Investing in the Investing in the NextNext--Generation Generation

InternetInternetKyle EnrightKyle Enright

November 2003November 2003

Overview of the Session Overview of the Session Objective for Today:Objective for Today:

Review todayReview today’’s cuttings cutting--edge broadbandedge broadband–– WhatWhat’’s possible & how it workss possible & how it works–– WhatWhat’’s being deployed & wheres being deployed & where–– Investment ImplicationsInvestment Implications

Format:Format:PPT presentation with Q&A as we go alongPPT presentation with Q&A as we go along6060--70 mins presentation70 mins presentation2020--30 mins discussion30 mins discussion

AgendaAgendaOverview of the Broadband MarketOverview of the Broadband MarketBB Technology FundamentalsBB Technology FundamentalsTodayToday’’s Cutting Edge Broadband:s Cutting Edge Broadband:–– CopperCopper–– Fiber Fiber –– Powerline Powerline –– Fixed WirelessFixed Wireless

Other Key Aspects of deploying BroadbandOther Key Aspects of deploying BroadbandInvestment OpportunitiesInvestment Opportunities

Overview of the Overview of the Broadband Broadband

Market Market

The Digital Home Vision

Why is Broadband so important? Why is Broadband so important?

High-rate broadband critical both to the home and in-home

Intel Confidential

The Convergence of The Convergence of Four “Waves”Four “Waves”

Digital Home Opportunity

Broadband becomes mainstream

Home Networking

Digital device proliferation

Content explosion

Substantial Broadband GrowthSubstantial Broadband GrowthWW Broadband Connections by Tech. 2002-2007(M)

-

50.0

100.0

150.0

200.0

250.0

2002 2003 2004 2005 2006 2007

FWAMetro ethernetCable modemDSL

WW Broadband Connections by Region 2002-2007 (M)

-

50.0

100.0

150.0

200.0

250.0

2002 2003 2004 2005 2006 2007

Rest of WorldAsia/PacificWestern EuropeUnited States

• 210M+ broadband subs WW by YE’07 (25%+ CAGR)• Broadband IC revs of $1B+/yr ; Broadband Eqpt revs of $3.5B+/ yr• Broadband services rev >$25B in ’03; >$100B by ’07 (40%+ CAGR)

Source: IDC, Dell Oro - 2003

Digital Home Content TrendsDigital Home Content TrendsDownload time is significant barrierDownload time is significant barrier

Est. movie download time (2Hr movie, 500kb/s bb BW)

28

80

20

40

14104

11

0

10

20

30

40

50

60

70

80

90

Broadcast (NTSC) DVD (480p) HDTV (1080i)

Resolution

# Hrs

MPEG2WMV or MPEG4, Pt 2H.264 (MPEG4, Pt. 10)

3

High-rate BB critical to make Digital Home a reality

HD movie download reqmt: ADSL or cable modem: > 5hrs

VDSL: <20 mins FTTH: <5 mins

Broadband Market VisionBroadband Market VisionMore broadband in more places More broadband in more places …… soonersooner

–– More usersMore users–– More geos More geos –– More ways to access BB (work, home, hotspots, mobileMore ways to access BB (work, home, hotspots, mobile……) )

HigherHigher--rate broadband rate broadband –– 100Mbps+ symmetrical is Japan publicly stated goal!100Mbps+ symmetrical is Japan publicly stated goal!

More useful broadbandMore useful broadband–– Richer applicationsRicher applications–– Easier to useEasier to use–– More reliable; more secureMore reliable; more secure

TodayToday’’s ADSL & cable modem services are inadequates ADSL & cable modem services are inadequate

BB Technology BB Technology FundamentalsFundamentals

BB Access Network EvolutionBB Access Network Evolution

The network must change significantly in order to support new services

Central OfficeCabinetCurbSubscriber

DSLAMADSL

ATM/IP

Current Network

Future

DSLAMADSL++

ATM/IP

Short-loop ADSL

APACJapan

Likely Geos

EMEANAMO

Japan & APAC NAMO, EMEA

ATM/IP

ADSL++or VDSL

FiberFTTC w/xDSL NG-DLC

OLTFiber

FTTP

DSLAMADSLATM/IP

Fixed Wireless

APACJapanEMEANAMOFiber

or

BB BasicsBB BasicsKey design parameters for BB networks: Key design parameters for BB networks:

–– # of users & density# of users & density

––Planned services (Mbps; QoS)Planned services (Mbps; QoS)

––Existing infrastructureExisting infrastructure

––Can I ever make money? Can I ever make money?

