Standardization for IP-Based Network and Newest Trend Of

Launching an NGN commercial service - NTT’s approach -

December 16, 2008 Tatsuro Murakami NTT Information Sharing laboratory Group

(C)2008 NTT Contents z Issues facing telecom carriers z The status of Japan’s telecommunications market z NTT’s Activities z NTT’s Medium-term Strategy z NTT’s Challenges in Field Trials z NGN Commercialization and Service Deployment z NTT’s history and plan for introducing the NGN z Questions for launching the NGN z Summary

Issues facing all telecom carriers are migration to IP, promotion of broadband services, and creation of new telecom businesses. Carriers are investing in the NGN as a solution to these issues.

z Promote broadband & ubiquitous services like FMC and triple play Revenue shift from telephony

Revenue from z Collaborate with various service telephony Revenue from players in creating new businesses broadband and Expand telecoms market ubiquitous services Cost z Migrate telephone network to IP Reduce CapEx and OpEx

NTT’s PSTN consists of about thousands switches. Although a then-state-of-art switching system was developed around 10 years ago, the rapid progress in technology since then has resulted in the discontinuation of production of some components used in the system. Currently, we are trying to prolong the lifetime of the switches by re-establishing sources for such components.

Migration to more highly integrated LSI that operates with lower voltage power supply NTT Communications 1.8, 2.5V PS ~dozens 0.25µm Transit Transit 3.3V PS 0.35µm Other carriers Other carriers switch switch 0.5µm POI POI 5V PS 0.6µm d e NW between prefectures u 0.8µm n ti 1.0µm n co is 1.2µm D Degree of integration ~hundreds Transit NTT West NTT East Transit switch switch 90 95 00 05 Year NW inside a prefecture NW inside a prefecture NS8000 ~thousands Local Local Local Local (developed around 10 years ago) switch switch switch switch

Revenue from traditional networks, such as the PSTN, is falling. This fall has not yet been made up for by revenue from broadband businesses. It is necessary to change the revenue structure by expanding revenue from Broadband services provided on the NGN.

Consolidated revenue of NTT Group (Billion US$) Mobile 100 Internet and data communication Fixed-line analog telephone (POTS) 90 80 34 34 70 30 32 33 32 31 30 60 9 11 7 8 8 50 12 12 13 16 Revenue from 18 20 22 40 broadband market 30 49 46 45 41 40 40 38 36 20 34 31 10 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 7 (C)2007NTT Increase in ARPU of broadband services (ARPU : Average Revenue Per User) • The bundled service of FTTH records a higher ARPU than POTS service. • Since FTTH services can incorporate video delivery & other supplementary services, the ARPU is increasing gradually. ・ It is urgent to raise ARPU further to strengthen our financial basis.

(Yen) 6,000

5,607 5,370 estimate 5,000 5,120 4,800

4,000

The Japanese government’s “u-Japan” plan proposes the full development of broadband infrastructure by installing optical fiber networks nationwide.

ProposedProposed statusstatus ofof broadbandbroadband networksnetworks inin 20102010 Proposed on Aug. 11, 2006

1. 100% broadband network The projected status of a 100% broadband network, through which broadband services are made available to all communities, is as follows: (1) Overall, a variety of wireline and wireless technologies will be seamlessly linked, and broadband service based on one or more of these technologies will be available nationwide. (2) In areas where cost-effective investment is difficult, broadband infrastructure will be built taking both investment efficiency and the needs of communities into account. Specifically, the following will be used in addition to ADSL and cable modems:

(a) Wireless broadband using wireless LAN and other technologies; (b) Integrated broadband, in which “wireless and ADSL/VDSL”, “optical fiber and infrared transmission”, or “optical fiber and ADSL (in so-called Fiber To The RT (FTTR))” are integrated. (3) Of these varieties of broadband service, super-high-speed broadband access, mostly based on FTTH, will cover 90% of households nationwide. 9 (C)2007NTT Dramatic increase in the number of FTTH subscribers

Optical access is being promoted so aggressively that the Number of users number of FTTH subscribers is growing rapidly and the number (Million) of DSL subscribers has now gradually begun to fall. 16.0 14.0 12.0 CATV 10.0 DSL 8.0 FTTH 6.0 ADSL (NTT) FTTH (NTT) 4.0 2.0 0.0 2 4 2 4 2 4 2 4 2 4 2 4 Q Q Q Q Q Q Q Q Q Q Q Q Source: Ministry of Internal 2 2 3 3 4 4 5 5 6 6 7 7 Affairs and Communications 0 0 0 0 0 0 0 0 0 0 0 0 10 (C)2007NTT Intense competition in broadband access

•Competition in the telecommunication market is intensifying in Japan. •NTT faces strong competition in gaining share in broadband access.

