Presentation Title | Month 2008 All Rights Reserved © Alcatel-Lucent 2010

ITU-T regional development forum : Next Generation Access Regulation and Trends…

Cairo, December, 2010

Agenda

FTTH Market panorama: highlights from the World and the middle east

The Connected Experience : More bandwidth… more symmetry… more convergence

Update on NGA-broadband regulation : Europe and Middle East

Update on NGA-broadband funding : Public and private partnerships…

Source: IDATE for FTTH Council Europe

FTTx Middle East panorama in the region

FTTH in Middle East - Overview

In December 2009, UAE is undoubtedly the main FTTH/B market in the region, in terms of Globalsubscribers Figures and homes passed.

UAE is representing 91% of FTTH/B subscribers and 94% of homes passed in the region

Homes Passed Subscribers Countries Countries Dec 09 Dec 09 UAE 1 065 000 UAE 62 700 Egypt 35 000 Saudi Arabia 3 122 Saudi Arabia 11 622 Barhain 1 000 Barhain 4 500 Egypt 500 Lebanon 4 500 Kuwait 500 Kuwait 2 000 Lebanon 300

Source: IDATE for FTTH Council Europe

1:1 Telephony Data

Multi-media sharing Picture & video storage ? 2:1 Camera surveillance Social media Video conferencing 3:1 c affi www t tr rne Inte 5:1 dcast video, VOD, IPTV Downstream/Upstream ratio Downstream/Upstream 10:1 TV, Broad 1985 1990 1995 2000 2005 2010 2015 2020

There is significant movement towards more symmetric residential traffic

Understand your end-customer demand

50 Mb/s / sub (100 Mb/s peak) 50

45 40

25 20 Mb/s 20

0 2007 2008 2009 2010 2011 2012 2013

HSI VoIP OTT SD SD VoD HD HD VoD 3DTV Femto 20% CAGR expected bandwidth growth

Sources: FTTH Council; Operators; Alcatel-Lucent

Global peak and average bandwidth have demonstrated their ability to grow consistently. 100Mbps will eventually become commonplace.

More Interactivity Online gamers need speed & static IP (server)

Speed - Download allowance - Low latency - No throttle Static IP - Low contention ratio

More Symmetry Online storage space Online backup and share TV-centric video communication Two way HD stream (15 Mbps) FTTH/B STB needs real time video encoding Create minimal barriers for adoption Pay-as-you-go models for support Third parties create wholesale revenue

Understand your end-customer demand

Significant CAPEX and Good geographic Mobile Backhaul OPEX savings overlap between • 90% savings using DSL FTTx and cell sites 2G, 3G, LTE and 75% using GPON • Large cells small cells instead of leased lines to femto

IP/Optical Ethernet/ Business Access MPLS/Optical FTTx Access

Triple Play FTTx enables Reduces CAPEX and symmetrical services OPEX to SME/Large • Driving competitive enterprises enterprise prices Business Access

FTTx must meet residential and the specialized mobile backhaul and business access requirements

Central Office Access loop Home

More More Efficient Outside Plant concentrated distributed Small street/pole cabinet Point To IP Splicing No remote powering Point Ethernet switch Less maintenance, truck rolls,… Higher CAPEX – Small scale deployments

Cost-effective Fiber Feeder Few fibers in feeder, smaller ducts Similar (same) topology as FTTN Active IP Ethernet Ethernet Ethernet switch CO consolidation switch Higher OPEX – Complement to VDSL

Long-reach Passive OSP Passive Outside Plant Fiber Cost & Management (P-to-MP) GPON IP CO scalability & Consol. (20+ km) Optical splitter PON OLT Large Scale FTTH – Greenfields (1:32-64)

Operator Strategies for FTTx Strategy Migration from Central Office ADSL to FTTH: 3 common strategies

1 FTTN/C Complemented with FTTH

FTTN complemented with FTTH FTTH FTTH Main strategy FTTN FTTN/C w/VDSL2 + FTTH in greenfield/strategic areas at&t Used to counter cable competition

