CommsDay Auckland Summit 2010 UFB and RBI

1. CommsDay Auckland Summit 2010UFB and RBI Steve Rieger

2. UFB and RBI Overview Vodafone experience Challenges of Next Generation Networks NGN Co-investment AxiaNet Media Corporation Fibre plus Mobile and Satellite CommsDay Summit 18 May 2010 2 Today I wish to discuss the Vodafone perspective around the UFB and RBI. The national value of an ultrafast BB network is not in debate and Vodafone is a committed supporter to the concept and is actively engaged in discussions with all the key parties. We also have the benefit of being part of a global organisation so we get to share in the experiences of many sister operating companies in a wide range of countries and its some of those learnings that I wish to share today. Last year we introduced the concept of co-investment as a vehicle for building the new network and as you may have seen in the press last week we announced the alliance with AxiaNet which is exactly this concept being acted on. While all the discussion has centered on Fibre � the evidence suggests that the final solution will be a range of different technologies including mobile and satellite as well as fixed options. So lets make a start Today I wish to discuss the Vodafone perspective around the UFB and RBI. The national value of an ultrafast BB network is not in debate and Vodafone is a committed supporter to the concept and is actively engaged in discussions with all the key parties. We also have the benefit of being part of a global organisation so we get to share in the experiences of many sister operating companies in a wide range of countries and its some of those learnings that I wish to share today. Last year we introduced the concept of co-investment as a vehicle for building the new network and as you may have seen in the press last week we announced the alliance with AxiaNet which is exactly this concept being acted on. While all the discussion has centered on Fibre � the evidence suggests that the final solution will be a range of different technologies including mobile and satellite as well as fixed options. So lets make a start

3. As the 5th largest fixed broadband provider and largest unbundler in Europe, Vodafone is engaged with many Governments on the UFB challenge  3 CommsDay Summit 18 May 2010 Some of you might be surprised to learn that in Europe, Vodafone is the 5th largest fixed broadband provider. We�re also the largest unbundler of the local loop. This means that we�re engaged with multiple Governments across many jurisdictions in the fibre debate. Being engaged across the world in this way means we can take a look at the different access models - which are the ones that are doing best at overcoming the challenges of NGN? How do we make sure, for example, that we have adequate incentives in the form of returns, to ensure we get enough investment from the private sector? Here in NZ, we�re a strong supporter of the concept of an ultra-fast broadband network in New Zealand. On top of the customer benefits of a direct fibre connection, Investment in fibre enables the provision of high speed mobile services with new coverage gains. To achieve our vision, at Vodafone we�ll continue to invest to unleash our mobile network to enable our mobile broadband capability. Fibre to our cell sites is a prerequisite. New mobile technologies will also enable small localised mobile access where no coverage exists, breaking down the last barrier of rural isolation. In fact, perhaps the greatest economic gain might be for rural communities to be funded first. A US study determined that a 1% increase in BB penetration will lead to a rise of employment of 2-3% per year. Closing the rural digital divide as quickly as possible has many upsides.Some of you might be surprised to learn that in Europe, Vodafone is the 5th largest fixed broadband provider. We�re also the largest unbundler of the local loop. This means that we�re engaged with multiple Governments across many jurisdictions in the fibre debate. Being engaged across the world in this way means we can take a look at the different access models - which are the ones that are doing best at overcoming the challenges of NGN? How do we make sure, for example, that we have adequate incentives in the form of returns, to ensure we get enough investment from the private sector? Here in NZ, we�re a strong supporter of the concept of an ultra-fast broadband network in New Zealand. On top of the customer benefits of a direct fibre connection, Investment in fibre enables the provision of high speed mobile services with new coverage gains. To achieve our vision, at Vodafone we�ll continue to invest to unleash our mobile network to enable our mobile broadband capability. Fibre to our cell sites is a prerequisite. New mobile technologies will also enable small localised mobile access where no coverage exists, breaking down the last barrier of rural isolation. In fact, perhaps the greatest economic gain might be for rural communities to be funded first. A US study determined that a 1% increase in BB penetration will lead to a rise of employment of 2-3% per year. Closing the rural digital divide as quickly as possible has many upsides.

