Municipal deployers and private

Deployment News Municipal deployers and private network builders work more closely in Europe than they do in the United States, their way eased by public subsidies. Some of that approach has rubbed off on New Zealand as well. Amsterdam Dirk van der Woude of CityNet called Amsterdam s P2P network open and future-proof. The first phase, covering 40,000 premises, was recently lit. The market was failing to build, said van der Woude, so the municipality found partners to create a company. We are using P2P technology. The city is a minority shareholder of the [network itself] width will grow exponentially, while the development of the Internet is linear. Snow days and brownouts will become more common. It s like osteoporosis, you don t feel it, it doesn t hurt, then you can t stand any more. That s not what we want in Amsterdam! The first problems will arrive in 2010, van der Woude said, when users with capped broadband will reach the cap in 1 minute at advertised speed. Of course, as he noted, the advertised speeds aren t real. AT&T measured Comcast speeds at 30 to 40 percent of what they advertised, and DSL real-life speeds don t match the ads, either. Will DOCSIS 3.0 and VDSL been sued by cable companies that s like death by a thousand cuts. We see FTTH happening all over European cities. We need Amsterdam to be a great city. There are other examples of municipal fiber in Europe. The city should not pay for a new monopoly. We paid very little to invest, it was not a bad deal. Amsterdam s initial build has brought 1 Gbps connections to 10 major theaters and 500 schools. It will eventually connect 450,000 homes. We have a wholesale operator, then retail service providers. The passive layer is financed at 25-50 years, the active layer at 5-10 The market failed to build FTTH in Amsterdam, so the municipality found partners and started its own company. Amsterdam CityNet is an open access network. and is avoiding involvement in network activation or service delivery. He quoted technology expert Carlota Perez, who draws lessons from the past: A new infrastructure starts, then there s a crisis, most people lose their money, and only after that is 95 percent of the infrastructure built. Perez says we haven t reached the crisis yet a statement that made some audience members nervous. Van der Woude noted that there s nothing new about the government being involved in infrastructure in Amsterdam it started investing in the harbor in 1250, in highways in 1926, and in the airport in 1920. The Amsterdam Internet exchange is the largest in the world in terms of data traffic. It s been in existence since 1997, as a nonprofit private operation. Many companies settle in Amsterdam because of it. We are a global hub, he said. But all is not well. The demand for band- be an improvement? Showing pictures of AT&T s exploding FTTN cabinets, he said, We don t want these in Amsterdam. And DOCSIS is not that fast. On July 4, 2007, there were 10 million FTTH connections in Japan, and the number of FTTH connections there were estimated to exceed DSL in March. In Amsterdam we have 40,000 FTTH connections, but they add that many in Japan every 3 days, said van der Woude. We have Jean-Pierre Lartigue, Member of the Board, FTTH Council Europe, moderates panel on French broadband. Projected above him, left to right: Michel Paulin, General Manager, Neuf Cegetel; Yves Parfait, Fibre To The Home Project Manager in France, ORANGE; Arnaud Polaillon, General-Secretary, Numéricable Noos; Maxime Lombardini, Chief Executive Officer, Group Iliad-Free. 38 BROADBAND PROPERTIES www.broadbandproperties.com April 2008

