The Wireless Backhaul Market Market Dynamics & The Continuing Opportunity

New Paradigm Resources Group, Inc. 30 S. Michigan, Suite 700 Chicago, IL 60603 (312) 980-7848 © New Paradigm Resources Group, Inc. www.nprg.com

November 10, 2009

Today’s Webinar

Objective: Provide summary insights into the U U.S. S backhaul market and the opportunities it presents for properly positioned service providers. Based on: NPRG proprietary research & analysis of Backhaul: 9 9 9 9

Backhaul Market Analysis & Study Current Backhaul Research Company-level research & analysis Ongoing research across sectors

Informed Direction Within a Changing Landscape

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Wireless Backhaul 2009

1

Backhaul Market Overview

2

Key Backhaul Players

3

Strategies & Technologies

4

The Opportunity & Trends

Informed Direction Within a Changing Landscape

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Backhaul Market 2009

SECTION 1: THE BACKHAUL MARKET

Informed Direction Within a Changing Landscape

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Backhaul Architecture Generalized Mobile Backhaul Architecture

Internet

Mobile Switching Center

POP

PSTN

Source: New Paradigm Resources Group

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Fundamental Growth Factors in the Backhaul Ecosystem y © Cellular subscriber growth

End U Users

Broadband Wireless SP

©© Mobile data usage, rich media apps

Cellular / Mobile Data SP

©© Wireless technology standards (HSPA+, LTE, 4G…) t oduct o of o femtocells e toce s ª Wi-Fi,, introduction

NET BACKHAUL GROWTH = ©©©

©© BBW subs growth

Site Owner © Incremental tower adds

Backhaul Transport p SP

Core Network SP

©© FTTH/N = fiber deep in networks © Evolution of core capacity & convergence

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Driving Current Backhaul Growth Mobile Subscribers by Carrier

Prime Opportunity: Independent Carriers

Prime Opportunity: Out of Franchise Territory

Prime Opportunity: Out of Franchise Territory

Source: New Paradigm Resources Group, Inc.

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User Behavior: Necessary Components of Backhaul Growth While mobile data has gained popularity in recent years… the g greatest impact p will come with further smartphone p adoption. p Share of Subscribers on U.S. Cellular Networks: Mobile Data and Smartphones Ubiquitous

Mobile Cloud Access Mainstreaming

Early Recreational iPhone

Business

iPhone 3GS, G1, Pre, BB Storm

Source: New Paradigm Resources Group, Inc.

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Leading Backhaul Customers Cellular Subscriber Market Share (2005-2009)

CLWR Other BBW

Source: New Paradigm Resources Group, Inc.

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Backhaul Market 2009

SECTION 2: KEY BACKHAUL PROVIDERS

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Sector Schema & Backhaul Emerging Wireless

Seeing opportunity, providers in a range of sectors are targeting the backhaul bac au market a e aggressively agg ess e y

LTE / 4G Cellular / Broadband Wireless (incl. Wi‐Fi and WiMAX)

Access Solutions

Fixed Wireless

Paid Content

Fiber Network  Operators

Tier 1 Telcos Metro Ethernet BPL

Video  Services

Satellite

Facilities‐ Based  CLECs

Cable  MSOs FTTx

IPTV (Competitive Video) Cable Video

IOCs

ISPs Content Delivery Cloud Computing

CIOCs

Non‐Facilities CLECs

Virtualization Software as a Service

VoIP

Managed Services

Wireline Voice & Data

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Key Players in the Backhaul Market Selected Prime Movers in the Backhaul Services Market Sector

ILEC

Cable MSO

CLEC

Fiber Network Rollups & Legacy Utility Fiber

Fixed Wireless & Hybrid (Wireless plus Fiber)

Key Backhaul Providers • • • • •

AT&T CenturyLink (Embarq) Qwest Verizon Windstream

• • • • • • • • • • •

Cox Communications Time Warner Cable Comcast Level 3 Optimum Lightpath (unit of Cablevision) tw telecom XO American Fiber Systems (AFS) FPL Fibernet (unit of Florida Power & Light) IP Networks Zayo Bandwidth

• • •

Conterra Ultra Broadband FiberTower Telecom Transport Management (TTM)

Source: New Paradigm g Resources Group, p, Inc.

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Serving Cell Sites The majority of wireless sites are located in Tier 1 carriers’ franchise territories carriers

Source: New Paradigm Resources Group, Inc.

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Cell Tower Ownership U.S. Cell Tower Ownership (2009) Rank

Tower Owner

1

Crown Castle

2

American Tower

3

Verizon *

4

AT&T

5

SBA Communications

Others

CenturyLink (CTL + EQ) Global Tower Partners Mobilitie Partners LLC T-Mobile USA TowerCo

* Includes unreduced Alltel assets

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Backhaul Customers: Cell Sites Wireless Providers Rank By Number Cell Sites (2Q 2009) Rank Provider 1

Verizon Wireless *

2

AT&T Mobility

3

Sprint Nextel

4

T-Mobile

5

US Cellular

6

Leap Wireless

7

MetroPCS

8

Clearwire

* Includes unreduced Alltel network

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Backhaul Market 2009

SECTION 3: STRATEGIES & TECHNOLOGIES

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Backhaul Transport Media Share Predominant Physical Medium to Cell Site 2013

2007 Fiber Fixed  Wireless

Fiber be

Copper

Fixed Wireless

Copper

Source: New Paradigm Resources Group, Inc.

