Question 1:When Do You Consider It Would Be Timely and Efficient For

UK Ofcom NGA consultation – Alcatel-Lucent Response 5 Dec. 07

Please find below Alcatel-Lucent’s submissions to Ofcom’s consultation of Next-generation Access (NGA). If you have any further questions or any want details on any of the points raised please do not hesitate to let us know. We welcome the opportunity to elaborate on this submission at any time and we look forward to continued engagement on this critical subject. In summary, our submissions are – - Civil works, trenching, ducts and even dark fibre are technology neutral - There should be multi-operator presence in most segments - New fibre access architectures should not necessarily replicate the existing PSTN access topology (node location) - The most efficient regulatory framework for NGA would be the one that attracts the largest number of investors for the largest volumes of investment/innovation in each category. - NGA (e.g. as set by a political/social/economic objective from government) would imply deployment of a mix of NGA technologies, - The absence of a CP in NGA does not necessarily reflect a high financial entry barrier to invest. - Even with equivalent financial strength – there is no economic reason to justify that two competing NGA players following the same passive infrastructure investment pattern/agenda beyond market-driven areas. - To succeed, there is an obvious requirement for R&D economies that could effectively scale across the EU and hopefully abroad. To materialize at industry level, the “ALA” product will necessarily need to be supported by international standards, notably ETSI in Europe, ITU- T global, in order to be assured of sufficient market adoption and reusability in any EU market.

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- Alcatel-Lucent has experienced network build outs for model types (VLAN per Service or VLAN per subscriber) and does not have a preference either way. There is reason to believe, however, that for the UK wholesale concept the VLAN per Subscriber model would be most appropriate

We have responded to the questions Ofcom has posed in the consultation document:

Question 1: When do you consider it would be timely and efficient for next generation access investment to take place in the UK?

Continued on-going investment in new access technologies is essential for the future success of the UK economy. Britain and other members of the EU face an urgent need to reshape their economies and societies to meet the challenges of the 21st Century and be in a strong position to move industry and business further up the value chain, to remain competitive with low-cost economies such as China and India. Infrastructure investment plays a key role in ensuring that the UK economy can flourish and remain a critical global player in trade and commerce. The U.S. is much further along the FTTX journey, with the deployments by major operators such as Verizon and others.

UK Minister of Competitiveness, Stephen Timms, has renewed his calls for fibre access to be rolled out across the UK, claiming that high-quality videoconferencing makes it necessary. In other words, a growing demand for flexible working means that the national telecommunications infrastructure needs an upgrade to fibre. “Effective use of technology enables economic growth and let’s not encourage the digital divide.”

Wireless and satellite-based technology is not enough to support future bandwidth’. Minister Timms states that the infrastructure needs to be able to deliver high-speed broadband to all, based around fibre rather than copper, with the important addition of wireless, satellite and 3G.

He warned of the danger of falling behind other countries in broadband speeds. Thanks to the work of the Broadband Stakeholder’s Group, and others, the UK solved the problem of the past years on broadband availability and use and has put the country in a leading position. However, today a new challenge is faced - other countries are starting to invest in new, fibre-based infrastructure, delivering considerably higher bandwidth than is available in the UK today. So, to ensure a successful transition to the next generation of technologies, any existing barriers to mass deployment of FTTX must be lowered.

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This can only be achieved by the sharing of the investment by all stakeholders and by having the most cost-efficient approach to renovating the passive infrastructure.

Question 2: Do you agree with the principles outlined for regulating next generation access in the UK?

The basic principles (“contestability, maximise potential for innovation, equivalence, reflecting risk in investment returns and regulatory certainty”) would all be relevant to NGA policy making as a whole. Alcatel-Lucent is of the view, however, that such principles become of greater importance at different phases of the migration process from legacy to all-IP access environments based on NGA, as proposed in the following table.

Table: Migration phases from PSTN to Nationwide NGA/s

MIGRATION Coverage targets Network aspects Regulatory PHASE principle relevance

Greenfield, isolated Dominated by PSTN Contestability of niche areas access, interconnection small scale projects (business, high (via border media difficult to measure. NGA ISLANDS ARPU residential, gateways, legacy OSS Regulatory Certainty: public sector) – subscriber a prerequisite for management. investors

Covering 100% of a Parallel to copper Regulatory Certainty given geographical PSTN access, legacy focused on protection area (city, county, collocation and LLU at of stranded assets. sub-region, region). Local exchanges – Risk return on Extension of NGA NGA interconnection investment – No new NGA OVERLAY through new backhaul from market-driven to infra investment risk-driven areas links expected at this Installation of new stage – risk access nodes (closer to refocused on higher end-users) levels (active NGAs) Priority to replace Innovation to spur copper feeder network migration by fibre

