ALL RIGHTS RESERVED. COPYRIGHT © ALCATEL-LUCENT 2011.

QITCOM – May 25th 2011

André Merigoux – Public Affairs Director

Turbulence ahead: innovative thinking urgently needed to unleash digital delivery

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1- Disruptive changes ahead

Massive investment needed

• Fixed and mobile / Core - backhaul - Access

• Future of mobile = fixed /

• Investments start in all regions of the World: USA, Asia, Russia, etc. ..

• But Europe is lagging behind

• Europe: the need for incremental investment over 10 years of 380 billion € in Europe, including 100 M € in the radio access (source: EC)

• End of voice models - distance

• Inability to monetize the explosion of data traffic for operators via traditional business models

• Decoupling traffic / revenue - erosion of margins

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The changes in the value chain

• End of voice models - distance

• Inability to monetize the explosion of data traffic for operators via traditional business models

• Decoupling traffic / revenue - erosion of margins

Emergence of OTT (Over The Top)

• OTT Generate traffic growth and innovation

• Bandwidth-intensive applications

• No incentive for an efficient use of bandwidth

• Unbalanced data interconnection agreements with operators

• OTT’s are global / operators are local

• Business Model: Market Cap and Price / Earning ... is different

1- Disruptive changes ahead

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2- What are the solutions for business models? New business models between operators and OTTs:

• Agreements of "wholesale" grading services on QoS: throughput, latency, stability, security , jitter

• Multilateral agreements based on open protocols and standard

• Allow operators to manage their networks to offer differentiated services - Debate on Net Neutrality ...

• 3 Conditions:

• Investments needed

• Non harmful discrimination

• Increased transparency: throughput, capacity, traffic management system, user information on services offered

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2- What are the solutions for revenue increase?

Increased revenues from end users

• Monetizing new services

• Segmentation based on experience levels expected

• Responding to various requests from users

• Available in "overlay" and offer standard "best effort " with appropriate pricing

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2 – What are the solutions for policy makers?

Governments step-in to accelerate,ensure coverage, perequation and openness

• To achieve ubiquitous coverage of very high speed connectivity and tackle future challenges of society (social inclusion, ageing population, climate change)

• To complement private initiatives in policy driven areas and maximize network’s social benefits, minimize public funding thanks to perequation.

• To ensure network openness and cost-effective connectivity through network sharing and competition while encouraging new investments needed to handle data explosion

Different types of public intervention • Government driven PPP projects (Australia, New Zealand, Singapore,

India,Brazil…) to foster coverage and competition

• Regional and local PPP projects (Italy, France, Spain,…) based on infrastructure sharing

• Rural projects based on new competition models ( LTE sharing in rural areas,…)

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DIFFERENT POLICY & REGULATORY APPROACHES

Americas

• Vertical integration & platform competition

• Unregulated broadband markets

• No public intervention outside rural areas

• Pro-active spectrum allocation policy

• CALA countries focus on open access wireless and open backbones

APAC

• Network separation & service-based competition

• Heavy influence of government and regulation

• Structural separation, growth through premium connectivity wholesale

• Bitstream wholesale, open backbones & universal coverage lead network transformation

EMEA

• Infrastructure competition & public Intervention

• NGA regulatory framework in place (LLU & bitstream)

• State Aid in rural and medium density areas/infra sharing

• Digital dividend allocation decided at Member-State level

• Digital Agenda targets difficult to meet with current incremental model - N. Kroes initiative to foster investments in NGA (300 B€ required)

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3- What are the solutions for access networks?

New investment models for fixed networks

• Layer 1: passive infrastructure (civil engineering, dark fiber) = 80% of the cost of the network with ROI of 15 years

• Layer 2: active infrastructure (network intelligence) = Return On Investment of 5 years

• Layer 3: service = OTT model

Need to share, co-finance and open Layer 1

• Global phenomenon: Asia - Latin America

Mobile networks sharing

• Capacity increase will come from network densification: pico and femto cells with fixed backhaul

• Shortage in the number of sites in urban / environmental consideration = sharing sites themselves and Rans

• « Ran sharing » = sharing of radio access

• Spectrum scarcity particularly in LTE with larger channels, should lead operators to increasingly share spectrum

• Useless duplication of 3 or 4 networks in rural areas

The future of mobile networks relies on fixed networks

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3- What are the solutions in Europe?

Devise new investment models

• Revisit the dogma of passive infrastructure competition in favor of active infrastructure competition?

• Avoid duplication of infrastructure level 1 and admit it should be considered as an essential infrastructure?

• Define methods of long-term financing for this level 1 (European Investment Bank Fund - national grant - local) if necessary using the flexibility of PPP Models?

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4- Initiative of Neelie Kross/ European Commission on 3rd March 2011

• Alierta César * Telefonica

• Bäcklund Marcus * Voddler

• Ballmer Steve * Microsoft

• Balsillie Jim * Research in Motion

• Bates Tony *** Skype

• Berkett Neil * Virgin Media

• Bernabè Franco Telecom Italia

• Bogaert Lorenz Netlog

• Calve Simon * Lovefilm

• Chambers John T. *** Cisco

• Colao Vittorio Vodafone

• Confalonieri Fedele Mediaset

• Danon Pierre Numericable

• Donahoe John *** eBay

• Elop Stephen Nokia

• Fries Michael T. * Liberty Global

• Gee-Sung Choi *** Samsung

• Godlewski Miros•aw Netia PL

• Granryd Mats Tele2

• Gubitosi Luigi Wind

• Guillemot Yves *** Ubisoft

• Hagemann Snabe Jim *** SAP AG

• Jobs Steve ** Apple

• Lévy Jean-Bernard Vivendi

• Livingston Ian BT

• Murdoch James * Newscorp

• Niel Xavier Iliad Group

• Nyberg Lars TeliaSonera

• Obermann René DT

• Ostrowski Hartmut Bertelsmann

• Paolini Nonce * TF1

• Piel Monika *** ARD

• Richard Stéphane FT

• Sandberg Sheryl *** Facebook

• Schaeffer Dave Cogent

• Scheepbouwer Ad KPN

• Schmidt Eric *** Google

• Stefano Parisi Fastweb

• Stringer Sir Howard *** Sony Music

• Suri Rajeev *** Nokia-Siemens Networks

• Thompson Mark *** BBC Trust

• Tournay Cédric *** Dailymotion

• Verwaayen Ben Alcatel Lucent

• Vestberg Hans *** Ericsson

Participants CEO