TELCOS CAN TAKE 63% OF EUROPE'S 38 MILLION BROADBAND HOMES IN 2006 IF THEY
AVOID LARGE TV INVESTMENTS, FORRESTER ADVISES

AMSTERDAM, Netherlands, January 30, 2002 . . . European telcos will lose
more than 3,000 euros per subscriber over 10 years if they build hybrid
satellite and ADSL networks to fight cablecos' triple play of voice, video,
and data, according to a new report by Forrester Research B.V. (Nasdaq:
FORR). Instead, Forrester advises telcos to focus on operational
efficiencies, increased capacity utilization, creative partnerships with
satellite TV firms, and a few value-added services to make broadband access
profitable -- they will then dominate with a 63% market share of the 38
million European households using broadband in 2006.

"Although cable pioneered broadband in Western Europe, ADSL is the future:
56% of broadband connections in 2001 were ADSL, and telcos are just getting
started. But telcos aren't yet making a profit from broadband with today's
services and prices," said Forrester Senior Analyst Lars Godell.

"The most profitable strategy for ADSL providers is to sell value-added PC
services like gaming, music subscriptions, adult content, remote-office
connectivity, and security on top of access," Godell added. "These services
will help telcos draw a cumulative profit from subscribers two years
earlier than through access alone. Using mature technologies and with
limited additional investment, telcos can generate 5.50 euros of extra
monthly revenue per subscriber in year six. Conversely, the triple play
designed to attack cablecos' dominance of TV will deliver very negative
returns. Telcos like BT, toiling with the idea of rebuilding their networks
to provide the full triple play on their own networks, should note the
similarities with their recent UMTS investments -- very high capital costs
and very uncertain returns. For a telco, video is suicide: Small revenues
and huge losses will kill the business case, and immature technologies are
very risky."

To depict the lowest possible costs to provide TV and video to end users,
Forrester modeled a telco network in which a satellite link is used to feed
video streams to existing DSLAMs (broadband "switches"), avoiding expensive
fiber costs. With an annual capex cost per subscriber of 764 euros in year
one -- a whopping 663 euros more than in the access-only case --
cash-strapped telcos will be hard pressed to find revenues to justify such
a massive investment. Because it's tough to compete against the cheap and
firmly entrenched broadcast, cable, and satellite TV that Europeans already
enjoy, telcos' multimedia revenues will be very small -- witness 3.6 euros
in additional revenue per average subscriber in year one and 36 euros in
year 10. As a result, telcos will lose a cumulative 3,169 euros per
subscriber that joined in year one.

"Telcos trying to go it alone with TV over copper networks will fail as
they face substantial hurdles -- immature set-top box and VDSL
technologies, lack of knowledge of content bundling and pricing, digital
rights management, and CPE connectivity. Instead, telcos must find new ways
to build scale, wholesaling to anyone who wants to use their DSL pipes,
including rival cablecos and satellite TV firms. Indeed, telcos should
follow the example of BT and begin to offer cheaper triple-play services by
reselling satellite TV from firms like BSkyB," Godell said.

For the report "Making ADSL Broadband Pay," Forrester extended its
broadband forecast model through 2006. Europe's broadband penetration
nearly quadrupled in 2001 as access providers signed up early adopters, but
providers need to attract the next wave of broadband users. After a year of
reduced growth in 2002, access providers will use price to attract new
users and steal existing ones from rivals, and successful pricing drops
will sustain a 50% growth rate for the next two years. In 2006, price wars
will ebb, and content delivered to PCs and consumer electronics devices
will become the new battleground. At the end of 2006, 38 million Western
European households will be using broadband -- 24% of all households and an
impressive 41% of all households online. Finally, looking at penetration by
access technology in 2006, we expect to see xDSL claim two-thirds of market
share, cable drop to less than a third of market share, and other
technologies see only modest gains