Ethernet in the Access International Case Studies. CSMG September 2008

Ethernet in the Access International Case Studies CSMG September 2008

Project Context and Approach Ethernet as a Service Case Study Support for the Five Key Characteristics of Ethernet ALA Additional Findings from Case Studies Summary Assessment Appendix: Case Studies 1

Project Context Ofcom has identified Ethernet Active Line Access (ALA) as a wholesale input that would enable competition and innovation by CPs using Next Generation Access networks A fully functional Ethernet ALA service has yet to be developed, however many network infrastructure owners supply Ethernet-based wholesale access services To further develop its understanding in this area, Ofcom commissioned a series of international case studies examining the use of Ethernet in the Access The research included a focus on five key capabilities previously identified by Ofcom and industry: 1. Flexibility in selection of the aggregation or interconnect point 2. Flexibility in the types of user network interface and CPE that can be supported 3. Ability to support Multicast services 4. Ability to support QoS 5. Ability to guarantee network and service security and integrity The purpose of the case studies was informative rather than seeking to identify a blueprint that could be copied in the UK 2

The case studies were selected to provide a broad range of network architectures, geographies and end-user segments Copper Fibre Ethernet First Mile Fibre Rings Point-to-Point Passive Optical Network Network Architecture MDF Customers Specialised DSLAM bonds multiple LLU copper lines n Copper Access Node Customers Ring-based packet switching network Access Node Fibre Customers Ethernet switch in node aggregates discrete fibres Access Node OLT Splitter Customers Fibre Optical signal distributed using passive splitters Re-uses existing copper Requires multiple lines Suitable for 10-20Mbps High-availability solution Relatively high cost Aimed at business segment Highly flexible solution Fibre per customer must be terminated at access node Single fibre at access node can serve 32-128 customers Less flexible than pt-to-pt Business Residential Europe USA Canada France Holland Japan Key: Solid outline indicates focus of case study; dotted outline shows other network architectures in use 3

Project Context and Approach Ethernet as a Service Case Study Support for the Five Key Characteristics of Ethernet ALA Additional Findings from Case Studies Summary Assessment Appendix: Case Studies 4

In the business market, Ethernet connectivity is a substitute for leased lines; more generally, network operators also use Ethernet as a bearer for higher layer services Business Residential Native Layer 2 Services E-Line (point-to-point Ethernet connection) E-LAN (multi-point Ethernet connectivity) Ethernet Bearer for Higher Layer Services Dedicated Internet Access IP-VPN Broadband Internet Residential triple-play services Between operators, the detailed characteristics of these services vary due to commercial decisions and underlying technology 5

Project Context and Approach Ethernet as a Service Case Study Support for the Five Key Characteristics of Ethernet ALA Aggregation and Interconnect Flexibility in CPE Choice Multicast Support for QoS Security Additional Findings from Case Studies Summary Assessment Appendix: Case Studies 6

Network Operators showed flexibility in both the location and structure of their interconnects Interconnect Size and Aggregation Options Interconnect Size Gigabit Ethernet (1Gbps) was the most common option Some support 100Mbps for smaller ISPs Most operators considering 10Gbps in future Aggregation Options Network Operators offered a range of aggregation options Able to aggregate by city, region or nation One also offered international aggregation Many had a degree of distance-based pricing, creating trade-offs for number and location of interconnects Multiple interconnects can increase resilience Multiple interconnects can also improve latency for large geographies, e.g. Canada or pan-europe VLAN per Class of Service VLAN per End-Point Bespoke VLANs Structure of Interconnect at Layer 2 Alternatives to Layer 2 interconnect: Common for residential services and business E-LAN services Common for business E-Line services Particularly in business market, e.g. support for Q-in-Q or IEEE 802.1ad VLAN stacking Iliad offers wholesale dark fibre on its FTTH network NTT also offers a PPP-based broadband service on FTTH The degree of interconnect flexibility is driven by commercial opportunity 7

The Ethernet services were typically supplied with active NTE Architecture Example Description Ethernet First Mile (Copper) Specialised DSL modem Terminates up to 8 bonded copper pairs; uses G.SHDSL.bis Actelis modem presents four 10/100bT ports plus optional GbE Point-to-Point Fibre Ethernet switch Terminates Ethernet over fibre, e.g. 1000Base-BX10 for single fibre working Residential presentation generally single 10/100bT port; GbE also offered Passive Optical Network Optical Network Unit Terminates PON fibre distribution network; NTT using EPON Options include 100bT and GbE; Ethernet switches sometimes also used Metro Fibre Ring Add/drop packet multiplexer East and west GbE fibre interfaces; services transported over MPLS 24 ports of 10/100bT Ethernet; optional GbE and T1/E1 circuit emulation KPN was unique in delivering wholesale Ethernet access wires only on point-to-point fibre 8