BB Technology BasicsBB Technology BasicsShannonShannon’’s Law: C = B*logs Law: C = B*log22 (1+S/N) (1+S/N)

––Capacity (Capacity (““CC””) is function of:) is function of:–– bandwidth (B), Rx signal strength (SNR)bandwidth (B), Rx signal strength (SNR)

Providing more Mbps Providing more Mbps requires:requires:––More RF spectrum/ more bandwidth (moreMore RF spectrum/ more bandwidth (more MHz)MHz)––More efficient modulation (moreMore efficient modulation (more bits/Hz)bits/Hz)–– Improved SNR (extend range; increase bits/Hz)Improved SNR (extend range; increase bits/Hz)

Modulation TechniquesModulation Techniques

Frequency

Pow

er

FrequencyPo

wer

Single CarrierSingle Carrier(QAM)(QAM)

MultiMulti--carriercarrier(Spread Spectrum: OFDM, DMT)(Spread Spectrum: OFDM, DMT)

MultiMulti--carrier: several narrowcarrier: several narrow--band bursts with long durationband bursts with long duration–– Overlapping carriers spread over wide frequencyOverlapping carriers spread over wide frequency

SingleSingle--carrier: single wideband burst with short durationcarrier: single wideband burst with short duration

‘N’ parallel sub-carriers; each @ 1/n data rate

Adaptive ModulationAdaptive ModulationPrinciple: Vary bits per Hz according to signal strength

HighHigh--rate BB rate BB over Cuover Cu

(ADSL2+; VDSL)(ADSL2+; VDSL)

DSL BasicsDSL Basics

DSL uses high frequencies (>25kHz) of telephone line for data TxDSL uses high frequencies (>25kHz) of telephone line for data Tx–– POTS and DSL peacefully coPOTS and DSL peacefully co--existexist–– Support for multiple services (voice, data, video) using ATMSupport for multiple services (voice, data, video) using ATM

ADSL = ADSL = AsymmetricAsymmetric Digital Subscriber LineDigital Subscriber Line–– More bandwidth down than upMore bandwidth down than up

IP Connection

Internet

ATM Connection

ISP2

ISP1

T1/T3

Telco Central Office

DSLAM DSL Modem

DSL Connection

Twisted Pair Copper < 24kft

DigitalLoop Carrier

Short CopperLoop

VDSL vs. ADSL SpectrumVDSL vs. ADSL SpectrumADSL uses Discrete ADSL uses Discrete MultitoneMultitone (DMT) modulation(DMT) modulation

–– Spread spectrum (256 carriers @ 4.3125 kHz) + QAMSpread spectrum (256 carriers @ 4.3125 kHz) + QAM

–– ADSL (ITU G.992.1): 8 Mbps down/ 0.8 Mbps upADSL (ITU G.992.1): 8 Mbps down/ 0.8 Mbps up

–– New ADSL versions (ADSL 2, 2++): 26Mbps+New ADSL versions (ADSL 2, 2++): 26Mbps+ADSL evolving towards VDSL ADSL evolving towards VDSL

–– Driven by bandwidth demand & technologyDriven by bandwidth demand & technologyADSL++ in draft standard statusADSL++ in draft standard status

–– Spectrum uses up to 3.75M as in VDSLSpectrum uses up to 3.75M as in VDSLADSL2+

