MARCO CONCEPTUAL

The French telecommunications market had revenues of approximately €36.8 billion in 2014 (Source: ARCEP). While the Group takes part in all telecommunications market segments, its activity is centered around those that are the most attractive: Fixed-line very-high-speed Internet, pay-TV and next-generation B2B services (advanced data services, IP VPN, hosting and cloud services). France is one of the largest European markets in terms of access to fixed-line high-speed Internet, with nearly 25.97 million fixed-line high-speed subscriptions as of December 31, 2014 (Source: ARCEP). Having a broader bandwidth is becoming increasingly important for B2C subscribers. There were 11.9% very-high-speed lines as of December 31, 2014 in France (source: ARCEP), which is nevertheless a low level as compared with other European countries.

Access to very-high-speed Internet continues to rapidly increase: as of December 31, 2014, 4,064,000 households were eligible for very-high-speed optical fiber to the home (FttH), which corresponds to a 12% increase in one quarter and a 37% increase over one year. (Source: ARCEP). On the mobile market, the total number of SIM cards continues to increase, from 73.1 million cards as of December 31, 2012, to 76.8 million subscribers as of December 31, 2013, to 79.9 cards as of December 31, 2014 (Source: ARCEP), which has been sustained by the dynamic market in France: an increase in the rate of penetration of mobile phones, smartphones and tablets and the growth of quadruple play offers. Nevertheless, the value of the French mobile market declined after the fourth mobile telephony operator entered the market in early 2012, having as a consequence, among other things, a drop in the pricing of mobile offers in France. As of the date of this Registration Document, the prices for mobile subscriptions in France had reached levels that were among the lowest in Europe for comparable offers. In the B2C and B2B segments, data usage has increased and data needs have become more complex, as the next-generation services sought require higher speeds and bandwidth capacity.

6.2.1 B2C market

The Group is present in metropolitan France and thus handles a population of approximately 66 million residents (Source: INSEE).

The French B2C Internet access segment is a mature one, with 26.0 million households having high- speed Internet access as of December 31, 2014 (Source: ARCEP).

In terms of very-high-speed Internet access, which the ARCEP defines as Internet access for which the peak download speed is greater or equal to 30 Mbps, the French market nevertheless presents a relatively low rate of penetration, with only 11.9% of households having very-high-speed Internet access as of December 31, 2014 (Source: ARCEP). The Group estimates that such under-penetration could constitute an attractive opportunity for growth, as B2C subscribers are beginning to favor higher speed and bandwidth capacity for their Internet use.

The French high-speed Internet access market is one of the most competitive in Europe, with significant unbundling and strong incumbent competitors. The Orange fixed-line network includes a local loop serving the entire French population, and the unbundling allows other DSL access providers to access it at a price that is regulated by ARCEP. According to ARCEP, as of December 31, 2014, 91.4% of the French population was able to access competitive retail offers thanks to unbundling, which makes France one of the European leaders in that area (Source: ARCEP). All operators reputed to exert significant influence are required to offer unbundled access to their local loop and associated infrastructure under non-discriminatory conditions, which leads to increased competition on the market. See Section 6.12.1.1 “The European regulatory framework of electronic communication” of this Registration Document.

The competition on the B2C market has intensified recently, as the president of Bouygues Telecom announced in December 2013 his intention to launch a price war on fixed-line Internet offers in 2014, following Free’s ads for its 4G offers and the results of its competitors. Bouygues Telecom introduced a triple play offer at €19.99 per month in February 2014, and in July 2014 launched a FTTH offer at €25.99 including tax per month, with no commitment in terms of duration. In March 2015, Iliad announced the release of a new triple play box under Android TV™, the mini 4K, at the price of €29.99 per month, with no commitment in terms of duration.

As of December 31, 2014, Orange, Free (Iliad) and Bouygues Telecom reported a volume of customers with broadband services of 10.4 million, 5.9 million and 2.4 million, respectively (Source: announced in those companies’ 2014 annual earnings releases).

The French B2C mobile telephony market is a mature market, even though it has experienced significant changes in recent years, with the entry of a fourth mobile telephony operator in January 2012. The penetration rate of mobile telephony in France has consistently increased, from a penetration rate (including MtoM SIM cards (cards for communicating devices) for the entire population of approximately 105% as of December 31, 2011, 112% as of December 31, 2012, 117% as of December 31, 2013, and 121.5% as of December 31, 2014 (Source: ARCEP).

