Swiss regulation and telecom network infrastructure

The extension of access regulation threatens the excellent market results und the extremely high capital expenditure

Stefan Kilchenmann, Head of Public Affairs Swisscom Ltd. 30 January 2018 Regulation vs. investment Time to revise the Telecommunications Act? The 2007 Telecommunications Act is to be revised again. The focus

is on the expansion of access regulation 3

The Swiss Telecommunications Since then, the market has The Federal Council therefore now Act (TCA) was last revised in developed dynamically. wants to revise the TCA anew. The

2007. At the time, the Swiss focus this time will be on the 30.1.2018 Parliament deliberately chose expansion of access regulation. But not to regulate newer (esp. not only. optical fibre) networks.

Technology-neutral access regulation: High investment Optical fibre and cable networks are now to be regulated

Innovative products Consumer concerns: • Unwanted advertising calls Many new providers • Roaming • Youth media protection • Net neutrality Falling prices Shifting responsibility from Parliament to the Federal Council: the Federal Council Lower ranking in now wants the expansion of access Alpine Think Tank on SGI international regulation to be part of its remit. comparisons The current TCA is a success story Having brought state-of-the-art networks, lower prices and an explosion of offers, the current TCA benefits consumers and businesses 4

+150% State-of-the-art networks > Ranked second worldwide in broadband coverage 30.1.2018 Price developments > 99% have at least 30 Mbps over the last 20 years > Exponential growth in bandwidth

+56% Prices falling since 2007 > Fixed network: -34% +26% +14% +10% > Mobile: -83% -78% -73% -56% -17% -15% > Mobile and fixed network subscriptions: -56%

An explosion of offers > 200+ providers of fixed network, TV, Internet and mobile services

> Free offers, e.g. WhatsApp, Zattoo, etc. Alpine Alpine Think Tank on SGI > Ranked first (OECD) in broadband use

Source: K-Tipp, 18.10.2017 Statistics show: Switzerland ranks very highly worldwide in

broadband infrastructure 5

1stBroadband use: In Switzerland there are 51.4 broadband connections per 100 inhabitants 30.1.2018 – more than in any other OECD country (2010: 3rd) 1stPer capita investment in the telecoms market: No other OECD country invests as much per capita as Switzerland in infrastructure (2007: 5th)

2nd High bandwidth coverage (>10 Mbps): Switzerland ranks second overall worldwide, with an average of more than 10 Mbps (2012: 6th)

3rd ICT development index (IDI): Alpine Alpine Think Tank on SGI Comprises the three sub-indices access, use and education/training (2008: 10th)

Sources: OECD broadband portal, February 2017; OECD Digital Economy Outlook, July 2015; Akamai, State of the Internet, March 2017; ITU, November 2017 Investment

Switzerland invests more in its telecoms infrastructure than any other country worldwide 6 30.1.2018

Source: OECD Digital Economy Outlook July 2015, table 2.31 Alpine Alpine Think Tank on SGI With per-capita investment of almost $400, Switzerland has further increased its lead worldwide Investment growth especially benefits primarily rural cantons

7

200% +180%

180% 30.1.2018

160%

140%

120% +111% +110%

100%

80% +75%

+57% 60% +51% +46% 40%

+14% 20% +9% +12% -1% 0% 0% 2011 2012 2013 2014 2015 2016 -20%

Rural geprägte Kantone Restliche Kantone Alpine Alpine Think Tank on SGI

Annual growth in investment in fibre-optic technology compared to previous year Baseline: 2010 CHF 129.4 million Primarily rural cantons: AI, AR, GL, GR, JU, NE, NW, OW, SZ, TI, UR, VS

Broadband penetration: Switzerland is extending its global lead 8 30.1.2018

Source: OECD broadband portal, August 2017 Alpine Alpine Think Tank on SGI

In Switzerland there are 51.4 broadband connections per 100 inhabitants. The “runners-up” (DK and NL) are quite far back, with 42.8 and 41.8 connections respectively. Switzerland’s high bandwidth (>30 Mbps) coverage is excellent

compared to that of other European countries 9

> Switzerland ranks second overall 30.1.2018 behind Malta

> 99% of the population in Switzerland has access to bandwidths of 30 Mbps

> This leading position is thanks to lively infrastructure competition and the resultant high investment

