Telia Launches Consumer DSL Gateway
For New Raft of Services

| September 14, 2007
| Wireless Services - Europe
| Competitive Update (Europe)

| Analyst: Bernt Ostergaard

Current Perspective: Positive
Vendor Importance: High
Market Impact: High

Event

On September 12, 2007 Telia launched Telia Smart, a DSL gateway with a broadband modem, a built-in wireless network, IP telephony adapter and firewall. Telia Smart Start costs SEK 29 per month with updates and on-line support. In addition to an Internet connection, VoIP and IPTV, Telia’s smart also offers music and entertainment services. During the fall, services that have not previously been associated with broadband providers, such as home security, will also be offered.

Analytical Summary

• Current Perspective: Positive on Telia’s launch of Telia Smart, a DSL gateway to the home, because it gives the operator a platform to extend its range of broadband services in IPTV, VoIP, video and music downloads and, in the future, home security. However, the pricing strategy is unfortunate because it comes across as ‘paying for the right to pay for new services.’

• Vendor Importance: High to Telia which is struggling with razor-thin margins in its DSL business. By moving the focus from technology to services, Telia can launch new services faster on a unified delivery platform and provide the customer service to go with it.

• Market Impact: High on the Swedish DSL market where competition is tough and the need to create new revenue opportunities is pressing. However, Telia is also taking a big chance here because customer expectations regarding support and maintenance may prove very expensive.

Recommended Competitor Actions

• Capping the DSL head end in the home with a gateway box is a very good way to mask technology issues. However, competitors need to analyze where their revenues are coming from because maintenance issues can quickly remove any profit margin.

• Competitors should consider a different pricing strategy where the box is free for subscribers to new paying services. Simultaneously, they should highlight this aspect of the Telia offering.

• B2 and Glocalnet should look to compete on signal quality by offering several grades/contention ratios of DSL depending on the services the customer is interested in. As video services (and P2P services) grow, network congestion will get worse and customers will be more willing to pay for quality.

• Set-top box competitors should emphasize that this gateway solution does not integrate the signals from the Swedish terrestrial digital network, so customers still need two boxes (that do not talk to each other). By retaining the set top box as the core connectivity piece, the household gets a much better viewing experience.

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