Next Generation Access

BT/ISPA: 27th July 2007

Agenda – BT’s latest thinking

• Overview

• Bottlenecks & Points of Interconnection

• Complexity

• Risk Sharing

• Flexibility for Trials

Broadband UK:affordable, available and attractive?

• Top of G8, better than mains water• Vast majority commercially funded

• Infrastructure competition: LLU, cable, wireless in over 70% of the country

• Even wider set of technologies for broadcast applications (esp. TV)

• Hundreds of nationwide service providers with a number of wholesale providers

• E.g., IP TV, mobile over broadband, broadband on the move, IP telephony, hybrid platforms...

• Bundles and packages with wireless, landlines, software as a service

• 99.6% broadband availability, over 12 million subscribers

• One of the lowest prices in the world

• Service and commercial innovation

Ample bandwidthfor the vast majority today?

• Bandwidth and price tend to dominate marketing messages – “simple” to understand and compare, or is it?

• Typical customer uses much less than ‘last mile’ capacity– Average bandwidth usage <30 kbit/s– Peak individual throughput much more constrained by ‘internet’

and servers, peak time of day, also backhaul and core networks– But some intensive users e.g. streaming SDTV, peer-to-peer file

transfer >200 MB/hour - who pay no extra• However BT aware of growing public debate and keen to engage

with end customers, Ofcom, CPs and other stakeholders e.g. BSG, content industry

• With long investment lead-times for NGAs, important to get right balance between supply-led and demand-led approach and take account of ongoing technology evolution e.g compression

Business

Where is the last mile bandwidth an issue? What else drives customer experience?

Example applications requiring different transmission rates & Quality of Service

Internet AccessBest Effort (e-mail, online gambling etc)

On-line GamingPC, Console P2P

VoIP Communications(BE PC-PC, off-net PSTN quality)

Video-Communications (web-cab to TV, Video calls, Conference)

TV & VideoVoD download/streamed, SDTV, HDTV

Business applicationsSoftware as a service, IP-Centrex, VPN

Need for high upstream rate as well

as download rate

Gaming

QoS

Service level

Best Effort

Access (d/s) Bandwidth

100 kbps 1 Mbps 10 Mbps10 kbps

HDTV

Video-on-demandVoIP

Internet Access applications

Vid

eo

tele

phon

yV

ide

o C

onfe

renc

ing

???

BT’s Access NetworkToday Local

Exchange

TelephonePole (DP)

Customer

OverheadDistribution

UndergroundDistribution

Backhaul

E-side Cables

D-side Cables

StreetCabinet(PCP)

In Confidence

manual cross-connectionof e-side and d-side pairs

StreetCabinet(PCP)

BT’s Access NetworkToday Local

Exchange

TelephonePole (DP)

Customer

OverheadDistribution

UndergroundDistribution

Backhaul

E-side Cables

D-side Cables

…some older cabinets are more challenging!

Whilst some cabinets are modern and easy to work with…

In Confidence

Technology provides a number of options to ‘accelerate’ last mile bandwidthBandwidth (Mbit/s)[1] DownStream

(Headline)

Indicative DownStream

(Median)

Indicative UpStream

(Headline)

Indicative Upstream

(Median)

ADSL – Exchange based 8 4-6 0.8 0.75

ADSL2+ (MSAN) – Exchange based

24 6-10 0.9 0.75

FTTC - VDSL2 c50 22-25 c24 9

FTTP/GPON c75+burst c75+burst 40+burst 40+burst

Broadcast satellite 100s 100s n/a n/a

Broadcast terrestrial digital TV

10s 10s n/a n/a

Wireless (HSPA, LTE, WiFi, WiMax)

10s 1-5++? <1 <1

BT’s strategy for UK broadband infrastructureMaximise the performance of existing copper infrastructure

– Fix the customer experience issues starting from marketing messages, to selling, provisioning and operating

– Tackle residual areas of non availability, making it near ubiquitous, with public funding support

– Upgrade the current copper based broadband to ADSL2+– Develop “hybrid” solutions: broadband, satellite/digital terrestrial, storage/processing,

software

Exploit 21CN investment to provide much more throughput capacity at lower cost; make this a competitive advantage for ‘rich content’ services (TV)

Provide targeted solutions to “NGA” with the best technology and commercialmodel in each case

– Fibre to the Premises in Greenfield development– Selective participation in government funded opportunities where ‘state aid’ case is clear.– Develop a ‘targeted deployment’ Equivalent proposition

Re-endorse the regulatory principles that have served us well to date (Equivalence in particular, as it drives the risk sharing and volume, both critical for the commercial case to work) but reflect the “NGA” requirements in the detail

Communicate our plans and rationale openly to manage public policy pressure ensuring that BT does not get ‘held responsible’ for UK NGAinvestment (or lack/delay thereof)

Satisfy the vastmajority of needswith our existingcopper network

Continueinvestment

in core network

Developtargeted NGA

solutions

Re-endorseEquivalence

Actively engagecustomers andstakeholders

NGA becomes targeted

• Fibre deployment requires a lot of civil engineering – Requires time and money so inevitably some opportunities will

be captured before others• NGA investment becoming ‘targeted’

– Where new greenfield sites are built– Where customers pay– Where developers or other commercial investors pay– Where taxpayers pay (with consequences to commercial

investment?)– ...