Shares in ADSL market Shares in FTTH market Others Others 3.4% USEN7.4% ACCA 4.9% 7.6% KDDI 6.1% eAccess NTT 37.1% Power 14.3% Company 10.2% NTT SoftBank BB 71.4% 37.6%

NTT has over 50% share in optical access nationwide. However, in urban areas, where fibers can be installed efficiently, NTT faces tough competition and is falling behind in many prefectures.

Share of FTTH market in individual prefectures (As of March 2005)

100 90 80 70 NTT average: 57.4% 60 50 40 NTT’s shareNTT’s (%) 30 20 10

O K K T S T H O H N S I N Y C G T I F Y M A A H 0 M O N S F K E K Y W S O K M F A N G s T K T S b Iw k a u u o h a h o i k y h s y a u i hi h o i a o h a u o u a k om o g i i a a o a i t r a i c a if g a a iy in m y t g g k k i g m m t o a o i a o r e k z g u i y m n k i i n c r k m a it k os a a u c u m o y go k g a u h k a a y b t h a u a t a k a a a a hi a a s a a k t i u a a t a a a a m a gi e or z s o s e a r h a a o i o n m a g o m i k s ga a w h m a h w gu n i m y w na a g i h i k a k i a k o a a a i i d a im o k a i a e m a a w i i m c a m s m ta o to i hi a h a a a a i a 12 (C)2007NTT Rapid reduction in the charge for broadband access

•Strong competition has led to a price war, bringing down the charges for ADSL and even FTTH dramatically. •Strong competition has made it hopeless to seek to gain significant revenue from telecommunication traffic.

100

40 For detached house $34

20 $22 $21

Objective Contribute to National Plans of e-Japan and u-Japan to solve social problems such as population aging and environmental issues Milestone Migrate 3020 million customers to optical fiber access and next-generation network services by 2010 Specific actions (1) Develop and implement a ubiquitous broadband service by integrating fixed and mobile communicationsBuildBuild, etc. anan NGNNGN thatthat isis ofof highhigh quality,quality, flexibleflexible andand securesecure (2) Build a high-quality next-generation network that is flexible and secure (3) Migrate seamlessly from existingDevelop fixed andline spread telephony broadband to IP and telephony Build and an open from network copper that wire systems to optical fiber ubiquitous services that allow fixed- allows collaboration with mobile convergence (FMC) other carriers and ISPs (4) Expand business opportunities using a ubiquitous broadband service (5) Strengthen our competitiveness1 and financial base 2 3 Implement smooth migration from Expand business opportunities Provide new business existing fixed-line to IP-based by exploiting broadband ubiquitous opportunities to various telephony, and from copper to optical services service players (XSP) access

StrengthenStrengthen competitivecompetitive edgeedge andand financialfinancial base,base, andand contributcontributee toto achievemachievementent ofof u-Japanu-Japan 15 (C)2007NTT Issues facing telecom carriers

Issues facing all telecom carriers are migration to IP, promotion of broadband services, and creation of new telecom businesses. Carriers are investing in the NGN as a solution to these issues.

z Promote broadband & ubiquitous services like FMC and triple play Revenue shift from telephony 2

Revenue from z Collaborate with various service telephony Revenue from players in creating new businesses broadband and Expand telecoms market ubiquitous 3 services Cost z Migrate telephone network to IP Reduce CapEx and OpEx 1

Objectives : - Verification of the NGN implementation - Creation of new business opportunity with ASPs - Building consensus to use NGN as a communication infrastructure of the future

Various services through tie-ups with IT- home appliance manufacturers and ASPs Osaka area

Open connectivity functions NGNNGN IP multicast End-to-end Security function quality control functions

Base station Tokyo area

■ NGN for Business - High definition visual communication - Multipoint Web Conferencing System - Wideband IP conference phone - Enterprise-oriented network service - Push to talk with multimedia over NGN, etc.

■ NGN for Life - Broadcast retransmission over IP - High-definition IPTV service - IP high-definition videophone - Wideband IP phone - One phone, etc.

