What are the Key Success Factors for viable and enticing FTTH deployment in Europe?

1. What are the Key Success Factors for viable and enticing FTTH deployment in Europe? Dorian Ortolland Consultant atCapgemini

2. FTTH: European market overview • 3,5 million FTTH connections in service in Europe (October 2010) • Nearly 75% of FTTH subscribers are located in Sweden, Italy, France, Norway, the Netherlands and Denmark • 8 millions FTTH subscribers forecast for 2012 • The total number of households passed which has nearly tripled in 2 year, from 5,8 to more than 18 million B2 and Bostream: FTTH since 1999 150+ Local FTTH networks Dispersed market with over 410 FTTxprojects DONG Energy/TDC 14 FTTH projects done mostly by local utilities KPN : FTTx projects 40 Local FTTH projects SFR, Free, Orange, Noos: 22 FTTB/H public projects Fastweb: FTTH since 1999 Telecom Italia: FTTB/C

3. FTTH market forecasted growths • FTTH forecasts from 2007 to 2013 in terms of thousand households connected The development of FTTH in each European country Depends on: • The importance operators give to VDSL and other broadband technologies. • The competition level on the market and the role of public authorities • Cities and regions ambitions in terms of FTTH deployments FTTx deployments in Europe as of October 2010 shows that the FTTH market in Europe continues to grow

4. Technologie: GPON vs P2P • PtM PON (Passive Optical Network) • P2P AON (Active Optical Network) • Users aggregated in the OSP (passive outside plant) • This considerably reducing fiber in the CO (central office). • An optical splitter which is a passive device is set up in OSP • High stability, low failure rates and no requirements for cooling or powering. • Ethernet-based technology • The direct fiber access to individual subscribers • Future proof solution which allows virtually unlimited bandwidth per customer • A kind of network showing higher flexibility and allowing more subscriber management. • Allowing also more scalability by the easy replacement of end devices in case of the use of another technology

5. Technologie: GPON vs P2P • PtM PON (Passive Optical Network) • P2P AON (Active Optical Network) • Speeds up to 2,5 Gbps for downstream and up to 1,25 Gbps for upstream. • PON infrastructure mostly used for mass-scale deployments • Low total cost of ownership (TCO) • Passive outside plant (OSP) and long reach. • “Fiber troubleshooting” is simple with P2P • Strategic possibility to include or exclude some operators. • Interesting for operators trying to improve their position within the market.

6. Technologie: GPON vs P2P PON inconveniences. • The bandwidth shared among all users on the tree. • A strong encryption required to prevent security failures. • Corrupt one CPE can impact the entire PON tree. • The maximum number of customers per tree is rarely reached • The LLU is also virtually impossible • GPON would bit less relevant for Greenfield scenarios Passive Optical Network Architecture

7. Technologie: GPON vs P2P PtP inconveniences. • Requires much more fibers and OLT ports (One port per homes) • Need for a deployment of active equipment in the outside plant • the CO consumes 3 times of what consumes PON’s CO • More complicated to implement on aerial cabling Home Run Fiber Architecture

8. Multi-fiber Model for PON and P2P architecture • Multi-fiber architecture deploys more than one single fiber per home. • Multi fiber enable several operators in parallel to get access to the same customers • The multi-fiber model generates more competition at deeper level than service wholesales.

9. Multi-fiber Model for PON and P2P architecture • Higher number of fibers per customer leads to additional works • Total investment for a multi-fiber network is between 10 % and 20% higher than for the comparable single fiber networks • But in term of relative value, a multi-fiber approach with two operators reduces investment per operator by about 40 % to 50 %

10. Multi-fiber Model for PON and P2P architecture • The highest increase in investment results especially for P2P. • The effect is higher for P2P, because the more fibers are deployed, the lower is the incremental investment per fiber

11. FTTH network‘s organisational choice Service Providers End users Network operator Network owner Network infrastructure Network operation Commercialisation Owns the passive layer. A private company opereates the active layer and resells dark fiber and capacity to service providers Owns and operates the nework and resell capacity to service providers Owns, operates and provide services over the network

12. FTTH organisational choices

13. Financing Network Deployment strategy • Local government pays for passive network • Management of active layer concedes to private carrier‘s carrier • Pay back from active layer resell • Coverage of local govt needs • Local govt owns the network • Impact on local taxes • State aid Direct subsidy • No state aid • Local govt shares the risk of failure • A Mix of public/private fundings • I f the base is small, rates will become too high. • Sector-Internal Financing by a Compensation Fund • All market participants contribute • Complement of Govn‘t fundings • Need to find private partners to invest Compensation Fund • Local government invests as a private player (through a venture deploying the network) Co-Investment • Can reduced network usage • Needs 40% FTTH penetration • Financed by access charges • Each user pay for his access to the fiber • We usualy see price from 300 to 3000 euros • Easy to implement • Cheapest way Charging Users

14. Key actors for FTTH deployment in Europe Incumbents involvement Government Regulator ISPs Clients EU commission • High investments • Regulation on SMP and unbundling of their infrastructure • Ultra-high broadband strategies • Public subsidies Key Actors • Fair, transparent non discriminatory access to key infrastructures • Adequate rules and regulatory framework Municipalities and local authorities • SMEs: access to affordable Ultra-Broadband and competitive offers • Private: decline on tariffs • Involvement of energy utilities controlled by municipalities • Local initiatives in rural areas against a lack of private investments • Measures to facilitate access to physical infrastructure • Creation of BEREC, the European regulator

