Roland MONTAGNE IDATE

FTTx Global Panorama Focus on Services & Pricing Strategies Telecom Player & Market watch FTTx Global Panorama Focus on Services & Pricing Strategies Symposium ACOME 2014 – Saint Petersburg- May 30th, 2014 Roland MONTAGNE Principal Analyst Mob : + 33 6 80 85 04 80 r.montagne@idate.org

Agenda Worldwide FTTH / FTTx Quick Overview Which Services to Monetize FTTH? FTTx Services and Pricing Strategies

Worldwide FTTH / FTTx Quick overview

Worldwide overview Superfast Broadband technologies(1) represent 22% of broadband access subscriptions > FTTH/B is the leading superfast broadband solution, far from FTTLA then VDSL FTTH/B represents 66% of superfast subscriptions at mid-2013, compared to 22% for FTTx + DOCSIS 3.0 and 12% for FTTN+VDSL Breakdown of superfast broadband technologies, at end 2013 Source: IDATE (1) For definition of superfast platforms we have considered here 3 main architectures: FTTH/B, FTTN and FTTx+ DOCSIS 3.0 Copyright © IDATE 2014

> But the regional breakdown is very heterogeneous Worldwide overview > But the regional breakdown is very heterogeneous FTTH/B is clearly the technology of choice in APAC whereas FTTLA is leading the superfast broadband market in Western Europe and North America. VDSL is a technology of choice for several European incumbents. Latin America and MENA countries are at the very beginning of their FTTH rollouts: they will participate to the global growth of superfast broadband more and more in the coming years. > There are still questions from large players regarding the opportunity to deploy FTTH/B or VDSL, mainly in Europe Several parameters are to be taken into account among which, of course, the required investment. Nevertheless FTTH/B rollouts did progress in certain European countries (Sweden, Switzerland, Portugal & Spain) which is encouraging at a time when EU Telcos are seeing their margins shrinking. Some players are more betting on the future capacities of copper-based networks. Best Driver for FTTH: COMPETITION !! Copyright © IDATE 2014

Geographical panorama of leading FTTH/B players: Top 10 Worldwide FTTH/B leaders, December 2013 (in million) 13 29,4 3.7 3.1 10.4 1.9 2.3 18 10.4 6.6 6.1 3 20.7 2.4 3 FTTH 2 Chinese operators in the Top 3 FTTH No EU 28 Telco with more than 2 million FTTH/B subscribers, by far! …but BT and Virgin Media with respectively 2 M and 3 M subscribers FTTN + VDSL FTTx /D3.0 Source: IDATE Copyright © IDATE 2014

FTTH : Zoom Europe

General ranking: FTTH/B Homes Passed 15 countries with 1 M HP or more in EU39 11 countries in EU28 Countries > 1 M HP Countries with 1M HP or more at end 2013 [Top 5 Growth rates 2013] Countries from 500 K to 1 M HP Countries < 500 K HP 28% +106% +26% +26% +31% Source: IDATE for FTTH Council Europe

General ranking: FTTH/B Subscribers 5 countries with 1 M subs or more in EU39 Sweden and France in EU28 Countries > 500 K subs Countries with 200 K subs or more at end 2013 [Top 5 Growth rates 2013] Countries from 100 K to 500 K subs Countries < 100 K subs +86% +64% +46% +41% +43% +41% Source: IDATE for FTTH Council Europe

Highest growths: New FTTH/B subscribers in 2013 20% of FTTH/B subscribers in EU39 are 2013 “new subscribers” This rate reaches 22.5% in EU28 Top 4 countries for 2013 new subs in EU39 Russia + 1.423 K Turkey + 510 K France + 373 K Spain + 227 K % of EU28 2013 new FTTH/B subscribers France + Spain + Portugal => 31% Scandinavian countries + Netherlands => 31% Eastern countries => 25% Rest of EU27 => 12% Source: IDATE for FTTH Council Europe

Which Services to monetize FTTH ?

FTTH: What will be the drivers? Residential market Usages A few specific applications needing more Bandwidth: HDTV, video services, blogs, personal content exchanges,… A growth of the needs concerning Bandwidth but also Symmetry … this will be driven by simultaneous usages in the home that have already started with Triple Play TV Centric Services as a clear Driver: Connected TV, 3D TV, Residential TelePresence launched by Cisco with Umi in October 2010 … but too expensive!…and Skype: 40% of calls are Video calls !! Ultra HD TV (4K) is here with required bandwidth between 20 and 30 Mbps Minimum bandwidth requirements Increase in simultaneous usages More and more ICT equipments and Wireless Mobile BB terminals to be connected in households Up to 75% of Mobile BB “WiFi offloaded” Source: IDATE

Swisscom FTTH Service Strategy: better quality for TV Beyond bandwidth: interactivity and low latency

FTTH Services : Portugal Telecom - Advance TV Services over FTTH 53% of Homes already covered by FTTH Very low Churn Source: Portugal Telecom

FTTH Services: Portugal Telecom - Interactive TV Services over FTTH Source: Portugal Telecom, Nov. 2012 Source: Portugal Telecom

FTTH Services: Hong Kong Broadband: reversal Asymmetry! First to launch 100 Mbps and 1 Gbps 675 K FTTH subscribers and 2 million Homes Passed Source: HKBN For nearly 10% of FTTH/B subscribers base Source: Weekly statistics from HKBN

Monetizing Latency : MyRepublic in Singapore! 1 Gbps offer for around 29 EUR / month But a dedicated offer with short latency for online Gamers: + 10 Singapore Dollar (~ 6 EUR) This is representing 25% of their subscribers base FTTH deployment in Singapore has been done following a 3 layers Open Access model… …but MyRepublic is deploying is own OLT and ONT GPON equipment now! … to control QoS!! Source: MyRepublic