2.2M138K

DOWNU

ADSL

1.1M

D U

138K

12M

VDSL

8.5M5.2M3.75M138K

UP UPDOWNDOWN DOWN

30M

Optional Band

U

DSL Data Rates vs. Loop LengthDSL Data Rates vs. Loop LengthLoop lengths by regionLoop lengths by region

kmVDSL

ADSL

% C

usto

mer

s R

each

ed

USA

India

Germany

UK

Italy &France

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0,0 1,0 2,0 3,0 4,0 5,0 6,0 7,0

JapanSource: IEEE

Length & quality of loop determines DSL Length & quality of loop determines DSL availability & service level (Mbps)availability & service level (Mbps)

ADSL2 extends DSL reach

EFM (VDSL) in APAC(Korea, Japan)

ADSL reach limit

ADSL 2++

ADSL 2++ and VDSL extend the rate and reach of DSLADSL 2++ and VDSL extend the rate and reach of DSL

Improving DSL PerformanceImproving DSL Performance

100

Internet Broadband

Distance K ft

Mb/s

6 12 18 24 30

3

Enhanced DSL

G.shdsl

EthernetT1 Rate

VDSLVideo

108

ADSL

Techniques: multi-user coordination; mitigate non-linearity; alt. modulation methods; improved FEC (Trellis Coding); auto line diagnostics

1

52

HighHigh--rate Cu Market Segmentsrate Cu Market Segments

Fiber Ring

MFEUn-lit

Buildings

100/100 Mbps • VDSL-DMT

FTTP Extension

ONU

• VDSL-DMTResidences

70/40 Mbps

APPLICATIONS:

- 19 Mbps – HDTV- 15 Mbps – 3 Digital TVs- 10 Mbps – VPN- 5 Mbps – High-Speed Internet Access- 400 kbps – Multiple Voice Channels

Businesses• DS3 Extension

22/3 Mbps

Residences• ADSL-DMTResidences

• VDSL-DMT

CO/RT• VDSL-DMT

MxU

50/30 Mbps

Hanaro Telecom’s 50 Mbps VDSL

HighHigh--rate BB over Cu Todayrate BB over Cu TodayKT’s Megapass for

50 Mbps VDSL

FTTxFTTx(Fiber(Fiber--toto--thethe--X X …… Home, basement, curb)Home, basement, curb)

FTTH: The Ultimate Network?FTTH: The Ultimate Network?Best for dense areas w/ high bandwidth demandBest for dense areas w/ high bandwidth demand

•• ““FutureFuture--proofproof”” infra. w/ highest capacity, lowest attenuationinfra. w/ highest capacity, lowest attenuation–– Only way to reliably offer 100 Mbps+ to simultaneous usersOnly way to reliably offer 100 Mbps+ to simultaneous users

Fiber Access AlternativesFiber Access Alternatives

1. Point-to-Point

2. Point-to-Multipt (Active)

3. Pt-to-Multipt (Passive)- PON

All three topologies being deployed today. No clear technology winner.

Overview of Optical TxOverview of Optical Tx3 key elements of FTTH Transmission system:3 key elements of FTTH Transmission system:

Fiber cabling (transmission medium)Fiber cabling (transmission medium)–– Light signals travel through the inner Light signals travel through the inner ““corecore”” of the fiber due to of the fiber due to total internal total internal

reflectionreflection

Light source (transmitter) Light source (transmitter) –– either an LED (light emitting diode) or a semiconductor laser dieither an LED (light emitting diode) or a semiconductor laser diodeode

Photodiode and ICs for OpticalPhotodiode and ICs for Optical--Electrical conversionElectrical conversion–– Performs intermediary conversion that allows digital data to be Performs intermediary conversion that allows digital data to be transmitted transmitted

as photonsas photons

ElectricalSignal Input

Optical Fiber(Transmission Medium)

Converts Signalfrom optical to

electrical

ElectricalSignal Output

Light Source(Transmitter)

Light Detector(Receiver)