15. Implication of government and public authorities Government strategic orientation French regulation and investment Broadband Action Plan • Law 32/2009 to regulate the access to infrastructure • Creation of a central data base of ducts and infrastructure • €800 Mio credit to support a €1 Bio investment by 4 main operators • Dedicated regulation according the type of zones • Grand Emprunt in 2009: €2 Bio • Call for FTTH pilots project: €500.000 per projects • €200 Mio investment • €67 Mio government subsidies • Aid for rural areas only for OAN • Public authorities often involved in rural areas • More than 173 power utilities controlled by municipalities involved in a FTTH deployment in Sweden • More than 70 active corporations which build and operate fiber networks in Norway The involvement of the government and public authorities could have a strong leverage effect for the deployment of FTTH under OAN model Several countries presented a government involvement under national broadband strategies or specific regulations

16. Role of public authorities and utilities Municipalities and utilities are still the main category of players involved in FTTH deployments in Europe as they represent 58% of total number of projects. • Reasons • Guaranteeing economic prosperity • Allowing the retention of existing businesses ,the attraction of new ones. • Territories becoming more attractive • Enabling innovative e-services for inhabitants and businesses Speeds and scope of FTTH deployments closely linked with regional authorities’ involvement.

17. Utilities and FTTH • Assets and advantages from utilities for FTTH deployment • Assets allowing them to easily enter the telecoms market • Owning energy network supporting the deployment of new telecommunication infrastructure. • Putting fiber on the high, medium and low voltage ,very much cheaper than digging an underground network. • The building costs considerably reduced by using existing resources and the planning could be done faster • Knowledge of existing networks and topology often already overtaken into a GIS (Geographic Information System) • Some utilities teaming up directly with operators in order to reduce the investment costs related to the FTTH investment. Utility’s image and credibility facilitating the commercialisation among the end users

18. Open Access Network‘s Organisation Equal conditions access to the broadband telecoms network Choice and creation of the carriers’ carrier ! Service Providers End users Network operator Network owner Network infrastructure Commercialisation Network operation • Based on three main principles Non-discrimination Neutrality Transparency • Guarantee of neutrality related to geography and technology oriented issues • Public availability of essential information related to the OAN infrastructure and its operation • Treatment of all service providers or entitled entities requesting access to the Open Access network in equal conditions Open Access can help alleviate specific barriers to develop FTTH, increasing competition, reducing costs and allowing public authorities to operate into the telecom market

19. Open Acces and FTTH • A valuable alternative model • Open access offers, lowers the financial barriers to entry for operators, but also increases the profitability in the upper layers of the market and can also serve more efficiently the local communities. Methodsused to enable OpenAccess for FTTH Methods employed will vary from country to country, regulator to regulator as local market conditions are taken into account. Open Access methods into two main groups, service access and fiber access. • What are the benefits? • Bring faster payback period on the fiber investment • Accelerate service take-up for faster ROI • Comply with regulations for open & competitive access • Allow innovation and faster introduction of new services • Support a competitive retail environment • Promote flexible end-user choices Service Access A wholesale service offered by the infrastructure provider whereby the competitive provider has no equipment co located with the infrastructure provider but the customers will have access to their content and services via the fiber access network. FiberAccess Awholesale service whereby the CP will co-locate network elements at some point in the fibre access network. This could be at the CO or further towards the customer premises. OPEN ACCESS refers to the situation where multiple retail service providers may use the FTTH Network on an equable base by connecting at a packet layer interface and compete to offer their Services to end users

20. But OAN not a concern by public authorities only • Incumbents could be reticent regarding Open Access • More competitors • Less customers, less direct revenues • Utilization of their capacity of investment by alternative operators without taking the risks • However, some incumbents see specific chances with the model • Multifiber model in partnership with municipal utilities • At least 1 fiber dedicated to Swisscom to provide its own services • Generate revenue from the fiber renting • Joint Venture Model • Agreement with the regulator OPTA to implement the concept of Open Network • Probably choose as the only operator for the Strategy for Ultra-High broadband • Incitement to deploy multi-fiber network Some incumbents promote Open Access for their deployment, with or without specific regulation, principally for the high revenue from the leasing of the fibers but also to become a key infrastructure provider

21. French cooperation between SFR and the incumbent Between 100 and 1000 HH Palaiseau Orange‘s fiber Sharing point SFR‘s fiber Bondy Nobody can deploy the fiber without Orange. But no more that Orange can make it alone. SFR communication Orange ischangingitsmindfromclosedto open network. Covering rural areasisreallydifficultwithoutthehelpoftheinvestmentcapacitiesoftheincumbent, thus Open Network become an adequatesolution • Agreement between SFR and Orange (incumbent) totestco-investment in a trial • Investments will be shared and every holder owns the network depending on their investment • Roll-out in twomunicipalities (Bondy andPalaiseau) • SFR will buildnetwork in Bondy and Orange in Palaiseau • SFR and Orange plansto form a company open toanyoperatorswhowishtojoinit

22. Criteria for FTTH new projectassessment • In this presentation, we aimed to indentify the key success factors for a viable and enticing FTTH deployment in Europe. • The key elements are: • Regulatory framework and governmental incentives • The local authorities and utilities involvement. • The Private Public Partnership option • The organizational choice (3 layers) • The network access, Open/Close Access • The technological and architectural choice

23. Thank you for listening