Transform Digital Conference 08-05-2014 broadband, technology, fibre, digital

1. COPYRIGHT © 2011 ALCATEL-LUCENT. ALL RIGHTS RESERVED.
TRANSFORMING EUROPE’S DIGITAL INFRASTRCUTURE
TRANSFORM DIGITAL CONFERENCE
GABRIELLE GAUTHEY, EVP ALCATEL-LUCENT
8 May 2014

2. 2
COPYRIGHT © 2013 ALCATEL-LUCENT. ALL RIGHTS RESERVED.
ALCATEL-LUCENT — INTERNAL PROPRIETARY — USE PURSUANT TO COMPANY INSTRUCTION
Ubiquitous BROADBAND
and MOBILE access
User-friendly
DEVICES
Compelling CONTENT,
APPLICATIONS and VIDEO
Always on,
anytime,
anywhere
connectivity
Creating the
perfect storm to
force change
SMARTPHONE AND WIDESCREEN ADOPTION
ARE THE KEY DRIVERS FOR DATA TRAFFIC GROWTH
Source: Traffic Index, 2012 - Bell Labs modeling
2011- 2016
25 X
MORE MOBILE DATA TRAFFIC
SMARTPHONES
2.5bndevices by 2015
70%
of the OVERALL TRAFFIC is mobile
VIDEO COMMUNICATIONS
70% of the Internet traffic
M2M
3 X growth in the next 5 years
DATA EXPLOSION REQUIRES NEW INVESTMENTS IN ACCESS AND
CORE NETWORKS

3. NETWORK: AN ESSENTIAL BRIDGE BETWEEN
YOUR HAND-DEVICES AND THE CLOUD
COMPUTING
GAMING
STREAMING
STORING
COMMUNICATING
ULTRA-BROADBAND
• FTTH, FTTx
• LTE, Macro Cells, Small Cells
CLOUD -IP NETWORKING
• IP Routing and IP Transport
• IP Platforms: IP Video, SDN, IMS, Cloud,
Customer Care, Payment and Charging,
Policy and Network Intelligence
ULTRA-BROADBAND
High
Scalability
High
Reliability
High
Simplicity
MPLS
QoS, QoE
Resiliency
Equipment
stability
Management
Automation
Eth OAM
Demarcation
Synchronization
High BW
Dense
platforms
Management
Suite
Fast
Troubleshooting
Security
IPv6

4. 4
COPYRIGHT © 2013 ALCATEL-LUCENT. ALL RIGHTS RESERVED.
ALCATEL-LUCENT — INTERNAL PROPRIETARY — USE PURSUANT TO COMPANY INSTRUCTION
A WALL OF INVESTMENT NEVER EXPERIENCED BEFORE
DA: call for 200B€ min in NGA infrastructures
New Competition Models (Telcos vs. OTTs)
Other verticals seeking Carrier Grade
performance (Government, Finance,
Utilities, Transport…)
Boost in CAPEX
(15% CAGR in IP, optics, SW, FTTx and LTE)
CLOUD-IP
NETWORKING

5. COPYRIGHT © 2011 ALCATEL-LUCENT. ALL RIGHTS RESERVED.
EU IS LAGGING BEHIND
DA BB targets for 2020
- 100% Coverage of 30Mbps
=> 54% HH
- 50% take-up rate of at least 100Mbps
=> 2% HH
FTTH and FTTB have a
combined share of 25.8% within NGA lines,
and only 5.1% of all fixed broadband lines
as opposed to 42% in Japan,
58% in South Korea and 9% in the US
Average EU high-speed (min 30Mbps)
BB penetration is below 5%
Source: EU Scoreboard 2013

6. TELECOM NETWORK STRUCTURE
A LAYERED MODEL
Each layer has very a different financial profile and needs to
be addressed adequately
Services, Content & Apps
(residential, public & business)
Active Network
(network equipments,
business & operation support)
Passive Infrastructure
(trenches, ducts, fibre)
End-user
>200 B€
Investment
needed Payback
Few m-3 y
5-7 y
10-15 y
20%
80%

7. ROI
Risk
Infrastructu
re
roll out
Lack of investment
in NGA networks
NO FIT BETWEEN INVESTMENT PROFILES AND
INFRASTRUCTURE OPPORTUNITIES
Infrastructure
Funds
Telecom
Operators
Insufficient ROI:
• Cherry picking
• Digital Gap
• Wait and see
High risk :
•No focus on Telecom
• Wait and see
Solution calls for: CAPEX reduction to increase ROI, long-
term commercial agreements to lower risk

8. very low
Indication of sectorial funds focus
over the next two years
0 1 2 3 4 5
10.Infrastructure
services
1.Energy
2.Roads
3.Rail/Metro
4.Ports
5.Airports
6.Water
7.Waste
8.PPP/PFI
9.Telecoms
TELECOM INDUSTRY DOES NOT SEEM TO FULLY MEET
THE REQUIREMENTS OF INFRASTRUCTURE FUNDS
Source: Contribution, Deloitte 2010, Arthur D. Little
Conditions for infrastructure funds
to invest
 Investors seeking exposure to a periodic,
stable and guaranteed cash flows
 Need for a regulated market with contained
competition and strong barriers to entry
 Necessity to make investments fit with
infrastructure funds’ risk profile:
 Advocate for separation of passive
layer vs. active and retail to lower risk
on the passive layer part
 Guarantee of a single fibre network in
case of operating cable operators
 Participation of the incumbent in the
Netco preferred
very high

9. All Rights Reserved © Alcatel-Lucent 2014•9 | RIP FRANCE
THE FRENCH REGULATORY APPROACH:
COMBINATION OF LLU AND BITSTREAM
 Competition through active infrastructures on top of a common passive
infrastructure has been the main driver behind the development of broadband:
• Geographic extension of competition has encouraged France Telecom to equip all of
its central Offices for ADSL
• France has joined European leaders in terms of penetration…
• …and is leading in "triple play“ and IPTV services
 Three major drivers have made this increase in investments possible:
• Dynamic operators, both incumbent and new entrants
• Regulation : LLU first, bitstream as a complement
• Local authorities intervention has been crucial in the expansion of broadband
coverage through the RIP (Réseaux d’Initiative Publique – Public Authorities
Networks)
Where do we come from in Broadband deployments?