In addition to the Network Operator NTE, Service Providers often add their own CPE Network Two Box Solution Network Operator NTE Customer Premises Service Provider CPE optional Network Operator NTEs ranged from simple interface converters, to fully featured Ethernet switches Service Providers often added their own CPE: Routers for Internet Access and VPN services Ethernet switches for Layer 2 services End User CPE used for e.g. service provision, monitoring, accounting and remote diagnostics Pros Pros and Cons Clear operational demarcation Enables independent remote testing by Network Operator and Service Provider Allows independent equipment sourcing Supports service differentiation Cons Equipment cost inefficiencies Space and power requirements Potentially two truck-rolls Additional complexity for end user 9

Support for multicast was not widespread in wholesale offers Multicast availability Retail Wholesale Type L2 + L3 Multicast commonly used by operators to support their retail propositions - Typical applications include TV distribution (residential) and video conferencing (business) n/a broadcast L3 L2 L3 L2 (manual) L3 Limited availability of multicast in wholesale offers Multicast adds technical and commercial complexity for the network operator Multicast can benefit service providers through reduced interconnect costs, bandwidth costs, and providing greater scope for service innovation Network Operators may lack commercial incentive to provide wholesale support for Multicast 10

We found two main approaches to QoS: some operators offer both Guaranteed Bandwidth Class of Service Overview Network configured to dedicate bandwidth to each virtual circuit Network configured to prioritize certain traffic Key Benefit Guaranteed, predictable service Statistical multiplexing possible Best effort traffic is able to burst to use unused bandwidth Application Used in business market for E-Line Ethernet equivalent of a Leased Line Used in residential market and for business E-LAN services Case Study Example The approach to QoS and the Layer 2 Interconnect Structure are tightly interwoven 11

Security is largely defined by the network architecture and equipment capabilities Logical Separation Operators use logical configuration within the network to isolate customer traffic; examples include: Use of point-to-point virtual circuits Grouping traffic into sub-groups using VLANs Blocking user-to-user Layer 2 traffic Controlling broadcast traffic Separate Electronics Some operators used network elements dedicated to specific services, e.g. separating VPN traffic from the Internet Separate Access Point-to-point architectures (fibre and EFM) physically separate traffic in the access network Operators were unable to discuss specific vulnerabilities, although we are aware that the shared nature of PON creates risks (at least in theory) for eavesdropping and Denial of Service 12

Project Context and Approach Ethernet as a Service Case Study Support for the Five Key Characteristics of Ethernet ALA Additional Findings from Case Studies Market and Regulatory Context Process Issues Economic Issues Summary Assessment Appendix: Case Studies 13

The context in which the case study companies operate has a bearing on their network and wholesale strategy Case Study Market Highlights Regulatory Environment Netherlands KPN planning to close MDF sites Several 3 rd party fibre network builds Current light regulation of fibre networks Europe France Japan USA Canada Wholesale and business focus Uses own fibre on-net One of only 4 large ISPs in France High population density in Paris (MDUs) Incumbent operator in Japan Fibre-based competitive provider Focus on business market Regional incumbent operator in Canada Serves residential segment in footprint; business customers nationally Good availability of copper through LLU Some ANFPs allow 5.7Mbps per pair ARCEP supportive of infrastructure based competition Access to sewers and FT ducts Central government support for FTTH Regulated access to unbundled and bitstream services Telecoms access services subject to price regulation and must be non-discriminatory (some carve outs) Ethernet services historically regulated CRTC plans phased deregulation of Ethernet and other fibre access (3-5 yrs) 14

Network Operators with large volumes of wholesale circuits have invested in automated systems to reduce costs Increasing degrees of process automation Manual Web GUI XML Gateway Planned development Suitable for low volumes Forms commonly sent backand-forth by email Automates interface into NetCo, but requires manual interaction by service provider Enables service provider automation Requires sufficient volumes on both sides to justify Note: Information on Iliad s wholesale platform not available 15

All of the case studies adopted a similar approach to pricing, although their underlying cost drivers are varied Tariffs Without exception, the Ethernet services were priced on a flat-rate basis, i.e. no usage charging Some services carried over Ethernet (e.g. Internet Access) may be charged on a usage basis Charges were composed of an upfront connection fee and a monthly recurring charge for the NNI and end-user connections Cost Drivers Insight into the cost drivers can be gained by looking at the case study s last-mile infrastructure strategy Operators that build their own last mile will have higher fixed costs; for those with speculative builds, achieving high penetration is imperative for return on investment Primary Source of Last Mile Copper / Fibre Most of the operators had some element of distancebased charging Within the case studies, this was implemented in zones (e.g. metro, regional, national) Lease To order Build Speculative Other operators have more linear, per-km, charges Optimum Lightpath has no distance-based charges Operators levy additional charges for premium Class of Service and Multicast, again as a fixed recurring costs Note: COLT fibre is built to order; EFM copper is leased 16