South Korea: MDU certification Program: pushing FTTH after FTTB

Fiber is not only for consumers final access! Future for backhaul upgrade: to mutualise FTTH and LTE backhaul investments Backhaul upgrade is definitely a superb opportunity for operators to share fixed and mobile investments : expanding fixed broadband access coverage while meeting backhaul needs - LTE players – Verizon and TeliaSonera – are using deployed fibre infrastructure to backhaul LTE traffic - Fibre expansion plans are being designed to include mobile backhaul needs (China Mobile, Chunghwa,… ) Backhaul: potential driver of FTTH deployment Significant operators are using fibre as backhaul Source: IDATE Fiber to the Business as to be taken more in consideration by player Fiber to the Business will be key especially for SMEs to allow access to Cloud services - Short Latency Fiber to the Business is starting to be deployed in several markets: APAC, LATAM, Middle East and also in the US involving large MSOs like Cox Communication in the US

FTTx Services and Pricing Strategies

Current offers landscape: Speed and Bundles Geography of FTTx access speed ranges The highest speeds are offered in Asia Pacific The first commercial 1 Gbps offer to the general public was launched in Hong Kong. In North America, access offers based on optical fibre (including FTTLA type) generally range between 50 and 200 Mbps. Verizon has launched a 500 Mbps offer. In Europe, most of the ultra-fast broadband players have chosen to offer more segmented broadband offers. But in the great majority of cases, the maximum speed proposed is 100 Mbps. Nevertheless, during 4Q2013, 6 EU telcos have launched 1 Gbps offer (Lattelecom, Free, PT Luxembourg, RCS&RDS, Swisscom…Jersey Telecom) Bundles are far from being the general rule In the end, whichever the region concerned, packaged offers including Internet + telephony and/or television, rarely appear in operators' and providers' catalogues France stands out as the country of triple play Geography of FTTx packaged offers Copyright © IDATE 2014

Current offers landscape: TV Segmentation of services: focus around TV and video services If there is one very significant point in common between FTTx operators it is the availability, besides Internet access, of telephony and television services. Fixed telephony is now considered a commodity and integrated almost systematically into operators' basic offers. As regards television, the offer of operators is more heterogeneous from one country to another, even from one operator to another in the same country. Segmentation of TV and video services is much higher in the United States than in Europe. The explanation: operators in the United States, particularly Verizon and AT&T have had to face increased competition from cable operators in the broadband market In the United States, the FTTx operators' TV offer is particularly segmented: 3 or 4 different TV packages are marketed, In contrast, TV offers are much less segmented in Europe, where most operators usually offer a single basic package of some tens of channels, without any particular theme Copyright © IDATE 2014

Marketing FTTx access: all inclusive bundles or self service? The marketing of packaged services based on FTTH is not widespread worldwide. Three major trends are emerging in the field of commercial offers: Access services can be marketed as stand-alone Complementary services (television, fixed and/or mobile telephony) can be marketed with Internet access, as part of dual, triple or quadruple play bundles Predefined bundles can be offered but adjusted by end users who select the services they need (access speed, number of TV channels etc.) On the APAC markets, end users can create their own bundle by 'digging' amongst the services available. They work out themselves, according to their needs, the offer that best suits them. Main marketed services on FTTx networks   Standalone Double play Triple Play Quadruple Play Internet only Internet + Telephony Internet + TV TV + telephony Triple Play + Mobile Comcast O Partnership with Verizon Wireless Free X HKBN NTT Orange Telefónica Default telephony TeliaSonera TEO Verizon No bundle but tariff discounts Virgin Media Copyright © IDATE 2014

Marketing FTTx access: Verizon build your own bundle! The Verizon 'Bundle Builder' tool Copyright © IDATE 2013

FTTx access: Prices Pricing strategies for FTTx offers vary greatly from one operator to another and from one region to another It is in Europe and Asia-Pacific that the lowest prices are found (on average 55 to 59 EUR per month for access at 100 Mbps, but there are very strong disparities within regions In contrast, the highest rates are unquestionably in the United States and MENA Price positioning of ultra-fast broadband triple play offers according to the level of speed segmentation Copyright © IDATE 2014

What changes for FTTx services and prices? Apart from speed, the main development in the offers of FTTx operators is limited to the enrichment of TV services On the telephony side, the offer is, with a few rare exceptions, virtually unchanged Simultaneity of uses seems to already be taken into consideration in operators' offers, especially the simultaneous viewing of TV channels and videos. Operators propose multi-screen solutions enabling members a household to view different content at the same time. The new functionalities of equipment (several channels on the same TV, recording one channel while watching another, interactive zapping, programming and recording...) are also a key selling point for operators; some clearly focused their FTTx strategy around innovative set-top boxes. Video games, also considered as motors for FTTH by combining joysticks with the set-top box, which is then considered a game console. EU telcos can go a little further in this logic when they proposes a Cloud gaming offer which ensures game continuity from one terminal to another. Bundling with 4G: operators offering ultra-fast broadband subscribers the possibility of subscribing to a mobile offer, so that they can have a modem or even a 4G compatible router. But other possibilities for enrichment of the offer exist already without being fully exploited by operators. The lack of symmetric offers is widespread in all regions and very few operators have integrated it into their catalogue Another business opportunity for operators: guaranteed bandwidth One can also regret not seeing the FTTH access offer monetised by the low latency that optical fibre allows. Copyright © IDATE 2014

MERCI ! Roland MONTAGNE Principal Analyst Mob: + 33 6 80 85 04 80 r.montagne@idate.org