NGA: Next-generation access coverage includes fixed-line broadband technologies capable of achieving download speeds meeting the Digital Agenda objective of at least 30 Mbps coverage (combination of

VDSL, DOCSIS 3.0 and FTTH/P) Alpine Think Tank on SGI

Source: European Commission, Broadband Coverage Europe 2016, May 2017 Switzerland’s high bandwidth coverage (>30 Mbps) is also excellent

in rural areas 10

> 92.9% of rural areas (<100 30.1.2018 inh./km²) already have 30 Mbps coverage.

> More than 90% of every Swiss canton has 30 Mbps coverage.

> Only in five regions (cantons) is NGA coverage lower than 95%: Valais, Jura, Obwalden, Uri and

Grisons Alpine Alpine Think Tank on SGI

Source: European Commission, Broadband Coverage Europe 2016, May 2017 Regional (NUTS 3) comparison of high bandwidth coverage

(>30 Mbps) in Europe 11

Europe: overall NGA broadband coverage by regions (NUTS 3), 2016

> 92.9% of rural areas (<100 30.1.2018 inh./km²) already have 30 Mbps coverage. This is more than twice the EU average (39.2%). > NGA coverage in rural areas of Switzerland is considerably higher than in neighbouring

countries Alpine Alpine Think Tank on SGI Source: European Commission, Broadband Coverage Europe 2016, May 2017 TCA revision: the winners and losers of an extension of access

regulation (Art. 11 TCA) to include new types of networks 12

Winners Losers

> Providers without their own fixed > Providers who invest in new networks: Can no longer recoup their costs 30.1.2018 telecommunication infrastructure (e.g. Sunrise): on the market Benefit from lower access prices > Rural regions: The first to be affected if investment goes down > Their shareholders: Scoop off more profits at the > Customers: High bandwidth coverage is delayed or even threatened expense of lower investment > Industry: Rapid digitisation – the decisive locational factor in the future > Public authorities: Get responsibilities previously – will be at risk held by Parliament > Parliament: Loses key regulatory responsibilities > Customers and suppliers: A change in wholesale prices as posited by the Tagesanzeiger* will cut the Swiss telecoms industry’s ability to

invest by CHF 300-500 million a year * Scenario as suggested in 8.11.2017 issue of Tagesanzeiger newspaper (access: CHF 15)

Who’s behind the telecoms companies?

1 Alpine Alpine Think Tank on SGI

Salt: 100% privately owned Sunrise: Listed on the stock UPC: 100% owned by Local cable companies: The Quickline: A holding company with 18 by Xavier Niel, France exchange. Main Liberty Global, England majority of them are in the hands shareholders, mainly owned by districts: shareholder: Freenet AG of the public sector (e.g. districts) Energie Belp, Energie Wasser Aarberg, EWS Energie, Energie Seeland, Flims Electric, GA Grenchen, GA ,Germany Region Herzogenbuchsee, etc. Parliament is facing a decision on its future direction: should it follow the EU’s bad example or continue along the successful path Switzerland has taken

so far? 13 30.1.2018

The EU currently has an enormous investment deficit. This The alternative: Parliament continues to bet on the is because of a lack of incentives to invest due to tough successful path Switzerland has taken to infrastructure access regulations. competition so far:

If Parliament expands its access regulations, > The regulator does not interfere with the functioning > It will reward those providers that do not invest in their market. own networks, but demand cheaper access > This creates incentives for further investment in > Parliament won’t encourage competition, but the expansion, especially in rural regions and in new reselling of existing connections technologies.

