B2 FTTX as an alternative strategy to competitors

VDSL2 – The Way to Next Generation Access Networks - WIK March 21st, 2007

Agenda ¾Introduction to B2 ¾FTTH as an alternative strategy ¾The importance of dark fibre

B2 overview ¾The largest provider of true broadband in Sweden ¾440k household broadband customers

¾The largest provider of IP-telephony in Sweden ¾160k household IP telephony customers ¾Q306 launch of Mobile/IP telephony and broadband bundle

¾Broadband via FTTX and XDSL (40/60 share) ¾Subsidiary of Telenor since summer 2005

Infrastructure and product offerings LAN WAN

MAN

2 Mbit 100 Mbit VoIP TV / VoD PC-VoD PC-TV Portal Mobile bundle

WAN DSL

2 Mbit 10 Mbit 24 Mbit 12/9 Mbit VoIP TV / VoD PC-VoD PC-TV Portal Mobile bundle

B2 fibre available in more than 100 cities

• Approx. 50% of Swedish households can be reached through own network • Coverage of broadband access through Teracom, Tele2 and TeliaSonera not included

Swedish consumer broadband Others Tele2 Spray 4% 9% Glocalnet (DSL)

Com hem

4% 6%

Telia 39%

19%

(Cable)

20%

Bredbandsbolaget (FTTx / DSL)

(DSL)

9 Top 3 players have 87% of the subscribers 9 The following over 100 players have 13% of the subscribers

Agenda ¾Introduction to B2 ¾FTTH as an alternative strategy ¾The importance of dark fibre

Swedish FTTX market - MDU ¾Broadband subscribers from FTTX: 299k (H1 2006) ¾Growth 12 months to H1 2006: 14% ¾Depending on broadband take rate the number of installed apartments is 700 - 800k

Around 35% of all apartments in MDUs with FTTX potential have already been installed

Make the right bundling choice between FTTX and LLUB (ADSL2+, VDSL2) ¾Both infrastructures allow for full control and current service offering is provided over both infrastructures ¾Long term solution to MDU is FTTX, FTTX and only FTTX ¾However: ¾ For single houses and many enterprises LLUB is a more cost effective solution ¾ Growth in FTTX is slow ¾ Growth of LLUB is high LLUB and FTTX are two steps on the same ladder of investment and complement each other

FTTH, FTTB or LLUB to single houses and BACK-UP many enterprises ¾For single houses and Enterprises FTTB is often not possible, leaving FTTH as the only workable fibre option ¾The issue: ¾LLUB offers much lower investment than FTTH ¾FTTH to single houses requires a certain take-rate ¾The challenge for FTTH is to motivate whole communities of single houses to install fibre

LLUB is the more cost effective solution for single houses and many enterprises

Driving forces for the roll-out ¾Sound Business case for each expansion is essential ¾The local market conditions determin the business case: ¾ Dark fibre rental costs ¾ For FTTX the structure of MDUs and for LLUB the universe coverage / distances from local exchange ¾ Consumer characteristics, enterprise and municipality demand

¾However, all network businesses require volume: ¾ Total universe coverage is important to challenge the incumbent ¾ Scale advantages in IS/IT, content etc. arise from volume

Trade off between short term business case and longer term overall network competitivity

Future roadmap on FTTX access ¾FTTX is the future, but will co-exist with cable and LLUB ¾Broadband is likely to become standard fitment ¾FTTX deployment is slow, mainly due to: ¾ Lack of access to dark fibre (or canalisation) ¾ Neutral networks moving fibre from competition to monopoly ¾ Regulatory uncertainty

External factors have considerable influence on the pace of FTTX deployment

How to price FTTB standard fitment in MDU ¾Current average cost per apartment for PSTN and dial up internet is €17 incl. VAT ¾TeliaSonera fixed phone subscription fee is €13 per month. ¾Dial up Internet ARPU is €7 incl. VAT

¾For the same amount B2 can offer a bundle of telephony and unlimited broadband (100 /10) ¾Additional benefit derives from lower cost for VOIP phone calls and services over broadband

There is room for considerable innovation in pricing broadband to apartments

Agenda

¾Introduction to B2 ¾FTTH as an alternative strategy ¾The importance of dark fibre

Incumbent supply of dark fibre ¾An issue in Sweden since one month ¾Infrastructure competition in NGN will not be possible without access to dark fibre or ducts ¾Broadband market will saturate within two years

Regulation appears unavoidable in Sweden

Neutral active networks have effectively braked fibre growth in Sweden ¾FTTX is losing market share to LLUB ¾The reason is neutral active networks ¾ Swedish government officials initiated the term in 1999 ¾ Municipality level politicians take decisions that hinder competition ¾ These networks are mainly financed from tax revenues ¾ Roll-out of these networks is slow

This solution designed for rural areas skewes competition in larger, densely populated cities

Actions needed on neutral active networks ¾ Active neutral networks should not be allowed to recieve government funding, nor be seen by officials as the only ”acceptable solution”. Compare Appingedam court case. ¾ Put the right incentives in place for private investment in FTTX: ¾ Follow the view of Arcep in France on fibre and availability of ducts, dark fibre and of content ¾ Introduce broadband demand ”pull” incentives from government (Denmark) ¾ Allow for moratorium on regulation of FTTX, as discussed in Germany (not VDSL2...)

Influence politics to favour infrastructure competition and thereby incentivise fibre deployment

[email protected] Tel. +46 733 81 92 30

Issues with neutral active networks (1 of 2) ¾ Insignificant profit margin for the service provider Perfect competition on broadband access with no opportunity to differentiate other than on price

¾ Only broadband access is offered. In the absence of profitability and with no possibility to influence the infrastructure the service provider cannot develop new services.

¾ No integrated TV offering With network controlled one play-out, one set top box, one encoding and one encryption. TV operators are thus marginalised

Issues with neutral active networks (2 of 2) ¾ Discrimination in rented apartments In Sweden apartment rents are regulated and the consumer organization negotiating rents only accepts increases if the investment involves an active neutral network. The argument is that normal broadband providers do not add value.

¾ Small local providers lacking competence With 176 city networks of which a third have active neutral networks representing som 5-7% of all subscribers each city network possesses a very limited competence in the field.

¾ Tendency to reduce infrastructure alternatives Broadband over DSL or cable is sometimes seen as competition and margin squeeze on dark fibre and other anticompetitive behaviour is common.