PTC 2013 January 22, 2013 1
Arctic Fibre Route 2
Technical Overview Single cable system -Fibres pairs 1 & 2 Tokyo/London ~15,663 km -Fibre pair 3 Tokyo/New York ~ 13,882 km via Montreal - Fibre pair 4 serves Alaska, Nunavut and Nunavik Branch spurs serve 13-14 satellite-captive markets in Alaska, Nunavut, Nunavik Theoretical capacity of 8 Tbps per fibre pair = 32 Tbps total @ 100G wavelengths Southern spurs at Prudhoe Bay and Hudson s Bay provide diverse routes for US west coast traffic to Asia and east coast traffic to Europe bypassing NYC Ultra low latency (ULL) network creates fastest path from: NE Asia (HongKong, Taipei, Shanghai, Seoul, Tokyo) to Northern Europe (London, Amsterdam, Paris, Frankfurt) NE Asia (HongKong, Taipei, Shanghai, Seoul, Tokyo) to Central Canada NE United States (NYC, Boston) US Pacific northwest (Seattle) to Northern Europe (London, Amsterdam, Paris, Frankfurt) 3
Express Pairs Bypass Arctic Communities 4
Shortest Route is Over the Pole! 5
Technical Basis for Arctic Fibre Build Physically diverse 15,157 km subsea route from NE Asia to NW Europe Avoids subsea issues in Luzon Strait, South China Sea, Malacca Strait, Red Sea, Suez Canal & Mediterranean Sea Eliminates politically risky terrestrial cable crossings - Egypt & Syria Express Tokyo-London fibres avoid U.S. landings Bandwidth growth -NE Asia-NW Europe >40% p.a. Provides lowest latency route for HFTN and cloud computing Displaces costly satellite between Northern Quebec, Nunavut and Northwest Territories and rest of Canada Provides connectivity to research and defense stations in Alaska, Cambridge Bay and potentially Alert and Thule Reduces network concentration at New York/New Jersey cable stations Provides direct routes from Central Canada to Europe and Asia 6
A Good Alternative to West & East Coast CLS Hurricane Sandy and 9/11 highlighted concentration issues in NYC Arctic Fibre provides physical route diversity around eastern seaboard through Montreal POP = NYC to London <90ms; Chicago to London <100ms Arctic Fibre/Quintillion Networks create clean low latency path from US west coast through Alaska to NE Asia = Seattle to Tokyo <104 ms; Seattle to London <114ms. Latency differential of 20-25 ms to ULL routes from Eastern Seaboard to U.S. West Coast imperceptible for most users Direct route to Central Canada reduces dependency upon sole Nova Scotia gateway eliminates Canadian transit through New York &New Jersey CLS Direct route to Central Canada reduces Asia-bound transit from Vancouver through Seattle>Oregon>California 7
Latency Advantage Acrctic Fibre Latency Advantage (Disadvantage) Tokyo Seoul Shanghai HongKong Singapore Seattle Toronto Montreal Boston New York London Frankfurt Paris GFC Ranking T5th 16th T5th 3rd 4th n.a T10th 26th 12th 2nd 1st 14th 20th Tokyo CBD 0 0 0 0 0-18 -1 18 12 4 31 31 31 Seoul 0 0 0 0 0-19 -2 17 11 3 30 30 30 Shanghai 0 0 0 0 0-18 -1 18 12 4 31 31 31 HongKong 0 0 0 0 0-18 3 22 15 7 15 13 13 Singapore 0 0 0 0 0-18 -1 18 12 4-49 -51-49 Seattle -18-19 -18-18 -18 0-59 -40-46 -54 1 2 1 Toronto -1-2 -1 3-1 -59 0 0 0 0-11 -11-11 Montreal 18 17 18 22 18-40 0 0 0 0-12 -12-12 Boston 12 11 12 15 12-46 0 0 0 0-30 -31-30 New York 4 3 4 7 4-54 0 0 0 0-27 -28-27 London 31 30 31 15-49 1-11 -12-30 -27 0 0 0 Frankfurt 31 30 31 13-51 2-11 -12-31 -28 0 0 0 Paris 31 30 31 13-49 1-11 -12-30 -27 0 0 0 8
Economic Drivers International Network Canadian Rate Base Operates in competitive commodity pricing environment (transpacific/us/transatlantic) on long-term, price-protected capacity leases Operates in captive Alaskan market on utility cost-recovery basis Threshold return comparable to Canadian base Premium pricing for ultra low latency (21% revs) Volume (23%) growth p.a. exceeds price deflation (13%) during first five years Backbone investment ~ $350 million Unregulated, but subject to utility cost-recovery mechanism based upon specific 65%-35% debtequity capital structure and 12% a.t. ROE Throughput increases results in lower per Mbps unit pricing Fibre pricing <10% of satellite rates Utility structure facilitates government contribution toward secondary spurs Capacity nomination process resulted in strong buy-in from Canadian carriers and govt Canadian COS revenue requirement 100% attained Backbone investment ~ $245 million deemed equity $86 million 9
