PG. 1 Some lessons learned on NGN deployment and take up Tiziana Talevi Brussels, June 16th 2011

2 Roll out of a FTTH Point-to-Point network from central office to customer locations in a Rome neighborhood as a trial field to test technical and financial viability of the roll-out of PtoP NGA.  Area covering approximately 7k HH  A joint project of Fastweb, Vodafone and Wind Fastweb’s experience in NGA deployment Fleming Area – NETCO trialUpgrade of existing fiber footprint Upgrade of existing Fastweb’s fiber network from 10/20 MB to 100 MB  Around 280K active customers on fibre with limited growth after 10 years  1,7 Mln HH passed and not connected  Upgrade to 100 MB completed in September 2010

A technical and economic success… Total investment per household less than 410 euro…! Single infrastructure to Mpop leads to lowest unitary cost per home passed allowing FiberCo to reach minimum efficient scale P2P FTTH affordable and technically easy to roll out

PG. 4 Focus on the Fleming P-to-P trial Deployment of network completed in line with timescale and budget: deploying a P-to-P is technically feasible and financially viable. Strong marketing push to migrate customers in the footprint to the new network. Marketing strategy focused strongly on:  direct contacts with building’s administrators in order to advertise availability of 100 MB service;  Advertising campaign to create awareness of the advantages of 100 MB  outbound campaign to reach all potential customers in the area Retail price offered for 100 MB services same of traditional 20 MB ADSL services (no premium price, no set- up fee)! Despite strong marketing push and no premium price, take up very low.

PG. 5 Focus on the Fibra100 nationwide fibre network “FIBRA100” commercial offer available since September 2010 for residential customers on the majority of our fibre footprint. Pricing strategy: i) Premium price of 10€ + set-up fee; ii) Trial test in March/April 2011: Fibra 100 offered with no premium price iii) trial test brought no satisfactory results  premium price reintroduced. There is no perception of the value of the UBB Trial test period Lowering price did not trigger a strong response from the market

PG. 6 The bad and the good news Demand and willingness to pay premium price is not enough to trigger a roll-out model based on competing passive infrastructures: “first mover” doesn’t get any advantage The high return enjoyed on the legacy networks creates for the incumbents the incentive to preserve copper as long as they can There are not enough financial resources within the telecom industry  Incumbents have huge cash flows which are though used to pay their debt and dividends  Most alternative operators’ cash generation is not enough to finance a large scale effort No chances to trigger a roll-out paradigm based on infrastructure competition outside the areas in which there are already two competing access infrastructures The only possibility to trigger NGA roll-out is to create the conditions for the development of a “utility” model, similar to the Australian one, employing financial resources made available by institutional investors and infrastructural funds Institutional investors (pension funds, infrastructure funds) would be willing to invest in a passive infrastructure and they have enough resources to cover most of the equity required In order to unlock this potential source of financing need to make all players converge towards the deployment of a unique passive infrastructure to “derisk” the investment and make it compatible with their risk profile

PG. 7 What model and what would the advantages be A new financing and investment paradigm transforming the roll-out of FTTH into a “utility” model allowing:  A cooperative arrangement that provides advantages to all stakeholders  Channel existing resources in single network maximizing efficiency and cost optimization  A profile risk compatible with those of pension and infrastructure funds  Migrate customers seamlessly from copper to fibre, even before a demand for UBB develops A structurally separated NETCO engaged only at the passive layer and providing wholesale access to any access seeker downstream An open network allowing a high degree of competition at service level Minimization of risks and unitary costs A rapid switch off of copper to signal end-users they have to migrate to the new infrastructure Possibility for operators to participate to NETCO with assets and/or equity

PG. 8 How to turn it into a win-win for all Remove distorting incentives to remain with the status quo:  Robust monitoring and enforcement of the existing telecom framework  Implement and enforce non discrimination measures: despite the European framework foreseeing equality of access, incumbents know they get advantages from vertical integration by discriminating access seekers and getting extra-normal profits from wholesale services: until they can leverage vertical integration they will hold on to it.  Move away from cost methodologies for wholesale access services that allow incumbents supernormal profits on copper creating a further reason to hold on to legacy networks. Put in place the right incentives to encourage all operators to move towards a cooperative arrangement  Allow for the voluntary separation of existing providers into separate companies which better reflect the different risk/reward characteristics of these underlying businesses.  Allow industrial equity partners to commit to a minimum number of lines (volume discount) in exchange of a lower per line rental fee.  Signal that once THE COPPER NETWORK IS SEPARATED AND PLACED INTO A NETCO PROVIDING OPEN ACCESS TO THIRD PARTIES, NETCO will be allowed to average wholesale prices of copper and fibre. If operators pay the same price for copper and fibre, they would have no reason not to migrate.

PG. 9 Conclusions Deployment of NGA networks essential but need to find a balance between investments and competition. Investments cannot be bargained with de-regulation No single operator can deploy a large scale network with limited market shares and lack of demand Utility model with open access architecture is the way forward.

Fee to compensate access network Payment of service Wholesale access services Broadband retail services Competition on Services & Innovation Cooperation on infrastructure investments and processes design The utility model is the only way forward End Customer Service Operators Incumbent, OLOs, ? VODAFONEFASTWEBWIND FiberCo Network Constructor FASTWEB Incumbent, OLOs? VODAFONEFASTWEBWIND Assign Network Construction Contract Network setup & management 10