Project Context and Approach Ethernet as a Service Case Study Support for the Five Key Characteristics of Ethernet ALA Additional Findings from Case Studies Summary Assessment Appendix: Case Studies 17

The case studies show some support for the five key characteristics, but further development is required to achieve the true vision of ALA Key Characteristics Flexible options for aggregation and interconnect Flexible support of UNI and CPE types Case Study Findings Wide support for traffic aggregation, using a range of underlying transport technologies Gigabit Ethernet interconnect most common; some examples of 100Mbps and 10Gbps Ethernet KPN only operator to offer wires-only presentation (FTTH) Wires-only also likely to emerge on EFM Where operators provide NTE, SPs currently prefer separate CPE for clear demarcation Support for Multicast Wide support for retail services (especially residential) but limited in wholesale offers IP multicast more common than Layer 2 approaches Support for QoS Ability to guarantee Security and Integrity Two main approaches to QoS: Guaranteed Bandwidth and Class of Service Generally simple product definitions with a wide range of data rates to chose from Point-to-point networks to logically and physically separate customer traffic PON recognised as having additional risks due to use of shared medium Degree of support: Low High 18

Appendix: Case Studies BBned COLT Iliad KPN NTT Optimum Lightpath TELUS 19

BBned is a wholly owned Dutch subsidiary of Telecom Italia Telecom Italia Financial Metrics Historical Financial Performance Company Structure Parent company 35 30 28.3 29.9 31.3 (millions) 25 20 15 10 5 12.9 12.5 12.9 Wholesale broadband access provider 100% owned by Telecom Italia 0 BBned 2004 2005 2006 Revenue Limited financial data released by Telecom Italia Latest BBned annual report in 2004 shows 69m in revenue EBITDA of 27.8% in 2007 EBITDA Business data and telephony service provider 100% owned by BBned Consumer retail broadband internet and telephony brand Telecom Italia-owned brand 20

BBned provides wholesale broadband access in the Netherlands with its LLU network Company Background Operates an LLU network in the Netherlands Established by Telecom Italia in July 2000, currently 200 employees Serves consumer, business and wholesale markets 7,700 business customers Uses Cisco network equipment, including its OSS and FTTH in Amsterdam Market KPN has announced plans to close its exchanges and transition to a FTTC/FTTH architecture Some operators have exited the LLU market; BBned remains committed to infrastructure-based competition Municipal and privately-funded FTTH networks are emerging: BBned has secured contracts to operate a number of these FTTH access is currently unregulated in NL and regulatory approach will depend to some extent on the success of KPN All-IP programme Product Range Ethernet Portfolio Provides wholesale broadband access to ISPs, Application Service Providers and telecom companies National DSL coverage, combination of LLU (85% of country) and wholesale from KPN Launched FTTH in Amsterdam in 2006, and in Rotterdam, Den Haag, Uden and Eindhoven in 2007 Initially interest for FTTH was mostly for business use, but now sees a more even mix with residential Offers a wholesale TV product (head-end plus multicasting) including content sourcing Charging Model Flat rate pricing for end-user circuits and interconnect; circuit charge depends on committed bandwidth and Class of Service Additional premium for multicast Scale Over 70 partners for LLU but only c.20 for FTTH: concerns with technology maturity and bandwidth requirements 21

BBned has selected an Active Ethernet architecture for its FTTH network CPE Options Interconnect Physical Connectivity to many data centres Flexible aggregation options: multiple interconnects, at national or city level 100Mbps - 10Gbps offered at interconnect Deployment options of fibre directly to customer, or to an Ethernet switch serving an entire floor One copper 10/100bT Ethernet port per premises Wholesale partner is responsible for cabling and per-user CPE BBned Central Office Service Provider BBned Network Interconnect Layer 2 Powered cabinet SP CoS 1 CoS 4 QoS Supports four different Class of Service, including VoIP Varying levels of contention (10:1, 4:1, 1:1) Speeds Supplies fibre direct to businesses End user speeds up to 1Gbps VLAN per Class of Service 22

BBned has one of the more advanced sets of support capabilities of the companies surveyed OSS Technology Advanced partner portal is XML based, launched in 2000/01 for DSL Includes order submission, self-care, considering service level reporting Development in progress to extend support to all products on all fibre networks Customer Migrations Migrations not relevant to date, but potentially will be with KPN all-ip, as some of its current ADSL LLU network will shut and customers will need to be migrated to KPN bitstream Security & Integrity VLANs per SP per Class of Service keep traffic separate Multicast Available in Rotterdam (L2) and Amsterdam (L3) Two SPs currently using it (one of which is Unet) for TV broadcast Future Plans BBned looking to offer point-to-multipoint services in the future, e.g. L2 VPN Looking to deploy EFM soon, and VDSL (sub-loop unbundling) in Q3 2008 Will offer similar Ethernet product set across all networks, copper and fibre, including point-to-multipoint CityNet Model CityNet operates a 3-layer model, which separates fibre optic cables from access and services Service layer Internet, video, telephone service providers, hires L3 wholesale capacity Active layer Wholesale provider, owns active equipment and leases fibre cables Passive layer Fibre cables, ducts, housing for equipment 23

