The Road to All IP WIK Conference Königswinter 21 st March 2007 Paul Hendriks, Program Director All IP Wholesale & Operations
Safe harbor Certain statements contained in this presentation constitute forward-looking statements. These statements may include, without limitation, statements concerning future results of operations, the impact of regulatory initiatives on our operations, our and our joint ventures' share of new and existing markets, general industry and macro-economic trends and our performance relative thereto, and statements preceded by, followed by or including the words believes, expects, anticipates or similar expressions. These forward-looking statements rely on a number of assumptions concerning future events and are subject to uncertainties and other factors, many of which are outside our control that could cause actual results to differ materially from such statements. A number of these factors are described (not exhaustively) in our 2005 Annual Report and Form 20-F. All figures in this presentation are unaudited and based on IFRS as endorsed by the EU. This presentation contains a number of non-gaap figures, such as EBITDA and free cash flow. These non- GAAP figures should not be viewed as a substitute for our GAAP figures. Our non-gaap measures may not be comparable to non-gaap measures used by other companies. All market share information in this presentation is based on management estimates based on externally available information, unless indicated otherwise. Certain figures may be subject to rounding differences. 2
Table of contents Market overview KPN strategy Transition overview Retail and wholesale services Financial impact Summary 3
Market situation Very dynamic and competitive market in the Netherlands The Netherlands is broadband champion of Europe Mobile-only households Broadband penetration IP-VPN penetration VoIP penetration 1 6% 8% 12% 16% 18% 69% 58% 45% 15% 27% 5% 51% 57% 38% 24% 9% 28% 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 2002 2003 2004 2005 2006 The Netherlands is competition champion of Europe Existing operators are consolidating Fibre to the home operators are emerging On top of existing service providers, new entrants with other business models Amsterdam 1 % VoIP connections of broadband connections, excluding peer-to-peer, management estimates 4
KPN strategy Strategy announced in March 2005: Attack Defend Exploit Attack Drive new revenue streams Defend Maintain leading share in declining traditional market Leverage scale advantage through wholesale offer Exploit Achieve structurally lower cost base Fixed / Mobile integration advantage All IP is the key enabler 5
Services transition Move to new services and phase out legacy services New IP-based services Value-added services Phase out legacy services Voice PSTN / ISDN Mobile Consumer Data ADSL Dial-up internet IP-based services VoIP Mobile / homezoning xdsl IPTV Value-added services TV DVB-T Other DVB-T Mobile TV Voice PSTN / ISDN Mobile Phase out Business Data ADSL IP-VPN X.25 ATM Frame Relay Leased lines Digi Access IP-based services VoIP VoIP Connect Mobile xdsl IP Centrex IP-VPN E-VPN Value-added services 6
Network transition Four centralized IP service platforms, fiber to every street in next 4 years IP-based service platforms, centralized in four locations Lw2 Gn1 Gn2 Amr2 Amr Zl2 Zl Asd3 Asd2 Hgl Es Gv3 Gv2 Ut1 Ut2 Ah2 Ah Rt1 Rt2 Via our own copper and fiber lines we will deliver high-speed access (Homes up to 30-100 Mbps, offices up to 1 Gbps) We will dismantle most of our exchanges and switch off the old network Bd2 Bd Ehv Ht Mt Rm Hrl Vl In our street cabinets we will install VDSL2 / FttX technology We have used fiber in various parts of our network for many years. We will invest to even further increase speeds in these parts of the network through DWDM, Ethernet and MPLS 7
Retail services KPN already sells a wide range of IP and Ethernet based services X 1,000 X 1,000 X 1,000 Consumer broadband connections 1,500 1,567 1,623 1,740 1,867 1,936 2,023 2,135 Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06 Q4 '06 IP-VPN connections 34 35 38 39 41 43 44 44 Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06 Q4 '06 0.5 0.9 Successful IP services E-VPN connections 1.4 1.9 2.3 2.7 3.3 4.2 Q1 '05 Q2 '05 Q3 '05 Q4 '05 Q1 '06 Q2 '06 Q3 '06 Q4 '06 InternetPlus Bellen IPTV VoIP Connect New IP services Package with VoIP and broadband for consumers Available through all KPN brands and retail channels 517,000 subscribers by end Q4 2006 and rapid growth Premium TV offering, first to market with interactive TV Content portfolio growing significantly Full-scale roll-out as of Q2 of 2007 Integrated solution for voice (VoIP) and data (WAN) for large companies Off-net connection of IP-PBX / IP-VPN systems to KPN s All IP network 8
