PG. 1

Co-investment in Next Generation Access Networks

The Italian model

Budapest, March 3rd 2011 Enrico Pietralunga - Fastweb

PG. 2

Why is co-investment crucial to match the digital agenda

Avoid duplication and increase the footprint

Drive down the capex, improving NGA business case

Infrastructure competition not an end in itself, the real results to achieve are: widespread availability and take up of UBB a sustainable competition at service levels.

PG. 3

The multi - fibre approach

One operator deploys the access network allowing spare capacity and other ops may acquire fiber loops as IRU based on areas or blocs of subscribers, connecting the access network to its own facilities

…but...

it may not work where market shares are unbalanced as Altnets would bear a cost for the infrastructure that it is not proportional to their market share

it requires a specific know how on managing own network

reduced capex but increased opex for the parallel running of several networks

a closed model: it’s not at all a given that the co-investors will compete providing bitstream access to third party, if not mandated. They may not have the incentive or the technical capability

PG. 4

An alternative co-investment approach: FiberCo

A co-investment based on the set up of a

FiberCo - separated from the operators

providing downstream services - in charge of

rolling out and managing passive

infrastructures between customer premises and

local exchange and providing wholesale

services to third parties

Cost effective: single point-to-point infrastructure minimize both capex and opex Open: LLU to be provided to any alternative provider, whether or not involved in the co-investment Non discriminatory: FiberCO operates exclusively at wholesale level, therefore its mission is to provide LLU at equal conditions to all players, whether or not they have taken part to the investment

PG. 5

The FiberCO project: on the field

• First connection July 2010

• All 7350 u.i. passed in 2010

Collina Fleming isa pilot with real customers of a unique and open network

PG. 5

Main distribution Frame collecting ca.

10.000 fibers and colocation room in

less than a shop

Outside

Distribution

Point

PG. 6

Return on investment depends on migration speed and the participation of all players in the project

FTTH lineadopted by all

Copper Line FTTH line adopted by 50% of customers

10 years costs and investments per Line (€)

(building costs + maintenance costs)(maintenance costs)

• Maximum FTTH network efficiency if all customers migrate to fibre in a short period

• Total migration creates certainty on payback time thus minimizing the risk

• overall cost of developing NGA would be lower than the cost of maintenance of existing copper network

• To speed up migration, the fibre LLU fee should be at the same level of copper LLU fee

915871

1.490

PG. 7

The agreement for a public-private partnership promoted by the Italian government

The aim of the partnership is the roll out of a neutral, open and future-proof passive infrastructure, including civil infrastructures (ducts), dark fibre and ODF ensuring NGA for 50% of the national population, in line with the objectives of the Digital Agenda:

a Newco to be created so to coordinate participation to the project of private operators as well as Government and municipalities

public intervention based on the principle of the “market economy investor”, therefore excluding, in principle, the intervention as public aid.

an executive committee will define within 3 months the business plan and the governance of the Newco

Following several months of discussion between operators and the Ministry of Economic Development, an agreement was reached between the ministry and the major fixed and mobile operators for the set-up of a public-private partnership in charge of developing infrastructures for NGAN.

PG. 8

The network topologyAn FTTH passive infrastructure enabling both a P2P and a GPON topology:

The Newco will develop a single fibre per household up to the secondary network and the optical node

From the secondary network up to the ODF, the infrastructure will be partly P-to-P and partly GPON

The partnership will cover the costs connected to shared network elements that will be used by all operators: P2P terminating segment and secondary network up to an aggregation point + P2P/GPON infrastructure up to the ODF exhange.

Elements pertaining specifically the GPON (e.g. splitters, Optical termination box) of the P2P (MDF in the local exchange and more fibers in primary network) technology will be covered by operators

PG. 9

The forecast investment

Investments (M€) per HH (€)

Primary 1200 95

Secondary 3313 261

Vertical 3787 299

Total 8300 661

7400 Shared infrastructure

300 Specific to GPON architecture

400 Specific to P2P architecture

fiber loops to end-users 12.678.000households 10.477.000

business 2.201.000

Buildings 3.180.000

50% of population

PG. 10

Open points

The footprint

The footprint of the Newco intervention will be defined: areas where operators may have interest in investing on their own will be excluded by the scope of the public-private partnership

The migration plan

Not yet clear whether there will be an overlay period or incentives will be introduced to allow a very short migration and a switch-off

The overall regulatory framework

The extent to which Altnets will be able to engage in such a project are strictly dependent from the regulatory environment and the safeguard of a sustainable competition

PG. 11

• Existing price test methodology not robust enough to capture margin squeeze: it may not discourage SMP from engaging in anticompetitive behavior to increase its market share

• Despite “virtual separation” and commitments, TI still engages in price and non price discriminatory behavior: high percentage of rejection is slowing down growth of alternative operators

• No cost-oriented and effective access to civil infrastructure (ducts, dark fiber ...)

• No fiber LLU obligations

• A WBA offer for SMP operator not yet available, although they have been already offering fiber connection as a “trial”

• No clear procedure and timeline for migration from traditional to NGA networks

Implementation of remedies not in line with NGA recommendation

Unjustified high prices on copper network

Weak implementation of framework

How the regulatory environment has an impact on the capability to invest and to push towards cooperation

Overcompensation of the SMP for the existing copper network: • drains resources from Altnets hampering their capability to invest• reduces competitive pressure on the incumbent and create a disincentive for SMP

operators to invest in NGA: SMP operator is only rolling out fiber defensively, in the areas where Fastweb has its own network.

Inability of Altnets to reach economies of scale has a huge impact on NGA roll-out plans

SMP operator has incentive to reduce the area of intervention off the NEWCO and selectively invest to preempt the market

PG. 12PG. 12

Thank youenrico.pietralunga@fastweb.it