1. The 2010 Opportunity For Backhaul Wholesalers Moderated by Jim Hodges Senior Analyst Thursday, February 4, 2010 Packet Backhaul 2010

2. Agenda Business Opportunities & Challenges for Backhaul Wholesalers Backhaul Network Transition Strategies

3. Our Panelists Ralph Santitoro Director of Carrier Ethernet Market Development Fujitsu Jon Baldry Technical Marketing Manager Transmode

4. Mobile Backhaul: A Tale of Two Entities Mobile backhaul involves a Wireless Provider and a Backhaul Provider Even if one parent company owns both parts Money/services exchanged between the two entities (separate P&Ls) Two network deployments Two sets of network and operational requirements Cell Site Mobile Switching Center BSC RNC S-GW BTS NodeB eNodeB Backhaul Network BTS NodeB eNodeB Service Layer Transport Layer BSC RNC S-GW CE Backhaul Provider Wireless Provider

5. Data rate grows with 3G and beyond, but revenue doesn’t Flat-rate data plans Network operations How do you ensure uninterrupted service to millions of subscribers? Backhaul networks must be ultra available with predictable QoS What if LTE ubiquity makes it the “mobile WiFi”? Integrated into wide range of devices; applications run “in the cloud” 3G radios now built into eBook readers, e.g., Amazon Kindle Years to upgrade to new backhaul technologies 2G, 3G, and 4G at same cell sites for years to come Tremendous pressure to make right choice to achieve ROI objectives Challenges Facing Wireless Operators Many business issues affect backhaul technology selection

6. Critical Factors Affecting Third Party Wholesalers’ Success Ability to retrain network operations personnel for Ethernet Current Sonet/SDH engineering staff needs to learn Ethernet Having a flexible backhaul network architecture to address current and emerging wireless services Today T1s/E1s – tomorrow Ethernet Need a good transition plan Ability to make acceptable ROI to meet margin objectives Three-year service contracts with wireless operators Ability to address wireless operators’ stringent SLAs over an Ethernet (packet) network 5ms latency 1ms jitter 3x10 -7 loss 5x9s availability

7. “Third-party backhaul wholesalers cannot guarantee the same level of SLA performance as incumbents.” “Wholesalers face challenges in setting up administration and control mechanisms.” “Incumbent backhaul providers have proven they can support large-scale deployments.” The following statements should be considered as debating points. They do not necessarily represent the opinions – either wholly or partially – of Heavy Reading or of any one panelist.

8. Mobile Backhaul Migration : On the Road to Ethernet Compelling case to keep 2G traffic on TDM 2G traffic growth small so T1/E1 MRC essentially flat What to do with high-growth 3G traffic? Some base stations will be upgraded to Ethernet Add Connection-Oriented Ethernet (COE) If you have a Sonet/SDH infrastructure COE over Sonet/SDH: Simplest to implement / maximal BW efficiency Legacy, low-growth 2G services remain on TDM Time Bandwidth Voice + 2G Data 3G/4G Data 3G BS 4G BSEthernet T1s/E1s 2G BS T1s/E1s (TDM) Sonet/SDH  COE over Sonet/SDH  COE over Fiber Mobile Switching Center Backhaul providers must deploy a solution that evolves with the wireless operator’s evolving network  longer recurring revenue

9. Standardized Services MEF 6.1 Service Definitions MEF 6.1 Service Definitions MEF 10.2 Service Attributes MEF 10.2 Service Attributes Security Bridging disabled-MAC DoS attacks mitigated Bridging disabled-MAC DoS attacks mitigated Completely Layer 2 - no IP vulnerabilities Completely Layer 2 - no IP vulnerabilities Attributes Of Connection-Oriented Ethernet Reliability / Availability G.8031 50ms EVC Protection 802.3ad UNI & ENNI Protection Ethernet OAM 802.3ah Link Fault Management 802.3ah Link Fault Management Y.1731 Service Fault Management Y.1731 Service Fault Management Scalability Layer 2 Aggregation Layer 2 Aggregation Statistical Multiplexing Statistical Multiplexing Deterministic QoS Lowest Delay, Delay Variation, Loss Bandwidth Resource Reservation Connection Admission Control COE COE facilitates the migration from Sonet/SDH to Ethernet

10. Mobile Broadband: In Search of Profitability Mobile broadband still in build-out phase 3G HSPA and EV-DO in 3 rd /4 th year of rollout iPhone, BlackBerry & Android-based smartphones and new 3G devices Generate significant new bandwidth demands Operators investing for near-term subscriber acquisition And long-term transformation of their business models Mobile broadband (data) isn’t profitable (yet) In 3G, voice and data still discrete network services If costs allocated separately to voice and data, mobile broadband (data) isn’t profitable today Mobile broadband driving majority of new network capex Mobile backhaul opex plays a key role in realigning profitability

11. “Changes in the broadband economics model will have a greater impact on third-party wholesalers.” “In order to make wireless broadband profitable, costs must come down.” “Incumbent backhaul providers can absorb a squeeze on margins better than third-party wholesalers.” The following statements should be considered as debating points. They do not necessarily represent the opinions – either wholly or partially – of Heavy Reading or of any one panelist.