Wholesale services Sub loop unbundling and low-entry wholesale broadband access Copper wire (regulated) Unbundling in All IP network SDF colocation (regulated) SDF Backhaul (fiber, not regulated) Wholesale Broadband Access SDF Colocation Node KPN / Telco 28,000 street cabinets 198 Metro Core locations Wholesale Broadband Access (WBA) (not regulated) Interconnection locations for WBA Ethernet used for basic transmission Many access types like ADSL, ADSL2+, VDSL2, FttX, Open network model for services and service providers Single interconnection to KPN s All IP network sufficient for national coverage National coverage with WBA, only a single interconnection needed at one of 158 transmission locations in the Netherlands 9
Network roll-out Process 2007 2010 1 Network planning and engineering 2 Kmr MA Kabelverdelers Hml doorrijgen Zvd met Wd-C niet via Kmr MA Al Ut1 24vzls 6/6vzls Hml MA Wd-C Nb MA Maken spaak: 6/24vzls Hergebruiken Ut1-Wd 4 GN5688 TFC Network roll-out A) Service platforms B) Backbone C) Fiber to the curb (local permits) D) Street cabinets with equipment Gd Maken spaak: Hergebruiken buis Gd-Wd 2 GN5558 en doorlussen naar Drb Drb MA Mf MB Od MB Bsp MA Nieuw Jv MB 3 Connecting customers 4 A) Broadband connections B) IP services Decommissioning and dismantling A) Legacy networks B) Legacy cabling C) Power supply D) Emptying buildings 10
Investments Additional Capex for All IP network in range of 0.9 bn mn Annual Capex Fixed 1 bn ~ 950 ~ 950 ~ 950 Additional Capex beyond 700 mn per year ~ 700 ~ 780 ~ 800 Additional Capex during All IP transformation period estimated at 0.9 bn Lower than previously announced range of 1.0 1.5 bn 2005A 2006A 2007E 2008E 2009E 2010E 11
Real estate Releasing funds for All IP and unlocking value of non-core assets Background Changed and reduced technical housing requirements due to All IP Critical buildings only partly vacated as they contain key infrastructure Cash proceeds from technical buildings to be used to fund All IP roll-out Category Top Real estate portfolio Number of Properties Area (sqm x 1,000) 456 807 Tail 935 139 Sale process Top portfolio to be sold either in straight sale(s) or through joint venture Aiming to maintain a share in redevelopment opportunities 1 bn market value to be released (including limited contribution from other (real estate) assets) Total 1,391 947 12
Cost savings and staff reduction Restructuring on track Cumulative savings announced in March 2005 Current status Opex savings mn 2005 150 Staff reduction FTEs ~ 1,600 FTE reductions somewhat ahead of plan Over 3,600 FTEs since year end 2004 2006 300 ~ 3,200 2007 450 ~ 4,800 2008 650 ~ 6,400 Actual Opex savings somewhat below plan Phase-out traditional IT systems and platforms ongoing More expensive equipment, (e.g. gateways and routers Temporarily higher operating costs for IP-based services 2009 850 ~ 8,000 Higher savings anticipated in 2007-2009 to meet targets 13
Regulatory aspects Next Gen Telecoms demands Next Gen Regulations Remaining and expanding Emulated POTS Wholesale Line Rental and Carrier (Pre)Select Sub Loop Unbundling BitStream Access, Wholesale Broadband Access Phasing out in 2010 Analogue and Digital Leased Lines ISDN MDF Access Alternatives next to copper Cable Fiber Wireless (like GSM, UMTS, HSDPA, Wimax) Is copper infrastructure regulations still reasonable in this market? 14
Summary The Netherlands is the most dynamic and competitive telecoms market in Europe, with a society in which communication patterns are changing fundamentally. KPN has chosen to address this situation with its Attack-Defend-Exploit strategy. The main building block for this strategy is All IP: moving both services and networks to a next generation. New IP-based services have been deployed and new broadband technologies have been introduced. 15
Summary (continued) Next step is to develop these and other IP-based services on a next generation broadband network, consisting of VDSL2, fiber, Ethernet and IP. This will be followed by a very large network and services migration: Full replacement of all 20+ networks and 50+ legacy services Roll-out of 15,000 km of fiber and 24,000 28,000 street cabinets Finally, dismantling of approx. 1,350 buildings Given the implications for KPN and the market, we expect All IP to be a true disruptive technology. 16