© 2007 Verizon. All Rights Reserved. PTE12065 03/07

A Fiber Future

Challenges for markets and policy

Dennis WellerChief EconomistVerizonOECD WorkshopStavanger, Norway10 April 2008

2

Verizon’s Corporate ProfileVerizon Wireless♦ U.S. wireless customers 65.7 million♦ States w/wireless 49 plus D.C.

presence

Verizon Telecom♦ U.S. wireline access lines 41.4 million♦ Wireline broadband

connections 8.2 million♦ FiOS triple-play 1.5 million Internet

943,000 Video

Statistics as of 12/31/07

Verizon Business 150 countries446,000 route miles ofcable over six continents94% of Fortune 500

Investment in Vodafone Italia

♦ Premiere international provider of enterprise voice, Internet, data and managed services

♦ U.S. wireless customers♦ States w/wireless

presence

♦ U.S. wireline access lines♦ Wireline broadband

connections♦ FiOS triple-play

In early January, Verizon surpassed1 million FiOS video customers!

3

Deploying Fiber-to-the-Premises

Office ParksSmall Businesses

Residential

|X|

CircuitSwitch

CopperFeeder

CopperDistribution

SAI

OLT

New BuriedDevelopment

Splitter Hub

FTTP Full Build

ONT

ONT

ONT

ONT

ONT

ONT

Small Businesses

ONTSplitter

Hub

FTTP Overlay

ONTONT

ONTONT

4

Three Laser SystemsIn the GPON Network

Capacity at each splitter hub – Can serve as many as 32 customers

5

Fiber Deployment Status

2007 Deployment:• Over 9.3M premises passed in 17

states

2008 Deployment Objectives:• Pass 12.3M premises

2010 Deployment Objectives• Pass 18M premises by 2010

FTTP Deployed

Fiber Deployment on Track

6

FiOS Internet Results

2007 Results:• FiOS Internet customers

rose to 1.5 million

• Average penetration about 21% in all markets

• Monthly churn less than 1.5%

2010 Objective:• 35-40% penetration

70% of subscribers are new to Verizon broadband

Verizon FiOS Internet Subscribers and Penetration

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

2005 2006 20070%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Subscribers Penetration

1.5M

21%15%

687K

375K

12%

7

Comparisons – Platform Competition

Source: ITU World Telecom/ICT Indicators Database (2006), supplemented by OECD Broadband Statistics (Nov. 2007).

0 10 20 30 40 50 60 70 80 90 100

Iceland

Taiwan

Finland

Norway

Australia

Israel

Japan

Switzerland

Sweden

Belgium

Netherlands

Denmark

Hong Kong

Korea

Canada

U.S.

DSLOther

The category “Other” includes cable, fiber/LAN, and additional non-DSL platforms including satellite and BPL.

Percentage of Broadband Market Composed of DSL versus “other” Platforms

8

FiOS TV ResultsVerizon FiOS TV

Subscribers 2007: 943,000 FiOS TV customers

• Monthly churn less than 1.42%

• 99.8% subscribe to Expanded Basic

• 60% have HD and/or DVR• 37.3% subscribe to movie

or sports package

• 10.3% of gross sales have included Home Media DVR

• About two-thirds of customers came from cable

3K

348K

943K

0

200000

400000

600000

800000

1000000

2005 2006 2007

2010 Objective: 25% penetration

9

Linear and VOD Content Offerings350+ linear channels

GenresGeneral Entertainment

Sports

News

Information & Education

Women’s Entertainment

Shopping

Home & Lifestyle

Pop Culture

Music

Movies

Family

Children

People and Culture

Religious

Multicultural

10,000+ VOD titles

Free

Subscription

Transactional

Pay Per View

Basic Channels and Niche InterestsLocal, Sports, News, Info & Education, Women, Shopping,Home & Leisure, Pop Culture, Music, Movies, Family, ChildrenFree with Digital STB (e.g., Disney, Discovery, Nickelodeon, ESPN, MTV, A&E, HGTV, History, BET, Gospel Music, Expo TV)

PremiumsHBO, Cinemax, Starz, Encore, Showtime,The Movie Channel, Sundance, IFCFree with subscription to Premium Services

