Strategy Day

Charles Dunstone, Chairman Building the business

Growth in 2009-10 • Customer base from 2.8 million to 4.2 million • EBITDA up 27.1% to £230m • Operating free cash-flow up £88m to £128m

Year ahead : • 140-180,000 net adds • Revenue growth 6-8% • EBIT growth c. 20% • Operating free cash-flow growth > 20% • Dividend growth c. 20% Building the business

2,500,000 2,500,000

2,000,000 2,000,000

1,500,000 1,500,000

1,000,000 1,000,000

500,000 500,000

‐ ‐ Building the business

3,500,000 3,500,000

3,000,000 3,000,000

2,500,000 2,500,000

2,000,000 2,000,000

1,500,000 1,500,000

1,000,000 1,000,000

500,000 500,000

‐ ‐ Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q2 Q3 Q4 FY07 FY07 FY07 FY07 FY08 FY08 FY08 FY08 FY09 FY09 FY09 FY09 FY10 FY10 FY10 FY10 FY10 FY10 FY10 Value for money proposions Strategy day agenda

Session 1

• Building the business Charles Dunstone • CEO ‐ introducon & objecves Dido Harding • Regulatory & market developments David Goldie • TalkTalk’s Next Generaon Network Neil McArthur Q&A

Session 2

• Residenal business Trisa Clarke • B2B business Paul Lawton • Integraon programme Mel Smith • CFO ‒ ﬁnancial review & guidance Amy Srling Q&A Building the

Business Introducon & objecves

Dido Harding Chief Execuve Oﬃcer Introducon & objecves

• My background

• First impressions

• Key priories

 Get to know the business & team

 Deliver 2010/11 plan

 Shape the future Market & Regulatory

David Goldie Director, Group Commercial Polical & Regulatory – The Customer Champion

• Compeon Commission appeal ‐ 2009 LLU/MPF price rises • Digital Economy Bill

• Illegal ﬁle‐sharing – obligaons on ISP’s • 50p phone tax • BT’s Pension Deﬁcit • Mobile Terminaon Rates • Next Generaon Access ‐ Fibre Fibre – 4 Key Quesons

• What will be the level of demand for FTTC and FTTP?

• Who will the ﬁbre infrastructure providers be?

• Is the BT Openreach product suﬃciently ﬂexible to meet our customers’ needs?

• Is there a favourable commercial structure from BT Openreach? Who will the Fibre infrastructure providers be?

• Range of emerging third‐party infrastructure • Signiﬁcant commied public sector investment and European funding with open access models eg: • S. Yorks • Manchester • Property Developers • Specialist and Community‐based organisaons Openreach Flexibility? ‐ Improving

Flexibility for ISP LLU GEA Fibre Commercially viable third‐party/self‐   install Self‐supply modem  

Self‐supply router / CPE   Control of up and down stream speed  

Dynamic line management control   QOS to support IP‐Telephony and Video   Comprehensive fault diagnosis tools   Price independent of speed delivered   /  Commercial Structure – Entry Level Product

Essenals Noonal FTTC BT Inﬁnity £/customer/month ADSL2+ 40/2Mb Price (incl. VAT) • Broadband 6.99 6.99 19.99 • Fibre charge (example) ‐ 8.11 • Line rental 11.49 11.49 11.54 Total Price 18.48 26.59 31.53

Costs (incl. VAT) MPF rental 8.86 8.86 GEA fee ‐ 8.11 Total Costs 8.86 16.97

Gross margin 9.62 9.62 Note: Margin excludes shared network costs, and also excludes addional ARPU for calls and boosts etc. Pricing is only illustrave as retail prices have not been set. Summary – Next Generaon Access

• The scale of demand for ﬁbre based services is not clear

• There will be diverse infrastructure providers

• Progress has been made with Openreach on product ﬂexibility and discussions connue.

• TalkTalk Group’s scale and Next Generaon Network provides sustainable compeve advantage in Next Generaon Access TalkTalk’s Next Generaon Network

Neil McArthur Chairman, TalkTalk Technology What is a “Next Generaon Network”

“Service‐related funcons are • End‐to‐end IP‐based independent from underlying transport‐related technologies” • Q‐o‐S enabled

Applications • Manages mulple services

• Accelerates innovaon Service control (Network Intelligence)  Can build new services without changing the Conveyance infrastructure TalkTalk’s NGN

• 2 x 400 Gigabit UK core network

• Gigabit access to 1000+ exchanges

• 1748 enabled MPF & SMPF exchanges

• On track for 2000 by end‐2010 • 89% of the populaon covered

• UK’s deepest built mul‐service NGN

• Conveys 200 GBits/second data

• More VoIP traﬃc than any other UK network • 11 Gbits/second • 1.6 Billion total minutes Exchanges 800Gb 400Gb Core Network Collector Nodes 10Gb TalkTalk NGN beneﬁts