Mass-market Closing of local Equivalence – At this penetration < 30/50% exchange sites, copper stage, parallel multi- PSTN take-up of NGA, retrieval. PSTN operator NGA RETIREMENT regional or emulation over presence in nationwide (rural) NGA/NGN infrastructure is essential

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We also note that certain criteria specific to the deployment of fibre networks could be underestimated and require more analysis to determine their impact on the application of the above NGA policy principles. For example: • Civil works, trenching, ducts and even dark fibre are technology neutral. The same basic infrastructure topology would apply, regardless of whether the fibre access architecture is based on fibre to the node, point-to-point or point to multipoint passive equipment. • Standard practice Outside Plant (OSP) dimensioning rules are a potential guarantee for multi-operator presence in most segments of fibre feeder/distribution line parts of the access network (excluding the drop cable), be it short term (innovation, contestability), mid-term (risk of return) or long-term (equivalence). Infrastructure renovation can only be undertaken given the longest term RoI perspective, meaning that strict limitation of dark fibre to the shortest term interests would not be commensurate with the overall cost of passive elements, in particular trenching and ducting. In all cases, new duct routes would be designed to support fibre evolution constraints (maintenance, upgrades, extensions) allowing for duct sharing or dark fibre rental.

• Unlike the stable PSTN hierarchy where dimensioning and location of remote and main distribution frames (MDFs) are clearly defined), the installation of optical distribution frames (ODFs) will need to abide by a complete new set of deployment factors. These include: o Availability of infrastructure access points (access “head-ends”, manholes, duct concentration points), o A wider variety and number of points of presence, o More stringent site constraints (housing availability – e.g. for very large P2P node ODFs), as well as the distribution of fibre flexibility points. CP NGA strategies will measure connectivity investments, evolving or forecast penetration rates, against a variety of co-location, co-investment or wholesale arrangements depending on coverage area characteristics – with no one size strategy fitting all. • Optimised new fibre access architectures will not replicate the existing PSTN access topology, even where existing ducts and dark fibre are available in the outside plant. NGA access nodes, more independent of distance, and based on new engineering/line concentration rules, will require deeper distribution than legacy exchanges or remote subscriber nodes. Site location of competing CPs’ ODFs will necessarily vary from one active network to another, making larger use of virtual points of interconnection, or extended fibre backhauling, than costly collocating of active equipment.

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Given the above, we also support Ofcom’s suggestion that unbundling might not be a viable remedy for all cases of next generation access (regardless of the technology) or in all parts of the country, depending on the nature of the geographical market, to be defined.

“Regulatory Market Freeze Effect” As recognized throughout the consultation, early policy for NGA calls for a number of hypothetical or working assumptions to build potential market development scenarios where regulatory measures could or would be required. There is a risk however that certain assumptions or pre-emptive measures produce a “freeze effect” by limiting NGA expansion in several ways, such as: • By taking the hypothesis that “there is no business case for more than one infrastructure provider”, policy can freeze market investment into known, existing competition models. This hypothesis has been challenged in many NGA contexts, such as multiple access investors in The Netherlands (up to three in parallel: local community, cable TV and telecom access providers in the same area) or in France (4 competing FTTH deployments in the City of Paris).

• By defining “efficient investment” purely based on hard case revenue models of predefined service bundles (upgraded triple play), the policy maker risks aligning investment trends along certain ad hoc regulatory principles, rather than adopting measures needed to encourage the full potential of wider and more diversified investment scenarios. • By merely extending market definitions for reuse in the NGA context, it could be possible to render more secure intermediate, less cost intensive platform deployments (e.g. ADSL2+), at the risk of discouraging more financially ambitious, risky mid and long term options (e.g. aiming at mass market fibre connectivity). Indeed, we have less understanding of how much intermediate platform investments could negatively effect NGA evolution in general, than of how widespread upgrades to fibre end to end will positively impact overall economic activity and social performance.

As an example of the above, clear guidelines on sharing passive infrastructure, ducts and dark fibre could be more attractive to multi-operator presence and competition in NGA coverage areas than straightforward reapplication of local copper loop unbundling rules to fibre (which could however be reserved as a fallback measure for certain zones with specific characteristics such as long-term restricted duct or dark fibre availability).

