movistar’s EBITDA margins will remain higher than those of Vodafone and Orange.

We forecast that Movistar's EBITDA margin (calculated as EBITDA/service revenue) will be about 50% in 2013.

We expect that Vodafone’s EBITDA margin will remain at about 38% from 2012 to 2013.

Chart 7: EBITDA margins (CY09 – CY13F), %

So what is IEMR’s Forecast? Movistar to enjoy the highest profitability

0%

10%

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30%

40%

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60%

CY09 CY10 CY11F CY12F CY13F

Movistar (Telefónica Móviles España, S.A.U.)Vodafone España SAUOrange España (France Telecom España S.A.)Average

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3 Q11 Spain Mobile Operator Forecast Executive Summary

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