4. NZ is leading the way with our UFB initiative: are we too ambitious or not ambitious enough?  4 CommsDay Summit 18 May 2010 So what about Fibre and the Government�s current Ultra-Fast Broadband � or UFB � initiative being run in NZ? Being part of a Global company gives us the benefit of visibility of the state of play of fibre initiatives all around the world. It gives us the opportunity to compare where we�re at in NZ to what�s happening overseas. The green bar represents target coverage � announced by the government (households passed by date) The red bar represents achieved coverage The blue bar reflects take up today What we�re seeing is that the translation to Next Generation Access networks is presenting traditional regulatory frameworks with new challenges. In Europe for example, you can see from this table that operators� fibre plans are ambitious, but deployment and uptake are lagging behind. At this stage NZ and Australia have set the targets So this begs the question � in our NZ UFB initiative example, are we too ambitious or are we not ambitious enough? Or have we got it right? 1.5bn over 10 years is a lot of money. Or is it? $3bn pa on NZ roads $5bn proposed for NZ rail $10bn for Auckland road expansion We wont answer those questions now but I want to discuss some of the obvious challenges So what about Fibre and the Government�s current Ultra-Fast Broadband � or UFB � initiative being run in NZ? Being part of a Global company gives us the benefit of visibility of the state of play of fibre initiatives all around the world. It gives us the opportunity to compare where we�re at in NZ to what�s happening overseas. The green bar represents target coverage � announced by the government (households passed by date) The red bar represents achieved coverage The blue bar reflects take up today What we�re seeing is that the translation to Next Generation Access networks is presenting traditional regulatory frameworks with new challenges. In Europe for example, you can see from this table that operators� fibre plans are ambitious, but deployment and uptake are lagging behind. At this stage NZ and Australia have set the targets So this begs the question � in our NZ UFB initiative example, are we too ambitious or are we not ambitious enough? Or have we got it right? 1.5bn over 10 years is a lot of money. Or is it? $3bn pa on NZ roads $5bn proposed for NZ rail $10bn for Auckland road expansion We wont answer those questions now but I want to discuss some of the obvious challenges

5. CommsDay Summit 18 May 2010 5 Challenges of Next Generation Access Networks The transition to NGA presents traditional regulatory frameworks with new challenges Incentive investments will not be made by the private sector without adequate incentives in the form of an expectation of returns Margin for error If the pricing signals are wrong in NGA, it simply won�t get built in the first place Information Less is known about NGA costs and risks - regulation is a much more difficult exercise in the NGA environment Commitment Regulators can revisit earlier decisions long before any investment in NGA will have paid back Competition Economies of scale and density are even greater than for existing copper networks � it needs the copper incumbent to participate Digital Divide The basic economics of NGA for the incumbent operators (and more so their rivals) means that deployment will be relatively limited in geographic scope if there is no assistance for the less economic regions There are a number of obvious challenges to any government and country who set out to have a coordinated NGN network. Most countries and NZ definitely - can only afford one NGN network. The government has to balance the tension of supporting the build of what is a natural monopoly but getting the regulation, rules and incentives right so that retail and wholesale competition flourish, on the one hand, - and the returns and regulatory certainty to encourage private sector investment on the other! If the pricing is wrong � there will be low to no uptake so the network does not get built or it stops after the first stage. We do not believe customers will pay any more for a fibre connection. There is no premium for very high speed connectivity once a customer has �satisfactory� speed. I stress this point as the evidence exists. Scale matters and that means uptake. Again no customers means the network fails. There is not a lot of precedent for government stimulated NGN�s and as fate would have it NZ and Australia look to be world leading (as far as open western democracies go) so it will be our success and failures that the rest of the world and Europe in particular will review. And finally you wont hear a Vodafone representative say this very often BUT the NGN can not be successful without the incumbent participating � the ability for any incumbent to destroy the business case for a fibre rollout is very pronounced. They have the existing assets, skills and customer base to make the network succeed as long as they are working with it. There are a number of obvious challenges to any government and country who set out to have a coordinated NGN network. Most countries and NZ definitely - can only afford one NGN network. The government has to balance the tension of supporting the build of what is a natural monopoly but getting the regulation, rules and incentives right so that retail and wholesale competition flourish, on the one hand, - and the returns and regulatory certainty to encourage private sector investment on the other! If the pricing is wrong � there will be low to no uptake so the network does not get built or it stops after the first stage. We do not believe customers will pay any more for a fibre connection. There is no premium for very high speed connectivity once a customer has �satisfactory� speed. I stress this point as the evidence exists. Scale matters and that means uptake. Again no customers means the network fails. There is not a lot of precedent for government stimulated NGN�s and as fate would have it NZ and Australia look to be world leading (as far as open western democracies go) so it will be our success and failures that the rest of the world and Europe in particular will review. And finally you wont hear a Vodafone representative say this very often BUT the NGN can not be successful without the incumbent participating � the ability for any incumbent to destroy the business case for a fibre rollout is very pronounced. They have the existing assets, skills and customer base to make the network succeed as long as they are working with it.