Converts Signalfrom electrical

to optical

• Laser• Driver• PMD• PMA

• Photodiode• PMD• PMA

BPON ONU DesignBPON ONU Design

Trip

lexe

r

CDR

Driver

NetworkProcessor

VideoAmp

PONMapper/Framer/TDMA/TDM

FastEthernet

DSP

PowerControl

Ethe

rnet

POTs

Battery

CA

TV

PHY's

Processing

POTS

Power VideoCATV

Conversion

SLIC + CODECSLIC + CODEC

Client side: VoiceVideo

EthernetIntel Component or IP

Not Core ICG Technology

20032003 20072007

ASPASP % Total BOM% Total BOM ASPASP

$45$45

$30$30

$125$125

% Total BOM% Total BOM

$125$125

$55$55

$280$280

OpticsOptics 45%45% 36%36%

ElectronicsElectronics 20%20% 24%24%

Total BOMTotal BOM 100%100% 100%100%

switchswitch

ENET

EN

ET

PHY

PHY

PON ONUPON ONU

FTTx Component EvolutionFTTx Component Evolution

Today: Micro Optics

• Complex BOM with micro-optic assemblies

• Limited cost reduction

• Wafer scale fabrication• Improved yield & reliability• Lower cost & components

Next-gen: PLC + SiOB

(Minimum Configuration)

Laser

Monitor

Video PIN

TIA

DATA PIN

TIA

Bragg

Filter1310

1310

1555

1490

1490

0.5"

0.5"

Dream Triplexer

Planar Waveguides

Fiber

Connector

Laser

Monitor

Video PIN

TIA

DATA PIN

TIA Post AMP

CDR Video AMP

Laser

Driver

Bragg

Filter1310

1310

1555

1490

1490

0.5"

0.5"

Dream Triplexer

Planar Waveguides

Fiber

Connector

(Maximum Configuration)

Drawing directly from Alcatel

PLC SiOB

Triplexer (Optical Front-end)

BPLBPL(Broadband Powerline)(Broadband Powerline)

Broadband over PowerlineBroadband over PowerlineUtilize power lines to deliver Utilize power lines to deliver ““last milelast mile”” accessaccess

–– Alternative to DSL, cable modem, fixed wirelessAlternative to DSL, cable modem, fixed wireless–– Powerline inPowerline in--home networking not addressed herehome networking not addressed here

Services Enabled: Data, VoIP (Video possible)Services Enabled: Data, VoIP (Video possible)

AdvantagesAdvantages–– Low infrastructure costs: no Low infrastructure costs: no ““new wiresnew wires””–– LowLow--cost equipment and easy install (plug & play CPE)cost equipment and easy install (plug & play CPE)–– Ubiquitous coverage of homes and businessesUbiquitous coverage of homes and businesses–– Utilities have: rightsUtilities have: rights--ofof--way, experience in operating networks, way, experience in operating networks,

relatively healthy balance sheets relatively healthy balance sheets

Most applicable for emerging market geosMost applicable for emerging market geos

Typical Electric Power Network Typical Electric Power Network (Aerial)(Aerial)

Utility substation(5-20k homes served)

Medium Voltage Feeder Line(2-15 feeders per substation; ½-5 mile each)

Neighborhood Transformer(US: 1-10 HHs; EMEA: 200-400 HHs)

Tree-and-branch topology: substation -> MV feeder branches -> Txformers

BPL NetworkBPL Network

Fiber backhauls to a carrier Point of Presence (POP)

Customer plugs Powerline modem into any outlet: broadband instantly enabled

Powerline-fiber interface at substationRouter/PMTS location

PLC eqpt installed along powerlines

•• Install powerline router at utility substationInstall powerline router at utility substation•• PLC aggregation/ repeater devices every PLC aggregation/ repeater devices every ½½ mile along MV linesmile along MV lines•• Simple CPE: lowSimple CPE: low--cost PLC modem, selfcost PLC modem, self--install possibleinstall possible

BPL Technology OverviewBPL Technology OverviewPowerlinePowerline is a Very Challenging Tx medium is a Very Challenging Tx medium –– Noisy environment that is largely uncharacterized Noisy environment that is largely uncharacterized –– Discontinuous environment with unstable multipathDiscontinuous environment with unstable multipath–– Significant signal attenuation Significant signal attenuation –– Lacks Lacks ““flatflat”” frequency response profilefrequency response profile–– Significant safety issues (30k volts on MV lines)Significant safety issues (30k volts on MV lines)