■ NGN for Society - Home security and control - Telepathology system - Healthcare - Ubiquitous network service for kid’s safety - Gentle touch supervision by robot, etc. 19 (C)2007NTT Covered area in NGN commercialization

- During FY 2007, launch NGN service in certain areas of Tokyo & Osaka - During FY 2008, expand NGN service area in major cities - By the end of 2010, cover the entire current FTTH service area

07 FY 2008 FY 2009 FY 2010 Launch in certain areas of Tokyo, Osaka and some more Launch of Commercial Services Launch ofCommercial Rollout in the 23 wards in Tokyo, the 06 B-FLET’S area in Osaka, Yokohama, Kawasaki, Chiba, and Saitama Expansion in entire & current fiber access area Hikari Denwa Expansion in other by the end of FY 2010 services ordinance- designated cities Rollout in major cities including those with prefectural government offices

Launch in certain areas of Tokyo and Osaka Ethernet Expansion in major cities nationwide Service rollout Service including ordinance-designated cities and according to user needs those with prefectural government offices Distribution IP broadcast

Video retransmission Tokyo and Osaka Development in conjunction with NGN development & user needs

-QoS services including Hikari Denwa*1, video telephony, and services for content distribution such as multicast -Charges for best effort service and standard-QoS Hikari-Denwa and video telephony approximately the same as current levels -Customer-friendly rate levels structure for QoS services other than those above (TBD)

category Network services on NGN Existing IP network services Fiber Access -The same as the existings -Single-dwelling for family (~100Mbps) Service -Multi-dwelling for mantion(~100Mbps) -Office use(~1Gbps) IP telephony -HIkari Denwa incl. both the existing -Hikari Denwa incl. office type (0AB-J)*2 quality and high qualityNew -Business type is upcoming /Video telephony -Video telephony incl. the existing ew -Video telephony quality and two high quality gradesN VPN service -Center-end type, CUG type -Office & Group access -QoS guaranteed one is upcoming

Service for -The same as the existings -FLET’S .Net EX/ v6 cast (unicast, multicast) content distribution - unicast/ multicast with securing bandwidth New Ethernet service - The same as the existings and -Business Ethernet (intra-prefectural) inter-prefecturalNew *1: Hikari Denwa is the service name of VOIP provided by NTT EAST/WEST *2: Geographic number for PSTN and IP telephony with equivalent quality to PSTN 21 (C)2007NTT New Service Creation on NGN

Creation of new services in cooperation with various industries

Broad Business Internet Financial Medical Education Advertise casting industries services

Cooperation or Tie-up with other industries and different business

Applications/ Video distribution Contents Creating new services and values The Internet Platform with open and collaborative works NNI SNI ISP ISP NGN Carriers UNI Many kinds of Information appliances

Customers 22 (C)2007NTT Next-Generation Services Joint-Development Forum -‘Joint-Development of Services’; Joint-Development with business from various industries, creating new business models that take advantage of NGN features -“Next-Generation Services Joint-Development Forum”( tentative name) to be launched next spring

ISP/ Contents Provider/ ASP etc. Collaborate Collaborate

Incubation Information & Support Next-Generation Environment Services -Marketing -Seminars etc. -Technology Joint-Development -Utilize Test Beds -Exhibition Space consulting Forum -Leverage ‘NOTE’ R&D result -Enhance SNI&UNI

Contribute Capital as necessary

For Society - Remote medical treatment, a baseHealth for care economic growth Solution- Antidisaster for social information problems system ( -LessE-government, children/more elderly people, E-localnurse/medical/education, governing body - Remoteheavy natural education disaster etc.etc.)

Social infrastructure For Business with high reliability For Customers Business- Corporate chance VPN creation -Secure Telephone/TV & safe phone - SaaS Productivity improvement More-IPTV enjoyable -Tele-work - Home security Quick response- Tele-presence to market change More- Networked convenient game - Groupware etc. - Video sharing etc.

IP network Broadband Pre-NGN demand

1999: Started IP network 80 million (pre-NGN)

Telephone PSTN 60 million （2000.3） IP Mobile phone 40 million 1999: Start IP network (pre-NGN) Internet Broadband for Internet access (fixed networks + (fiber optic + 20 million mobile internet) DSL, etc.) ISDN

1999: 2001 Started IP network Started fiber-optic (pre-NGN) access (pre-NGN)

ADSL (NTT) PSTN Number of users (Million) FTTH (NTT) DSLAM 10.0 IP 8.0

Expanding fiber-optic 6.0 subscriber base 4.0 2001: Start fiber-optic access service (pre-NGN) 2.0 0.0 2 4 2 4 2 4 2 4 2 4 2 4 Q Q Q Q Q Q Q Q Q Q Q Q