Appendix: Case Studies BBned COLT Iliad KPN NTT Optimum Lightpath TELUS 24

COLT is structured by line of business, serving corporate, SMB and wholesale customers Financial Metrics Company Structure 1,500 Historical Financial Performance (millions) 1,200 900 600 300 0 1,166 1,219 1,246 1,231 1,027 906 163 156 173 185 25 72 2001 2002 2003 2004 2005 2006 Revenue EBITDA Corporate Supplies voice, data and managed services to government and large enterprise customers SMB Serves small and medium businesses Wholesale Offers wholesale data, voice and managed services to service providers 25

COLT offers wholesale and business services in 13 European countries Company Background Founded early 1990s by Fidelity as a UK fibre network operator with fibre network in London Expanded internationally in late 1990s Now has 33 city fibre networks in Europe with international network joining them together LLU operations in 12 European countries In UK uses BT IPstream and Datastream EFM in Belgium, France, Germany, Spain and Italy Serves wholesale, corporate, government and SME customers Over 1400 wholesale customers Wholesale partners are primarily international carriers, and most end users are branch offices of international corporations EFM equipment supplier is Actelis Market Belgium is its leading market for EFM Main interest in EFM over LLU is from SMEs, corporate branch sites (especially through wholesale) and some public sector (e.g. school networks) Product Range Ethernet Portfolio COLT has 3 methods of connecting customers to its network: Fibre: suitable for high-bandwidth, high-value opportunities, but limited by reach of metro networks LLU: suitable for lower bandwidth requirements, limited by reach of LLU footprint (the focus of this study) Wholesale access services from other service providers, either xdsl, fibre or leased line Four services supported by EFM over LLU: Internet access, Ethernet, IP-VPN, VoIP; all have retail and wholesale variants Wholesale Ethernet is available in either point-to-point, or point-to-multipoint configurations Charging Model Flat-rate charging in general Internet access is usage-based Expects usage-based charging for Ethernet in future 26

COLT runs EFM over an LLU network in five European markets Interconnect Physical Ethernet interconnect (e.g. GbE) Currently has separate NNIs for EFM and Ethernet over Fibre, could be combined Partners can take multiple interconnects to improve capacity or resilience Many ATM-based interconnects, only 1 or 2 EFM 30+ interconnects to wholesale Ethernet tails QoS Guaranteed bandwidth per VLAN Bespoke VLAN configurations can provide QoS Incumbent Telco Central Office CPE Options COLT provide CPE on-site to terminate the EFM pairs Presentation to customer is Ethernet 10/100bT Has a wires-only service on ATM-based LLU network, not yet considered for Ethernet Would expect additional support issues due to wider variety of CPE Service provider may supply further CPE, e.g. for a Layer 3 service Service Provider COLT Ethernet Network EFM over LLU copper pairs DSLAM Interconnect Layer 2 n SP Cust A Cust B VLAN per customer (e.g. multi-sited business) SP VLAN per premises SP Single VLAN (enables traffic to be switched between sites on COLT network without having to traverse the NNI) Speeds EFM capable of 5Mbps per pair in most countries with maximum of 8 pairs, so 40Mbps max, depending on distance Typical speeds 10-20Mbps, 3 or 4 pairs per connection 27

COLT is developing an XML-based partner portal; does not see demand for multicast OSS Technology Currently use manual processes Volumes are manageable due to business focus XML-based partner portal in development Range of service monitoring tools for customers, with functionality dependent on product, visibility down to individual connection level Security & Integrity Network can be configured to control broadcast traffic Multicast Not currently available and not aware of any customers requests; unsure if network supports it Future Plans Future Plans Expectation that speed/pair and max. number of pairs per bundle will increase to give top speed of 100Mbps UK ANFP restricted performance to 3Mbps but this limit will be increased to 5Mbps once BT implements changes to order process Success Factors Competitive pricing Flexibility in committed bandwidth Better up-time from multi-pair EFM, as failure of a single pair results in speed degradation but does not break connection 28

Appendix: Case Studies BBned COLT Iliad KPN NTT Optimum Lightpath TELUS 29

Iliad is the second largest ISP in France, marketing its services under the Free brand Financial Metrics Company Structure (millions) Iliad 1,400 1,200 1,000 800 600 400 200 0 Historical Financial Performance Public company since 2004 (ILD: PA) 1,212 935 724 444 329 224 2005 2006 2007 Revenue EBITDA Founded in 1999 Retail ISP brand Iliad generated a positive free cash flow of 23m in 2007 from its ADSL operations Affiliate companies 30