•• Other Issues: FCC restrictions on EMI (Part 15)Other Issues: FCC restrictions on EMI (Part 15)US

SpectrumPlanning

45-50MHz30 MHz2 MHz0 MHz

RF AM band.5 –1.6 MHz Extended PLC

(contemplated)HomePlug 1.0

(4-21 MHz)

Lower FCC limits on emitted power (100uV/ meter @3 meters)

FCC limits: 30uV/meter measured at 30 meters

Emerging Solutions for BPLEmerging Solutions for BPLInductive coupling provides safe, easy install for Inductive coupling provides safe, easy install for equipment on power linesequipment on power lines

Several techniques for handling MVSeveral techniques for handling MV-- LV junction at the LV junction at the transformertransformer

–– DDrive signal through transformer rive signal through transformer –– Physical bypass of transformer (separate cabling)Physical bypass of transformer (separate cabling)–– Use wireless for last 100Use wireless for last 100’’ to avoid LV plant entirelyto avoid LV plant entirely

PowerlinePowerline Market in InfancyMarket in InfancyUS Trials:US Trials:

Florida P&L, PEPCO, Cinergy, AEP, Hawaiian Florida P&L, PEPCO, Cinergy, AEP, Hawaiian ElecElecEMEA:EMEA:

EndesaEndesa –– SpainSpainSeveral in Portugal, France, GermanySeveral in Portugal, France, Germany

Developing geos:Developing geos:Chile Chile –– EnersisEnersisRussia Russia –– ElectrocomElectrocom

But several countries have regulations that limit BPL But several countries have regulations that limit BPL or have past bad experiences with BPL or have past bad experiences with BPL UK, Japan, othersUK, Japan, others

Fixed Wireless BBFixed Wireless BB

BWA Market SegmentsBWA Market Segments

BACKHAUL

1

Telco Core Network or Private

(Fiber) Network

INTERNETBACKBONE

4

GREEN FIELD DEPLOYMENTS

DEVELOPING COUNTRIES(e.g., Eastern Europe)

RESIDENTIAL & SoHo DSL

3

FRACTIONAL T1 for SMALL BUSINESS

T1+ LEVEL SERVICE ENTERPRISE

BACKHAUL for HOTSPOTS

2

5ALWAYS BEST CONNECTED

802.11

802.16

802.11

802.11

Wired vs. Wireless ChannelsWired vs. Wireless ChannelsSIGNAL THROUGH A WIRE• Relatively Static Channel• Spatially Confined• Efficient Use of Transmitted Energy• Relatively Predictable Interference to other Signals

SIGNAL THROUGH SPACE (WIRELESS)• Dynamic Channel• Signal Spreads Out Over Space• Significant Multi-path Energy• Significant (unpredictable) Interference to Other Users

Wall

Moving ObjectWireless Improvements rely upon Wireless Improvements rely upon airair interfaceinterfaceAntenna systemsAntenna systemsRadio chainsRadio chainsPhysical layerPhysical layerMedia Access Control layer (MAC)Media Access Control layer (MAC)

Antenna

RF PHY MAC

Evolution of Broadband WirelessEvolution of Broadband WirelessPoint to MultiPoint to Multi--Point Wireless Access Equipment Timeline Point Wireless Access Equipment Timeline

•License exempt (2.4 GHz)•Licensed MMDS •Licensed LMDS •Use 802.11 or proprietary PHY

•Data rate: 6-54 Mbps•Air interface:

•OFDM & S-CDMA

• Spectrum: < 11 GHz• Data rate: Up to 75 Mbps • OFDM based (20MHz)• Volume silicon suppliers• Interoperable, scalable• New Technologies: beamforming, MIMO; mesh network topologies

’00

Off-the-Shelf 802.11 &

Proprietary

Proprietary(70+ OEMs)