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“Dislocation and Relocation of competitive markets” Today’s retail and wholesale markets solely rely on what is offered via the combination of core/edge/access node and backhaul capacities with associated service server platforms. But the move to All-IP NGN-NGA will progressively change critical premium revenue markets moving them outside the scope of broadband wholesale regulation as perceived today: • Access providers versus Content providers (not competing at network level): content providers will offer competitive communication services whereas access providers will build, acquire exclusive content. • Access providers versus CPE providers (not competing at network access level but through a myriad of new user end functionalities and applications embedded or downloadable to user-end terminals). • CPE applications themselves will introduce service differentiator functionalities that will have a direct impact on competing service provider value-added offers. • Service bundle competition will restructure the retail-versus-wholesale rationale (any service in any bundled offer, with premium QoS tariffs). • Inter-application competition (e.g. IPTV channel packaging, for example) can develop totally independently of underlying networks, and platforms. • Intra-application competition (Operator differentiation based on guaranteed QoS, service integration, single bill, as examples) – fixed and mobile operators can compete at CPE level (e.g. femto-cells connected to fixed access lines) in completely transparent fashion as regards the NGA components used for establishing a call or session. • Readjustment and refinement of new call termination functionalities will enable multiple forms of “termination” over a single electronic communications access.

Basically, new premium revenues will increasingly come from the CPE / home or network application levels, i.e. on both sides of NGA connectivity, reducing the critical competitive weight of traditional network access and capacity- based wholesale markets. This trend is seen to accelerate – even independently of basic infrastructure evolution.

Question 3: How should Ofcom reflect risk in regulated access terms?

(Reflecting risk in returns) Risk should be measurable against Return on Investment (ROI) criteria and timeframes. Efficient policy would best reflect the potential difference in the profile of investors, the nature of the investment (civil works, dark fibre, versus active network elements) and the general RoI periods normally referenced. Therefore, it would be meaningful to consider investment risk from three distinct perspectives:

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- The nature of CAPEX categories (passive, active network elements); - CAPEX payback periods per category (short – mid – long term); - The profile of potential investor categories (end-user application, service or network wholesale, utility-like).

The following figure shows a generic spread between the main electronic communications CAPEX domains, their average payback periods and likely variations in the profile of investors involved. Moreover, the shorter the RoI, the lower the burden of upfront investment, the greater would be the number of investors/competitors. Inversely, the lowest level domain (civil works) would attract/support only smallest number of investors (two players per any given area?).

Figure: Investment lifecycles for efficient policy objectives

Investment Lifecycle – Investor and CAPEX categories

s r

User

k a

r Content – Marketing Domain

a et

v 6-24 Month

M n

I Terminals – Billing – Call Centres RoI

s Access &

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a Tra nsport

t v

r Services – Applications

es Domain

I v

A 3-5-7 Year n CORE I Communication Networks RoI ACCESS

BACKHAUL/TRANSPORT Prima ry

e Infra

a v

t Dark Fibre – Power Supply – Shelters

r f

s Domain –

n I

v 10-15-20

n Pa I Trenches – Pipes – Ducts – Masts – Sites Yea r RoI

By taking into account the nature of the investment, it is possible to separate or identify policy issues per category in order to address “submarket” specifics, for example, investment motivations for utility companies with low paybacks over long cycle RoI business models. Such an approach further facilitates resolution of underlying questions, which could have significant impact on the overall business model. In particular harmonizing rights of way practice, reducing administrative fees, achieving public demand aggregation and establishing larger scoped cooperation with other infrastructure-based sectors (gas, electricity…local government).

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(Risk and Investment) The most efficient regulatory framework for NGA would be the one that attracts the largest number of investors for the largest volumes of investment/innovation in each category.

Balancing the “Deep pocket syndrome” To balance the “deep pocket syndrome” by which it is commonly accepted that only the largest market player would be able to make the substantial upfront investments required by renovation in access, the following observations try to illustrate the variables impacting, in particular, CP investment – not necessarily related to “pocket depth”.