Numericable is overbuilding 10,000 households a day, aiming to pass 8 million French households with fiber by 2010. In late March, Carlyle Group completed a 1.1 billion ($1.65 billion) equity investment in Numericable and Completel, acquiring a 37.8 percent stake from existing shareholders Altice and Cinven, at an aggregate enterprise value of 6.5 billion. The equity investment is the largest ever made by a single private equity firm in France. years, and the service layer at 1-5 years. We put the same boxes in every house. There are two fibers into every home, one for TV and one for interactive. We deliver analog TV. It s the same offering to everyone Internet access at 10 to 100 Mbps, phone, and TV. Van der Woude said the fiber network is only a start. If we create a grid that is easily and cheaply accessible, we can solve the problems that you see with mobile connections, with better and cheaper backhaul. We can use broadband to answer the energy question. Nicholas Carr s book, The Big Switch: Rewiring the World, from Edison to Google, says computing will follow the pattern of energy production from local production and supply to a ubiquitous grid, a worldwide computer. People love PC Michel Paulin of Neuf Cegetel says Numericable is ahead in Paris, thanks to its existing FTTN build. functionality, but they hate hardware and cables. You can save energy if you can turn the PC off at night. The Paris Perspective Jean-Pierre Lartigue, Vice President Marketing and Communications for Alcatel s Access Networking Division and member of the FTTH Council Europe board, said France s objective is to have 50 percent of homes passed by 2015. Each individual company has its own targets, however. The total investment will be 11 billion (more than $15 billion at current exchange rates) over 10 years about $1400 per home passed. Overall, the effort should be EBIT positive in 2012. The French have tried to resolve four major issues: What are the appropriate services to be offered? What are the appropriate marketing strategies? What is the tiered deployment strategy? April 2008 www.broadbandproperties.com BROADBAND PROPERTIES 39

Europe s huge municipal fiber builds generally have quite a bit of public funding, but the bulk of the funds come from private sources. Most are open access networks. Only the first stage of the Amsterdam build is shown here; the planned eventual buildout is 10 times larger. What is the proper role of the public sector and regulatory bodies? After deploying at a very fast pace in 2007, France is ranked sixth in percent of population using broadband; 15.8 percent use VoIP and 30 percent use IPTV. So, why are we doing this when we already have good DSL service? asked Yves Parfait, FTTH Project Manager, Orange. Aristotle said that nature abhors a vacuum. The Internet is a vacuum and new needs are emerging. HDTV is here, 3DTV is coming soon, and we need upstream bandwidth for usergenerated content. We want to be at the leading edge not too early (before you can sell the bandwidth) or too late (when the customers have gone somewhere else). We did a pilot project in 2006, and now we re in the commercial phase. We ll be investing 240 million Jean-Pierre Lartigue of IDATE documented explosive growth in announced projects and homes passed by fiber in France in the past year growth that had not been forecast at all in 2006 and was seen, but significantly underestimated, in early 2007. 40 BROADBAND PROPERTIES www.broadbandproperties.com April 2008

ECI s Ron Levin notes that that despite widespread fiber deployments in North America, equipment spending is far higher in Asia and will remain so for at least a few more years. to pass 1 million homes. During this phase we re testing the market response, improving our deployment processes, and hoping for regulatory clarification. We are offering 100 Mbps and achieving a 5 to 10 percent take rate right away. Orange decided to jump past FTTC to FTTH because it provides better service, Parfait said, and there s no active equipment in the basement. GPON (compared with Active Ethernet) maximizes the use of ducts, and it s easier to manage from the central office. The relationship with landlords is a challenge Eircom s Michael Browne cited Lancaster University s technology diffusion model to predict a fourfold increase in high-end consumers broadband peak demand every four years because both the number of broadband households and their top speeds increase. it takes time to get authorization from them. We have to explain to them what this service is about they think fiber is for vegetables. Maxime Lombardini, Director General, Iliad-Free, said, We all agree on the benefits of FTTH in the French market. Consumers need more bandwidth. ADSL has quality problems and the network is shared with Orange, so it s hard to be ac- Telekom Slovenia Group s Matjaz Pogacnik said that FTTH was a bargain in this small, predominantly rural country, because QoS improved compared to DSL, and because maintenance costs are far lower. The projected IRR is 16 percent. April 2008 www.broadbandproperties.com BROADBAND PROPERTIES 41