6. Co-investment is ideally suited to stimulate investment while guaranteeing sustainable competition CommsDay Summit 18 May 2010 6 So on a theme that Vodafone was proposing this time last year Co-investment assumes that there can only be one NGN network � but it has joint ownership of that single network - lets call it NetCo The co-investors can compete in the retail market against each other and also at the wholesale level as well to supply smaller SP�s who cant make the investment commitment. There are no limits on how many retail SP�s could participate and who they were to purchase off. This structure is actively competitive. As previously mentioned it needs the incumbent to invest, so they have to be one of the investors � but that investment could be with assets- not cash � other companies with assets could also invest using their assets. Yet another company like Vodafone with no fixed network assets could invest using cash - The point is to limit overbuilding and end up with one national network. No single participant can have control over the NetCo � that stops predatory or SMP behaviour. Having a minimum number of participants will also ensure no SMP in one players hands. The EU regulator has accepted the co-investment model and decreed that it would require 4 participants as a minimum. In this chart we have proposed the Crown could invest and be in the NetCo as a referee if it felt it had to. We have taken this a step further So on a theme that Vodafone was proposing this time last year Co-investment assumes that there can only be one NGN network � but it has joint ownership of that single network - lets call it NetCo The co-investors can compete in the retail market against each other and also at the wholesale level as well to supply smaller SP�s who cant make the investment commitment. There are no limits on how many retail SP�s could participate and who they were to purchase off. This structure is actively competitive. As previously mentioned it needs the incumbent to invest, so they have to be one of the investors � but that investment could be with assets- not cash � other companies with assets could also invest using their assets. Yet another company like Vodafone with no fixed network assets could invest using cash - The point is to limit overbuilding and end up with one national network. No single participant can have control over the NetCo � that stops predatory or SMP behaviour. Having a minimum number of participants will also ensure no SMP in one players hands. The EU regulator has accepted the co-investment model and decreed that it would require 4 participants as a minimum. In this chart we have proposed the Crown could invest and be in the NetCo as a referee if it felt it had to. We have taken this a step further