In 2006, Iliad announced it would invest 1bn in FTTH to pass 4 million French homes by 2012 Company Background Second largest French ISP Founded in 1999 with IPO in 2004 Launched dial-up Internet service in 1999, followed by broadband in 2002 and started LLU in 2004 Offers triple-play residential services under the free brand Over 2.7 million broadband subscribers Market Iliad has led the French residential broadband market with high-value, bundled propositions Triple-play services available for 29.99 per month Pricing for FTTH same as DSL Neuf Cegetel and France Telecom have followed Free in announcing and rolling out FTTH Product Range Ethernet Portfolio Iliad uses point-to-point Ethernet to deliver residential triple play services on its FTTH footprint Announced in 2006 that it would provide wholesale access to its FTTH network Access is to dark fibre only No wholesale access to its active FTTH infrastructure Technical features released to ARCEP Charging Model Dark fibre is priced at 15 per month Co-location costs and other fees have not been published 31

Iliad offers wholesale access to dark fibre, rather than an Active Line Access service Service Provider Network CPE Options SP can chose any CPE capable of single fibre working on single mode fibre Iliad Access Node ODF MDU To comply with French regulation on shared infrastructure, Iliad runs two sets of fibre within MDUs: one for itself and another for 3 rd parties (those not on Iliad dark fibre) Multi-Dwelling Unit Iliad external fibre X Fibre splice points Iliad Network 3 rd Party external fibre X QoS Iliad uses Layer 3 switches in its access node Assumed that Iliad uses QoS for their triple-play retail services Interconnect Physical The dark fibre interconnect is made via Iliad s Optical Distribution Frame Speeds Iliad using 100Mbps access SP speed determined only by equipment choice 32

Iliad s approach enables it to optimise its active infrastructure for its own retail services Systems and Processes Technology No details available for its wholesale partner interfaces The Iliad dark fibre product would require a relatively simple ordering system Security & Integrity Security achieved through use of dedicated fibres between end-customer and service provider No sharing of service provider traffic on active equipment avoids security risks due to equipment vulnerabilities or operator error Multicast Iliad utilises multicast on its own network to distribute linear TV content for its retail IPTV service Service providers using Iliad s dark fibre could independently deploy multicast on their own networks if required Future Plans Future Plans Continue FTTH roll-out, with potential access to FT ducts and FT fibre depending on regulatory determination Increase number of unbundled DSL exchanges Expand mobile offerings Success Factors Large retail customer base FTTH roll-out in areas where it already has high penetration, maximising operational cost savings versus LLU Wholesale dark fibre offer enables take-rate for fibre to exceed retail market share Avoiding active line access enables network infrastructure to be optimised for retail service delivery 33

Appendix: Case Studies BBned COLT Iliad KPN NTT Optimum Lightpath TELUS 34

KPN is the incumbent operator in the Netherlands (millions) KPN 14,000 12,000 10,000 8,000 6,000 4,000 2,000 12,235 Financial Metrics Historical Financial Performance 11,819 11,819 11,941 12,461 4,984 4,835 4,842 4,869 4,546 Company Structure Public company 20bn market capitalisation Global ICT services division Network and data centre services to multinationals 0 2003 2004 2005 2006 2007 Revenue EBITDA 35

KPN is undertaking a radical overhaul of its access infrastructure Company Background Dutch incumbent Telco, owns most of last mile infrastructure Founded in 1852 and privatised in 1989, with the state selling its remaining stake in 2006 Currently serves over 3.7m fixed subscribers and 6.2m mobile Has initiated an All-IP programme to replace existing MDF-based access network with a combination of FTTC and FTTH; plans to close the majority of MDF sites Market Currently, KPN has 3,000 active FTTH subs and 120k fibre-ready subs KPN faces competition from Cable Operators and competitive operators, such as BBned May 2008: KPN announced its intention to form a JV with Reggefiber to combine their FTTH activities; approval by competition authorities pending Product Range Next-Gen Access KPN offers a broad range of wholesale access options: Unbundling (at MDF, ODF, and cabinet) Wholesale Broadband Access (WBA, see next slide) Developing IP connectivity and triple-play services on top of WBA KPN developed WBA voluntarily as an alternative to bitstream WBA was launched in 2006 on ADSL, and has been extended recently to VDSL and FTTH Charging Model For WBA, service providers pay set up and ongoing fees for the NNIs and customer connections Additional charges are made for aggregate bandwidth (by QoS type) at the NNI Discounts are offered on connection volumes and traffic forecasts 36