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Carrying the Traffic: Competing p g Physical y Media Legacy Copper Loops (T1s) Pros

• Facilities in place: BH providers’ capital costs sunk • Max distance = miles • Well-understood technology, OAM well-defined • Engineered E i d to carry voice i

Cons

• Finite capacity—relatively low • Stepwise bandwidth • Per P unit it capacity it costt = linear li • Service outages • Engineered to carry voice—not data • Lease from ILEC

Provided By

• Incumbent LECs: AT&T, Verizon, IOCs

S Source: New N P Paradigm di R Resources G Group, IInc.

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Carrying the Traffic: Competing p g Physical y Media Fiber to the Site

Pros

• Highly scalable bandwidth • Capacity © = per unit cost ª • Future-proof technology • Adjunct to broad corporate NGN strategy (FTTx) • Map smoothly into core networks (fiber)

Cons

• High buildout costs • Long construction intervals

Provided By

• Cable MSOs • Fiber Network Operators • CLECs • Incumbent LECs: Verizon, AT&T, major ILECs

Source: New Paradigm Resources Group, Inc.

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Backhaul Alternatives Fixed Wireless and Ethernet over Copper in Backhaul Architectures Average Cell Towers

Copper Only: EoC Opportunity

Carrier Aggregation Ring g

PSTN POP

Mobile Switching Center

High-Load Site: Near Network, Fiber Served

Fixed Wireless Link to Remote Tower Copper Only: EoC E CO Opportunity t it

Source: New Paradigm Resources Group

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Carrying the Traffic: Competing p g Physical y Media Fixed Wireless (Microwave)

Pros

• No trenching costs • Lower OPEX, invariable with mileage • Scalable bandwidth • Max distance = miles, miles not limited by physical facilities • Rapid deploy & turn-up • Reuse old gear at other sites

Cons

• Spectrum costs • Capacity constraints (~1 Gbps) • Require clear line of sight • Carriers’ skill set may be low for self-provisioning • CAPEX: install antennae at cell site, aggregation

Provided By

• Fixed Wireless / Hybrid providers • Self-provisioned by wireless carriers

Source: New Paradigm Resources Group, Inc.

Informed Direction Within a Changing Landscape

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Carrying the Traffic: Competing p g Physical y Media Ethernet over Copper

Pros

• Underlying facilities in place: No physical buildout • Max distance = miles • Greater capacity than legacy T1s • Ethernet Eth t interface: i t f facilitates f ilit t migration i ti tto all-Ethernet ll Eth t

C Cons

• CAPEX: deploy gear at MTSO/CO and cell site • Relies R li on availability, il bilit quality lit off copper ffacilities iliti tto sites it • Smaller capacity bump than FW or fiber

Provided By

• IOCs • CLECs • Supporting role for Tier 1 carrier

Source: New Paradigm Resources Group Group, Inc Inc.

Informed Direction Within a Changing Landscape

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Wireless Carrier Backhaul Strategies

Providers address the flood of data demand using one of three strategies: t t i

Data Offload

• Maintain legacy T1 access for voice • Alternate access sourced for data • Maintain parallel networks initially, converge over time

Hybrid

• Maintain legacy T1 gear in place at site • T1 over Ethernet using circuit emulation for all traffic • Migrate to all-Ethernet over time

Flash Cut

• Replace legacy T1 gear at site • Flash cut to Ethernet access for all backhaul traffic

Informed Direction Within a Changing Landscape

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Backhaul Market 2009

SECTION 4: THE OPPORTUNITY & TRENDS

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Sizing the Market U.S. Cell Backhaul Market Size (2003-2013)

Source: New Paradigm Resources Group, Inc.

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Who’s Serving the Cell Sites Backhaul Provider Market Share (% of Cell Sites)

Source: New Paradigm Resources Group

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Backhaul Provider Strategies Sector Tier 1 Telcos, IOC

Cable

CLEC, Fiber Network

FW Carrier

Backhaul Positioning & Strategy • Dominant legacy BH providers • Access to most sites; accumulated expertise • Leveraging fiber builds, Ethernet for new business • Targeted and Strategic Focus • Leveraging fiber plant: near neighborhoods, etc. • Competing on price, opportunistic • Lead with Ethernet Ethernet, T1 circuit emulation • Network flexibility to carry TDM, Ethernet, both • Routes concentrated in and around urban areas • Regional or National presence: one partner partner, many markets • Exploit gaps in other BH provider architectures • Ideal are neutral sites with multiple carrier collocation • Emphasize time to turn-up, turn up, scalable bandwidth

Source: New Paradigm Resources Group, Inc.

Informed Direction Within a Changing Landscape

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Backhaul Market Trends • Data traffic growth (= backhaul demand) keeping pace with projections • BH providers all see increases, but ILECs cede some share • Mix of copper, fiber, wireless transport used as needed and available • Long-term pressure & movement to Ethernet continues— but faces capex p tradeoffs,, carrier decision-making g • SLAs, install intervals, carrier customer service important differentiators Informed Direction Within a Changing Landscape

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Additional Information & Resources

• Telecom Industry Index & Catalog • NPRG’s GsO Online e Resource esou ce Ce Center te http://reports.nprg.com • Podcasts • Webinar slides •

• Upcoming Webinars • The Ethernet Market & Providers • Cable MSOs & Business Services

• NPRG NPRG’s s Research Agenda - 2010 Informed Direction Within a Changing Landscape

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New Paradigm Resources Group Group, Inc Inc.. Informed direction …within a changing landscape

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