Construction and operation of NGA networks from

the perspective of non-telecommunications

companies

Dr. Igor Brusic

DiALOG 2011 Telekommunikation Frankfurt, 9 June 2011

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Contents

Old and new business models 2

Non-telecom companies 3

Financing 4

Introduction 1

Summary and outlook 5

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Next Generation Access

Definition / Starting point

Why?

  NGA = fibre access network (FTTH)

  Because a powerful infrastructure is the basis for the development of the information society ...

  ... and related to the development of the needs all other technologies are only an interim solution ...

  ... so that every 2-3 years one has to deal with the same subject once again, because there will always be „white spots“.

Consequence   The expansion of fibre networks is a pure strategic decision!

FTTH/FTTB EU Ranking 2010

* At least 200.000 households

Source: FTTH Council Europe, June 2010

Economies* with the highest market penetration of Fibre-to-the-Home/Building + LAN

Percentage of households**

** Economies with a penetration of > 1%

Lithuania Sweden Norway

Slowenia Slovakia Denmark

Estonia Bulgaria Finland

Netherlands Latvia

Russia Romania

Italy France

Portugal Czech

Republic 0% 5% 10% 15% 20%

(blue) Fibre-to-the-Home customers (grey) Fibre-to-the-Building customers

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Broadband availability in Germany 2011

0 10 20 30Kilometer

> 95 - 100 %

> 50 - 95 %

> 10 - 50 %

0 - 10 %

nicht besiedelt0 10 20 30

Kilometer

> 95 - 100 %

> 50 - 95 %

> 10 - 50 %

0 - 10 %

nicht besiedelt

Landline ≥1 Mbit/s Landline ≥50 Mbit/s

Source: BMWI, Breitbandatlas auf www.zukunft-breitband.de, 2011

The map for „landline = fibre connection“ would hardly contain green parts

"   Existing networks are specialised for certain services

"   Currently only a few services require symmetrical connections

"   Currently users are satisfied with the bandwidth offered

"   Fibre networks compete with existing networks for services which do not yet exist

"   … but are measured by existing services (requirements)

"   To build a business model with services that do not yet exist is for the private sector (almost) impossible

"   „Regulatory uncertainty “ because fibre networks in the access area are a natural monopoly

"   … so that the focus is less on new business models in the old environment but more on new business models in the new environment

Challenges of the fibre network

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„Market failure“ for FTTH?

Demand in Germany

The (non)-supply

  No mass market for FTTH (yet)   Innovators ( technology acceptance model)   Companies such as planning offices, laboratories, etc.

  Downward spiral: If rural areas are neglected ...   ... businesses/ residents move to better supplied (urban)

areas…   ... so that the rural areas become even less attractive for

investment!   … and regions are decoupled in terms of competitiveness

Discussion

  Whoever wants to demonstrate that fibre is not necessary will find arguments.

  Whoever wants to demonstrate that fibre is necessary will find arguments as well!

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Contents

Old and new business models 2

Non-telecom companies 3

Financing 4

Introduction 1

Summary and outlook 5

Telecommunications networks

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Services

Operation

Infrastructure

  Service development   Developers do not have to invest in passive or active

infrastructure   Very short cycles (< 1 year)   10-15% of total costs

  Active network infrastructure   Router, switches and other active components   OSS / BSS   Lifespan of equipment between 3 and 5 years   10-15% of total costs

  Passive network infrastructure   Cable channels, pipes, cables, cabinets and buildings   Diggings and rights of way   Lifespan more than 20 years   70-80% of total costs

Business models

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Diversity of Services

P a s s i v e I n f r a s t r u c t u r e

€

Diversity of Use

€

€

€

Indirect profitability

€

€

€

Vertically integrated

business model

Open Access

Vertically integrated business model

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  Strong focus today   Cooperation with Google, Amazon, Ebay etc. ?   IMS (IP Multimedia Subsystem)   QoS (Quality of Service) / Net neutrality

Diversity of Services

P a s s i v e I n f r a s t r u c t u r e

€

Vertically integrated

business model

Open Access

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  Open Access and Revenue Sharing: ISP, Smart Meetering, e-Health, TV, Security-Services, etc.

  Infrastructure owners without retail offers (= they do not compete with service providers!)   The fewer obstacles on the part of infrastructure owners, the more rapid the

development   But – chicken-egg problem!