2 2 3 3 4 4 5 5 6 6 7 7 0 0 0 0 0 0 0 0 0 0 0 0 27 (C)2007NTT DevelopmentTriple play Rapid growth service of Internet of IP services 9M IP network Broadband Promotion of fiber-optic Pre-NGN demand broadband subscriber base

1999: 2001 2004 Started IP network Started fiber-optic Started triple (pre-NGN) access (pre-NGN) play service

PSTN PSTN

DSLAM DSLAM IP IP

Expanding fiber-optic Developing triple subscriber base play service 2001: Start fiber-optic access service 2004: Started triple play (pre-NGN) (pre-NGN)

IP network Broadband Promotion of 9M Pre-NGN demand broadband fiber-optic subscriber base

1999: 2001 2004 Started IP network Started fiber-optic Started triple (pre-NGN) access (pre-NGN) play service FLET’s Service features started 1999 – Users can access their contracted ISP – Best-effort network service for internet access – Fixed monthly charge B-FLET’s Variants (Peak rate: 100Mbps) started 2001 – Business type (for large businesses) – Basic type (for SOHO & heavy users) – Condominium type (for mass market users) – Hyper-Family/Premium type (for mass market users) Services on B-FLET’s (Triple Play) started 2004 – High Speed Internet access – IPTV up to 32,000 VODs, 100 multicast channels, including HDTV – RF video up to 300 channels, including HDTV – POTS quality VoIP 29 (C)2007NTT DevelopmentTriple play Rapid growth service of Internet of IP services

IP network Broadband Promotion of 9M Pre-NGN demand broadband fiber-optic subscriber base

1999: 2001 2004 Started IP network Started fiber-optic Started triple (pre-NGN) access (pre-NGN) play service

(Yen) ARPU of broadband services 6,000

5,607 5,370 estimate 5,000 5,120 4,800

4,000

FY 2005 FY 2006 FY 2007 FY 2008 30 (C)2007NTT DevelopmentTriple play Rapid growth service of Internet of IP services Timing IP network Broadband Promotion of 9M Pre-NGN demand broadband fiber-optic subscriber base

1999: 2001 2004 Started IP network Started fiber-optic Started triple (pre-NGN) access (pre-NGN) play service

Timing of NGN launch…. z Establishment of nationwide customer base (9M subscriber) Requirements Solutions brought by NGN z Low cost structure Converged network z Reliability and traffic control Carrier-grade IP network z Start of triple play services Requirements Solutions brought by NGN z New telephone service menu for IP era Simulation base PSTN evolution z Attractive network for content providers QoS and Capacity z Market expansion to new business areas Open Interface 31 (C)2007NTT DevelopmentTriple play Rapid growth service of Internet of IP services Timing IP network Broadband Promotion of 9M Pre-NGN demand broadband fiber-optic subscriber base

1999: 2001 2004 Started IP network Started fiber-optic Started triple (pre-NGN) access (pre-NGN) play service

Developing triple play service PSTN Field trial

DSLAM IP Timing

2004: Started triple play (pre-NGN) Significance of the field trials •The starting point for collaboration with service providers. •Verification of the NGN implementation

PSTN PSTN PSTN

Shift (at customer’s will)）

NGN NGN Provide new service structure Overlay with the PSTN

Shift (at the provider’s will)

PSTN IP network NGN

Maintain existing services Add new services

Use of the IMS to build an IP network and introduce broadband services APL APL Total NGN IMS APL APL One-step approach FTTx PSTN IMS Switch AGCF FTTx Two-step approach AGW DSL APL APL Soft Soft Switch Switch IMS

AGW MSAN

Use of softswitch to build an IP network + use of the IMS to introduce broadband services 34 (C)2007NTT DevelopmentTriple play Service Rapid growth service of IP services creation of Internet Maturity Timing of NGN IPnetwork Broadband Promotion of 9M Expansion of Pre-NGN demand broadband fiber-opticarea coverage subscriber base

1999: 2001 2004 2008 2010 Started IP network Started fiber-optic Started triple Started commercial To have 20M (pre-NGN) access (pre-NGN) play service NGN Fiber-optic subscribers

Start from triple play PSTN NGN with QoS and security PSTN NGN DSLAM IP DSLAM IP Small start and rapid expansion of service area coverage 2008: NGN commercialization 2010: 20M fiber-optic service subscribers z Small start z Covering a wide area in short time frame z Version up from pre-NGN z Same categories of services = upward compatibility + QoS and security z New services aimed towards new business areas 35 (C)2007NTT DevelopmentTriple play Service Rapid growth service of IP services creation Systematic of Internet Maturity Completion Timing of NGN migration of NGN IPnetwork Broadband Promotion of 9M Expansion of to NGN Pre-NGN demand broadband fiber-optic area coverage subscriber base