> Providers will have no incentive to invest in their own > Switzerland maintains its leading position with regard Alpine Alpine Think Tank on SGI networks and or in new technologies, just like in the EU to quality and performance – nationwide! An ex-post system, no technology neutrality and infrastructure competition lead

to significantly higher investment and better networks 14

Per capita investment in telecoms infrastructure ($) Switzerland

450 Ex-post (primacy of negotiation) 30.1.2018 400 No technology neutrality Infrastructure competition 350

300 US Ex-post (primacy of negotiation) 250 No technology neutrality 200 Infrastructure competition 150

100 EU Ex-ante (ex officio, intervention by virtue of 50 office rather than the market) 0 Generally technology-neutral 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Strict access and price regulation Switzerland EU MAX (cable + telcos) US EU base (raw data OVUM)

Source: Ovum and OECD EU MIN (area correction EU27) Alpine Alpine Think Tank on SGI The EU’s regulatory framework leads to unsatisfactory results. It impedes much-needed investment in broadband networks. Ticino’s cantonal “public funding” initiative

Funding through federal funds for regions 15 30.1.2018

Ticino’s cantonal initiative Sensible if regulated at the regional level: The cantonal initiative wants the • Districts can ask the Federal Government for subsidies and pay for only a Federal Government to ensure the proportion of the desired network expansion themselves. entire country has dense high • The advantage: Districts are best placed to determine their actual needs. bandwidth coverage. Supply gaps That's also part of the subsidiarity principle. can be plugged with appropriate tenders rather than subsidising the universal service licensee.

The state of deliberations Note: Swisscom is currently planning to expand the use of fibre-optic 15.3.2017 The Council of States endorses the initiative technology within the building zones of every local authority. This 11.4.2017 The National Council’s Transport & basic expansion will not involve any financial contributions from

Telecommunication Committees (TTC) endorse the districts. Alpine Think Tank on SGI initiative Broadband expansion Swisscom Thanks to infrastructure competition, more than 80% of households now have access to at least two networks Swisscom ensures coverage in peripheral areas in particular 17

> Cable networks reach about 30.1.2018 80% of all households (thanks to intensive infrastructure competition) > An estimated 200 districts do not have access to a cable network > Three nationwide mobile networks ensure coverage

Swisscom, cooperation partners (CPs) and cable networks Alpine Think Tank on SGI Swisscom and occasional CPs

* Non-binding representation based on own findings through routine surveys combined with the OFCOM broadband atlas and ComCom’s 2016 annual report. Deviations in the underlying data are possible. Swisscom will supply all districts with fibre-optic technology by 2021.

For this it requires stable conditions. 18 30.1.2018

Today 2021

Swisscom plans to expand Nine out of ten homes and The expansion is focused on Two measures are key for Alpine Think Tank on SGI its fibre-optic network in businesses across building zones: local achieving the targets: new fibre- every district in Switzerland Switzerland will therefore businesses such as bakeries optic technologies, such as FTTS/B, by the end of 2021. have bandwidths of and tradesmen will benefit and collaboration with districts. between 80 and 1000 Mbps. especially. Ambitious expansion plans Almost blanket coverage with high bandwidth 19

> According to current estimates, about 4% of

2017 2021 homes and business (approx. 200,000) 30.1.2018 benefit from less than 10 Mbps. ≥80 Mbps 49% 90% > These generally lie outside the building zones and can be broken down as follows: > Approx. 73% are permanently occupied 50 Mbps 71% 94% > Approx. 14% are partially occupied > Approx. 13% are shops > The affected customers are entitled to basic 10 Mbps 95% 96% service provision (3 Mbps). > Future technological developments are foreseeable. The additional bandwidth will

Coverage as a proportion of all homes and businesses (utilisation units) enable convergent approaches, for example. Alpine Alpine Think Tank on SGI Powerful fibre-optic technologies

Tailored solutions for every region 20 30.1.2018 1. Fibre to the Curb (FTTC) Optical fibre up to 550 metres from 5 properties, offering up to 100 Mbps 2. Fibre to the street (FTTS) Optical fibre up to 200 metres from VDSL/vectoring properties, offering up to 500 Mbps G.fast/vectoring 1 3. Fibre to the building (FTTB)