7. Axia NetMedia Corporation Canadian listed NGN operator with operations and shareholdings in Canada, France and Singapore Introduced the concept of the Community Interconnect Grid � CIG Understandable economics Layer 2 Opco co-investment National retailers could deliver consistent propositions on a national basis Rural and urban get investment simultaneously CommsDay Summit 18 May 2010 7 Last week we publicly shared the details of an alliance with Axia NetMedia who have submitted a UFB bid in their name to Crown Fibre Holdings. They have proven experience and bring an independence to the debate but most importantly they were proposing a co-investment model that we supported . We liked the concept of the Community Interconnect Grid for the following reasons It connected hundreds of communities in a grid structure first � not just 33 urban cities and towns (think veins of a leaf with a community school or pop at the end of the vein. The CIG has sensible economics � focus on the visible revenues first - the large users (these are the mobile companies for backhaul, and the government for their own departments use � notably education and health being upfront and early) Axia has also proposed the concept of a Layer 2 opco sitting on the community interconnect grid which we like because National retailers like Vodafone can confidently deliver a consistent proposition to anywhere at a consistent price knowing we had only 1 integration, 1 set of standards, the same SLA�s A layer 2 model will be ultimately enable a more flexible build structure at a lower price with less duplication � And finally the Axia model will mean that rural NZ gets a POP at the same time as the urban centres � once that grid is in place the LFC�s can build out their regions on a street by street basis But back to the point that the Rural community can get a simultaneous benefit as Urban � lets have a look at what that means Last week we publicly shared the details of an alliance with Axia NetMedia who have submitted a UFB bid in their name to Crown Fibre Holdings. They have proven experience and bring an independence to the debate but most importantly they were proposing a co-investment model that we supported . We liked the concept of the Community Interconnect Grid for the following reasons It connected hundreds of communities in a grid structure first � not just 33 urban cities and towns (think veins of a leaf with a community school or pop at the end of the vein. The CIG has sensible economics � focus on the visible revenues first - the large users (these are the mobile companies for backhaul, and the government for their own departments use � notably education and health being upfront and early) Axia has also proposed the concept of a Layer 2 opco sitting on the community interconnect grid which we like because National retailers like Vodafone can confidently deliver a consistent proposition to anywhere at a consistent price knowing we had only 1 integration, 1 set of standards, the same SLA�s A layer 2 model will be ultimately enable a more flexible build structure at a lower price with less duplication � And finally the Axia model will mean that rural NZ gets a POP at the same time as the urban centres � once that grid is in place the LFC�s can build out their regions on a street by street basis But back to the point that the Rural community can get a simultaneous benefit as Urban � lets have a look at what that means

8. Rural Broadband �Mobile plus Satellite CommsDay Summit 18 May 2010 8 This is a pictorial representation of what can happen for rural NZ. The fibre is built out from the yellow UFB footprint to a POP in a rural community. It could be a school or another key government building. From that POP the Fibre would be easily extended to any rural cell site (from any mobile telco) and encourage the investment in further new cell site builds. This would take the coverage potential to almost 98% of NZrs. For those that remain then the ever improving satellite performance will close out the last 1-2 % of rural NZ and schools. But the main point is what happens to a rural cell site once it has Fibre connected to it? This is a pictorial representation of what can happen for rural NZ. The fibre is built out from the yellow UFB footprint to a POP in a rural community. It could be a school or another key government building. From that POP the Fibre would be easily extended to any rural cell site (from any mobile telco) and encourage the investment in further new cell site builds. This would take the coverage potential to almost 98% of NZrs. For those that remain then the ever improving satellite performance will close out the last 1-2 % of rural NZ and schools. But the main point is what happens to a rural cell site once it has Fibre connected to it?

9. Wireless networks are now delivering speeds that enable a good to great customer experience 9 CommsDay Summit 18 May 2010 Speeds are now at levels where the experience changes behaviour. Mobile networks are delivering speed to enable the mobile internet to come to life. Importantly, what we are talking about is personal broadband available to us anywhere at anytime. The slowest sites in our current network support speeds up to 10 times faster than dial up at 3.6Mbps. Later this year we�ll upgrade to speeds of up to 21Mbps. Next year we can double that to 42Mbps. Now that�s real fast. From 2012, just 2 years away, we can deliver 50 to 100Mbps. This will be with our next generation of mobile � LTE. Indeed, NTT DoCoMo claims to have recorded a downlink transmission rate of 250 mbit/s in tests last year. The LTE story for rural broadband is very exciting � we urge the government to consider the benefits of releasing the Digital Dividend Spectrum in 2013 enabling the mobile companies (all 3 of us) to access the 700 Mhz spectrum. In this spectrum band -not only will we be able to offer very high speed mobile broadband but we will get huge coverage distances from the same infrastructure � up to 100km radius and we estimate that we will increase New Zealand's rural mobile coverage by 30-40% from the same sites � frankly amazing So wireless technologies are critical to deliver the mobile internet and are complimentary to, but also a real alternative for, fibre for many customers, particularly in rural areas. Speeds are now at levels where the experience changes behaviour. Mobile networks are delivering speed to enable the mobile internet to come to life. Importantly, what we are talking about is personal broadband available to us anywhere at anytime. The slowest sites in our current network support speeds up to 10 times faster than dial up at 3.6Mbps. Later this year we�ll upgrade to speeds of up to 21Mbps. Next year we can double that to 42Mbps. Now that�s real fast. From 2012, just 2 years away, we can deliver 50 to 100Mbps. This will be with our next generation of mobile � LTE. Indeed, NTT DoCoMo claims to have recorded a downlink transmission rate of 250 mbit/s in tests last year. The LTE story for rural broadband is very exciting � we urge the government to consider the benefits of releasing the Digital Dividend Spectrum in 2013 enabling the mobile companies (all 3 of us) to access the 700 Mhz spectrum. In this spectrum band -not only will we be able to offer very high speed mobile broadband but we will get huge coverage distances from the same infrastructure � up to 100km radius and we estimate that we will increase New Zealand's rural mobile coverage by 30-40% from the same sites � frankly amazing So wireless technologies are critical to deliver the mobile internet and are complimentary to, but also a real alternative for, fibre for many customers, particularly in rural areas.