P a s s i v e I n f r a s t r u c t u r e

Diversity of Use

€

€

€

Open Access

Profitability

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  Economic location factor   Competitive advantages   Creation of new jobs   Stops the migration of the population   Attractive location for private customers (new development areas)   Attracts investors

P a s s i v e I n f r a s t r u c t u r e

Indirect profitability

€

€

€

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Contents

Old and new business models 2

Non-telecom companies 3

Financing 4

Introduction 1

Summary and outlook 5

15

Energy suppliers

Affinity for physical infrastructure

Affinity for the business model

  Experience in construction and operation of electricity-, gas-, and water-networks

  Often supply of telecommunication services for internal purposes

  Increasing role of the convergence of utility networks and services with telecommunications applications (Smart Grids)

  Long-term investments   Possible focus on „network area“   Direct access to all potential customers   Possibility for combining the supply of various

infrastructures/services   Telecom/Broadband as „supply concept“

But – also new challenges!

  Dynamic retail market   Increasingly service-oriented end-users   Technology competition (cable, mobile, telecom)   Cooperation strategy as an option

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Local Governments

  How is money earned?

  Direct revenue through rental of lines (Dark Fibre)

  Connection fees of subscribers

  Revenue-sharing models with service providers

  Indirect revenues (stable value of properties, reduction of migration, business settlements)

  CO2-emission trading (low power consumption, teleworking, micro-trenching)

3. Revenue model

  What are the benefits of FTTH for the community ?

  The supply of broadband infrastructure as an essential factor for the economic and social community development

  Prevents the migration of companies and favours the return of young people after their training or study

  Prevents the decay of prices of real estate and construction areas

  Is an advantage over communities without fibre

1. Value proposition

  What benefits are offered in which markets? How and in which configuration will the performance be created (product-/market-strategies)?

  Passive infrastructure is offered to all network operators with the same conditions

  Non-discriminatory access to the subscriber for all service providers

  Every subscriber can use services of any provider in any combination

2. Value chain structure

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Contents

Old and new business models 2

Non-telecom companies 3

Financing 4

Introduction 1

Summary and outlook 5

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FTTH Financing

Infrastructure Fund

  Examples: Australia, Singapore, Qatar   EU: Funding must be notified   Conditions

Self-Financing

  Example: CIF   Infrastructure and pension funds that view FTTH as long-

term investment with secure return options

Public-Private Partnership

Public Funding

  Example: CityNet Amsterdam   Sharing of risks   Improvement of planning, marketing and business model for

fibre-optic networks

  Example: Burlington (USA), Blons (Österreich)   Bond of the local government   Association fees

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Contents

Old and new business models 2

Non-telecom companies 3

Financing 4

Introduction 1

Summary and outlook 5

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Summary and outlook

FTTH in Germany

General

  Expansion is left to the market economy   Currently broadband requirements can be met with

conventional networks

  Broadband connection as the primary requirement for the selection of location

  Increasing broadband demand/ symmetric bandwidth requirement

  Simultaneous use – school, education, entertainment, telework, e-government, shopping, communications, information

Outlook   Different business models depending on the documented

value-added step and financing   No ready solutions – individual projects   Large consulting potential   SBR with expertise in business, law and technology

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Epilog

„Arthur C. Clarke knows exactly, which phases new ideas pass through. First, it is: "It can't be done.“ Later on: "It probably can be done, but it's not worth

doing.“ And finally the initial doubters mean

"I knew it was a good idea all along!"

Source: http://www.spiegel.de/wissenschaft/weltall/0,1518,381747,00.html

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Contact

Nordstraße 116 40477 Düsseldorf Germany Tel: + 49 211 68 78 88 0 Fax: + 49 211 68 78 88 33 URL: www.sbr-net.com

Parkring 10/1/10 1010 Wien Austria Tel: + 43 1 513 514 0 15 Fax: + 43 1 513 514 0 95 URL: www.sbr-net.com E-mail: brusic@sbr-net.com

SBR Juconomy Consulting AG

INDUSTRY FOCUS

Both firms, SBR Juconomy Consulting AG and SBR Schuster Berger Bahr Ahrens Attorneys-at-Law, specialise in questions of commercial and regulatory law

They are clearly focused on the ICT and network industries

In these segments, we address the following issues in particular:

-  Mobile radio | Fixed network | Internet -  Regulation -  Market analyses -  Comparative market studies -  Cost accounting -  Network access | Interconnection -  Project development & management -  Frequency management -  Fibre optic upgrades | FTTx -  Strategy -  Business Planning

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  Wholesale | retail regulation   IT | telemedia law   Internet | multimedia | data

protection law   Competition law   Commercial law   Company law   Contract law   Administrative law   Outsourcing   Contract management   (International) arbitration

proceedings   Tender/Procurement processes

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analyses   Outsourcing   Regulatory policy | Lobbying   Corporate strategy   Business Cases