(Contestability): - A progressive “nationwide” upgrade to NGA (e.g. as set by a political/social/economic objective from government) would imply deployment of a mix of NGA technologies, varying on market conditions, density, ARPU, infrastructure available and sharing opportunities – and spread over a long period. Typically, a CP would diversify investment (wireless, different versions of wireline) to align commercial objectives with financial capacity, market share and technology availability. Service upgrade pricing schemes remain independent of access technology (at least in the first phase of NGA competition), while costs/RoI would also vary considerably – along with the size of the investment needed to compete in NGA markets (islands, overlays). - To achieve efficient investment and guarantee the viability of mid/long- term business models, CPs could also prefer jumping cautious SMP interim solutions (such as ADSL2+ or even FTTC-VDSL) by installing higher grade FTTH in targeted areas aiming at even better ARPU/RoI ratios in spite of higher upfront investments. A typical scenario is where the CP co-invests either in the context of a public-private partnership, or in a more commercial arrangement of sharing neutral infrastructure with other CPs. Lower backhauling, interconnection costs and potential dedicated line revenues could well justify such options (usually limited to specific geographic areas). - The actual and forecast market share of any CP strongly conditions his capacity to engage in competitive investment. In this respect CP strategies can be much more flexible and closer to the market than that of the incumbent1. This means that CPs might also delay migration to NGA to benefit from foreseeable sharing/access arrangements, or even move out of certain markets as NGA reach grows, in order to gain market share faster (and greater revenues) in new service markets enabled by NGA in a changed business model. The absence of a CP in NGA does not necessarily reflect a high financial entry barrier to invest.

1 Certain new entrants have already published such growth scenarios, indicating at what density they would “climb the ladder of investment”

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- Breakeven will not be homogeneous nor simultaneous within or between coverage areas, nor between target market components (residential high-end, public sector, business…rural). Certain CPs might refrain from investment until sufficient thresholds of mass- penetration are reachable, letting first mover/s assume the largest parts of cost at risk. City centre niche market deployment strategies will contrast considerably with higher risk area penetration – and, most likely, smaller challengers will have no interest in rural competition.

Accordingly, the hypothesis of a “deep pocket” financial barrier to NGA entry needs to be balanced against real market forces driven by profit. A cautious prerequisite for any risk assessment would be to factor in the many different “dynamics” of such an important upgrade in access – the very wide spread of determining variables (from trench availability to IP interconnection business models) – as well as the ultimate financial requirement for visibility in securing sufficient ARPU for paybacks. The incumbent himself will also pick and choose both area and calendar-wise, and look for co-investment solutions for renovating infrastructure in higher risk areas. Even with equivalent financial strength – there is no economic reason to justify that two competing NGA players following the same passive infrastructure investment pattern/agenda beyond market-driven areas. On the other hand, the top ranking broadband nations often have dual, competing passive infrastructures, usually cable-TV, utilities or local communities versus telecom access, and there, both infrastructures are being extended beyond market-driven areas and upgraded with fibre to NGA.

A “virtuous circle” for NGA investment Given the upfront burden of passive infrastructure, especially in areas of significant commercial risk (suburban, small town, low revenue districts) or in areas requiring public intervention (rural, isolated, non-profitable zones), it is reasonable to believe that no single operator would be willing, or capable, of assuming alone the cost of widespread access renovation. Supportive measures, such as local government facilitation or provision of civil works, and more importantly, the development of co-investment models are emerging as the most probable and favourable configurations for NGA growth beyond capital city and business centres. Co-investment accelerates gain (lowering the cost of heavy externalities such as trenching), which in turn increases investment potential in higher levels of networking based on innovation aimed at differentiation – ultimately requiring greater investment at the application and content levels. The policy objective supporting such a virtuous circle would be to encourage telecom sector investment at the highest levels of the NGA value chain (capacity, traffic prioritization / differentiation, QoS, security), and not at the passive infrastructure level.

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On “likely technical options” for NGA deployments and the importance of Wireless As regards an initial transition period, focused on deploying “NGA ISLANDS” (legacy PSTN-NGN inter-working and low penetration of fibre) it could be misleading to limit the analysis of higher speed access to wire-line only. Access renovation is slow by nature (civil works programs will stretch over several years for any sizable deployment area) – whereas, if the main advantage of wireless is mobility, its second greatest advantage is lower cost, faster deployment. Next generation wireless systems will certainly be deployed in the interim to cover (at least) rural needs for higher speeds beyond DSL.

Typically, such very high-speed wireless services could be located in the future digital dividend spectrum, for even wider coverage at even higher speeds at yet lower costs. Moreover, NG-wireless can be used for drop lines from remote fibre concentration nodes (e.g. FTTN-WIMAX). Alcatel-Lucent would caution against limiting at this early stage the number and nature of expected technology options to be deployed by NGA investors (i.e. FTTC / FTTH) – from the applications and end-user perspectives, NGA technologies will remain (sufficiently) “substitutable” for a significant period of time. Transition to all-IP further balances the unique argument of comparison between access technologies based on speed (or fixed versus mobile): • IP-based Applications can be reused in-differently, where speed, under certain circumstances (non real-time), can be irrelevant. The (fixed) NGA will not operate in isolation, but in “converged” environments interconnecting/integrating broadcast and mobile access networks; • Packet-based (multi-purpose, prioritised) transmission also in- differentiates the underlying infrastructure, allowing voice, data and video platform communication between end-users and service providers regardless of the access technology; • Complete separation of transport, control/signaling and application layers leads to applications or signaling being shared between different types of access technology from integrated points of management/OSS.