KPN Wholesale Broadband Access has a wires-only FTTH interface Interconnect Physical GbE and 10GbE options supported Interconnect is at designated Wholesale Access Points (WAP); KPN can supply tail circuits if required Number of WAPs planned to increase from 14 to ~155 by the end of the All- IP network transformation Virtual Circuits Traffic is assigned to a service provider VLANs at the access switch Within the SP VLANs, traffic is further divided by QoS type Wholesale customers pay for aggregated VLAN bandwidth at interconnect points Central Office CPE Options KPN do not supply NTE for WBA This applies to both FTTC and FTTH A passive fibre termination unit is used for FTTH SPs can therefore deploy integrated NTE and residential gateway Service Provider NTT NGN Network Access switch P2P fibre NTE Interconnect Layer 2 Point-to-multipoint VLANs One per traffic type from each region Separate VLANs for broadcast traffic QoS Currently differentiate between best effort traffic and premium Premium used mostly for video Intend to develop a Medium QoS category in the future Access Network End-user access is rate limited with bandwidths ranging from 512kbps to 100Mbps as standard Access lines run 100Mbps Ethernet Up to 10Gbps possible for business customers 37

KPN has extended its DSL order gateway to support FTTx Systems and Processes Technology KPN have developed an XML interface for wholesale customers to submit orders and trouble reports A web GUI is also available for smaller customers The system was originally developed for wholesale ADSL and has been extended to encompass VDSL (FTTC) and FTTH KPN anticipate a major migration programme as endusers are transitioned onto the All-IP network; they have planned for a migrate order to accommodate this Security & Integrity No specific issues identified KPN use VLANs to keep SP traffic separate Multicast KPN support broadcast traffic through the NNI Multicast will be employed for future wholesale IPTV offers Future Plans Future Plans KPN plan to develop WAP redundancy whereby an SPs traffic is rerouted to an alternative WAP in the event of a failure For the business market, KPN is considering introducing point-to-point circuits (e.g. Ethernet Private Line); these would be presented at the NNI as individual VLANs KPN is also considering symmetrical connections for the business market Success Factors KPN believes that its WBA service is economically more attractive to SPs than infrastructure competition in FTTC / FTTH 38

Appendix: Case Studies BBned COLT Iliad KPN NTT Optimum Lightpath TELUS 39

NTT is the incumbent fixed-line operator in Japan Financial Metrics NTT Group Historical Financial Performance 12 10.9 11.1 10.8 10.7 10.8 Company Structure Holding company $32bn market cap Billions of Yen 10 8 6 4 2 0 0.23 0.64 0.71 0.50 0.48 2003 2004 2005 2006 2007 Revenue EBITDA Regulated to serve regional communications, and maintain nationwide telephone service in the east of Japan Similarly regulated for the west of Japan Long-distance and international communications Not regulated 40

NTT has made significant investment in next-generation access Company Background Japanese incumbent telco, owning most of last mile infrastructure Founded in 1952 and privatised in 1985, though still 1/3 state-owned Split in 1998 into a holding company and three telecom companies, East, West and Communications Currently serves over 50m fixed subscribers and 52m mobile Market Number of FTTH subscribers expected to overtake DSL subs in 2008 2.7m FTTH subs added during 2007 (FY2007 estimate 2.9m) Government has a target of 100% of households have access to a broadband service (either cable, DSL or fibre) by 2010 KDDI has also deployed fibre in some areas Product Range Next-Gen Access In addition to its FLET retail broadband service, NTT offers broad range of wholesale options: Unbundling (for copper, and also for PON with 8 customer access lines bundled with a shared lead-in fibre) PPP-based bitstream services to ISPs for Internet Access Layer 2 LAN connection services on its NGN Charging Model For Internet access, the end user has separate contracts with NTT and the ISP, and pays directly to each No charging between ISPs and NTT NTT s FLET service is flat rate, as are most ISPs 41

NTT offers PPP-based wholesale access on its FTTH networks to ISPs for connecting their end-users Interconnect Physical Mostly 1Gbps interconnects, some 100Mbps Internet access provided with PPPoE PPP connections authenticated using RADIUS against servers in the ISP s network Speeds End user speeds up to 100Mbps Fairness control technology is used in access network, giving a minimum bandwidth guarantee per user CPE Options NTT provides the ONU For MDUs, NTT also provides a L2 switch User may install router (provided by the user) between ONU and PC, or connect directly Internet Service Provider NTT IP Network Access switch PON and P2P FTTH networks Interconnect Layer 3 PPPoE ONU Individual PPPoE connections per customer IP interconnect between NTT and ISP Same interconnect regime for both PON and DSL QoS No guaranteed QoS for PPPoE Internet traffic Contention level not guaranteed, but kept low enough to avoid customer complaints QoS for NTT s Hikari-Denwa IP telephony service is implemented at Layer 3: VoIP traffic is carried separately to the PPPoE tunnel and is prioritised in IP network 42