  Carrier Management   Network access

 Interconnection   Collocation   Business plans based on

technical operating perspective   Coordination and selection of

network equipment providers   Network planning   Frequency planning   Numbering plans   Project management   Fibre optic networks   Next-generation networks   Intelligent networks   IMS

SBR Juconomy Consulting AG

Business Technology Law & Regulation

FIELDS OF ACTIVITY SBR Juconomy Consulting AG provides comprehensive advice to:

-  Companies -  Regulatory authorities -  Institutions -  Ministries -  Regional and local authorities

Among the clients of SBR Juconomy Consulting AG are: -  PICOM | Ministre des Télécommunications, des Postes et de la Communication (Madagascar) -  TRA | Telecommunications Regulatory Authority (Bahrain) -  TRA | Telecommunications Regulatory Authority (Oman) -  ATRA | Afghanistan Telecom Regulatory Authority (Afghanistan) -  CITC | Communications and Information Technology Commission (Saudi Arabia) -  Minpostel (Ministry for Post and Telecommunications, Cameroon) -  Orange -  1&1 Internet AG -  Telecom Italia -  RomTelecom -  Ghana Telecom -  QSC -  Cell One -  INT | Instance Nationale des Télécommunications (Tunisia) -  TRA | Telecommunications Regulatory Authority (United Arab Emirates) -  Kabel Baden-Württemberg -  Associations in the German and Austrian market (BREKO, VATM, VAT ISPA) -  RTR GmbH (Austria) -  International Telecommunications Union (ITU) -  Swisscom -  Utilities in Germany and Austria (TeleMark GmbH, TeleData Friedrichshafen, Wienstrom) -  ORS (Österreichische Rundfunkservice GmbH) -  1&1 Internet AG -  HAKOM (Regulatory Authority of Croatia) -  Tele2 Telecommunications GmbH

FIELDS OF ACTIVITY – Companies SBR Juconomy Consulting AG advises telecommunications companies operating in the fixed network, mobile and Internet sectors. Our consulting activities encompass:

Regulation: We represent companies in matters concerning regulatory authorities, including in regulatory proceedings, especially concerning charges and interconnection. We provide support by way of expert opinions, position papers and comments in the context of interconnection, market definition and market analysis procedures

Benchmarks: We produce national and international comparative analyses concerning a variety of issues, including interconnection charges, collocation, unbundling, value-added services etc.

Market analyses: On behalf of our clients, we examine both international telecommunications markets in general, and product and service markets in particular, while providing support with market analyses concerning significant market power (SMP)

Cost accounting and cost modelling: We develop cost models, conduct cost assessments and perform monetary business evaluations of strategic options

Network access and interconnection: We assist companies with interconnection negotiations, collocation and the joint use of technical equipment

Network upgrades: We assist companies with the technical and economic planning of network upgrades, in particular for fibre optic and next-generation network / access (FTTx)

Strategy and Business planning: SBR develops business plans and draws up business strategies with respect to the deployment and rollout of networks and the provision of services, specifically in the area of next generation access.

SBR Juconomy Consulting AG advises regulatory authorities, institutions and ministries on all issues concerning regulatory processes, tenders, and procedural arrangements and implementation, and on aspects of telecommunications law and regulatory policy

Regulation and regulatory policy: We advise on the development and formulation of regulatory directives and ordinances (e.g. on roaming, access, rights of way, joint use) and of regulatory proceedings, including their implementation and execution

Organisation: We offer advice on public authorities' structural and procedural organisation

Training: We offer extensive training on all aspects of regulation

Standard offers: We give advice on the conception and creation of standard offers (interconnection, leased lines, collocation and joint use, submarine cable landing stations, wiring conduits, data products etc.)

Network access and interconnection: In this context, we provide support with implementing the requirements arising from standard offers and with the development and design of processes for offering access products (final mile, collocation, access to wiring conduits and cable ducts) in the upstream segment

Cost accounting and cost modelling: We develop cost models, conduct cost assessments and implement cost accounting regimes

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SBR Juconomy Consulting AG advises regional, district and local authorities on the following issues, among others:

Broadband expansion: We support communities who are without or have only inadequate broadband access at present

Support options: In connection with the expansion of broadband, we indicate the opportunities available for financing, support and cooperation

Network planning and upgrades: We offer technology-neutral solutions for building future-proof and sustainable network infrastructure

Cost accounting and cost modelling: We develop cost models, conduct cost assessments and perform monetary business evaluations of strategic options

Lobbying: We use our contacts in business, companies, institutions and politics in our clients' interests