6.2.1.1 Sector convergence

The convergence of the B2C segment in France is the result of consumers’ desire to receive multimedia and telecommunications services from a single operator and at an attractive price. In response, operators offer television, high-speed Internet and fixed-line telephony services, which are grouped into bundled offers known as “double play” (two services provided together), “triple play” (three services – telephone, Internet, television – provided together) or "quadruple play" (telephone, Internet, television and mobile telephony provided together). Quadruple play” offers have been available on the French market since 2009 (Bouygues Telecom). SFR and Orange introduced “quadruple play” offers in 2010, Numericable followed in 2011 and Free did the same in 2012.

The Group estimates that bundled service offerings allow multimedia and telecommunications service providers to satisfy the communication and entertainment needs of consumers, and draw new customers thanks to the improved value of the offers.

The fiber optic/two-way cable networks are particularly adept at supplying triple play services which require wide bandwidth. Initially designed to transmit significant amounts of data, the hybrid fiber and coaxial cable network of the Group, which is based on FTTB technology, allows it to provide high speeds to the customer, regardless of distance. Conversely, the actual speed of the DSL networks varies according to the distance from the access point to the local loop, since the speed decreases as the geographic distance from the customer compared to this access point increases (the maximum speeds noted are for customers located within one kilometer of the nearest access point). In order to increase and align network speeds, Orange began to invest in the construction of an FTTH network. Iliad and SFR also began to roll out FTTH networks. As of December 31, 2014, approximately 935,000 subscribers were connected to the FTTH networks (Source: ARCEP).

6.2.1.2 High-speed Internet

a) Introduction

High-speed Internet access, often referred to simply “high-speed Internet,” is a high-speed data Internet connection. Recommendation I.113 of the Standardization Sector of the International Telecommunication Union (ITU) defines “high-speed internet” or “broadband” as a transmission capacity that is higher than the primary speed of the ISDN, which is approximately 1.5 to 2 Mbps. France, with 26.0 million high-speed internet subscribers as of December 31, 2014 (Source: ARCEP), is one of the largest high-speed Internet access markets in Europe. However, in terms of very-high- speed Internet access, the French market has a relatively low penetration rate, with just 11.9% of households having very-high-speed Internet access as of December 31, 2014 (Source: ARCEP). The Group estimates that such under-penetration constitutes an attractive growth opportunity for the Group as a reliable very-high-speed Internet access provider. Smartphones and tablets are proliferating, and as they are increasingly used for multimedia functions, B2C subscriptions require both more bandwidth (to adapt to the increased average number of screens per household) and quicker download speeds (to adapt to the use of multimedia services).

The main high-speed Internet access technologies are DSL (VDSL2) and fiber optics/cable. Digital analog modems, Internet access via electric cable and local wireless loop technology are likewise available in France, although to a lesser extent. The high-speed market penetration rates seems to be rising faster.

b) Main distribution platforms - DSL, VDSL2, fiber optics and cable

DSL is the first high-speed Internet access platform in France, with 22.4 million subscribers as of December 31, 2014, and representing approximately 86.2% of the total French high-speed and very- high-speed market (Source: ARCEP). This situation is the result of several factors: the regulatory environment which encouraged competition for DSL thanks to unbundling and regulated wholesale prices; the relatively recent consolidation of cable activity in France and the weak cable connection level (only 35% of French households); the fact that the modernization of cable networks is relatively recent; and the relatively low levels of roll-out of fiber optics.

DSL currently offers consumers a maximum speed of 28 Mbps, while cable currently offers consumers a maximum speed of 200 Mbps. As the speeds of these technologies are an average, they can nevertheless be lower in practice. In practice, the DSL speeds depend on the distances between the access point to the local loop and the home.

The Group’s network uses both FTTH technology and FTTB technology. FTTH technology, which requires a fiber link directly to the subscriber, currently offers consumers a maximum speed of 1 Gbps. The major difference between the FTTH networks and the fiber/cable network (FTTB) lies in

the fact that for FTTB, the vertical connection (within the building) to the subscriber uses a coaxial cable.