How to make targeting fair and effective?

Vision: Targeting NGA to where customers demand is, Equivalently

• Fibre To The Cabinet (FTTC) solution evolution– Typical BT cabinet 300 lines/customers; BT has over 90’000

cabinets– May need a new powered cabinet required for FTTC; minimum

commercial level of about 80 subscribers may be difficult to reach (25% of all lines in a cabinet) (assume £10/month premium); May be simpler/lower cost options as technology develops.

• Establish a ‘trigger level’ and prepayment by Communication Providers to determine where to deploy

• Make it possible to deploy ‘anywhere’ but get paid up front to reduce ‘stranded cash’ exposure

• Nationwide deployment but BT (and any CP) would have a choice where to deploy roll-out depending on customer demand

• Next Generation Access provided by Openreach at ‘Layer 2’ level at exchange

– Broadband electronics in Openreach – Minimal difference in the end customer and Communication

Provider interface whether FTTP or FTTC– Review of the operationally and commercially difficult

sub-loop product currently in the Undertakings

Newtechnology

solution

Newcommercial

model

New pointof equivalence

(Openreach – BTW)

Sub Loop Unbundling vs Wholesale layer 2 service

Sub LoopMultiple cabinetsMultiple backhaulMultiple tie cables<10% of lines accessible*

Wholesale Layer 2Shared cabinetShared backhaulShared tie cable>80% of lines accessible*

* Assumes aggressive commercial model:- high penetration rates, additional revenue, multiple CPs

Analysys report for OPTA, Jan 07 conclusions on Sub loop

“the use of SLU by an alternative provider is not economically viable as an alternative to continuing to use LLU…..we estimate that a business case for SLU would require both:– a market share greater than 55% of all broadband lines

(including cable) in all areas served– Our highest estimate for incremental revenue (which

assumes an increase in ARPU across all broadband users of EUR10 per month”

Complexity

• Likely multiplicity of operators owning NGA infrastructure

• Patchwork deployment• Range of possible models – including developer-led

and ‘campus’ models• BT’s SMP and USO not applicable?• Need for new approach to ensure connectivity and

interoperability – and choice of downstream supplier• Long Rollout timeline (Civil works)

‘Hiding’ the infrastructure complexity to enable efficient innovation and competition nationwide

End User

CP – Wireless AccessEU – Fixed and Wireless

S

Voice & DataEthernet

ONT 1

ONT N

32Split

CP1

CP’N’

R

OLT

Enhanced Backhaul Offers

D-side

CopperLegacy E-side

Openreach Handover point

MSAN

Fibre backhaul

External Network

Voice & Data

T

SLUNTE5

CP1

CP’N’

Op

en

rea

ch E

oI

La

yer

2

ONUCP1

CP’N’OLT

Wifi WiMax2G 3G

Pt-Pt Access Fibre FTTP

PON Access Fibre FTTP

CP1 Core

CP2 Core

CPN Core

Ethernet

FTTCab – Copper DSide

• Common Ethernet presentation “Layer 2” and standardised ‘OSS’ to Unify Market above a limited range of physical media options

•Fibre to Cabinet – Brownfield•Point–Point Fibre – Major business sites•Fibre to Premises (GPON) Greenfield•Other technologies as built

• Fibre and Wireless are complementary

Next Generation Access Infrastructure • A mix of Fibre Access Network designs with a unified service offering• A basis for sustainable long-term access network investment

Infrastructure investor x, layer 2

Reaffirming the regulatory principles and updating the “detail”

• Openreach formed to deliver underpinning infrastructure and Equivalence of Input for all – Communication providers and BT’s downstream businesses are

equal– Equivalence should continue in NGA– Openreach is only successful if the industry as a whole is successful

• Recognising the narrowing reality of ‘bottleneck’ assets in light of technology and infrastructure competition

• Encouraging innovative ways to trial without making commitments to particular products or roll-out to be available

• Symmetric treatment of all investors in new assets• Reviewing the universal service obligations and funding in light of

multiple private and public investors and value chain fragmentation• Stimulation of competition in higher layer network services and

applications on all infrastructure

Investment Risk

• Agreement on need to reflect risk/return

• There are possible options– Trigger approach with up front payments– Anchor pricing– Utility regulation

• BT open to suggestions and keen to explore alternatives

Flexibility for trials

• Technical trials are essential first step

• May be ‘exceptional’ ‘semi-commercial’ cases where more dynamic cross-BT working required to develop feasible ‘real world’ solutions– geographically – restricted– involving other CPs– testing demand-led models– will require ‘experimental’ approach

• Need for exemptions?

UK NGA Vision?

Not whether the UK has a monolithic NGA or not, but:

An evolutionary delivery of innovative services at affordable prices to those who want to buy them, which means:-

• Responding to real demand• In a commercially and technically innovative way• That enables effective downstream competition

everywhere• And rewards the risk investors take