10. Key Outtakes / Perspectives  10 CommsDay Summit 18 May 2010 We see the future as a �mobile and fibre combo�. That is, a world of mobility and what I call �big pipes�. And what I mean here is we�ll continue to see mobility demand for when we�re out and about. But when we�re at our desks and downloading big stuff like movies, we�re going to need the big fibre pipes. So from our perspective mobility and fibre through these big pipes are complementary � we absolutely need both when we look to the future. Around the world we see variations of the UFB model, some with more success than others. But one constant we�re seeing in all jurisdictions is that the cost to deploy fibre networks is greater than the willingness of the customer to pay. This leaves an investment gap, which is why we need a subsidy � and this is the process the Government is now running in NZ. But what do we think of the Government�s plan to invest $1.5bn over 10 years to close this gap? $1.5bn sounds a lot of money. Is it enough, too much or not enough? It�s interesting when you have a look at what we�re planning to spend on roads and trains ($3bn pa on NZ roads; $5bn pa on NZ rail and $10bn on Auckland road expansion). When you compare to these investments and you think about the productivity benefits which can be realised from ultra-fast broadband, our view is that in the current UFB model, NZ runs the risk of failing to overcome the challenges that we�re seeing in other jurisdictions. And finally Urban or Rural � the greatest gains might come from building out a connected fibre to all communities (even the very small) and then focus on the urban streets. NZ�s biggest GDP producers get instant productivity gains and the network economics start better as well.We see the future as a �mobile and fibre combo�. That is, a world of mobility and what I call �big pipes�. And what I mean here is we�ll continue to see mobility demand for when we�re out and about. But when we�re at our desks and downloading big stuff like movies, we�re going to need the big fibre pipes. So from our perspective mobility and fibre through these big pipes are complementary � we absolutely need both when we look to the future. Around the world we see variations of the UFB model, some with more success than others. But one constant we�re seeing in all jurisdictions is that the cost to deploy fibre networks is greater than the willingness of the customer to pay. This leaves an investment gap, which is why we need a subsidy � and this is the process the Government is now running in NZ. But what do we think of the Government�s plan to invest $1.5bn over 10 years to close this gap? $1.5bn sounds a lot of money. Is it enough, too much or not enough? It�s interesting when you have a look at what we�re planning to spend on roads and trains ($3bn pa on NZ roads; $5bn pa on NZ rail and $10bn on Auckland road expansion). When you compare to these investments and you think about the productivity benefits which can be realised from ultra-fast broadband, our view is that in the current UFB model, NZ runs the risk of failing to overcome the challenges that we�re seeing in other jurisdictions. And finally Urban or Rural � the greatest gains might come from building out a connected fibre to all communities (even the very small) and then focus on the urban streets. NZ�s biggest GDP producers get instant productivity gains and the network economics start better as well.