The Evolution of Communications Networks

1. The Evolution of Communications Networks June 2, 2008 by Link Hoewing Vice President, Internet & Technology Policy

2. AT&T print ad circa 1977

3. Wireline Narrowband Voice-centric Circuit-switched Copper infrastructure Proprietary architecture Traditional Regulation The World Has Changed From… To… • Mobile and Converged • Broadband • Multi-media • Packetized • Optical Infrastructure • Open architecture • Market-based regulation

4. CDC Report and Pew Center Demonstrates the Impact of Change • Preliminary results from the July-December 2007 National Health Interview Survey (NHIS) indicate that nearly one out of every six American homes (15.8%) had only wireless telephones during the second half of 2007. In addition, more than one out of every eight American homes (13.1%) received all or almost all calls on wireless telephones despite having a landline telephone in the home.    • This does not mean that all Americans who use wireless increasingly for voice calls have cut all landline connections. Recent data from the Pew Trust suggests that broadband penetration continues to grow. In fact in some segments of the population – African Americans – broadband connectivity has expanded dramatically. Landline broadband networks offer real value to consumers. • The CDC numbers show cord cutting is not limited to “young singles,” or even “yuppies” as many often assume. One table in the CDC report shows that 15.5 percent of 30-44 year olds, 13 percent of families with children, and a whopping 27 percent of poor people have cut the cord.  Even 7.3 percent of homeowners have done so, and that figure has doubled in the last two years.

5. Telecom Sector Changes POTS – plain old telephone service • “Old World” • Common carrier regulation • Line loss by LECs • Wireless cannibalization • VoIP offered by cable operators • 8-10% annual line loss across sector • In 2007 VZ had 4% lines loss to cable VoIP plus another 4% lost to wireless • 33M H/H in VZ footprint • 2M lines per year lost

6. Verizon’s Strategy

7. Verizon’s Broadband Deployment • No company has committed more resources to network upgrades – more than $63B in since 2004 • FTTP – Undertaking a very ambitious roll-out of passive fiber optic cable to customer’s homes and businesses • DSL – Continuing to extend the reach of DSL • Nearly 80% of our lines are DSL-capable; 90% plus in urban areas • EV-DO (wireless broadband) – Reaches 228 million people today • Other technologies – exploring innovative and cost-effective ways to bring broadband to more customers • Partnerships with non-profits such as One Economy to bring broadband to low income customers living in subsidized housing • New highly-flexible fiber from Corning allows tighter bends for MDU installations

8. FiOS – Redefining Interaction Applications and Media Bandwidth Web Surfing Video Conferencing, Premises Surveillance, Two-way Signing SDTV Video-on-Demand, Telecommuting File Sharing, Home Video Sharing/Streaming Real-Time SDTV, Network PVR Multi-Player Gaming, Interactive Distance Learning Premises Web Hosting Telemedicine Upstream Speed Increasing in Importance! Large File Sharing HDTV Video-on-Demand Network Hosted Applications and Storage Next Generation 3D TV FTTP Cable Modem ADSL Dial-Up 100 25 20 15 10 5 0 5 10 15 20 25 100 Upstream Mbps Downstream Megs of Bandwidth Platform for current and future content and applications

9. FTTP/FiOS Bandwidth – A Quantum Leap • 100 Meg Service Being Trialed • 20/20 Meg Service available • 15/15 Meg Service for $65 Niagara Falls

10. FTTP Architecture Super Head End Video Hub Office Internet Interactive Services Broadcast Services Local CO (Video Serving Office) POTS ONT Verizon Broadband Network Data SER OLT TDM Switch Network Video Transport Switching/Routing Power & Battery

11. Fiber Deployment 4Q’07 Deployment Status: • Over 10M premises passed in 16 states • 5.9M premises open for TV sales 2008 Deployment Objectives: • Pass 12M premises • 9M premises open for sale 2010 Deployment Objectives • Pass 18M premises by 2010 • 50% of households in footprint FTTP Deployed

12. FiOS High Speed Internet Results • 1.8M subscribers • 7.9M homes open for sale • 2000 communities • More customers on higher speeds • 22% migration from DSL FiOS Internet Net Adds(000) Penetration Expect to achieve 35% - 40% penetration by 2010

13. Key Metrics Will Change

14. ODI Initiative a Key Driver

15. How is the U. S. Doing? • The World Economic Forum ranks the U.S. 4th in “networked readiness,” which measures ICT development, taking into account the environment and individual and corporate usage and readiness. Denmark is 1st, Japan is 19th. • The Fiber to the Home Council estimates that North America has 2.91M fiber connections and has been growing annually at a rate of 97 percent. The number of FTTH connections continues to almost double annually in the U. S.  This compares to just 1M subscribers in all of Europe. Japan has far more subscribers but has been deploying fiber for far longer than any other country. • More than 12 million homes in the U. S. and Canada are passed by fiber networks compared to only five million in Europe. Nevertheless, as IDATE, a major European analyst firm put it “fiber to the home is still concentrated in only a few countries as Europe remains far behind leaders such as Japan and the US (emphasis added)”. • Verizon has more than 70% of the North American fiber connections and accounts for almost 10 million homes passed in the U. S.

16. Verizon Supports Principles • Verizon endorsed the High Tech Broadband Coalition’s “Connectivity Principles” more than two years ago: • All participants in the broadband value chain should embrace a set of connectivity principles which ensure that consumers can • access any content on the internet • run any application they choose • attach any devices to their broadband connection that do not harm the network • get information regarding their service capabilities • In February 2004 former FCC Chair Michael Powell spoke about what he termed “Four Freedoms,” which mirror the HTBBC principles. • In September 2005 the FCC adopted FCC Chair Kevin Martin’s restatement of the HTBBC principles.

17. But there Have Been Problems – What Should be Done? • Information can act as “sunlight” on industry actions so transparency principles around network management are worth considering • What consumers can expect with regard to how their connection will work and what services it normally should be able to run • What information should be provided about traffic management practices by the broadband providers/ISPs • What information should applications providers make available to the public and network providers • Industry should work together to help make applications work better – the “P4P Task Force” model

18. The Internet, Markets, Cooperation • If an internet company acts inappropriately today: • The FTC has asserted jurisdiction over anticompetitive behavior and consumer protection • The FCC has claimed authority to oversee and enforce its principals • Competition and choice is driving market – remember line loss • The Internet is not a closed system – many experts and geeks watching • Problems won’t be kept “hiding” long • The Internet has long been – and remains – a network of networks with a competitive/cooperative/adaptive model • Industry and consumers have adapted continuously • FTP Download crisis – 1980s; “World Wide Wait” – 1990s • Transparency principles should be considered

19. Wrap-up/ Q&A