Question 4: Do you agree with the need for both passive and active access remedies to promote competition?

As discussed, the move to NGN/NGA will also dislocate competitive markets and relocate premium competition products and services beyond both extremes of the new access network (at CPE and OSI layer 3). The fundamental question regarding remedies depends on what extent “substitution” between active and passive wholesale-based service offers will be practicable. Two trends of interest can be identified:

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• Adoption of “Quasi” substitution wholesale offers for interim periods in transition to all-IP. As an example, if the guaranteed QoS at application and service differentiation levels are equivalent in retail, the underlying passive wholesale carrier offers might have no direct affect on NG wholesale markets. The major issue then could be that such non infrastructure-based providers remain absent from the passive wholesale market itself (no room for alternative “Open Reaches”). • Fundamental changes expected in the competitive markets’ landscape. Non facilities-based application providers (e.g. Google, VoIP providers) can enter the triple play market without NGA investments, whereas broadband access providers are having to move up the value chain into content and media interactivity (in the content domain), as well as down to the home networking market (in the private domain) in order to remain competitive.

Active inputs and remedies:

The “Active Line Access” product, as envisaged by Ofcom, creates an opportunity to achieve “quasi” active/passive element-based service substitution, provided a number of critical issues are addressed beforehand: • To succeed, there is an obvious requirement for R&D economies that could effectively scale across the EU and hopefully abroad. To materialize at industry level, the “ALA” product will necessarily need to be supported by international standards, notably ETSI in Europe, ITU-T global, in order to be assured of sufficient market adoption and reusability in any EU market. • Unclear frontiers between OSI layers 1, 2 and above, between competing market players, impacts the vision/role of the access provider (OR) as an NGA wholesaler. “ALA” could lead OR to assume a more complex function above mere access/backhaul transport services – to the level of service differentiation (e.g. regarding QoS). The underlying question is: “who invests, owns, operates and wholesales such a layer2+ function?” • As regards heavy upfront investment in civil works/trenching and ducts, “ALA” is an initially strong disincentive for CPs to move further up the ladder (layer 2 switches/pipes, active fibre optic network elements, dark fibre, passive infrastructure), given sufficient equivalence and quasi substitution at a new level of wholesale bit-stream, with a new business model based on innovation – yet without having to support the direct costs of infrastructure renovation. • (Maximising innovation) As a result, it is not obvious that as far NG new premium services are concerned, ALA-based offers (bit-stream access at OSI layer 2+) would be less innovative than direct access over the physical line, and that, in order to increase revenues, a CP using ALA would have to climb the ladder of investment (infrastructure investments) as commonly admitted in copper-based broadband.

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To summarise, the ALA product for Ethernet Wholesale (as proposed today by BT Openreach) focuses mainly on layer-2 service offers. CPs have indicated, however, that they require greater differentiation capabilities – not only in parametered QoS, security and multicast functions, but also regarding capacity dimensioning and confidentiality. Much of the response will lie with what vendors are capable of offering, notably through standardization.

Figure: Alcatel-Lucent view of ALA service elements

Active Fiber sharing: Wholesaling Bitstream principles

Service-Aware solution for Triple-Play Ethernet hand-over

Per-sub rate-limited HSI Per-service priority/delay/loss Per-sub QoS policy Per-service priority/delay/loss Content differentiation in HSI

VoIP VLAN/VC Ethernet VoIP Video VLAN/VC VCs Aggregation: End-user PER Video Gold SUB HSI HSI Broadband Bronze VLAN /VC GE Service ON-NET Aggregator/s Service provider 1 Service provider 2 Service provider 3 Service provider 4 Service provider 5

Multiple services streams to several service providers based on Ethernet: Transport bandwidth efficiency, Service performance and Reliability, Service flexibility and operational scalability

The example of IPTV multicast

Three key challenges need to be considered to competitively deliver TV, Multimedia and VoIP services over Ethernet: • Transport bandwidth efficiency • Service performance and reliability • Service flexibility and operational scalability

Transport bandwidth efficiency: Ethernet aggregation networks which are IP multicast unaware means all multimedia multicast content is flooded across the whole aggregation network, resulting in unnecessary bandwidth consumption because traffic may be forwarded to more destinations than needed. The inefficient use of bandwidth inevitably leads to increased transport costs, which would naturally be passed on to the end user. Alcatel- Lucent strongly believes that for efficient transport of services, some IP awareness must be added to the network elements whilst still transporting

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services at Layer 2 using MPLS pseudo-wires in the form of a “Virtual Private LAN Service” (VPLS) as per RFC4762.