The roll-out of FTTH networks in France began slowly. Installation of this type of technology represents an investment of capital and time, and requires civil engineering and cabling work, be it horizontally to increase the number of residents covered, or vertically within buildings. The government considers the FTTH networks to constitute a significant part of its long-term investment plan and in February 2013 announced an FTTH roll-out program (for which cable technology is not eligible) of €20 billion (invested by private operators and local and regional authorities) and the objective of providing very-high-speed Internet access to 50% of the population by 2017, and to the entire country by 2022. The government will provide a €3.3 billion subsidy package, a portion of which comes from the Investments for the Future Program (Programme des Investissements d’Avenir) which is managed by France’s General Commissariat for Investments and governed by the 2015 Budget Act. Various local and regional authorities have already extended subsidies to network operators to install FTTH connections. This trend should continue, as certain departments, municipalities and regions, such as Hauts-de-Seine, Amiens and Louvin, for example, have entered into public-private partnerships to encourage such investments. At end-December 2014, France had a total of 935,000 very-high-speed Internet subscribers via FTTH, a 67% increase in one year. The Group signed agreements with Orange, as did Free, relating to the roll-out of fiber optics in less dense zones of France. In accordance with the conditions established by ARCEP, third-party operators may likewise have access to the infrastructure used by an operator, including by co-financing projects, for their own very-high-speed Internet offers.

VDSL2 technology is an alternative solution. DSL networks may be improved, and a portion of them have already been improved, thanks to the VDSL2 technology, which the government authorized for use in April 2013, and which provides average bandwidth speeds of up to 50 Mbps (Source: ARCEP). More particularly, the roll-out of VDSL2 only requires the addition of VDSL2 cards in the DSLAMs that were already rolled out and does not entail any physical intervention at the subscriber’s home. Moreover, the deployment of this technology has accelerated since October 2014 given the favorable opinion of the copper experts committee that has allowed the marketing, starting from that date, of VDSL2 in indirect distribution on all lines from an MDF on Orange’s local copper loop. As of December 31, 2014, approximately 4.9 million households were eligible for VDSL2 (source: ARCEP High- and very-high-speed observatory wholesale market, March 5, 2015).

As of December 31, 2014, very-high-speed subscribers represented approximately 11.9% of all high- speed Internet subscribers (Source: ARCEP), but Numericable Group was the top player on this market. The Group currently offers cable customers Internet speeds which can reach 200 Mbps, and its modernized network and set-top boxes are able to offer speeds going up to 400 Mbps, which has led to additional investment expenses for the Group.

The following table shows the distribution between high-speed Internet services in France, between December 31, 2013 and December 31, 2014 (Source: ARCEP):

in millions Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014**

Number of high-speed and very-high-speed subscriptions on fixed-line

networks 24.943 25.228 25.408 25.663 25.970

Number of high-speed subscriptions 22.876 23.009 23.054 23.166 22.875 of which are xDSL subscriptions 22.461 22.585 22.630 22.723 22.395 of which are other high-speed subscriptions 0.416 0.424 0.424 0.443 0.480

Number of very-high-speed subscriptions 2.066 2.219 2.354 2.497 3.095 of which end-to-end fiber optics subscriptions 0.559 0.640 0.720 0.801 0.935 of which very-high-speed ≥ 100Mbits/s subscriptions 0.764 0.804 0.821 0.851 0.885 of which other very-high-speed ≥ 30 and <100Mbits/s* subscriptions 0.743 0.775 0.812 0.845 1.275 *including subscriptions in VDSL2 for which speed is >=30 Mbits/s

Changes in the total number of high and very-high-speed subscriptions Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014**

Net increase over one year, in millions 0.958 0.980 1.009 1.004 1.025

Net increase over one year, in % 4.0% 4.0% 4.1% 4.1% 4.0%

Net increase over the quarter, in millions 0.284 0.285 0.181 0.255 0.305 Gross increase over the quarter, in millions *** 1.250 1.250 1.075 1.350 1.300 ** Provisional results

***Data rounded to 12,500 – approximate

As of December 31, 2014, the Group had 6.6 million Internet subscribers, including 5.0 million DSL subscribers, and 1.5 million FTTB and FTTH subscribers.

The Group is likewise in competition with operators who use alternate technologies for high-speed Internet access, such as mobile 3G and 4G Internet. As of December 31, 2014, there were a total of 79.9 million SIM cards on the French market (including 76.8 million “active” cards) and, as of December 31, 2014, 42.2 million active mobile 3G subscribers (Source: ARCEP). The Group, along with Orange, Bouygues Telecom and Free, also rolled out offers based on 4G/Long-Term Evolution (“LTE”), which allow quicker high-speed mobile Internet service to be provided. In October 2011, Orange, SFR, Bouygues Telecom and Free obtained licenses for the spectrum range of 2.6 GHz, adapted to the roll-out of the 4G/LTE networks. The Group, Orange and Bouygues Telecom have already announced they have reached one million 4G subscribers each. Free’s 4G offer launched in December 2013.