The shape of Ireland s broadband market, from Michael Browne of Eircom. countable to customers. With fiber, we can own the local loop and have accountability. He described the first step as positive. In our Paris deployment we are using the sewers. We ve signed up some subscribers; their satisfaction is high, and we confirmed that the cost we expected was accurate. The contractors are performing well. What we don t have is the regulatory and legal framework that s become the key aspect now. The incumbent has a very strong com- Telecom Italia s route from DSL to fiber. Michael Browne of Eircom says Ireland is evolving its networks similarly to the way many in Europe are ADSL2+ has been giving way to VDSL and (in some cases) FTTH. But VDSL builds will end around 2011 and existing FTTN nodes will have to be converted to FTTH. The resulting hodge-podge of technologies will continue well past 2015 there. 42 BROADBAND PROPERTIES www.broadbandproperties.com April 2008

petitive position. They will build FTTH in any case; it s the alternative providers that need regulatory protection. Orange put a wholesale offer for the ducts on the table several weeks ago, but it s not an acceptable offer it needs further negotiations. (The French regulators agree; see section on regulatory issues in Europe.) In addition to negotiating the terms, we are also asking for deployment timing we want to be on the same timetable as them, and not have to wait to deploy. Also, because the ducts are not always empty, it s not always possible to put enough fiber in, so we also need an offer for dark fiber from Orange. In-building deployment is still a problem; there are no rules and there s no transparency. We need to know who s wired which building, and at what date the building will be available. Neuf Cegetel is the number 2 telco in France, with 3.3 million ADSL customers. Michel Paulin, Director General, said In Phase 1, we re investing 300 million to pass 1 million homes and get 250,000 subscribers in Paris and other major cities. In Phase 2, after we reach agreement with Orange and the regulations are clarified, we ll expand the network still further. Paulin said We want to share not only the ducts, but also to have access to Orange s other assets dark fiber, the optical nodes, even bitstream, and access to vertical wires. We need clear rules about mutualizing investment [i.e. cost sharing for in-building wires]. We want access to premium TV capacity. By the end of February, Neuf Cegetel had passed 100,000 homes and had 17,000 FTTH subscribers tops in France. In Paris we re using mainly a point-to-point architecture, because we re laying fiber in the sewers. In the rest of France we re building out fiber in 13 cities during 2008 and 2009, using mostly GPON, said Paulin. Our current offering is 50 Mbps symmetrical with unlimited phone, 70 basic TV channels plus 150 premium channels (HD, VoD) and DVR. In 2008, we ll be raising the Internet bandwidth to 100 Mbps and adding multiroom TV. New services are needed to appeal to the customer. Numericable was formed through the merger of all the major cable operators in France. With 9.3 million homes passed, it has almost the entire French cable market. Despite that, it sees FTTB as mandatory. Arnaud Polaillon, Secretary General, said, We see fiber optics as a strategic opportunity. We are deploying to the building this offers the best bandwidth and return path. We ve been building a national fiber backbone since 2005, which now reaches 37 percent of the households in the country. Right now we have 2 million homes passed with fiber [to the basement], going to 8 million in 2010. Polaillon said that FTTB gives us a competitive advantage due to opex savings and quality of services. The fiber reduces the number of failures, and the quality of service reduces churn. This is future-proof technology: the coax is short enough that it does not limit bandwidth. There s no limit to what we can deliver in terms of video or Internet. We re offering new services: HD VoD, multiroom access, 100 Mbps Internet access, four simultaneous HDTVs, all for 30 a month. Numericable sees a large expansion of the FTTB network in 2008, and ultimately will cover its entire cable foot- The plusses and minuses of FTTH versus competing technologies, for greenfield and overbuild situations in Italy, according to Paolo Dal Bono of Telecom Italia a company that has until now invested heavily in ADSL2+. April 2008 www.broadbandproperties.com BROADBAND PROPERTIES 43