An Ethernet aggregation domain can use an (Internet Group Multicast Protocol) IGMP snooping instance to deliver multicast traffic from Broadband Service Aggregators (BSAs) to multiple destinations (see Figure below). The IGMP snooping function and the use of Carrier Ethernet allows the traffic to be replicated only to destinations that are interested in a particular source, making the most efficient use of available bandwidth.

IGMP snooping in the broadband service access and aggregation nodes reduces network costs because it eliminates the need to support expensive IP multicast routing capabilities in these parts of the network. Therefore, the IP multicast-enabled routing topology is simplified considerably and scalability is improved because most of the IGMP heavy lifting is performed in a distributed manner. Multicast VPLS registration successfully addresses the issue of broadcast packet flooding at the Ethernet layer, improving use of link capacity.

Figure: Multicast VPLS and broadcast packet flooding using IGMP

Service performance and reliability: Multimedia applications and multicast services such as broadcast TV and streaming audio cannot accept the recovery times and basic QoS implementation from traditional Ethernet and

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best-effort IP networks. Therefore it is imperative that services can be carried across the access and aggregation networks in a differentiated manner. This can be achieved in the aggregation layer by applying QoS per application where traffic is presented to the CP on a VLAN per Subscriber basis.

Alcatel-Lucent has experienced network build outs for both model types (VLAN per Service or VLAN per subscriber) and does not have a preference either way. There is reason to believe, however, that for the UK wholesale concept the VLAN per Subscriber model would be most appropriate.

Service flexibility and operational scalability: The Ethernet aggregation network must be able to provide per-application service performance and availability, while handling a multitude of applications with assured service quality for each one. The access node or CO located aggregation node should aggregate the subscriber VLANS into either a single aggregated uplink port or offer the option of a second uplink port for resiliency. Alcatel-Lucent recommends running Link Aggregation protocol (LAG) across these resilient uplinks and aggregating nodes can be geographically separated but state is maintained between both aggregating nodes so that in the case of a link failure there is zero data loss and zero service disruption.

Passive inputs and remedies:

The passive inputs in the consultation are limited to “duct access” and “unbundling”. We believe that “dark fibre” sharing, not mentioned, will also constitute a major asset for multi-operator presence in many segments/areas of the NGA. We concur with the Ofcom view that “wavelength” sharing, while practiced at Metro/long distance levels, is still a way off in access, and lacks today any tangible or time-framed approach in standards. Moreover, the analysis of “duct access” seems to fall short of a complete view – we forecast that the infrastructure provider/s will progressively introduce technology neutral “infrastructure access points” to accommodate multiple and evolving access network topologies (whether active or purely passive), similar to what is practiced for leased line deployments/wholesale. It is also likely that duct renovation or installation offers will reach the market on a collective, coordinated basis (announced programs, information sharing) by one (or two maximum) provider (presumably in UK, Openreach). As regards “unbundling” (see paragraph below), this remains an option at any type of network’s sub-loop level. In a debate searching for equivalence at the “deepest level” level of the network, sub-loop unbundling, as well as drop cable sharing rules (e.g. in multi-dwelling units) will certainly be critical for NGA investors who do not necessarily target an entire access area, but will focus on high ARPU niches (this multiplicity of access approaches, including some form of collocation or interconnection at splitter/fibre flexibility points has been confirmed in a similar NGN discussion by the strong interest of OLOs for

14 UK Ofcom NGA consultation – Alcatel-Lucent Response 5 Dec. 07 access to MSANs (regardless of their greater dispersion and number when compared to the local exchange/METRO node).