Designed for the Arctic Ice-freewindowAug20 Oct15 th forinstallation Globalwarminghasshrunkpolaricecaptopointby40%from1968-2010 Ice thickness along marine routing reaches maximum 2.6m vs. 3.2m in 1971 Iceberg count actually diminishing as glaciers have retreated Tyco built 2,800 km(norway > Svalbard Islands(78 N) without incident(2003) Offshore pipelines buried off Alaska North Slope for decades without incident NewremoteROVscanburycableto3mdepth Armouredcableinice-pronewaters(31%ofdistance) andburiedtoatleast1.0m 10
Ice Management Design for the Worst 11
Arctic Challenges and Risk Mitigation Challenge Scope Risk Mitigation Icebergs Greenland icebergs 80-170m deep Routing is 600-3500 m deep in Davis Strait Ice Scour study integral part of marine survey Burial to 3m where required Deepwater approach to Milton CLS Satellite monitoring of bergs Bergy Bits Smaller icebergs (depth to 20M) can scour Choose deepest routing > 50m depth seabed to 1.0-1.5 m Ridge Ice Scouring Ice ridges to 18 m deep, scour depth 1.2m (bummocks) Ice Covering (seasonal) Burial in all prone waters <40m depth Avoid nearshore ridges, shoulders Double-armored fibre in ice-prone waters Rock armour where appropriate Select deepest routing > 50m depth Burial in all prone waters <40m depth Choose wind-protected shore approaches Rock armour where appropriate Approx 37% route ice-covered >5 months Enlist icebreaker support with ROV capability Utilize Canadian Ice Survey, C-CORE data Minimize ice-covered route CLS Approaches Landing at Cambridge Bay CLS Choose deepest routing > 50m depth Approaches at Taloyoak, Boothia Ithmus Horozontal drilling to 40 m Duplicate, disparate shore approaches 12
Risk Mitigation (continued) Remote Spur Breaks Between 11-14 Arctic community spurs Electrical Supply Utilize deepwater Bus and spurs Distinct fibre pair from express routes Horozontal drilling to 40 m depth No service to vulnerable communities Lacklustre, spikey supply in remote hamlets End feed from Tokyo, Cambridge Bay, Bude DND multiple backups at Cambridge Bay Insulate festoon system from express Amplifier Failure 34 %subsea plant inaccesible 7 months p.a. Ensure amplifer spacing is adequate Maintenance Interval 34 %subsea plant inaccesible 7 months p.a. Other Physical Threats Trawling Anchorages Seismic Pipelines Minimize spur amplifiers Employ flexible OADM design Utilize proven technology Over design and over build Join Pacific and Atlantic mtce associations Enlist icebreaker support with ROV capability Adapt local shallow-hulled vessel for repairs Little trawling in ice prone Arctic Proactive charting and communications Establish "No Anchor" zones Proactive Canadian Coast Guard program Install BU offshore Japan for China link Take wider SE approach to Japan fault zone Few seismic issues in Arctic Avoidance or burial where appropriate Learn from Beaufort experience 13
Risk Mitigation (continued) Ice Scour Risk and Mitigation Region Length Seabed Depth Ice Ridge Maximum Margin Scour Risk Ice km Shallow Deep Average bergs Ice Keel (Shallow- Depth Level Bound (m) (m) (m) (m) Keel) (m) (m) (weeks) NORTH PACIFIC/BERING SEA 5,803 n.a n.a n.a No No 0 n.a. 0.0 Low 0 BERING STRAIT/CHUKCHI SEA 982 42 65 45 No Yes 12 30 1.0 Low 20 ALASKA NORTH SLOPE 879 200 1850 500 No Yes 27 173 0.8 Low 32 BEAUFORT SEA (CANADA) 213 221 1830 340 No Yes 30 191 1.0 Low 31 ADMUNSEN SEA/CORONATION GULF 1,052 120 567 310 No Yes 16 104 0.3 Low 32 SPENCE BAY/CAMBRIDGE BAY 627 24 100 50 No Yes 10 14 0.3 High 38 BOOTHIA GULF 592 41 260 70 No Yes 8 33 0.5 Moderate 44 FOXE BASIN 688 40 210 125 No Yes 10 30 0.6 Low 38 HUDSON STRAIT 890 165 650 250 Limited Yes 40 125 3.0 Moderate 26 NORTH ATLANTIC 4,189 600 3800 1800 Yes No 540 60 4.0 Low 0 LABRADOR SEA/NEWFOUNDLAND 1,787 155 3620 2800 Yes Limited 70 85 1.0 Low 0 14