2 FTTH Complemented with FTTB

Main strategy FTTH FTTH +FTTB w/VDSL2 or Eth FTTH FTTB - Re-use building infrastructure Reduce cost, speed up coverage Used to quickly build a fiber footprint and grab market share

3 FTTH Complemented with CO/VDSL2

Main strategy FTTH Upgrade CO to VDSL2 FTTH FTTH + CO/VDSL2 Quickly boost coverage Start building subscriber base in short term

VDSL2 ideal short/medium term: Sufficient bandwidth; quick time-to-market; and cost-efficient coverage

End-user

Retail Services (residential, public & business) Active Network (network equipments, business & operation support) Passive Infrastructure (trenches, ducts, fibre)

Retail Service Provider Retail Service Provider Active Network Provider Integrated or separated? Active Network Provider Passive Infrastructure Provider Passive Infrastructure Provider

FTTH Regulation and the different sharing options

WDM GPON P2P Content Provider PON Service SLA “Open Access” Application Provider Open Access (Packet) IP & Ethernet Wholesale Active Network Provider “Unbundling” Open Access (Wavelength) Wavelength Dark fiber Open Access (Fiber) Passive Dark Fibre Provider Ducts, Sewers, Poles “Infrastructure Open AccessFeeder (Duct) filling Competition” Passive Infra. Provider

Sharing can take place at many layers, independently of technology

Vertically Passive Active Full separation Integrated Sharing Sharing Retail Service Retail Service Retail Service Retail Retail Service Retail Service Retail Service Retail Provider Provider Provider Provider Provider Provider Integrated OperatorIntegrated OperatorIntegrated OperatorIntegrated Vertical Service Vertical Service Vertical Service Vertical Provider Service Provider Provider Vertically Vertically Vertically Vertically Network Active Vertical Operator Infrastructure Infrastructure Provider Infrastructure Passive Owner Owner

Competition Infrastructure Service Competition Competition “Open Access”

Regulated Regulated Access to public Regulated active Regulation passive passive & active infrastructure wholesale wholesale wholesale

What does the EU Commission recommend? Europe recent past and current situation : regulatory focus

End-user

Retail Services (residential, public & business)

Active Network (network equipments, business & operation support)

Passive Infrastructure (trenches, ducts, copper, fibre)

EU regulation focuses on passive infrastructure access/sharing (LLU) and active network access (bitstream wholesale)

1 “Regulatory NGA principles for EU states

1. Promote infrastructure-based competition (vs service-based) Service innovation on your own network is key… 2. Regulatory remedies should be based on geographic segmentation Urban, suburban and rural area’s

3. Duct access and in house wiring sharing is key CO CO No regulatory burden if sharing options granted FFP 4. Fiber concentration (flexibility) point is where access should be granted Location should be determined by economical and density conditions “Community guidelines for the application of STATE AID rules 2 in relation to rapid deployment of broadband networks”, Sept 09 1. Definition of white, grey and black area’s for NGA networks 2. State Aid is OK for white, possible for grey, unacceptable for black 3. Public investment in private venture under market conditions is OK

An update on NGA regulation Three-step process for regulating markets in Europe

The EU has defined seven product and service markets in which ex ante regulation may be warranted Markets 4 and 5 are relevant to NGA networks because they concern broadband (Recommendation 2007/879/EC)

Step1 Step 2 Step 3 Market definition Market analysis Market remedies Market 4: Wholesale (physical) Market 4: Typically dominated by the Market 4: Grant access to the physical network infrastructure access former incumbent operator path of the network (including shared or fully unbundled duct sharing access) at a fixed location in-building fibre SLU for FTTC (terminating segment) fibre unbundling dark fibre Market 5: Wholesale broadband access Market 5: Not always 100% incumbent Market 5: A range of possible remedies dominant (dependent on product include definition and geography) different levels of bitstream access different pricing mechanisms etc.