Given the regulatory wholesale duties and nationwide “role” of Openreach, the UK could present a certain number of specific risks when comparing to NGA development in other countries: • Lack of pressure on, and between, major civil works providers due to concentration of infrastructure provider investor resources (e.g. one player?) could keep trenching/ducting at artificially high costs (the heaviest part of the burden). Lack of competition in physical infrastructure components (civil works, ducts, dark fibre…) could also create an investment bias against smaller players where they don’t have access to competitive co-investment opportunities; • Increased market uncertainty as to priorities, topologies, calendars for Openreach fibre deployments, especially in high financial risk-driven areas, could affect public initiative in the broadband access domain and introduce delay in nationwide NGA coverage. (Regulatory certainty) – Even though equality of access provides regulatory certainty to telecom players, the existence of a regulated, potentially nationwide “open access network” at the passive infrastructure level creates regulatory uncertainty for potential new investors (local government, RDAs, utilities, operators engaging in public-private partnerships) who could otherwise be attracted to the long-term RoI cycle of such infrastructure. It could be harmful to NGA market development that Openreach be led into the role of an UK exclusive fibre access provider. • (Equivalence) – Should CPs or other categories of new entrants actually invest in new infrastructure, it remains unclear as to how their limited market power could support necessary regulatory measures. Threat of equivalence of input carryover on such projects could severely deter the alternative investors otherwise needed to expand the reach of NGA beyond competitive broadband areas, and to share the financial burden. Even though “open access” would be the rule for any new access network, and largely accepted by OLOs who generally opt for “co-investment” projects anyway, it is not clear which level/components of a OLO’s business plan could be constrained to remain “open”, if any (symmetry in deployment information? access to trenches? duct availability? dark fibre? or wholesale bit-stream only?).

“Fibre Access & Unbundling” – two Misconceptions:

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• “Point to point architecture enables fibre local loop unbundling equivalence to today’s copper LLU.” Location of fibre concentration points and access nodes will significantly differ between NGA providers. As noted, migration also includes closing down existing PSTN local exchange sites – accordingly, the local exchange/MDF can no longer be considered as a long term, universal reference point for regulation in fibre access networks. Moreover, P2P access nodes require considerable amounts of additional floor space to house the quantity of single fibres connecting the ODF – collocation becomes a practical issue of available (affordable) space. • “Non availability of network resources (fibre, ducts) in a GPON environment prohibits alternative co-deployments.” Basic outside plant engineering rules provide for network extensions, redundancy, maintenance lines… in any new infrastructure design. Today’s feeder segments are supplied in multi-fibre cables, guaranteeing over- provisioning of available fibre, whereas as new ducting methods, making large use of techniques such as fibre-blown installation are conditioned for multiple / future upgrades. Given that both P2P and GPON have identical drop/distribution networks (i.e. a single fibre per end user connection), and that passive infrastructure in the feeder segment is over-provisioned, possible co-deployments (dark fibre rental), as alternative networks grow, remain a feasible objective provided that clear, non-dissuasive duct and fibre sharing rules are available (see new relevant market 4).

The “Green-PON” effect In face of growing concern about the impact of ICT on the (natural) environment, Alcatel-Lucent draws attention to certain advantages inherent to the GPON architecture, which at large fibre penetration rates could have considerable impact: • Already given that fibre is less polluting than legacy copper, easier to recycle, less intrusive to deploy and less space consuming for much higher performances and capacities (multi-mode fibre, compact multi fibre ducting, micro-trenching), GPON rationalizes to the maximum the deployment of fibre in both the feeder and distribution networks; • GPON ODF/OLT combinations require minimal site spacing for much lower energy consumption.

Question 5: Do you consider there to be a role of direct regulatory or public policy intervention to create artificial incentives for earlier investment in next generation access?

Early or strong regulatory intervention will play a critical role in setting the parameters for investment in the NGA infrastructure. Market-driven initiatives that are emerging should be encouraged, and Ofcom has a key role to play in ensuring that potential investors have a 'level playing field' and face a degree of technological 'certainty', upon which to base and model business plans well

16 UK Ofcom NGA consultation – Alcatel-Lucent Response 5 Dec. 07

into the lifetime of the next-generation networks - i.e., five to 15 years minimum.

Screening the European landscape, by any means, you discover that public investment is key to achieve higher coverage of end-consumers, beyond the main city borders. As stated above, in market-driven area’s, such as the big cities today (f.i. Paris), the market will more or less rule itself and fiber deployment initiatives, knowing mainly passive infrastructure is there, should indeed be encouraged. In risk- or policy-driven area’s, such as smaller cities and rural area’s, the business case is not that obvious for traditional service and network providers. In most neighboring countries, such as France, Germany, Netherlands, Sweden we see the public sector (f.i. municipalities) heavily participating and investing money for deployment of fibre-based infrastructure, in order to retain their citizens from moving to the capital, raising the social and economical development of the locals and offering the right comfort and convenience. The infrastructure is opened up to service providers, solving for them the burden of the large investment (civil works).

