1. September 2008 By Paul Brigner Executive Director, Internet and Technology Policy Verizon Communications September 2008 By Paul Brigner Executive Director, Internet and Technology Policy Verizon Communications Communications Industry Trends – A Look Ahead

2. 2 Major Paradigm Shifts Redefine Telecom Market The Wireless Paradigm — Anytime/anywhere/high bandwidth connectivity — Lifestyle/business personalization — “On-net/off-net” vs “Local/LD” pricing — Consumer electronics lifecycle for handsets are shorter than traditional telco product lifecycles The IP Paradigm — Universal connectivity and standards — Greater control by users at the “edge” — Voice as an IP application vs basic service — Value creation through broad-based investment The Broadband Paradigm (wireline and wireless) — Accelerates and intensifies the impact of wireless and IP — Extends high-capacity capabilities from hubs to endpoints — Drives interactive applications and services – platform to help address key social concerns – energy efficiency, environment, education, health care — Convergence

3. 3 Communications Metrics 54 percent of all homes now have broadband 82 percent of all Americans have a cell phone 16.1 million African American homes had broadband in 2007– 40.2 million African Americans in total — Increased from 5.6 million in 2005 to over 16 million last year — About 40 percent of all African American homes had broadband – more than 54 percent of white homes Number of poor (those making less than $30,000 annually) connected to broadband – 10 million last year — Thirty percent growth last two years 71 percent of African Americans, 74 percent of whites and 84 percent of Hispanics have cell phones — Yet half of all African Americans do some sort of non-voice data service every day and only 38 percent of whites do

4. 4 The World Has Changed To…From… Mobile and Converged Broadband Multi-media Packetized Optical Infrastructure Open architecture Market-based regulation Wireline Narrowband Voice-centric Circuit-switched Copper infrastructure Proprietary architecture Traditional Regulation

5. 5 Telecom Sector Changes POTS – plain old telephone service “Old World” — Common carrier regulation – no competition Today – Competition in communications markets Evidence? Line loss by telephone carriers  Wireless cannibalization  VoIP offered by cable operators  8-10% annual line loss across sector  In 2007 VZ had 4% lines loss to cable VoIP plus another 4% lost to wireless –33M Households in Verizon footprint –2M lines per year lost

6. 6 U. S. Market is Very Competitive in Broadband

7. 7 Verizon’s Strategy

8. 8 Verizon Largest Cap Ex Investor in the U. S. Capital Expenditures (in US$ billions) Year Ending Sept./Dec. Source: Yahoo Finance data

9. 9 Verizon’s Broadband Deployment No company has committed more resources to network upgrades – more than $63B in since 2004 FTTP – Undertaking a very ambitious roll-out of passive fiber optic cable to customer’s homes and businesses DSL – Continuing to extend the reach of DSL — Nearly 80% of our lines are DSL-capable; 90% in urban areas EV-DO (wireless broadband) – Reaches 228 million people today — LTE by 2010 with possibly 75 megabits down Other technologies – exploring innovative and cost-effective ways to bring broadband to more customers — Partnerships with non-profits such as One Economy to bring broadband to low income customers living in subsidized housing — New highly-flexible fiber from Corning allows tighter bends for installations in cities

10. 10 UpstreamDownstream Mbps Applications and Media Bandwidth 5101520250100510152025100 File Sharing, Home Video Sharing/Streaming Multi-Player Gaming, Interactive Distance Learning Large File Sharing HDTV Video-on-Demand Network Hosted Applications and Storage Video Conferencing, Premises Surveillance, Two-way Signing Telemedicine SDTV Video-on-Demand, Telecommuting Premises Web Hosting Next Generation 3D TV Web Surfing Real-Time SDTV, Network PVR FTTP Cable Modem ADSL Dial-Up Platform for current and future content and applications Upstream Speed Increasing in Importance! FiOS Fiber to the Home FiOS Redefining Interactivity

11. 11 FTTP/FiOS Bandwidth – A Quantum Leap Niagara Falls 100 Meg Service Being Trialed 50/20 Meg Service available 20/20 Meg Service available 15/15 Meg Service for $65

12. 12 Power & Battery ONT Data POTS OLT FTTP - FiOS Architecture Internet Video Super Head End Broadcast Services SER Video Hub Office Verizon Broadband Network Interactive Services TDM Switch Network Transport Switching/Routing Local CO (Video Serving Office)

13. 13 Voice Streaming Video Video Conferencing VCast High Speed Access Video Conferencing Music and Video Content Multi-Media Multi-Player Gaming Large File Transfer Text Messaging Photo Messaging E-Mail and PIM Small File Transfer CDMA EV-DO (300-500 Kbps) 1XRTT (40-80 Kbps) 2007 2004 Today Richness & Complexity Wireless Evolving to An Ever Faster Platform Platform for mobile content and applications Compatibility, Simplicity LTE (Multi- megabits) 2010

14. 14 Key Metrics Will Change

15. 15 Open Development Initiative: a Key Driver of Innovation

16. 16 How is the U. S. Doing? The World Economic Forum ranks the U.S. 4th in “networked readiness,” which measures ICT development, taking into account the environment and individual and corporate usage and readiness. Denmark is 1st, Japan is 19th. The Fiber to the Home Council estimates that North America has 2.91M fiber connections and has been growing annually at a rate of 97 percent. The number of FTTH connections continues to almost double annually in the U. S. This compares to just 1M subscribers in all of Europe. Japan has far more subscribers but has been deploying fiber for far longer than any other country. More than 12 million homes in the U. S. and Canada are passed by fiber networks compared to only five million in Europe. Nevertheless, as IDATE, a major European analyst firm put it “fiber to the home is still concentrated in only a few countries as Europe remains far behind leaders such as Japan and the US (emphasis added)”. Verizon has more than 70% of the North American fiber connections and accounts for more than 11 million homes passed in the U. S.

17. 17 Over 1 Billion Internet Users Worldwide; growing by 10 million each month. In 1996, 1.5 million gigabytes traveled through major U.S. Internet connection lines per month. By 2006, 700 million gigabytes traveled through major U.S. Internet connection lines per month.*Daily email traffic is expected to grow from 90.4 billion emails in 2007 to 102 billion emails in 2009.** Half of all email contains image spam, which is five times the size of traditional text spam.***Backbone traffic is doubling every 12-15 months The amount of traffic, type of traffic, number of users and length of connection time are all increasing so traffic is expanding rapidly. *the University of Minnesota Digital Technology Center **IDC ***MSNBC What Kind of Traffic Does Today’s Internet Handle?

18. 18 Broadband is a Platform for Helping Solve Key Challenges Health Care – Ninety percent of medical records are still paper Energy Efficiency – Thirteen percent reduction in energy use from real time information on energy usage Education – Truly individualized approaches and “learning communities” — Thinkfinity a major leap forward in this regard Environment - Prudent use of technology could reduce human-induced global emissions by 15 per cent by 2020