1999: 2001 2004 2008 2010 2012 Started IP network Started fiber-optic Started triple Started commercial To have 20M Completion of (pre-NGN) access (pre-NGN) play service NGN Fiber-optic the migration subscribers to NGN Systematic migration from existing IP network PSTN NGN PSTN NGN DSLAM DSLAM IP IP

2010: 20M fiber-optic service subscribers 2012: Completion of the migration from existing IP network to NGN

36 (C)2007NTT DevelopmentTriple play Service Rapid growth service of IP services creation Systematic of Internet Maturity Completion Timing of NGN migration of NGN IPnetwork Broadband Promotion of 9M Expansion of to NGN Pre-NGN demand broadband fiber-optic area coverage subscriber base

2010: 20M fiber-optic service subscribers 2012: Completion of the migration from existing IP network to NGN

37 (C)2007NTT DevelopmentTriple play Service Rapid growth service of IP services creation Systematic of Internet Maturity Completion Timing of NGN migration of NGN IP network Broadband Promotion of 9M Expansion of to NGN Pre-NGN demand broadband fiber-optic area coverage subscriber

P base I

d d n n 1999: e a 2012 2001 - 2004 2008 b o Started IP network Started fiber-optic t d Completion of Started triple Started commercial - a (pre-NGN) d o the migration access (pre-NGN) play service NGN n r E b to NGN E-mail Web TV (1seg) Multi-media TV phone Camera Games terminal Start 45M LTE Promotion of voice and IP infrastructure

2001 Start of 3G z Deployment of both fixed and mobile full-IP network infrastructure will be in 2010 z This will be based on 3G infrastructure subscriber base started in 2001 z Mobile handsets have already become multi-media terminals using i-mode, video phone, 1seg TV, etc. z LTE will drive end-to-end IP broadband communications. 38 (C)2007NTT Questions for launching the NGN

There are two questions regarding the launch of the NGN

• Chicken or egg? Which comes first? (or, Highway or sports car?)

NTT may appear to be looking at infrastructure alone. However, NTT’s approach is based on synchronizing development of services and infrastructure

• From where do subscribers migrate ? What is the subscriber base ?

BT: Migrate from PSTN Europe: Migrate from GSM world

DevelopmentTriple play Service Rapid growth service of IP services creation Systematic of Internet Maturity Completion of NGN migration of NGN IPnetwork Broadband Promotion of 9M Expansion of to NGN Pre-NGN demand broadband fiber-opticarea coverage subscriber P I base d d n n e a 1999: - 2012 2001 2004 2008 b o Started IP network t d Completion of Started fiber-optic Started triple Started commercial - a d o (pre-NGN) access (pre-NGN) play service NGN n r the migration E b to NGN E-mail Web TV (1seg) Multi-media TV phone Camera Games terminal Start 45M LTE Promotion of voice and IP infrastructure

DevelopmentTriple play Service Rapid growth Revenue sourceservice pre-NGN of IP services creation Systematic of Internet Maturity Completion migration pre-NGN 9M of NGN of NGN IPnetwork Broadband Promotion of Expansion of to NGNNGN fiber-optic demand Customer-base area coverage Pre-NGN broadband subscriber NGN

P base I

d d n n e a 1999: - 2012 2001 2004 2008 b o Started IP network t d Completion of Started fiber-optic Started triple Started commercial - a d o (pre-NGN) access (pre-NGN) play service NGN n r the migration E b to NGN E-mail Web TV (1seg)RevenueMulti-media source IPTV phonebroadbandCamera Game terminal Start 45M LTE Promotionby of 3G voice and IP infrastructureCustomer-base

NTT’s history and plan for the NGN z Since NTT first provided an IP network service for Internet access, NTT has promoted optical access and triple play services. z To meet its timetable to get a 9M optical access subscriber base and establish revenue source from triple play, NTT has just started NGN commercial service. z The NGN started in limited areas such as Tokyo and Osaka as an upgrade of the existing IP network service. z The NGN will cover a wide area in short time frame and create new services aimed at new business areas.

NTT’s approach to launching the NGN z NTT’s approach is based on synchronizing the development of services and infrastructure. z NTT’s subscriber base and revenue source will be migrated from IP broadband to the NGN 44 (C)2007NTT Thank you