Maintenance A Little Ice is Nice! Nearly 90% of cable breaks attributable to: human activities subsea trawling, ship anchorages, seismic faults or abrasion Arctic Fibre route and ice coverage obviates most of these risks Amplifier (MTBF > 30 years) design can accommodate failure of single amplifier OADM architecture permits routing around any problematic areas Mesh network created through Hudson s Bay and Alaskan links from Arctic Circle Membership in maintenance consortium or private agreements in North Pacific and North Atlantic with repair vessels at Yokohama, Portland and Halifax. For repair in Canadian Arctic waters or Alaskan North Slope, company will either: 1. Modify Class-1C or Polar Class ice-rated shallow draft vessel to serve as repair ship with ROV submarine retrieval vessel; 2. Lease supply vessel from a private Arctic operator; 3. Negotiate agreement with Canadian Coast Guard to accommodate grappling equipment, spare cable and ROV; 4. Combination of above arrangements. Critical time frame is during spring melt (May-July) with MTTR of six weeks 15
Progress Technical & Permitting Decision made to utilize 100G technology over four fibre pairs = 32 Terabits system capacity Formal request for turnkey proposal issued August 2012 to TE Subcom and Alcatel/Lucent Negotiations underway with various entities on terrestrial fibre builds, swaps and dark fibre leases in Ontario and Quebec Marine surveys will commence in 2013Q3 and continue through October 2013 Terrestrial civil works to be undertaken in 2013Q3 prior to marine operations in 2014 Nearshore landing alternatives identified in DTS Colocation with existing telcos in most Arctic communities eliminates CLS construction Canadian permitting licence subject to completion of environmental assessment Alaska permitting Quintillion applying to FTC in near term UK permitting will utilize existing corridor, BMH and conduit at Bude Japan permitting final CLS arrangements and permitting to be completed in near term RFS date of 2014Q4 16
Progress - Marketing Canadian Open Season Capacity Nomination Process concluded successfully with seven entities participating Canadian COS revenue requirement met Three other entities still in negotiations based upon specific technical requirements Tuktoyaktuk spur dropped due to lack of demand > potential terrestrial fibre Canadian carriers enthusiastic about prospect of second network connection to Europe and primary (non-us) connection to Asia European carriers and HFTNs enthusiastic about Europe-Asia low latency improvement American carriers and HFTNs enthusiastic about Asia-NYC low latency improvement MOU with Quintillion Networks for Alaska landings Alaska linkage through Seattle creates clean route for west coast video and data transmission to both Asia and Europe International carrier price negotiations commence at PTC in January 2013 17
Progress Financial Timetable Financial models revised to reflect route changes > increased demand > lower costs Strong investor interest from financial institutions and foreign carriers ownership likely a hybrid carrier consortium + institutional investor model Equity negotiations underway Canadian institutional investors and several carriers Debt discussions underway with Export Credit Authorities in United States and France Canadian and Alaskan revenue thresholds 100% achieved for Canadian utility model Indications from international carriers exceed 80% of threshold revenue requirement Key Dates: January 22, 2013 February 2013 March 2013 April 15, 2013 May 1, 2013 May 2, 2013 July 2013 November 2014 International carrier meeting at PTC Honolulu Execution of Canadian carrier contracts Execution of international carrier contracts Shareholders Agreement Completion Execution of equity and debt agreements CIF of turnkey supply contract Receipt of landing licences (domestic and international) Ready for Service date 18