StandalonesWWE 24/7,Here!, Karaoke

Studio MoviesUniversal, Paramount,MGM, Fox, Sony,DreamWorks, New Line

EventsUltimate Fighting Championship,Jerry Springer

Sports & EventsEvents – Wrestling, Boxing, European SoccerESPN – GamePlan, Full Court, Boxing

10

Demand for Bundles

FiOS TV Customer Base • Bundles are common in the

U.S. marketplace not just through telco offerings, however, cable operators and resellers offer them (i.e., wireless resale), Verizon Freedom and DIRECTV

• 98.8% of FiOS TV base has 2nd product

• 77.3% of FiOS TV sales include FiOS Internet

8%

6%

Triple Play85.3%

FiOS TV+ Voice

FiOS TV + Data

FiOS TV Only

11

Transforming the HomeToday 2008 and Beyond

New wiring Existing wiring

$1,220

$880

$700

$933

'Jan 06 'Aug 06 'Dec 06 'proj. 10

Cost Per Premises Connected● Simplified in-home network

- no new wires● Enhanced customer experience &

customer interaction● Simplified installation process ● Evolution toward remote service

activation and maintenance

New wiring Existing wiring

12

Transforming the MaintenanceProcess

1.01

0.20

Voice & DSL FiOS

Network Trouble Report Rate -- Outside Plant(per 100 subscribers)

80%

Total field maintenance dispatches and OSP-related dispatches are already showing solid declines

* Percentages reflect 2006 data

13

Upstream DownstreamMbps

Applications and Media Bandwidth

5 10 15 20 250 100510152025100

File Sharing, Home Video Sharing/Streaming

Multi-Player Gaming, Interactive Distance Learning

Large File SharingHDTV Video-on-Demand

Network Hosted Applications and Storage

Video Conferencing, Premises Surveillance, Two-way Signing

Telemedicine

SDTV Video-on-Demand, Telecommuting

Premises Web Hosting

Next Generation 3D TV

Web Surfing

Real-Time SDTV, Network PVR

FTTPCable Modem

ADSLDial-Up

Platform for current and future content and applications

Upstream Speed Increasing in Importance!

Transforming Interaction

14

Investment by US Companiesand OECD Telecoms 2004-2007

Source: Yahoo Finance data

Year Ending Sept./Dec.

Capital Expenditures (in US$ billions)

15

Metrics for Major Telecoms

0

50

100

150

200

250

300

350

empl Rev lines

DTFTVZT

Figures in millions for 2007

Employment Revenues Lines

16

CAPEX Per line, Major Telecoms

capex/line

0

20

40

60

80

100

120

140

160

180

DT FT VZ T

capex/line

US dollars in 2007

17

CAPEX as Percentage of Revenue,Major Telecoms

capex/rev

00.020.040.060.080.1

0.120.140.160.180.2

DT FT VZ T

capex/rev

Figures for 2007

18

Policy Goals•Competition

•Investment

•Innovation

19

Investment Drivers• Product differentiation in platform

competition

• Ability to deliver on plan– Meet expectations of financial markets

• Real options value

• Integration of services

20

Regulatory Challenges• Franchise to provide video

• Access to apartment buildings

• Access to poles, ducts, conduits

• Policy toward competitive practices

• Requirements for sharing

21

Policy Choices for the Future

• Is policy free?

• No single answer

• Can we have platform competition?

• Is separation a solution?– For access?– For investment?

• Who will choose the technology?

A Fiber Future��Challenges for markets and policy����Verizon’s Corporate ProfileDeploying Fiber-to-the-PremisesThree Laser Systems�In the GPON NetworkFiber Deployment Status FiOS Internet ResultsComparisons – Platform Competition FiOS TV ResultsLinear and VOD Content OfferingsDemand for BundlesTransforming the HomeTransforming the Maintenance�ProcessTransforming InteractionInvestment by US Companies�and OECD Telecoms 2004-2007Metrics for Major Telecoms CAPEX Per line, Major TelecomsCAPEX as Percentage of Revenue,�Major TelecomsPolicy Goals Investment DriversRegulatory ChallengesPolicy Choices for the Future