10. All Rights Reserved © Alcatel-Lucent 2014•10 | RIP FRANCE
OPEN WIRELINE BACKHAUL IS KEY FOR BOTH MOBILE
AND FIXED TRAFFIC GROWTH
Role of backhaul
networks:
Cost effective coverage of
medium and low density areas;
Stimulate competition and
innovation;
Anticipate bandwidth demand
increase for all access
technologies and services (fibre,
LTE, DTT,…);
Future proof investment for
public initiatives particularly for
local authorities;
Enhanced connectivity for public
services (schools, hospitals,
universities,…) and business parks

11. All Rights Reserved © Alcatel-Lucent 2014•11 | RIP FRANCE
FRENCH LOCAL AUTHORITIES INTERVENTIONS IN
TELECOM INFRASTRUCTURES IN THE PAST 10 YEARS
 Legal form
• Mainly DSP (« concessions »);
• Choice by local authorities of one operator/delegator;
• Wholesale offers negociated with local authorities;
• Coverage and wholesale catalogue imposed by local authorities;
• Maximum 70% subsidy (=> operational risk left to the private delegator);
• Network remains local authority’s property.
 Operating mode
• Graduation of intervention according to the density and the presence or absence of operators
• Passive infrastructures in denser areas (mainly open fiber backhauls) with the objective to
connect a maximum of NRF’s and wireless BTS
• Equipement of business parks;
• Activated whosesale offers in the less dense areas;
• In some rural areas : retail operators

12. All Rights Reserved © Alcatel-Lucent 2014•12 | RIP FRANCE
FRENCH LOCAL AUTHORITIES HAVE PLAYED A CRUCIAL
ROLE IN BROADBAND COVERAGE
In the past 10 years, local
authorities have played a key role in
the digital development of their
regions:
• 50% of the regions and 2/3 of the
departments are impacted
• Around 150 RIP large projects ( > 30
K inhabitants)
•55 K km of FO deployed
• More than 3.5 B € of Public/Private
investments:
• 1.8 B € of public investment and
subsidies
• 1.7 B€ of private investment

13. All Rights Reserved © Alcatel-Lucent 2014•13 | RIP FRANCE
913
773
988
CO unbundling : alternative
carriers backhaul networks
CO unbundlig : alternative
carriers backhaul networks
+ France Telecom dark fiber
rental
CO unbunling : local
community bakchaul
network
14,4 M households
2,4 M households
4,3 M households
21,2 M households
Number of unbundled CO’s according to backhaul network ownership
40 % of French central offices are unbundled
through Local Communities backhaul networks
by end 2009
Summary of the Local Authroities (RIP) Projects Impacts
Coverage/ Reduce the Digital Divide Gap
~
2010: 98% of the
population covered by
ADSL
Up to 2013: 1 out of 6
FTTH homes passed
through RIP

14. All Rights Reserved © Alcatel-Lucent 2014•14 | RIP FRANCE
Summary of the Local Authroities (RIP) Projects Impacts
Foster Competition
2013
1. Ratio of unbundled lines (2013)
1. Ratio of unbundled Central Office (2013)
2. More than 10 operators available for 53% of
the Local authorities networks (RIP)

15. All Rights Reserved © Alcatel-Lucent 2014•15 | RIP FRANCE
Summary of the Local Authroities (RIP) Projects Impacts
Reduce the Internet Access Cost – More affordability
2013
A tariff differential
ranging from 8 to 64%
on (Fiber To The Office)
prices to the entreprises
compared to Orange
prices in 2013
More than 100 M€ of surplus
purchasing power are
distributed
annually to households and
businesses
60 € yearly savings per
household for an ADSL
subscription

16. All Rights Reserved © Alcatel-Lucent 2014•16 | RIP FRANCE
Broadband: The French Case
Local Authorities –Private Companies Operating Public Networks

17. European Policy
• CEF now mainly focused on digital services — since
downsizing from 9 to 1 B€
• TSM had incentives to infrastructure sharing, nothing on
funding but now focused roaming and NN
What would be beneficial for both investors and operators?
- To be focused on reduction of market risk rather than subsidy
- To increase liquidity by enabling project finance, and attract long term
private equity and banks
- To finance the construction phase separately from the operation
phase
EUROPE DOES NOT PROMOTE ANY INVESTMENT MODEL

18. • New access networks roll-out is not an evolution but more the building
of a new essential infrastructure for the 40 years to come. On 70% of the
EU territory, a single infrastructure is viable.
• Need for more fibre, as deep as economically viable, which has all the
characteristics of an essential infrastructure
• Move away from the dogma of infrastructure competition, embrace the
era of virtual/NG bitstream wholesale
• Secure the investment through a long term “regulatory” contract
guaranteeing return on investment and openness
• The achievement of the ‘EC digital agenda targets’ requires new
investment models
• Intervention from long term investors would be a key enabler to
improve current networks roll-out dynamics
• National approach but regional implementation is often preferable
CONCLUSION

19. DIGITAL AGENDA
TARGETS
ACHIEVEMENT
REQUIRES
INNOVATING AND
FLEXIBLE NGA
SOLUTIONS