Standards-based802.16a

’01 ’02 ’03 ’04 ’05

•Data rate: 2-11 Mbps

Methods to Improve WirelessMethods to Improve Wireless

Technology Strategy #3: Reduce Channel Idle Time• Advanced MAC via re-configurable building blocks

Tech Strategy #1: Move the Channel Capacity Curve “Up” (use more of avail freq)• Smart Antenna Systems (MIMO) via cheap integrated radios & cheap DSP gates

TIME

Tech Strategy #2: Actual Performance -> Max Capacity• Advanced OFDM, Advanced FEC via cheap DSP gates

8 bps/Hz7 bps/Hz

5 bps/Hz

Cha

nnel

Cap

acity

5 to 10 year strategies

Improving BB Improving BB ServicesServices

Going Beyond Going Beyond ““the Pipethe Pipe””Deploying the BB infrastructure (the pipe) is Deploying the BB infrastructure (the pipe) is only the first steponly the first step

Need content, services, delivery models that:Need content, services, delivery models that:–– Attract usersAttract users–– Entice users to pay Entice users to pay –– Allow network operators and xSPs to earn ROIAllow network operators and xSPs to earn ROI

Critical areas for consideration:Critical areas for consideration:–– Service Creation & Delivery (provisioning)Service Creation & Delivery (provisioning)–– InIn--home networkinghome networking–– Devices in the homeDevices in the home–– Premium content for the networkPremium content for the network

Rich Content

Media Formats

Physical Network

Network Protocol

Device Discovery& Control

Media Transports

Service Delivery

Managed Broadband ServicesManaged Broadband Services

…… Remotely managed and provisioned Remotely managed and provisioned by the service providerby the service provider

xSP’s Perspective:• Increase ARPU• Decrease Churn• Increase Penetration

User’s Perspective:• Easy-to-use• Increases value of BB connection• Increases value of digital devices

Home Network AdoptionHome Network AdoptionHome Network Adoption (Millions HH)

0

10

20

30

40

50

60

70

03 04 05 06 07

ROWAsiaEuropeNorth America

Home Network Connections by Type

0102030405060708090

100

03 04 05 06 07

Media NetworkConnectionsResidential Gateways

Infrastructure (net ofNICs)NICs

Source: InSource: In--stat/MDR stat/MDR ‘‘0303

Home Network ChallengesHome Network Challenges

Investment Investment OpportunitiesOpportunities

Investment StrategyInvestment StrategyInvest in breakthrough technologies:Invest in breakthrough technologies:–– 10x+ improvement in transmission rates10x+ improvement in transmission rates–– 5x+ reduction in costs5x+ reduction in costs–– Radical improvement in deployment ratesRadical improvement in deployment rates

Invest in key areas of Broadband ecosystemInvest in key areas of Broadband ecosystem–– BB service creation & provisioningBB service creation & provisioning–– S/w, services to increase the value of BBS/w, services to increase the value of BB

Accelerate deployment of Broadband Accelerate deployment of Broadband Networks Networks

Broadband Investment PlanBroadband Investment Plan

• FTTx Deployment (FTTx networks; technology to reduce FTTx costs)

• BB service provisioning s/w • Compelling apps for high-rate BB• Complimentary products to IXP for

FTTx, VDSL (triplexer, etc.)• Support new BB technologies

(ecosystem or E&E)

• Access / front-end Si gaps (tuner, DSL, demodulator, cable, etc.)

- Mike Buckley ICap lead

• Home Networking Technologies

• Early

• Late

• Early/ Medium

Target Investment AreaTarget Investment Area

Stage of Stage of Investment Investment

Cycle Cycle MaturityMaturity Deal TypeDeal Type

• Mkt Development• Eyes and Ears

• Ecosystem investment

• Acquisition /investment / license

• Investment/ License

1-2

• 1-2• 0-1• 0-1

N/A

1-2

$2-6M

$2-6M

Targ

et

Targ

et

Deals

Deals Ta

rget

$

Targ

et $

Inve

stm

ent

Inve

stm

ent

• Early/ Medium

• Early/ Medium

N/A

$ 2-4M

CONFIDENTIA

L