12. Evolution From Sonet/SDH To Ethernet FMO Step 1: Add PONP using COE over Sonet/SDH to increase bandwidth efficiency PMO: Sonet/SDH FMO Step 2: Begin Migration to Ethernet over Fiber (EoF) network Existing services unaffected T1s/E1sEthernet EoS MSPP TDM Sonet/SDH Ethernet COE TDM Ethernet COE TDM EoF Packet Optical Networking 2G/3G 3G/LTE 2G/3G 3G/LTE T1s/E1s Packet-optical networking platforms with COE facilitate MBH network migration of multi-generation 2G/3G/LTE services Sonet/SDH Cell tower  MSC Packet Optical Networking

13. Meeting MBH Networks’ High-Availability Requirements Link Protection using IEEE 802.3ad Link Aggregation For local diversity and protection at cell tower and MSC UNIs and NNIs LAGs across different cards in a network element In-Service Software Upgrades Network continues to operate as new software is tested and deployed Equipment Protection Redundant switch fabric, control processors, etc. Service/Network Protection of Ethernet Virtual Connections (EVC) EVC path diversity with sub-50ms path protection using ITU-T G.8031 Similar to Sonet UPSR path protection (Working path and Protect path) Dual-homed connections at the mobile switching center (MSC) Bottom Line: No single point of failure

14. Overlay model: Pre-LTE (2G/3G) and LTE backhaul managed as separate networks Avoids technical issues such E1/T1 packetization and E1/T1 synchronization Capex is driven by parallel networks, and opex is a challenge Integrated model: Pre-LTE and LTE backhaul managed a combined network Technical considerations such E1/T1 and Ethernet synchronization options Options to cost reduce backhaul capex with varying degrees of complexity (opex) BSC RNC aGW SDH/Sonet Ethernet (Best effort?) Ethernet (Carrier QoS?) LTE GW HSPA Data offload LTE 2G, 3G, 4G 2G, 3G Remote cell site Nx 3G E1/T1 leased lines Nx 2G E1/T1 leased lines Mobile Backhaul Deployments: Overlay vs. Integrated

15. Network Synchronization Challenges: Backhaul Over Fiber Source: Heavy Reading’s “Ethernet Backhaul Quarterly Tracker” July 2009 More fibered-up cell sites, more capacity per site Fiber assets often owned by third-party wholesalers Excellent opportunities for wholesalers with the right fiber plant Drives the requirement for multiple synchronization domains – different operators and different wireless technologies – support for legacy E1/T1 and Ethernet time Mbit/s

16. Multiservice Mobile Backhaul Access node BSC RNC aGW Backhaul node 2G, 3G, 4G Access node 2G, 3G, 4G Hub node Multiple technologies and multiple operators all delivered within a single wavelength Physical fiber Wave- length n Wave- length n+1 4x individually synchronized TDM groups 4x individually synchronized Ethernet signals Additional wavelengths only required if additional capacity required DSLAM 2G, 3G Remote cell site

17. Concentration Hub (Site) With Multi-Operator/Technology BSC RNC aGW Ethernet E1/T1 Operator 1 3G Microwave link Fiber Operator 1 LTE Concentration hubs Operator 2 3G Operator 2 3G Operator 1 3G Operator 3 LTE Uniquely supporting wholesale solutions for mobile backhaul Hub node Backhaul node Access node

18. LTE Migration Path: Legacy to Hybrid BSC RNC aGW Hub node SDH/SONET DSLAM Ethernet LTE GW 1. Supporting legacy connectivity, synchronization, and OAM SDH/Sonet 2. Supporting simultaneous native TDM and Ethernet for mobile services and also fixed-line capabilities in the access Supporting native TDM and Ethernet with multiple synchronized domains 3. Transparent Ethernet connectivity to/from core routers/switches 4. Supporting distributed LTE core architecture (aligned with fixed) Access node 2G, 3G, 4G DSLAM Ethernet E1/T1 Fiber

19. LTE Migration Path: Hybrid to All-IP BSC RNC aGW 1. Access solution to fully support an all-IP architecture (option of supporting legacy with CES) SDH/SONET Ethernet Ethernet / IP-MPLS TDM LTE GW Ethernet E1/T1 Fiber 2. Deployable on a per-end-customer (mobile operator) basis Access node 2G, 3G, 4G DSLAM Hub node

20. LTE With Centralized Core SDH/SONET BSC RNC aGW DSLAM Ethernet / IP-MPLS E1/T1 Fiber 1. Supporting a centralized core architecture for both hybrid and all-IP networks 2. Simplified LTE network for mobile operator with further backhaul opportunities for the wholesale carrier Access node 2G, 3G, 4G DSLAM Access node 2G, 3G, 4G Backhaul node Hub node

21. “Third-party wholesalers are making some early inroads, but it’s a matter of time before the incumbent providers get going and out-scale them.” “Aggressive fiber builds by these providers will be able to provide capacity to meet existing and future 4G requirements.” “What are the impacts of network sharing?” “A mix of TDM and Ethernet is a better match for incumbent providers.” “This is even more pronounced in emerging markets, since in these markets third-party wholesaling hasn’t really taken off.” The following statements should be considered as debating points. They do not necessarily represent the opinions – either wholly or partially – of Heavy Reading or of any one panelist.

22. Conclusion Significant mobile backhaul revenue opportunities for third-party wholesale providers Driven by wireless operators’ need to significantly reduce opex given the explosive growth of 3G/4G applications Third-party wholesale providers must carefully select their mobile backhaul solutions Need flexible packet optical networking with connection-oriented Ethernet to support growing TDM and emerging Ethernet-based backhaul Capacity growth drives unique challenges in mobile backhaul deployments Capacity vs. cost = deeper fiber deployments Opportunities for facility sharing brings better economics but adds further challenges, e.g., synchronization Overall driving 2 dimensions of convergence: Technology convergence – E1/T1 and Ethernet Fixed and mobile backhaul convergence

23. Q&A