The Public Sector is Key to Achieve 100% Coverage

Re ta i l , se r vi ce Retail, Service Priva te applications applications, Re ta i l , Network Se ctor

Service Network & O ptional: applications, IP Wholesale IP Wholesale Network, (%) O ptional: Dark Dark fiber roll- infra resources fiber roll-out out and renting Public La b eling / Pre- La b eling / Pre- Se ctor cabling cabling I nvestm ent sha ring Access to public Access to public Build of infrastructure infrastructure Primary infra

Market Risk D rive n Policy Area Driven Driven types

Broadband availability will continue to be an increasingly important ‘political’ issue in all areas of the country as companies such as BT, SKY and Virgin Media roll out their entertainment offerings. ery.

The U.K. Government has already placed the provision of next-generation broadband networks as a major ministerial issue, with Competitions Minister Stephen Timms stating that: ’the economy is going to need massive investment in (broadband) infrastructure…’

www.berr.gov.uk/about/ministerial-team/page42183

So Alcatel-Lucent would prefer a regulatory climate that defends both end- consumers and competitive markets, while encouraging innovation in all parts of the NGA, and the most efficient investment.

17 UK Ofcom NGA consultation – Alcatel-Lucent Response 5 Dec. 07

NGA networks necessitate bringing fibre closer to the end user. Therefore civil works constitute the bulk of the investment needed, as well as the main bottleneck for replicability. Having fair access to this passive infrastructure should therefore be the main objective of any regulation. Only the passive infrastructure of an NGA is not replicable. Multiple active networks, even with different technologies, enhancing the fairness of competition - can cost- effectively share the same passive infrastructure.

Many policy makers, regulators across Europe, including here in the U.K., and industrial investors concur that the levels of investment required to deploy new access lines is a permanent entry barrier, especially for smaller new entrants or ISPs – i.e. a ‘natural bottleneck.’ But if the cost of passive infrastructure is lowered to the right threshold, the private sector will invest. The case for investment is clear in dense urban areas, but less so when it comes to the risk-driven suburban, secondary cities, small towns or rural communities, and certainly not available for policy-driven isolated, under- served rural areas. This is why we strongly believe that there is a good case to be made for public investment in NGA – in fact extending what is already happening in various parts of the EU.

Government policy having a positive effect could include: - Based on public consultation and the activity of a high level group of experts (including Ofcom) - national long-term objectives (timeframe, penetration rates) for the renovation of the passive infrastructure, notably by inclusion of broadband access in the revised Universal Services set of obligations – or better, the replacement of the notion of universal service by a citizen right to “Universal Access”. - Local government should be given clear public interest responsibility for infrastructure renovation, and that all project information be collected from any engaged stakeholder (e.g. regarding trenching, rights of way, duct laying programs) should be properly managed (coordination of existing and future civil works programs – e.g. utilities) - Minimum requirements to be respected by any public funded infrastructure (open access, equivalence)

Back up note:

Quote from Stephen Timms, Competitive Minister, BERR speaking to the ISP Association, 24 October 07: “But now there is more to be done. I have been arguing recently for Britain to consolidate our international competitiveness by embracing next generation broadband in the near future. With growing demands for bandwidth-hungry applications – like high quality two-way video or demand for high definition video downloads, for example –

18 UK Ofcom NGA consultation – Alcatel-Lucent Response 5 Dec. 07

the economy is going to need massive investment in new infrastructure. In other countries – France, Germany, and USA, JAPAN – fibre to the home is starting to be deployed on a significant scale. I don’t know of a single home in Britain with a fibre connection. We need to start thinking now about how we

will improve our infrastructure to take advantage of the new and, as yet largely unforeseen, opportunities the new infrastructure will offer to us. The average speed of broadband in the UK is also slower than in Germany, France and in Japan where it apparently averages 61 Mbs. In South Korea, I am told that 90% of homes have broadband at a standard speed, let me repeat that, a standard speed, between 50 and 100 Mbs. But they are not sitting on their laurels. They are trialling 1,000 Mbs! I don’t think there are yet the applications for fibre to the home to present a significant competitive advantage to those countries, but I’m sure there soon will be. We need the UK to maintain and develop the competitive advantage we enjoy as a result of every part of the country being able to access a high quality, high capacity, high performance telecommunications network. To help us move forward on this, I have decided to chair a high level summit at the end of next month, bringing together key people from Government, OFCOM and industry to look at the full range of issues.”

For further information please contact:

John Verdon Communications – UK & Ireland Alcatel-Lucent Voyager Place Shoppenhangers Road Maidenhead SL6 2PJ

[email protected]

Telephone: 020 8777 3792

Wednesday December 5, 2007