• Efficiently manages mulple services (Q‐o‐S enabled) • Provides flexibility to offer wide range of products/services • Residenal, B2B, carrier, wholesale, mobile • Enables fast, efficient development of new services: • Parental controls, IPTV, Ethernet, 3G offload and backhaul • Scalable – rapid & low‐cost capacity expansion • Low operang costs Where “Next Generaon Access” fits

TalkTalk’s “Next Generation Network” BT PSTN

MSAN TalkTalk TalkTalk Core Network TalkTalk backhaul Aggregation

MPF ROUTER DSLAM

TALKTALK EXCHANGE WWW

SMPF ROUTER Voice BT WLR Where “Next Generaon Access” ﬁts

Adding FTTC BT OR OLT GEA CABINET VDSL 2 BT DSLAM PSTN

FTTC ATA ROUTER MSAN TalkTalk TalkTalk Core Network TalkTalk backhaul Aggregation

MPF ROUTER DSLAM

TALKTALK EXCHANGE WWW

SMPF ROUTER Voice BT WLR Where “Next Generaon Access” ﬁts

BTW BT OR IPSC/ WBC OLT GEA FTTH ATA ONT CABINET BATT X32 VDSL 2 BT DSLAM PSTN

FTTC ATA ROUTER MSAN TalkTalk TalkTalk TalkTalk Core Network Aggregation backhaul (x 1748)

MPF ROUTER DSLAM

TALKTALK EXCHANGE WWW

SMPF ROUTER Voice BT WLR Bandwidth costs falling

Peak kbps/ £/customer/ customer month 180 4.00 Backhaul cost per customer 160 as bandwidth usage grows 140 3.00 120 100 2.00 80 60 40 1.00 20 0 0.00 09/10 10/11 11/12 12/13 Residenal Commercial Trisa Clarke Execuve Director of Commercial, TalkTalk TalkTalk Residenal ‐ the next 12 months

1. Customer proposion • Simple, unique value proposion • Connuing to invest in the TalkTalk brand 2. Connued net add growth • 140k‐180k • Eﬃcient acquision of new customers • Ongoing retenon improvement, parcularly in AOL and ex‐Tiscali base • Leverage core assets, including next generaon network and broadband scale

3. Growing APRU • £24‐£25 per month • Connuing ARPU growth and loyalty via up‐sell to higher er products, services and access method TalkTalk’s value leadership underpinned by price, performance and service

TalkTalk – the UK’s best value phone & broadband company

Price Performance Service

• Low price, feature rich • Wholly owned next • 9 out of 10 customers phone, broadband tariffs generaon network, would recommend us • Significant bundled covering >80% of the populaon savings e.g. • Extra peace of mind from ‐ £170 vs. BT on TT Pro unique security and ‐ £332 vs. Virgin on TT Pro • Only ISP to offer up to family protecon built ‐ £55 vs. BT on a new line 24mg / fastest speeds the into the network line can handle • Free calls between all • Unique online members TalkTalk customers • Unlimited downloads and forum for customer to an uncongested network • Market‐leading pricing on understand network reliability and speeds voice calls e.g. internaonal rates • Free 0845 & cheaper directory enquiries Creang a Safer Broadband

Security built into the Network to offer our customers a ‘safer broadband’ experience:

• Virus Protection and Parental Controls built into the Network.

• Protection for all the devices in the home that connect to the web.

• No requirement for software installation.

• Constantly updated and instantly activated.

• Offered at no extra cost.

• Exclusive to TalkTalk.

4 Signiﬁcant TalkTalk brand investment driving new cost‐ eﬀecve acquision and loyalty

• Strong net adds growth

• More than 50% improvement in brand awareness

• Increase in sales from direct inbound and web channels

• Signiﬁcant shi in mix to premium products (TalkTalk “Pro”)

• Low churn (below 1% per month) AOL and Tiscali – ongoing retenon and improvement

Today

• Trusted • Rebrand • Premium and proﬁtable • Parity pricing • Investment in customer • Churn reducon experience e.g. • Leverage portal revenue ‐ 24mgb speed ‐ network security Driving ARPU by eﬀecve upsell & cross‐sell

Loyalty

TT + MVNO

Voice Boosts Pro

Broadband Essentials Boosts

ARPU • CLM strategy focused on customer behaviour and internet usage • Product mix including Pro, line rental and calls • Introduction of mobile voice and broadband services via MVNO • Driving greater fixed phone usage In summary, the next 12 months

1. Customer proposion

2. Connued net add growth

3. Growing APRU One Company

Mel Smith Execuve Director of Operaons and Integraon, TalkTalk Delivering “One Company”

Access migraons

Voice migraons

Backhaul consolidaon

Rebrand and parity pricing

System raonalisaon

B2B consolidaon Signiﬁcant value from access migraons

 Migrating IPS customers within the existing footprint onto our MPF and SMPF network – both Tiscali and AOL – commenced Q4

 Building out the exchange footprint from 1748 to 2000 with our greater scale, migrating IPS customers on this extended footprint

 Put billing system interfaces in place to enable migrations on relevant legacy systems Voice migraons

 Shifting all of the inbound and outbound Tiscali traffic onto our voice network from third parties

 Completed main provider in Q4

 Remainder to deliver in FY11 ✓ Backhaul consolidaon

 New circuits already in place  Decommissioning third-party circuits begins Q1 Put Tiscali onto TalkTalk parity

✓ Implement Trio across 4 million customers

Develop Test Pilot Migrate

Talktalk ✓ ✓ ✓ ✓

AOL ✓ ✓ “the right informaon online” Tiscali ✓ B2B consolidaon

 Rebrand Tiscali customers (Freedom, Pipex, Nildram)

 Complete access migrations

 Leverage ethernet capability What have we delivered ENABLERS DELIVERED COMPLETE Access migraons ✓ ✓ Voice migraons ✓ ✓ Backhaul consolidaon ✓ Rebrand and parity pricing ✓ ✓

System raonalisaon ✓ ✓TT

B2B consolidaon ✓ ✓ Our meline for delivery this year

Tiscali Customer base Exchange roll‐out All acquision Re‐branded and completed migrated completed re‐tariﬀed (MPF & SMPF) to Trio

Annual run rate October Feb + £40-50 million 2009 2010 End July January September 2010 Platform for 2009 2010 2010 further growth Voice TalkTalk Access Traﬃc migrated to migraons migrated Trio complete Opal – B2B

Paul Lawton Managing Director, Opal The business market

Employees

Mulnaonals (3,250) FTSE (350) 500+ 4,300 Central government (1,200)

Corporates (6,585) Regional government (4,000) 20‐500 48,700 SMEs (38,115)

SoHo (1.6m) Pro‐consumers (1.8m) 1‐20 4.4 million Homeworkers (1m) Businesses & homeworkers Opal routes to market

PARTNER Intn’l managed service providers (e.g. Global Crossing) Systems integrators CONSULT (e.g. Fujitsu) Strategic account development team Data network providers Field based regional sales team (e.g. Azzurri) Desk based account management

SME champions (e.g. Alternave Networks)

Consultants and dealers CONNECT (e.g. V Networks and IP Soluons) Web Value resellers Outbound agencies (e.g. XLN & Telecom Plus) In‐house telesales teams Aﬃnity partners Opal revenues & customers by channel

PARTNER

55% of Opal revenue 400+ acve partners Partners bill and provide 1st line customer service to end customers Increasing uptake of ‘unmanaged’ products help develop long term partnerships Opal revenues & customers by channel

CONNECT 20% of Opal revenue 150,000 customers Standard Broadband, voice and mobile products

Telesales and web channels

UK based business advisors and self service tools Opal revenues & customers by channel

CONSULT 25% of Opal revenue 15,000 customers Inbound and outbound soluons

Managed data networks

Phone systems

50+ ﬁeld based salespeople supported by technical support teams Opal product mix Ethernet

What is it? • Like broadband but the last mile is ﬁbre delivered to the premise by Openreach • Can run up to 1Gbps, but is usually taken at sub 100Mbps • Always symmetrical, i.e. runs at the same speed in both direcons • Not contended, i.e. if you buy 50 MBps you always get 50 MBps

Who uses it? • Government, Large enterprises, Mul‐site retailers

Why Opal? • Local access footprint gives us the lowest cost base • Overall footprint gives us the best coverage • Ideal product for Partner Channel – giving scale • Also available to the Consult Channel ‐ giving improved margins Cross selling – our top 1000 customers

1000

900

800

700

600

500

400

300

200

100

0 Summary/priories

Maintain organic growth from our 3 sales channels

Integraon of Tiscali B2B brands and systems

Development of Ethernet products on our network Financial Review

Amy Srling Chief Financial Oﬃcer Strong broadband growth

(‘000) £/month 4,500 4,197 25 4,000 24 23.60 3,500 23 22.65

3,000 2,713 2,806 22 2,500 2,271 21 20 2,000 Unbundled 19 1,500 customers 18 1,000 17 500 16

0 15 * Q4 07 Q4 08 Q4 09 Q410 FY 09 FY 10 Customer Base ARPU Non‐Broadband evoluon

£/month (‘000) 22 2,500 2,361 20.93 21 20.40

2,000 20 1,673

1,500 19

1,114 999 18 1,000 17

500 16

0 15 Q4 07 Q4 08 Q4 09 Q4 10 FY 09 FY 10 Customer Base ARPU Revenue progression

2,000

1,800 1,686

1,600 1,385 1,400

1,200

1,000

800

600

400

200

0 Total Total 2008/09 FY09 Tiscali Broadband B2B Non-broadband TotalTotal 2009/10 FY10 Integraon connues on track

• £40‐ £50 million synergy beneﬁts • Run rate achieved by end FY11 • 14% delivered to date £m 25

0 Access Migrations Voice Migrations Backhaul Pricing Parity Systems B2B Consolidation

FY10 Delivered Target Synergies (Annual) Headline Proﬁt & Loss

£ million FY10 (1) FY09 % change

Revenue 1,686 1,385 +21.7%

EBITDA pre‐SAC & markeng 387 307 +26.1%

Margin 23.0% 22.2%

EBITDA post SAC & markeng 230 181 +27.1%

Margin 13.6% 13.1%

Depreciaon & Amorsaon (70) (57) +22.8%

EBIT 160 124 +29.0%

Earnings per share (pence) (2) 11.3 na ‐

(1)Unaudited, includes 9 months Tiscali results, excludes exceponals and Carphone Warehouse Group PLC costs (2)Unaudited, includes 9 months Tiscali results, excludes exceponals Earnings

£ million Headline Stand‐alone FY10

EBITDA 230 230

Depreciaon & Amorsaon (70) (70)

Headline EBIT 160 160

PLC costs (9) (9)

EBIT 151 151

Interest (5) (15)

PBT 146 136

Taxaon (43) (40)

Proﬁt aer tax 103 96

Earnings per share (pence) 11.3 10.5 Strong operang cash ﬂow

£ million FY10 FY09 % change

EBITDA 230 181 + 27.1%

Working Capital (2) (35)

Capex (100) (106) ‐ 5.7%

Operang Free Cash Flow 128 40 + 320%

Net debt at 31 March (508) ‐ Good EBITDA and cash ﬂow momentum

£ million

* Pro‐Forma TalkTalk Group Outlook – medium term

Connuing top line growth – New broadband services – mobile, TV – Opal data products ‐ Ethernet

Operang Free Cash Flow

Improving EBITDA margins – “One Company” synergies fully released – Leverage network scale & capabilies FY11 focus

Maintain TalkTalk sales momentum Drive revenue Manage AOL & ex‐Tiscali churn growth Drive higher ARPU Capture B2B opportunies

Complete “One Deliver £40‐£50m synergy value Company” Extend network footprint integraon Consolidate systems

Revenue & synergy ﬂow‐through Generate strong Control of capex cash‐ﬂow Growth based dividend policy FY11 – drive revenue growth

FY11 Guidance FY10 Actual

Broadband net adds 140‐180k 140k

Broadband ARPU £24 ‐ £25 £23.60

Non‐broadband base managed decline ‐ 115k

Non‐broadband ARPU stable £20.40

B2B revenue 2‐3% + 10.5%

Total revenue growth 6‐8% ‐ FY11 – complete One Company Integraon Programme

£ million 50

30 £40‐50 million

20 annual savings

0 FY10 FY11 FY12 FY13 FY14 ‐10

‐20

‐30

‐40 P&L charge Cash spend Synergy EBITDA

• £35 million addional cash spend in 2010‐11 • Rapid return on investment

* Pro‐Forma TalkTalk Group FY11 – maintain strong cash ﬂow

FY11 Guidance FY10 Actual

EBITDA margin 14.5‐15.5% 13.6% (post SAC & markeng)

Working Capital Neutral Neutral

Capex as % revenue 6% 5.9%

Operang FCF margin 8.5‐9.5% 7.6%

• FY11 addional cash impact of demerger costs and receipt re Tiscali base adjustment post expert determinaon FY11 – Earnings and Dividend

• Dividend range 5.4 to 5.6 pence − c. 20% growth YoY − Linked to earnings growth

• EPS range 12.5‐13.5 pence − c.20% growth YoY − Interest charge c.275 bps

− c.28% eﬀecve tax rate

Summary

• Good results for FY10

• Clear FY11 priories

• Visibility of Operang FCF growth

• Announced dividend policy