G.fast/vectoring Optical fibre to basements, offering 2 up to 500 Mbps 4. Fibre to the home (FTTH) 3 Optical fibre to the home, expansion always with cooperation

partners, offering up to 1000 Mbps Alpine Alpine Think Tank on SGI 5. Convergent technologies 4 Combinations of fixed network and mobile telephony By the end of 2021, 85% of the Swisscomof 2021,of the 85% end willable to be the By network

Extension Today The expansion of FTTS/B networks cooperateothers with exchange Swisscom Coppercable • • • Whytwo steps? Fibre the expansion the also then that partner cooperationwith a out carriedbe can expansionThis costs Theare less third aforfibre than laying with is threeexpansion The times as fastend as establishing - optic future fibre Cable duct with ductCable - proof bandwidths of up to of up500 bandwidths proof - optic cableoptic 1 6 Supply duct or ductbasement Supply 4 SC signal splitter SC signal Signal converterSignal or basement Supply duct Supply CP signal CPsignal splitter 2 Mbpsthird that - optic cableend optic 3 5 Building connected via fibreconnected Building - to - end fibre end - part providersalso use canpart connected via fibreconnected - to Buildings - opticcable end opticcable - . At the same time, investment is being made in advance for future expansion future for advancein made beingis investment time, sameAt the . optic connectionsoptic newly owns part ofpart infrastructureowns the - - and will enable almost blanket expansion across Switzerland by the end of 2021 2021 of end by the Switzerland acrossexpansion blanket almost enablewill and (virtual network access via data stream) data via network access (virtual cooperate with others cooperatewith of the85% will Swisscom be about ableto networkBy of 2021, end the (6) (5) (4) (2) (1) monopoly Swisscoma new buildingnot is to its its to the uses partner cooperationThe to connectedis household/business businessesand households fibre enable splitters Signal splitter. signal by a replacedbewill convertersignal In the future, through households into fedbe can signal the so that one electromagnetic A reserve fibresline) have (dottedlaidassince as been far back2013. buildings. of basementsthe fromopticcables exchangenearestthe laying with districts, by agreement expandingis Swisscom Today, signalconverter own network existing copperwiring existing (the physical network to the subscriber connection) after connection) subscriber to the network (the physical transforms the optical (fibre optical the transforms from the exchange or another transfer point. transfer anotheror exchange the from - together with atogether cooperationwith partner optic connections to be expanded to expandedbe to connections optic As acooperation precautionarymeasure, (3). cooperation reserve fibre reserve cooperation one Swisscom oneone CP Swisscom andfibre to supply ducts in front of or in of orin in front ducts supply to - optic) signal into an into signal optic) to connect to . Each . fibre . - 21 Swisscom, slide library dd/mm/yyyy Combination of fixed and mobile networks 22 DSL+LTE bonding

Higher Internet speeds thanks to a combination of fixed and mobile networks 30.1.2018 • The Internet Booster is an additional device that improves your existing Internet speed using mobile telephony. This increases your household’s Internet speed to up to 100 Mbps. • However, the additional Internet speed provided by the Internet Booster has no effect on the availability of Swisscom TV.

The Internet Booster • The device comprises an interior and an exterior unit attached to the inside and outside of a window respectively. • The Internet Booster is an additional device that forwards mobile telephony to

your router. Alpine Alpine Think Tank on SGI In use by Swisscom since 2016 Cooperation in the mountain canton of Valais

DANET and Swisscom 23

> Cooperation between DANET (67 districts in the Upper Valais) and Swisscom, cost of investment split 60:40 between Swisscom and DANET 30.1.2018 > Rollout phase 1: 2012-2018. Phase 2: 2018-2021. By the end of 2021, approx. 29,000 homes and businesses in the Upper Valais will be connected by FTTH. > FTTH rollout proceeding according to plan. At the end of 2017, connections to some 16,000 homes and businesses were ready for purchase. > Swisscom does not want to expand purely fibre-optic networks. An FTTS/B infrastructure has already been set up in the districts of Geschinen, Ergisch, Eggerberg and Unter-Oberstalden.

FTTS/B is planned in Termen, Ried-Brig, Zeneggen, Visperterminen and Ausserberg districts. Alpine Alpine Think Tank on SGI Many thanks!