More recently, NTT has launched a layer 2 LAN Communications service on its NGN Interconnect Physical Ethernet NNI Interface options: 1Gbps, 10Gbps Options for redundancy using Link Aggregation (IEEE 802.3) or Ethernet Ring Protection Virtual Circuits Virtual Circuits in the network are composed of access and trunk connections Trunks are procured between central offices and at the NNI to carry the traffic on these routes CPE Options NTT supply CPE to terminate their optical network and present Ethernet interface to the end-user Two units for different access speeds: 1Mbps to 100Mbps 1Gbps Service Provider NTT NGN Network Central Office Access switch PON and P2P FTTH networks ONU Interconnect Layer 2 VLAN tags used to identify sub-group or end-point QoS Packets can be assigned one of four QoS priorities (from priority down to best effort ) QoS assignment can be done on ToS, CoS or VLAN ID Access Network 1Mbps, 10Mbps, 100Mbps and 1Gbps access options for access Dual 1M to 100Mbps and 1Gbps access also available as a chargeable option for increased resilience 43

NTT supports multicast for content distributors OSS Technology Orders are performed by a dedicated order IT system, jointly built by NTT and ISPs ISP accepts orders from customers, passes order through automated system to NTT, which then contacts the customer, confirms the order and carries out installation Trouble ticketing system is manual, but supported by a dedicated NTT call centre ISPs take inquiries and complaints from customers, and attempt to solve themselves; escalating to NTT requires manual contact by telephone or fax NGN Future Plans NTT launched its portfolio of retail and wholesale services on its NGN in 2008, including: FLET'S Hikari Next optical broadband Hikari Denwa optical telephony Business Ether Wide FLET'S Cast content distribution services Multicast No multicast available on wholesale bitstream On the NGN network, the FLET Cast service provides a multicast option for content owners wanting to distribute content to Hikari Next customers Details of further developments are not yet available 44

Appendix: Case Studies BBned COLT Iliad KPN NTT Optimum Lightpath TELUS 45

Optimum Lightpath is a wholly-owned subsidiary of Cablevision Financial Metrics Cablevision Historical Financial Performance $ (millions) 7 5.9 6 5.2 4.9 5 4 3 2 Company Structure Public company since 1986 (NYSE:CVC) $7.4bn market cap Founded in 1985 Main line of business is residential cable services 1 0-1 0.50 0.61 2004-0.06 2005 2006 Revenue EBITDA 100% owned by Cablevision Systems Optimum Lightpath Telecommunications Services division (includes Optimum Lightpath and Optimum branded video, high-speed data and voice services), had 15.5% revenue growth in 2005 to 3.6bn Operating cash flow increased 15.1% 46

Optimum Lightpath mainly serves the business market, but also supports wholesale Background Company Subsidiary of US-listed Cablevision Systems Corp. Operates metro-ethernet fibre network in the states of New York, New Jersey and Connecticut Began offering services on Ethernet ring in 2005 2900 sites lit, with ~100 data centres MEF-compliant provider Packet-ring equipment from Atrica Market Lightpath sees a general market movement in business services from TDM to Ethernet, due to several factors: Simplicity of Ethernet handoff Bandwidth scalability Network reliability Cost effectiveness Ethernet Portfolio Product Range Provides voice, data and Internet services to businesses; also serves the wholesale SP market Wholesale is not a major part of its business; this decision is based on corporate strategy, not technology Business video service for teleconferencing, training and broadcasting Charging Model Flat rate, not distance sensitive No premium for classes of service: pricing based on market demand and competition, rather than using a costplus model Video is charged as a separate service, can be more or less than a data service Multicast charged flat rate, with a fee per end connection Typical basic charges start at $1600/month for 10Mbps, up to $12500/month for 300Mbps 47

Optimum Lightpath operates an MPLS network over fibre rings Interconnect Physical Ethernet NNI Can do NNIs over multiple POPs for extra redundancy, with dual homing and load balance QoS Guaranteed bandwidth per connection On-net video can be distinguished from other packets Lightpath Central Office CPE Options Lightpath supply Layer 2 edge multiplexer Wholesale partner would supply Layer 3 router Service Provider MPLS Network Ethernet Over Fibre Interconnect Layer 2 SP VLAN per end connection No Class of Service implemented on interconnect currently Plans to introduce 4-5 classes in future Ethernet Virtual Connections over MPLS Speeds 10/100/1000Mbps Minimum 10Mbps physical presentation but can create virtual pipes of 1Mbps 10Gbps in development 48