Moreover, alternative Internet access technologies could be introduced in the future. These technologies should further increase competition, or could lead operators to increase their investment costs to make additional upgrades. Competition in these alternative technologies, specifically in terms of pricing, could become more intense in the future.

6.2.1.3 Pay-TV

a) Introduction

The French television market is one of the largest in Europe. As with other European markets, the behavior of B2C consumers of television services in France is increasingly centered on digital, innovative, HD, Ultra-HD, and 3DTV television services, as well as interactive television services such as VOD, which require large bandwidth, along with bi-directional distribution platforms.

b) Broadcast platforms

In France, television signal broadcasting platforms include satellite, IP (DSL/FTTH), the cable network of Numericable Group, terrestrial systems (DTT) and OTT. TV viewers who have the appropriate television equipment may receive signals and watch programs on approximately 25 television channels free of charge (with no subscription) through DTT. In order to have access to more channels or content, TV viewers must subscribe to pay-TV services. The pay-TV market in France is divided between standard pay-TV in the form of packages of standard channels, in other words DTT channels, as well as low added-value channels, and premium pay-TV in the form of premium channel offers, which are specialized in sports, cinema and other thematic channels. The incumbent operators of pay-TV must confront growing competition in free television (including DTT)

and other alternatives to pay-TV (“over-the-top” or OTT and catch-up TV), although the competitive advantage of pay-TV (excellent quality programming and premium services) and the loyalty of the existing subscriber base have contributed to its sustainability (low price sensitivity and weak churn). The growth of IPTV has transformed the market, offering the possibility of providing pay-TV services that go beyond the traditional cable and satellite methods (which is limited by the impossibility of installing a satellite dish on the facade of buildings in certain areas, such as the center of Paris). Even though pay-DTT (which now concerns only the Canal+ Group) currently represents a low share of pay-TV, providers of pay-DTT could in the future be able to offer a larger selection of channels to a broader audience at a price that is lower than the one billed by the Group for its cable television services.

The Canal+ Group distributes its offers on all broadcasting platforms: DSL, DTT, satellite and the cable network of the Group (in the latter case, only for channels that belong to Canal+, called Les Chaînes Canal+, excluding Canal Sat). The Canal+ Group has two additional offers: a premium offer consisting of Les Chaînes Canal+ and a multi-channel package known as CanalSat. These two supplementary offers may be subscribed to individually or together. The Canal+ Group has developed numerous services with high added value to its offerings, such as CanalPlay (TV on-demand not available by satellite but available on the Group’s cable network), HD or even multi-screen broadcasting. As of December 31, 2014, the Canal+ Group had 9.5 million subscribers, and 6.1 million individual subscribers in France (Source: 2014 Vivendi income statement). The Canal + Group has negotiated agreements with broadcasters on the broadcasting platforms to which they hold rights. As NC Numericable has not yet granted rights to Canal + Group for its platform, Canal +, it cannot negotiate rights over that platform. NC Numericable is thus negotiating its own agreements with the broadcasters.

With regard to Canal+ Group, the Group’s cable pay-TV offers are above all in competition with the CanalSat offers, as the content of their offers is similar (the content of the Canal+ channels is exclusive to the Canal+ Group). There are several CanalSat offers. CanalSat Panorama (approximately 90 channels, €24.90 per month) and CanalSat Grand Panorama (the panorama channels + the Cinema Series channels, €39.90 per month). There is also the Grand CanalSat offer, which includes CanalSat Panorama, CanalSat Cinema Series and other options and channels (€58.90 per month; €64.90 per month with adult channels). The Foot+ and beIn Sport channels are not included but may, along with other channels, be added as an option.

(i) Cable

The Group is the only major cable operator in France. There are also small regional cable operators who, together, represent less than 1% of French cable networks, based on the total number of homes passed. The income from cable network operators primarily comes from subscription costs paid by customers for services provided. The Group estimates that direct access to its customers will allow it to identify and respond locally to their demand for specific products and services more easily, and thus to better serve them. The services provided by the cable networks feature easy-to-use technology, installation that is adapted to equipment at customers’ homes, and reliable secure signals which are directly broadcast to their homes. Cable television subscribers can access the customer services