Marketing is a challenge for the French fiber providers because they have to negotiate separately with each building owner, they will be forced to market building-by-building. print. Outside the cable footprint, it will offer DSL unless there is a public subsidy available for fiber. It has already implemented DOCSIS 3.0, ahead of Comcast. Take rates are clearly quite low, despite the optimism. Said Paulin, It s a new offering, and we can t do national marketing because it s building by building. We have to convince each landlord, most of whom see it as an annoyance. We need to improve our services too VoD has been delayed by 9 months. No one is doing much marketing yet. Orange is hoping that viral marketing will work, but Parfait said, We re also going to have localized marketing door to door. New Zealand Vector Communications is a division of Vector Group (an energy and gas distribution outfit in New Zealand), and a challenger in the communications industry there. Said Alex Salicrup of Vector, We are four years behind everyone else, because the regulatory environment just changed. Before last year the incumbent was not regulated, and there was very little competition. The New Zealand government decided to follow the UK model and asked Telecom to split into three companies. Everyone got excited, then Telecom said they would move their DSLAMs farther into the field to make access more difficult for challengers. We operate an open access backhaul network. We receive funding from the national government s broadband challenge. Most of the applicants were municipalities, so we partnered with the North Shore City Council. It was a good fit to partner with a city willing to experiment with new technology. We made a proposal to install an open access fiber network. The government will pay for most of it, but we pay for some. We re connecting schools, hospitals, and libraries with 1 Gbps. We own the network once it s built. Part of the solution is to connect as many schools as we could, 90 percent. Major constraints: The city is built on volcanoes, so it s hard to dig. New Zealand being a former colony of the UK, Auckland was planned from London so the layout is quite interesting. The corridors for infrastructure are quite tight and full, so there s little available space. Australia likes stealing our skilled labor, so we have to keep it simple. We wanted something scalable and flexible because we don t know the future. The local government doesn t like aerial infrastructure, so we can t use the electrical poles that we own. We had to notify the public if we wanted to string fiber. It s much cheaper to use aerial, though it requires more maintenance. People like to get their money back sooner. We wanted to put feeder and distribution cables underground, and make customer access aerial. Our ARPU is much lower than other countries, because we have very little broadband. We had to come up with new solution, to accommodate [the low] ARPU. We identified the innovations needed space constraints in the road, skills, costs, council approval. In 2005 we went to talk to people all over the world to find out who were the best suppliers. We got a civil contractor (Northpower Ltd.) involved in decisions. We pushed the risk onto the contractor, so they get rates equal to a high percentage of revenues. Everyone said that if you upset the customer when you re digging, they will never sign up. The construction partner had to be able to manage that well. The shape of broadband for Italy and other areas served by Telecom Italia, as presented by Paolo Dal Bono. 44 BROADBAND PROPERTIES www.broadbandproperties.com April 2008

Northpower was an electrical contractor with no experience in communications work, so Vector had to train them. The contracting model is hybrid, not a full alliance. Vector pays for the contractor s overhead, and gets unit rates with open-book costs plus margin. There are key performance indicators with four targets; if they meet the targets they keep full amount, if they miss they lose 1/4 percent, if they exceed the targets they get an extra 1/4 percent. The cost per build was $127/meter at the beginning, and has fallen below $90. Vector, with little directly germane experience of its own, got the contractor involved in choosing suppliers. It gave the suppliers a sample to cost out, then chose based on flexibility and scalability as well as cost. We wanted a supplier that could understand our ideas and build them for us, said Salicrup. We don t have a mass market to justify spending on R&D, but they said they would take the challenge. We compared New Zealand competitive provider Vector Communications chose airblown fiber as the most cost-effective option. preconnectorized, traditional, and airblown fiber. We got different reactions around the world. Traditional was not flexible enough, preconnectorized was too expensive, and airblown was a fit. We selected Ericsson, and saved 10 to 15 percent on drilling and trenching. Salicrup said, The disadvantages of airblown fiber are that you re managing ducts rather than fibers, and you need highly skilled designers. As long as we install properly, we can always retrofit and make up for network design flaws. We planned a P2P network and then changed to PON, so it was good that we had a flexible fiber solution. Vector used typical telecom network distribution, and came up with brackets for dome closures so there would be no damage to the ducts for the blown fiber. Using this specific closure cost us $200 per home passed, said Salicrup. It allowed the savings we were hoping for. We were first ones to use this aerial duct. It looks smaller on the pole than it is, so it was accepted by the local council. FTTH for the rest of Auckland is possible in the future. We guaranteed forward work to the contractor, which mitigates the risk. Vector operates a PON network, but can do P2P at the same time for business customers. It also provides protection and SCADA control for the electric company, and backhaul for wireless phones. BBP April 2008 www.broadbandproperties.com BROADBAND PROPERTIES 45