Optimum Lightpath has a limited multicast offer which it may enhance in the future OSS Technology Installation, maintenance, ticker tracking is done by a web-based GUI Portal for monitoring service performance is being developed, but no dates for commercial availability No plans to develop machine-to-machine XML gateway Security & Integrity Security inherited from MPLS Private line traffic is separated from ELAN traffic, on different switch Future Plans Future Plans Looking at WDM-PON Enable 4 classes of service on the interconnect Success Factors Low (<10ms) latency across entire network Resilience and failover comparable to SONET Multicast Offered in a limited way, on-net only Multicast trees are static and manually configured in MAC tables on switches, suitable for business applications More will be possible with the introduction of new hardware in Q2 2008 Will enable multicast on the NNI if on-net is successful 49

Appendix: Case Studies BBned COLT Iliad KPN NTT Optimum Lightpath TELUS 50

TELUS is organised by Wireless and Wireline divisions, with Business and Consumer Solutions Financial Metrics Company Structure Billions of Yen 10 9 8 7 6 5 4 3 2 1 0 Historical Financial Performance Public company 7.1 7.6 8.1 2.8 3.1 3.3 2003 2004 2005 2006 2007 Revenue 8.7 EBITDA 3.6 9.1 3.8 Wireless Wireline Business Solutions Consumer Solutions $13.5bn market capitalisation TELUS financially reports its Wireless and Wireline Divisions These network-based divisions are crossed with Consumer and Business Solutions groups, each with executivelevel heads Ethernet-based next generation access is included in the Wireline division 51

TELUS is the second largest Canadian ILEC, serving business, retail and wholesale customers Background Company One of three Canadian ILECs (Incumbent Local Exchange Carrier) formed during the 90s Serves mainly western Canada Canada s second largest telco, with a 22% market share 34,000 employees Retail customer base of 11.1m includes 5.6m wireless, 4.4m fixed and 1.2m internet subscribers Has around 10 large wholesale partners, 20-30 smaller Market The 3 regional ILECs operate as CLECs outside of their own region Business Ethernet services have been available for over 10 years Tariffs for Ethernet over ATM and standalone Ethernet access are regulated and published Regulation for high-bandwidth services is being phased out over the next 3 years Next-Gen Access Product Range Offer E-Line and E-LAN services for business Residential DSL uses Ethernet backhaul Business Ethernet services delivered over point-to-point fibre, ATM and Sonet Charging Model Flat-rate billing based on bandwidth and distance from interconnect to endpoint Experimented with usage-based charging but believe the extra effort outweighs the benefits Additional flat-rate charges for Class of Service 52

TELUS offers wholesale Ethernet access for business end-users Interconnect Physical Gigabit Ethernet Layer 2 interconnects Could upgrade to 10Gbps, but not necessary yet; will be a commercial decision Structured using VLANs VLAN per premises is the most straightforward (corresponds to MEF E-Line service) VLAN per CoS also possible for MEF E-LAN services Most carriers prefer to interconnect in at least two locations for diversity and latency; TELUS recommends three points of interconnect QoS Mainly supply lots of bandwidth on a best effort basis E-Line services have guaranteed bandwidth and no burst capability Multi-point E-LAN services can have multiple CoS, with a burst option for the best effort traffic Customers best effort traffic load expected to be 20 to 30% of subscribed amount Service Provider TELUS Network CPE Options Interconnect Layer 3 SP VLAN per premises Site A Site B Site C Site D SP VLAN per Class of Service VoIP/ Video Lower priority Speeds Offer speeds from several Mbps to 1Gbps Supply a simple Layer 2 demarcation device Typically 1 data port and a second for administration If there are multiple VLAN for CoS, these are normally presented on a common port Offer multiple ports for large enterprise Ethernet switch would be deployed in the basement of a larger building Customer presentation is RJ45 Service providers deploy their own router for Layer 3 service 53

TELUS employs a mixture of manual and automatic processes Technology OSS Support XML interfaces with the largest customers (10-30 transactions per week) Interface can be either standard, or customised, depending on pricing Troubleshooting and ordering are done via a customerfacing website As a last resort, Excel- or Word-based forms can be emailed in to a queue Quotes are handled separately through a web portal and email, though information from other systems is used Security and Integrity Network logically separates customers traffic Some specific protocols are also blocked Maintaining high reliability is seen as main focus in this area Multicast Receive lots of RFPs, but very little commercial demand Believe interest is more inspired by technology vendor influence than real demand Multicast is supported for retail at Layer 3 Future Plans Wholesale Ethernet Deploying VPLS-based services on a regional basis, expanding across the country Both point-to-point and point-to-multipoint Will allow TELUS to phase its ATM network, which will be pushed to the edge and only kept for legacy services until customers migrate away from it Expects to offer metro Ethernet for tier 2 markets Plans to enable GbE or 10GbE on point to point connections using CPL (Common Photonic Layer), a Sonet replacement that supports Ethernet without the Sonet overhead Plans to offer Q-in-Q capability, to enable end users to maintain their own VLANs within TELUS VLAN 54