VDSL ADSL ~50 Mbps ~12 Mbps

GPON 100 Mbps+

VDSL P2P/AE ~50 Mbps 100 Mbps+ VDSL ~100 Mbps

Revenues CAPEX OPEX

Penetration… Civil Engineering… Operate & Maintain… Service Packages… Passive Layer… Customer Acquisition… Wholesale… Active Layer… Physical Access…

Economical considerations for FTTH The business case shows regional differences

FTTH CAPEX Major cities Average cities/suburban Rural area’s (€/subs) 7000 Fiber drop 6000 Dark Fiber 5000

4000

3000 Trenching/ducts Fiber drop Fiber drop Dark Fiber Dark Fiber 2000 Trenching ducts Trenching/ducts 1000 Engineering Engineering OSP engineering Home HW Home HW Home HW Network HW Network HW Network HW 0 Note: 30% take rate

Pay back ~4 years ~8 years > 20 years period

Civil works and Passive infrastructure is main parameter of the business case Traditional operators will not go all the way on their own

100 % Market Driven Risk Driven Policy Driven

Services Private € Fraction Village Kilafors public to private Lindefalle t Active Small town investment Hudiksvall

Medium-size town Jönkoping PassiveDense city Stockholm Public € 0 % Low Socio-economic impact of fiber High

Socio-economic impact Low/Medium Medium High

Investor Payback Time ~5 year ~10 year ~20 year

Access to infra, RoW, Ducts, sewers, Passive, active. Public Sector Intervention in-house labeling.. dark fiber. Active? Utility services?

Worldwide testimonial on FTTH investment Policy makers and operators should go hand in hand

Required FTTH investment in Euros per HH

Source : McKinsey & Company

FTTH deployments – opening up at various layers Fibre access and infrastructure sharing

Vertically Passive Active Full separation Integrated Sharing Sharing Retail Service Retail Service Retail Service Retail Retail Service Retail Service Retail Service Retail Provider Provider Provider Provider Provider Provider Integrated OperatorIntegrated OperatorIntegrated Integrated OperatorIntegrated Vertical Service Vertical Service Vertical Vertical Service Vertical Provider Provider S Provider Vertically Vertically Vertically Vertically Vertically Network A Vertical Operator Infrastructure Infrastructure Provider Infrastructure P Owner Owner

Infrastructure Service Competition Competition

Passive Access to public Passive Active wholesale wholesale & infrastructure wholesale active wholesale Share the fibre Share the ducts Share the fibre Share the “pipe” (Event. share the pipe) Share the “pipe”

Content Provider Commercial agreement SLA SLA defining content availability, QoS Application Provider or Network provider (interco.) L3 Bitstream: IP and VRF IP & Ethernet Wholesale L2 Tunneling: Ethernet VLANs/ATM PVCs Network Provider

Fibre Sharing Fiber sharing at fiber flexibility point

Limited legacy (versus Dark Fibre Provider copper situation)

Passive Infrastructure sharing Trenches, sewers, pipes, poles, ducts, cables,

Main area of re-use of Passive Infra. Provider existing infrastructure

Terminology “Open Access” is often used for L2 & L3 IP/Ethernet Wholesale

2 Six scenarios of FTTH sharing considered

AP AP AP NP NP NP NP NP NP NP IP & Eth. IP & Eth. Fibre Fibre Passive Passive Operator Operator Operator Operator

FT-ducts / NC-fiber (FR) Proposal BT Open Reach (UK) NTT (Japan) / 9C (FR)

AP AP AP NP NP NP … NP NP A & NP A & NP IP & Ethernet Wholesale IP & Eth. Fibre sharing Fibre Reference Reference wholesaler wholesaler 3rd Party Passive Infra Passive / Public Infrastructure Infrastructure Infrastructure provider provider provider

Paris-sewers / CG 92-fiber (FR) Nordics Citynets Reggefiber (NL)

Open “Passive” Access Open “Active” Access Combined

“Access to civil works is the key driver for investments. It allows network replicability and infrastructural competition.”