National Broadband Network Update - Dec, 2010 Analysing NBN’s Impact Across Industries

Presenter: Vishal

2

Why NBN

NBN - Moving from One Monopoly to Another

Politics Behind NBN - Government and Opposition at Loggerheads

NBN Business Plan

Impact of NBN on Australian Industries - Retail, Health, Education, Utilities, Software

Post NBN - Fifth Domain Warfare

Government and Telstra Agreement - Meaning & Hurdles

Impact of NBN on Telstra, Telco & Media in Australia

Post NBN - Australian Stock Exchange, Australia Post, David Jones

Agenda

3

Circular Quay 1900

Prosperous Place in Beginning of 20th Century

Industrialisation – Steam Engine(shipping) and Telegraph

Source: NBN - Freeways of The Future

1809 - 1st Australia Post

4

Circular Quay 1920

Few Cars compared to Trams

No one knew how this is going to change the society

Applying the methods of steam driven economy to car economy has failed

Source: NBN - Freeways of The Future

Source: NBN - Freeways of The Future

Harbor Bridge - Over Build

6 Traffic Lanes, where people didn’t own the car

30 yrs later, removed tram lanes

Today, most Australian connection come into Northern Sydney, Growth is Exponential

40 yrs later, plans of duplicating it

Harbor Bridge - Over Build ??

8 Traffic Lanes

7

Application Evolution

Source: NBN Co

8

Bandwidth Demand

Source: NBN Co

9

Only PSTN wholesaler in country

One Seller many Buyer, including retail arm as a Buyer

Monopoly

Telstra Wholesale (Copper)

Optus iiNet Telstra Retail

iPrimus

What I can Pay

What I can Sell for

Agree on this Price

No competitor for seller, hence value is created for seller only

Customers are forced to pay beyond their WTP (premium price)

Law of one price is missing

10

Monopoly - NBN R

etai

l W

ho

lesa

le

Layer 2 Ethernet Access Network -Wholesaler

Layer 3 IP Wholesaler

Layer 2 Tunnel Protocol Wholesaler (Includes Backhaul)

Layer 2 Backhaul

Wholesaler

Retail Service Provider

Retail Service Provider

Retail Service Provider

Retail Service Provider

Source: NBN Co

Until 2020 -2030, it will be a Monopoly, after that it will be sold to pay off debt

11

Telstra & Government Agreement

Telstra and NBN

Infrastructure

Lead In conduits NBN Co. uses fit-for-use conduits which are connected into ducts NBN Co. uses

Backhaul NBN Co. uses dark fiber and managed solutions

Exchanges NBN Co. uses rack space in Telstra exchanges

Ducts & Pits NBN Co. uses fit-for-use infrastructure within NBN network design

Source: ZdNet & NBN Co.

Copper • