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EMEA Corporate Ratings

April 2018 EMEA Telecom & Technology Team

THIERRY GUERMANN DIRECTOR, Stockholm [email protected]

SANDRA WESSMAN ASSOCIATE, Stockholm OSNAT JAEGER [email protected] DIRECTOR, London [email protected]

EJIKEME OKONKWO Moscow ASSOCIATE, London Stockholm [email protected]

PAUL REILLE GRADUATE, London SVETLANA ASHCHEPKOVA [email protected] ASSOCIATE DIRECTOR, Moscow [email protected]

MATTHIAS RAAB SENIOR DIRECTOR, ANALYTICAL MANAGER, London Frankfurt [email protected] MARK HABIB Frankfurt LUKAS PAUL DIRECTOR, Industry Specialist, Paris ASSOCIATE DIRECTOR, Frankfurt [email protected] Paris [email protected] GABRIEL ZWICKLHUBER XAVIER BUFFON Graduate, Frankfurt DIRECTOR, Paris [email protected] [email protected]

JUSTINE MIQUEE ASSOCIATE, Paris Milan [email protected] Madrid TOMMY TRASK DIRECTOR, Dubai THIBAUD LAGACHE [email protected] ASSOCIATE, Paris Istanbul [email protected] RAWAN OUEIDAT ASSOCIATE DIRECTOR, Dubai [email protected]

No content below the line No content below the line OMEGA COLLOCOTT Tel-Aviv DIRECTOR, Johannesburg [email protected] Agenda

1. Macro Picture 2. Key Themes and Trends 3. Ratings and Outlook Distribution

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3

Macro Picture

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4 Global Telecom’s Rating Distribution & Outlook

Source: S&P Global Ratings: Industry Top Trends 2018: Telecommunications – November 16, 2017. No content below the line No content below the line

5 European Macroeconomic Improvement Clouded By Brexit

S&P European Economic Forecasts Overall - Macroeconomic prospects in the Eurozone, but not the U.K., have improved as political uncertainty has eased. Real GDP Unemployment This is broadly reflected in a stable credit outlook across most Baseline forecast Baseline forecast nonfinancial corporate sectors as well as banks and insurance.

(%) 2017a 2018f 2019f 2017a 2018f 2019f Risks and imbalances - The top risks in Europe relate to Brexit, de-globalization, populism, asset price volatility, as well as Germany 2.5 2.4 1.9 3.8 3.5 3.4 geopolitical risk; for the Middle East and Africa the top risks are external debt, geopolitics, and the Fed rates. France 2.0 2.2 1.8 9.4 8.8 8.4

Italy 1.5 1.5 1.3 11.3 10.8 10.3 Macroeconomics conditions - Eurozone growth is being led by domestic demand and investment, and is becoming increasingly Spain 3.0 2.7 2.3 17.2 15.1 14.1 inclusive across the region. Confidence in the U.K economy is slipping, with few evident signs of compromise in the Brexit Netherlands 3.2 2.8 2.2 4.9 4.1 3.7 negotiations so far.

Belgium 1.7 1.8 1.6 7.2 6.4 6.2 Financing conditions - Credit conditions in Europe remain very Eurozone 2.5* 2.3 1.9 9.1 8.2 7.8 relaxed and likely to remain so, especially in the Eurozone, in absence of a pick-up in underlying inflation. While not U.K. 1.7 1.3 1.5 4.4 4.5 4.6 expected, further weakening in the U.S. dollar may push back the end of the ECB's asset purchase program. Switzerland 1.0* 2.3 1.7 3.2 3.0 2.9

Israel 3.1 3.2 3.2 4.5 4.4 4.4 No content below the line No content below the line

*S&P Forecast. Source: S&P Global Economics, Oxford Economics – April 2018. 6

Key Themes

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7 Stable Outlook on Balanced Credit Drivers

Driver Risk Opportunity Competition Remains intense in most markets, among telcos and with cablecos Fixed services Secular cord cutting and pay-TV Uptake of fiber, more regular price disruption by OTT increases, and penetration of bundling and content Mobile services Roaming phase out and Higher data volumes helping to stabilize commoditization of voice/SMS prices Investment/Costs Capex to remain high on fixed network Modest margin improvements from cost- upgrades. Increasing content costs. cutting and synergies from prior M&A Financial policy Rising demand for shareholder returns Conservative policies from first half of the decade largely maintained to date Regulation Tough M&A approval requirements and Bulk of MTR cuts already absorbed risk of increased asset regulation Macro economic Brexit Mildly positive European macro prospects. Low interest rates support liquidity/FOCF.

But what will drive future growth? No content below the line No content below the line

Private & Confidential 8 Financial Outlook for European Telecoms (2017-2018)

POSITIVE, BUT LOW GROWTH DRIVEN BY CABLE MODEST MARGIN GROWTH AHEAD

SUSTAINED HIGH INVESTMENTS RISING FREE OPERATING CASH FLOW

No content below the line Note: Telcos – top 13 telecom companies; Cablecos – top 9 cable companies; f-Forecast No content below the line Source: S&P Global Ratings

9 Top 5 European Telcos: Return to growth in 2017

Operational KPIs

Revenue growth YoY (%) S&P adj EBITDA margin (%)

43.7% 37.4% 33.2% 31.1% 33.1% 4.3% 2014A 2.5% 2014A 0.4% 2015A 2015A 2016A 2016A -0.9% -0.6% 2017A 2017A Vodafone Deutsche Orange Telecom Telefonica Telekom Italia Vodafone Deutsche Orange Telecom Telefonica Telekom Italia

S&P adj CAPEX/sales (%) IMPROVING, BUT UNCERTAIN GROWTH PROSPECTS 27.8% 25.8% Revenue growth YoY (%), organic Q1-17 Q2-17 Q3-17 Q4-17 19.6% 18.2% 16.8% 2014A Vodafone 0.2% 3.5% 2.7% 3.7% 2015A 5.7% 6.1% 1.1% 2.7% 2016A Orange 0.8% 1.4% 0.9% 1.8% Telecom Italia 2.6% 3.7% 1.8% 2.8% 2017A Telefonica 1.5% 3.1% 4.0% 4.8% Vodafone Deutsche Orange Telecom Telefonica Telekom Italia All organic growth relates to constant FX and perimeter. DT organic growth relates to constant perimeter Source: Company data adjusted by S&P Global Ratings No content below the line TI and VOD 2017 figures as per S&P forecasts No content below the line

10 Modest Decline in Leverage Expected Leverage trends and ratings thresholds for European telecom operators

• Since peaking in 2015 on low FOCF, currency movements and pension adjustments, leverage has declined, creating more ratings headroom. • We expect telco leverage will continue to decline through EBITDA growth and in same cases through positive discretionary cash flow. • S&P base case typically excludes M&A. Rating S&P Adj. Debt/EBITDA 2015 2016 2017 2018f 2019f expectation BT Group PLC 3.1x 3.0x 2.8x ~2.7x - 2.8x ~2.7x - 2.8x <3.0x Deutsche Telekom AG 3.4x 3.4x 3.1x ~3.0x - 3.1x ~2.9x - 3.0x <3.5x Koninklijke KPN N.V. 3.5x 3.2x 3.2x ~3.1x - 3.2x ~3.1x - 3.2x 3.0x-3.5x Orange S.A. 2.8x 2.7x 2.7x ~2.4x - 2.5x ~2.4x - 2.5x 2.5x-3.0x Proximus S.A. 1.5x 1.4x 1.5x ~1.5x - 1.6x ~1.5x - 1.6x <2.0x Swisscom AG 2.6x 2.4x 2.2x ~2.2x - 2.3x ~2.2x - 2.3x ~2.5x TDC A/S 3.4x 3.3x 3.2x ~3.0x - 3.1x ~2.8x - 2.9x 3.0x-3.5x Telecom Italia SpA 3.9x 3.6x 3.4x ~3.2x - 3.3x ~3.1x - 3.2x <3.8x Telefonica S.A. 3.5x 3.7x 3.3x ~3.2x - 3.3x ~3.2x - 3.3x ~3.0x Telekom Austria AG 2.7x 2.5x 2.5x ~2.4x - 2.5x ~2.3x - 2.4x <3x Telenor ASA 1.8x 1.7x 1.7x ~1.7x - 1.8x ~1.7x - 1.8x <2.0x Telia Company AB 2.6x 2.6x 1.9x ~2.0x - 2.1x ~2.0x - 2.1x <2.3x Vodafone Group PLC 3.4x 2.8x 2.5x ~2.3x - 2.4x ~2.3x - 2.4x <3.0x

Note: BT and Vodafone fiscal year ends on March 31 No content below the line No content below the line S&P adjustments are mainly related to operating leases, pension deficits, asset retirement obligations, surplus cash, and derivatives

11 Sector Hot Topics

Content • Attracting interest as a differentiator, but less effective in Europe than the U.S. • Economics can be challenging with sport rights inflation and OTT’s deep pockets Regulation of M&A • In-market consolidation faces regulatory resistance • Regulators likely more receptive to convergent or cross-border consolidation, but convergent M&A complicated by valuations and cross-border lacks key synergies Regulation of Assets • Asset unbundling to asset spins, likely negative to business profiles => loss of network differentiation • Credit impact could boil down to valuations and use of proceeds 5G • Not in current forecasts, but fiber deployments will be a stepping stone • Lot’s of potential, but compelling use cases still needed to justify investment

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Private & Confidential 12 How Important Is Content?

We currently give little credit to content strategies in our forecasts • Is the difference with the US customer spending insurmountable, or an opportunity for European telcoms?

Revenue ($) per Cable and IPTV $1,600

$1,400

$1,200

$1,000

$800

$600

$400

$200

$0

2014Y 2012Y 2013Y 2014Y 2015Y 2016Y 2017Y 2012Y 2013Y 2014Y 2015Y 2016Y 2017Y 2012Y 2013Y 2014Y 2015Y 2016Y 2017Y 2012Y 2013Y 2015Y 2016Y 2017Y 2012Y 2013Y 2014Y 2015Y 2016Y 2017Y 2012Y 2013Y 2014Y 2015Y 2016Y 2017Y United Kingdom Germany France Spain Italy US*

Premium Cable revenues per subscribers IPTV Revenue per subscriber

No content below the line Source: SNL – Media & Communications Industry Forecast Tables. No content below the line

Private & Confidential 13 Financial Policy Will Be Key To Cash Flow Led De-Levering

THE STOXX EURO 800 TELECOM INDEX HAS FALLEN 27% IN LAST 3 YEARS • Shareholders may grow impatient with equity trading at 3-year lows • Will telcos keep discipline on dividends, as we expect in our forecast?

WILL DIVIDEND INCREASES MODERATE … … AND BE FULLY FUNDED BY FOCF?

Telco Cash Dividend Growth 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% 2013 2014 2015 2016 2017 2018 2019 2020

No content below the line Note: Telcos – top 13 telecom companies; f-Forecast No content below the line Source: S&P Global Ratings

14

Q&A

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15

Appendix

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16

Ratings, Outlooks and Distributions

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17 European Telco Ratings and Outlook

European Telco Ratings Distribution European Telecoms Outlook Distribution

7 6 1 3 5

4 2018 3 2016 6 2 15 1 0 A A- BBB+ BBB BBB- BB+ BB BB- B+ B

Stable Positive Negative Watch Neg

• Our outlook remains "stable" (~2/3 of outlooks stable) and little rating change over the last 12 months • Outlook as of April 23, 2018: Six Positive, Three Negative, One CreditWatch Negative • Incumbent telco business profiles have remained resilient. • Leverage has decreased, and should benefit from modest FOCF gains.

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18 European Cable Ratings and Outlook

European Cable Companies Ratings Distribution Cable Companies Outlook Distribution

8 7 1 6 1 5 Stable 2018 4 Negative 3 2016 2 Watch Pos 1 0 13 BBB- BB BB- B+ B

• Our outlook remains "stable” (~90% of outlooks stable) • Outlook as of April 23, 2018: Mostly stable after downgrades of Altice and subsidiaries, positive bias driven by , Negative by VodafoneZiggo • We expect continued, high leverage and weak Financial Profiles due to aggressive leverage and M&A policies from parents Liberty and Altice

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19

BRP and FRP Top Telcos vs. Cable Operators 1Q18

Excellent PLC Deutsche Telekom AG ASA BB-/Stable/-- (BBB+/Stable/A-2) (A/Stable/A--) (A/Stable/A-1) Telefonica S.A. Telia (A-/Negative/A- (BBB/Stable/A-2) 2) Vodafone

(BBB+/Stable/A-2) Strong Orange (BBB+/Stable/A-2) BT Group/EE Ltd. (BBB+/Negative/A-2)

Unitymedia UPC Holding TDC Telekom Austria Proximus S.A. BB-/Stable/-- BB-/Stable/-- (BBB-/Watch Neg/A-3) (BBB/Positive/A-2) (A/Stable/A-1) VodafoneZiggo Group Koninklijke KPN .V. BB-/Negative/-- BB-/Stable/-- BBB-/Positive/A-3 Altice N.V. Group Telecom Italia

B/Stable/-- BB-/Stable/-- (BB+/Positive/B) BUSINESS RISK PROFILE Satisfactory Com Hem Hldg AB BB/Watch Pos/---

United Group B.V. RCS & RDS B/Stable/-- BB-/Stable/--

Fair Fair Tele Columbus AG

B/Stable/--

Highly Leveraged Aggressive Significant Intermediate Modest Minimal No content below the line No content below the line FINANCIAL RISK PROFILE

As ofAs Oct. of April 11, 201623, 2018 20 Rating Migration EMEA telco ratings actions since 1Q 2016 6 5 4 3 2 Upgrade 1 Downgrade 0 1Q 2016 2Q 2016 3Q 2016 4Q 2016 1Q 2017 2Q 2017 3Q 2017 4Q 2017 1Q 2018 2Q 2018 (as of 23-April- 2018) Org Legal Name Rating Action Rating Prior Rating Rating Date Driver of change SFR Group SA Downgrade B/STABLE B+/WATCH NEG 19-Apr-18 Rating action on parent Altice International S.a..l. Downgrade B/STABLE B+/WATCH NEG 19-Apr-18 Rating action on parent Altice Luxembourg SA Downgrade B/STABLE B+/WATCH NEG 19-Apr-18 Rating action on parent High leverage and negative cash Downgrade B/STABLE B+/WATCH NEG 19-Apr-18 Altice N.V. flow Matterhorn Upgrade B+/STABLE B/STABLE 29-Mar-18 Improved credit quality Ownership increase by Deutsche Upgrade BB/POSITIVE BB-/POSITIVE 28-Mar-18 Hellenic Telecom Telekom Adverse developments in Italian Outlook change BB-/NEGATIVE BB-/STABLE 23-Mar-18 Wind Tre S.p.A. wireless market TDC A/S CreditWatch BBB-/WATCH NEG BBB-/STABLE 13-Feb-18 Possible takeover VodafoneZiggo Group B.V. Outlook change BB-/NEGATIVE BB-/STABLE 31-Jan-18 Rising debt and dividends Hellenic Telecom Upgrade BB-/POSITIVE B+/POSITIVE 24-Jan-18 Sovereign rating action SFR Group SA CreditWatch B+/WATCH NEG B+/NEGATIVE 16-Jan-18 Rating action on parent Altice International S.a.r.l. CreditWatch B+/WATCH NEG B+/NEGATIVE 16-Jan-18 Rating action on parent Altice Luxembourg SA CreditWatch B+/WATCH NEG B+/NEGATIVE 16-Jan-18 Rating action on parent Altice N.V. CreditWatch B+/WATCH NEG B+/NEGATIVE 16-Jan-18 Uncertain deleveraging capacity Com Hem Sweden AB (publ) CreditWatch BB/WATCH POS BB/POSITIVE 11-Jan-18 Merger Announcement Mobile TeleSystems CreditWatch BB/WATCH NEG BB/WATCH DEV 4-Jan-18 Rating action on parent Mobile TeleSystems Downgrade BB/WATCH DEV BB+/WATCH NEG 12-Dec-17 Rating action on parent Bahrain Telecommunications Company Downgrade B+/STABLE BB-/NEGATIVE 5-Dec-17 Sovereign rating action Telkom SA SOC Ltd. Downgrade BB+/STABLE BBB-/NEGATIVE 4-Dec-17 Sovereign rating action No content below the line No content below the line

Last updated: April 23, 2018 21 European Telco Ratings List

Company Rating/Outlook Business Risk Profile Financial Risk Profile Telenor ASA A/Stable/A-1 Strong Modest Swisscom AG A/Stable/- Strong Intermediate Proximus S.A. A/Stable/A-1 Satisfactory Modest AB A-/Negative/A-2 Strong Intermediate Bouygues S.A. BBB+/Positive/A-2 Satisfactory Modest Vodafone Group PLC BBB+/Stable/A-2 Strong Intermediate Deutsche Telekom AG BBB+/Stable/A-2 Strong Significant Orange S.A. BBB+/Stable/A-2 Strong Intermediate Elisa Corp. BBB+/Stable/A-2 Satisfactory Modest BT Group PLC BBB+/Negative/A-2 Strong Intermediate Telekom Austria AG BBB/Positive/A-2 Satisfactory Intermediate Telefonica S.A. BBB/Stable/A-2 Strong Significant DNA Oyj BBB/Stable/- Satisfactory Modest Koninklijke KPN N.V. BBB-/Positive/A-3 Satisfactory Significant TDC A/S BBB-/Watch Neg/A-3 Satisfactory Significant Telecom Italia SpA BB+/Positive/B Satisfactory Significant Sunrise Communications Holdings S.A. BB+/Positive/- Satisfactory Significant Colt Group S.A. BB/Stable/- Weak Modest TalkTalk Telecom Group PLC BB-/Stable/- Fair Aggressive Wind Tre S.p.A. BB-/Negative/- Satisfactory Highly Leveraged Hellenic Telecommunications Organization S.A. BB/Positive/B Vulnerable Modest eircom Holdings (Ireland) Ltd. B+/Stable/- Fair Highly Leveraged Ufinet Telecom Holding SLU B/Stable/- Fair Highly Leveraged Matterhorn Telecom Holding S.A. B+/Stable/- Fair Aggressive Largo Intermediary Holdings Ltd. (Wind Hellas) B/Stable/- Vulnerable Aggressive

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22 European and CIS Cable and Telco Ratings List

Company Rating/Outlook Business Risk Profile Financial Risk Profile NOS, S.G.P.S., S.A. BBB-/Stable/- Satisfactory Intermediate Com Hem Holding AB (publ) BB/Watch Pos/- Satisfactory Significant Liberty Global PLC BB-/Stable/- Strong Highly Leveraged UPC Holding B.V. BB-/Stable/- Satisfactory Aggressive Virgin Media Inc. BB-/Stable/- Satisfactory Highly Leveraged Unitymedia GmbH BB-/Stable/- Satisfactory Highly Leveraged Telenet Group Holding N.V. BB-/Stable/- Satisfactory Aggressive S.A. BB-/Stable/- Fair Aggressive VodafoneZiggo Group B.V. BB-/Negative/- Satisfactory Highly Leveraged SFR Group S.A. B/Stable/- Satisfactory Highly Leveraged Altice International S.a.r.l. B/Stable/- Satisfactory Highly Leveraged Altice N.V. B/Stable/- Satisfactory Highly Leveraged Altice Luxembourg SA B/Stable/- Satisfactory Highly Leveraged Tele Columbus AG B/Stable/- Fair Highly Leveraged United Group B.V. B/Stable/- Fair Highly Leveraged

Company Rating/Outlook Business Risk Profile Financial Risk Profile MegaFon PJSC BBB-/Stable/- Satisfactory Intermediate OJSC BB+/Stable/- Fair Intermediate Kazakhtelecom JSC BB+/Stable/- Fair Minimal VEON Ltd. BB/Stable/- Satisfactory Significant Mobile TeleSystems (OJSC) BB/Watch Neg/- Satisfactory Modest Er-Telecom B/Stable/- Weak Aggressive

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23 Middle East and African Ratings

Company Rating/Outlook Business Risk Profile Financial Risk Profile Turk Telekom BBB-/Negative/A-3 Satisfactory Intermediate Turkcell Iletisim Hizmetleri A.S. BBB-/Negative/- Satisfactory Modest Etisalat AA-/Stable/A-1+ Strong Minimal Saudi Telecom Co A-/Stable/A-2 Strong Minimal Ooredoo. A-/Negative/A-2 Satisfactory Significant Telkom BB+/Stable/- Fair Modest MTN Group BB+/Negative/- Satisfactory Intermediate Telkom BB+/Stable/- Fair Modest Batelco B+/Stable/B Fair Modest Helios Towers Africa B/Stable/- Weak Highly Leveraged Cell C B-/Negative/- Weak Highly Leveraged

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24

Selected Company Snapshots

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25 Company Focus BT Group PLC . BBB+/Negative/A-2

Key factors driving the rating Assumptions Key Metrics (based on October 2017 FA) • Flat-to-slightly declining revenues in the financial years • Operating performance 2018 and 2019 (ending March 31), driven by weaknesses in 2017A 2018E 2019E • Regulatory developments wholesale and business, including public sector; and the Revenues (bil. GBP) 24.0 23-24 23-24 negative impact on Openreach from the expected Revenue growth (%) 26.4 (1)-(2) 0-1 • Capex / Content investments reduction in fiber wholesale fees, somewhat offset by • Pension deficit about 3%-5% growth in BT's fixed consumer revenues and EBITDA margin (%) 30.9 30-31 31.5-32.5 1%-3% growth in mobile revenues. Capex/Sales (%) 11.1 14-15 12-13 • EBITDA margins of 30%-32% (before specific items) in the financial years 2018 and 2019. This is on the back of FFO/Debt (%) 25.7 26.27 27-29 continual cost-cutting and restructuring of Global Services FOCF/debt*(x) 12.8 3-4 10-12 as well as the benefits of cost synergies from the Debt/EBITDA*(x) 3.0 2.9-3.1 2.8-3.0 integration of EE. We assume these will be offset by the costs of rising sport content costs, and lower margins for *S&P Global Ratings-adjusted. a--Actual. e—Estimate both consumer and Openreach segments after recent FOCF: free operating cash flow. investments in service and expectations of lower access fees. Financial year end March 31 • Capital expenditure (capex) of about 12%-15% of sales excluding the spectrum acquisition payments. • Annual dividends of about £1.5 billion in financial 2018 excluding potential share buybacks, assumed to remain steady in fiscal 2018 on the back of increasing capex and pension outflows.

Outlook (based on August 2017 FA) The negative outlook reflects the possibility of a one-notch downgrade over the next 12-18 months if performance or regulatory hurdles result in increased revenue and margin pressures. Downside scenario We could downgrade BT if we see continued weaker-than-expected operating performance, outsized investments significantly exceeding our current expectations, adverse regulatory developments that weaken BT's margins toward 30%, or weakness in the consumer segment. We could also consider lowering the rating if BT's adjusted debt to EBITDA rose to above 3x, or FOCF to debt dropped below 12% due to performance related issues. Upside scenario We could revise the outlook back to stable if BT's performance were significantly stronger than we currently envisage, with leverage declining to about 2.5x, creating meaningful headroom for the existing uncertainties. We may also revise the outlook if higher visibility on upcoming regulatory decisions strengthened our view regarding BT's maintenance of its strong business risk and deleveraging prospects No content below the line No content below the line

Private & Confidential 26 Company Focus Deutsche Telekom AG (DT) . BBB+/Stable/A-2

Key factors driving the rating Assumptions Key Metrics (based on May 2017 FA) • Revenue growth, excluding exchange-rate effects, of 2%-4% in 2016A 2017E 2018E • Competitive landscape in US and 2017 and 2018, thanks to strong service revenue growth at TMUS, Germany flat revenues in Germany, and improved trends in Europe mainly Revenues (bil. EUR) 72.8 74-75 76.5-77.5 • M&A from 2018, compared with 5.6% in 2016. EBITDA margin (%) 29.3 29-30.5 29-31 • EBITDA margins for the group, as adjusted by DT, gradually • Financial policy expanding within the 29%-31% range in the next two years, fueled Capex/Sales (%) 18.5 25-27 25-27 • Operating performance by margin expansion in the U.S. and supported by cost optimization Debt/EBITDA*(x) 3.3 3.2-3.4 3.0-3.3 efforts in Germany and Europe, after 29.3% in 2016. FFO/dent (%) 24.4 24-26 26-28 • Capex, excluding spectrum costs, increasing to about 15%-16.5% of revenues in 2017-2018 after 15% in 2016, linked in particular to FOCF/debt*(x) 4.8 (1)-2 8-10 fixed network upgrades in Germany and 4G network build-out in the U.S., and capex to sales including spectrum costs of 25.5%–27.0% *S&P Global Ratings-adjusted. a--Actual. e—Estimate in 2017. FOCF: free operating cash flow. • Dividends moving in line with DT's measure of free cash flow, with payouts in 2017 partly reduced by its scrip dividend offer.

Outlook (based on May 2017 FA) The stable outlook on DT reflects S&P Global Ratings' expectations that: 1) DT will successfully defend its domestic market positions in mobile and fixed broadband, further stabilize its service revenue trends, and trim its cost base, supporting stable or moderately growing EBITDA in Germany; 2) Strong operating trends at subsidiary T-Mobile U.S. will continue, with EBITDA growth in U.S. dollar terms and, as adjusted by DT, of about 9%-11% in 2017 and surpassing 6% in 2018, but excluding further uplifts from handset leasing; 3) DT remains committed to maintaining leverage (debt to EBITDA) well within its target band of 2.0x–2.5, and maintain adjusted debt to EBITDA and funds from operations (FFO) to debt of no higher than 3.5x and at least 23%, respectively, in the next two years; 4) DT will strengthen free operating cash flow (FOCF) to debt, before spectrum payments, to more than 10% of adjusted debt in 2018, compared with about 8.4% in 2016. Downside scenario We could take a negative rating action if DT's adjusted debt to EBITDA exceeded or remained at 3.5x and if, at the same time, adjusted FFO to debt declined to less than 23% for more than a temporary period, or if adjusted FOCF to debt, before spectrum payments, did not strengthen to about 10% on a sustainable basis by 2018. In particular, this could result from by stiffer-than-expected competition in Germany or the U.S., material debt-funded acquisitions in the U. S. market, or a combination of higher-than-expected restructuring costs and large increases capital expenditures (capex). Upside scenario We currently do not foresee a positive rating action on DT within the next 18 months, given its high leverage for the current rating and our base-case assumption of subdued discretionary cash flow (DCF) generation in 2017-2018. We could raise the rating if DT's credit metrics improved markedly, for example as a result of sizable asset disposals, accompanied by the implementation of a financial policy that corresponds to the maintenance of adjusted debt to EBITDA of less than 3.0x and FFO to debt of about 30%, with FOCF to debt rising toward 15% of adjusted debt. No content below the line No content below the line

Private & Confidential 27 Company Focus Orange S.A. . BBB+/Stable/A-2

Key factors driving the rating Assumptions Key Metrics • Operating performance in France • Revenue growth of 1%-2% in 2016, mainly contributed 2016A 2017E 2018E and Spain by Spain. EBITDA margin (%)* 32.3 32-33 32-34 • Acquisitions • About 0.5% organic revenue growth in 2017, reflecting FFO/Debt (%)* 29.6 29-30 30-32 stable revenues in France thanks to continued • Financial policy Debt to EBITDA (x)* 2.7 2.7-2.8 2.6-2.7 commercial success in fiber and growth in data

revenues; growth in subscribers in Spain, and low-to- mid-single digit revenue growth in emerging markets — *S&P Global Ratings-adjusted. a--Actual. e—Estimate somewhat offset by continued low single digit revenue FOCF: free operating cash flow. decline in Poland and the enterprise segment. • Reported EBITDA margins increasing to about 30% in 2017 from acquisition synergies and lower restructuring and provisions.

Outlook The stable outlook on Orange reflects S&P Global Ratings anticipation of improved performance for Orange in France and Spain over the next 12 months, with at least break-even revenue and EBITDA growth for the group. We also expect the company to maintain credit metrics in line with our 'BBB+' rating, including S&P Global Ratings-adjusted debt to EBITDA of 2.5x-3.0x, funds from operations (FFO) to debt approaching 30%, and free operating cash flows (FOCF) to debt of about 10% from 2017 onward. Downside scenario We could take a negative rating action if we witness a renewed price war in the domestic mobile market, which could have a meaningful negative impact on Orange's revenue and profitability. Additionally, although not our base case, a substantially debt-funded acquisition, with no immediate deleveraging prospects, to below 3x could lead to a downgrade. Upside scenario We see the potential for an upgrade as unlikely in the short term given our expectations of limited free cash flow generation as Orange continues to invest heavily in ultra-fast broadband networks. Additionally, in our view, the rating is constrained by Orange's merger and acquisition appetite which is likely to stall potential deleveraging. We could consider an upgrade if Orange deleverages to sustainably less than 2.5x adjusted debt to EBITDA, but at this stage we think this does not match the company's financial policy. No content below the line No content below the line

Private & Confidential 28 Company Focus Telecom Italia SpA . BB+/Positive/--

Key factors driving the rating Assumptions Key Metrics (based on September 2017 SA) • Execution of efficiency plans • Revenue growth of 2%-3% for the group in 2017, up from -3% in 2016A 2017E 2018E 2016, reflecting domestic revenue growth of about 2% helped by Revenues (bil EUR) 19.3 20-20.5 19.5-20 • Regulatory developments higher mobile and fixed broadband revenues, and organic growth of • Leverage trends 1%-3% in Brazil. Revenue growth (%) -3.3 2-3 (1)-(3) • Group revenue decline of 2%-3% in 2018 mainly on domestic EBITDA margin (%)* 42.9 43.5-44.5 44-45 revenue declines following increased competition in fixed wholesale as well as higher competition in wireless from the market entry of Capex/Sales (%)* 24.1 27-28 21-22 Iliad. FFO/Debt (%)* 20.3 21-22 24-25 • Adjusted EBITDA margins improving to about 45% by 2018 from Debt to EBITDA (x)* 3.6 3.3-3.4 3.2-3.3 about 43% in 2016, thanks to the positive impact of the efficiency plan. FOCF/Debt (%)* 4.1 1-3 5-6 • Heavy capex of 24%-25% of revenues in 2017 excluding spectrum renewal costs, declining to about 22% in 2018 due to gradual *S&P Global Ratings-adjusted. a--Actual. e—Estimate decline in both fixed and mobile network upgrades and more FOCF: free operating cash flow. efficient spending. • No dividends assumed, apart from dividends on the company's savings shares and to TIM Participaçoes and Inwit's minorities (totaling about €230 million in 2016).

Outlook (based on September 2017 Summary) The positive outlook reflects the possibility of a one-notch upgrade following continued solid execution of the company's efficiencies plan, investments in upgrading its fixed and mobile networks, and new initiatives contributing to continued improvement in margins, recurring cash flow generation, and deleveraging in 2017-2018.. Upside scenario We could raise the rating if solid execution of the company's plan results in a reduction in adjusted leverage to comfortably less than 3.3x in 2018, and an increase in FFO to debt to about 25% and free operating cash flow to debt to about 8%. Downside scenario We could revise the outlook to stable if Telecom Italia struggles to execute its plans and materially reduce its leverage by 2018. This could happen because of an inability to extract additional meaningful cost and capital expenditure (capex) efficiencies or because the impact of competition on Telecom Italia's revenues is higher than expected. If Telecom Italia had to pay regulatory fines significant enough to result in meaningful cash outflows or potential regulatory intervention in Telecom Italia's investments, we could also revise the outlook to stable. No content below the line No content below the line

Private & Confidential 29 Company Focus Telefonica S.A. . BBB/Stable/A-2

Key factors driving the rating Assumptions Key Metrics (based on July 2017 RU) • Operating performance • We forecast low-single-digit revenue growth of about 3%- 2016A 2017E 2018E • Macroeconomic developments 4% in 2017, mainly from organic growth in Latin America Revenues (bil. EUR) 53.8 55.5-60 56-56.5 along with positive currency effects, particularly from • Competitive landscape EBITDA margin (%)* 31.9 32.0 32.0-33.0 Brazil. Capex/Sales (%)* 17.1 16-17 15-16 • Leverage trends • Flat growth in 2018, with Spain and the U.K. posting stable performance, Brazil increasing on an organic basis, but FFO/Debt (%)* 22.5 24-25 26-27 somewhat offset by revenue decline in Germany and some Debt to EBITDA (x)* 3.7 3.2-3.4 3.0-3.3 negative currency impacts. FOCF/debt (%)* 8.6 10-11 12-14 • Adjusted EBITDA margins slightly improving to about 32%- 33% as cost optimization, notably in Spain and Germany, *S&P Global Ratings-adjusted. a--Actual. e—Estimate is more than offset by high inflation in Latin America. FOCF: free operating cash flow. • Cash outflows from short-term asset sales, including the partial disposal of its new infrastructure subsidiary, Telxius in 2017.

Outlook (based on July 2017 RU) The stable outlook reflects our anticipation that all of Telefónica S.A.'s key assets will post stable operating performance in their local currency. We also expect that some positive currency effects and Telefónica's commitment to debt reduction will support a decline in leverage toward 3x over the next couple of years. Downside scenario We could lower the rating by one notch if operating performance in key assets, including Spain, Germany, the U.K., and Brazil, is weaker than our base-case expectations, for example as a result of a lower demand on the back of a macroeconomic drop or increased competition. Additionally, we could lower the rating if Telefónica does not actively seek to reduce its debt levels so that, after our adjustments, it declines toward 3x over the next few years. Upside scenario We currently see an upgrade in the short as remote due to the relatively significant debt burden and leverage. We could consider an upgrade if Telefónica reduced adjusted leverage to comfortably within the 2.5x-3x range and we considered this sustainable over the long term, under its financial policies and given its earnings No content below the line prospects. No content below the line

Private & Confidential 30 Company Focus Vodafone Group PLC . BBB+/Stable/A-2

Key factors driving the rating Assumptions Key Metrics (based on September 2017 FA)

• Operating performance • We expect the company's revenue to decline by about 2%-3% in FY2018, mainly due to the deconsolidation of its business in The 2017A 2018E 2019E • CAPEX and dividend policy Netherlands after the joint venture with Liberty Global. Revenues (bil. EUR)* 47.6 46.0-46.5 46.5-47.5 • M&A • We forecast adjusted EBITDA margins to rise to about 37% and EBITDA margin (%)* 34.1 37-37.5 37.5-38.5 • Liquidity position 38% over the next two years on the back of cost cutting initiatives FFO to Debt (%)* 30.6 33-34 35-37 the group has focused on, along with the zero-based budgeting initiatives undertaken as part of the "fit-for-growth" initiative. Capital Intensity (%) 15.7 19-20 17-18

• We expect capex will drop to around 15%-16% of revenues, Debt to EBITDA (x)* 2.8 2.5-2.6 2.4-2.5 excluding spectrum costs, with the majority going toward FOCF/Debt (%) 12.1 11.5-12 17-18 maintaining its market position and the rest focused on improving its fixed offerings and its product transformation (fit-for-growth) *S&P Global Ratings-adjusted. a--Actual. e—Estimate initiative. • No significant acquisition capex in the near term following the FOCF: free operating cash flow. divestment of the Indian operations via a joint venture with Idea Financial year end March 31 Cellular. • A year-on-year 2% increase in the dividend paid as per the company plans. Outlook (based on September 2017 FA) S&P Global Ratings' stable outlook on global telecommunications company Vodafone Group PLC reflects our expectation that average adjusted debt to EBITDA will remain below 3.0x and funds from operations (FFO) to debt above 30% on a sustainable basis, supported by low-single-digit organic growth and EBITDA margins breaking 30%. We expect another year of negative discretionary cash flow because of high capex in fiscal 2018 when including spectrum outlay and high dividends. In addition, we expect Vodafone to pursue any strategic initiative related to acquisitions or disposals within the boundaries of our current financial risk profile assessment. Downside scenario: We could lower our ratings on Vodafone if we anticipated that its adjusted debt to EBITDA would exceed 3.0x and FFO to debt would fall below 30% on a prolonged basis. This could occur if Vodafone returned to organic European revenue declines, or a sharp slowdown in AMAP growth outpaced modest European growth combined with additional leverage from acquisitions, or if increased capex or shareholder returns led to prolonged negative discretionary cash flow beyond fiscal 2018. A rapid push to convergence by other players in the U.K. and Italy could increase competitive pressure and also lead us to reconsider our view of Vodafone's business risk profile. We could also lower the ratings if Vodafone's liquidity position deteriorated due to a lack of proactive refinancing. Upside scenario: We see limited potential for an upgrade over the next two years, but could consider raising the rating if we expected Vodafone to sustainably maintain S&P Global Ratings- adjusted debt to EBITDA at significantly less than 2.5x and FFO to debt above 35%. This could occur if Vodafone were able to raise adjusted EBITDA margins toward 35% and achieve positive organic revenue growth, while maintaining a conservative approach to leverage and shareholder returns. An upgrade would also likely require a strengthened business profile as a fixed-mobile converged provider in Europe, for example, by demonstrating a track record of market-leading quadruple-play growth. No content below the line No content below the line

Private & Confidential 31

Network coverage statistics

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32 European Telcos Still Behind the US in Mobile and Fixed, but Making Fiber Progress

Households With Access 2011 2012 2013 2014 2015 2016 LTE Population Coverage EU27 8% 27% 59% 79% 86% 90% US 67% 90% 98% 98% 99% 98%

High Speed Fixed BB Coverage EU27 (>30Mbps) 48% 54% 62% 68% 71% 76% US (>25Mbps) 72% 80% 83% 90% 90% >90%

Fiber To The Premises EU27 10% 12% 14% 19% 21% 24%

Source: FCC, European Commission

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33 Infrastructure Progress to Drive Capex Variation Across Europe

UK AND GERMANY’S NGA ADVANTAGE SOUTHERN EUROPE’S FIBER LEAP FROG

Source: S&P Global Ratings, European Commission Source: S&P Global Ratings, European Commission

• Mobile capex winding down, but shift to fixed upgrades keep our forecast levels at 17%- 18% of revenue • Smaller markets and Southern Europe lead on fiber rollouts, improving competitive positions and future cash flow prospects • Technology upgrades to non-fiber NGA sufficient in Germany and UK, but for how long?

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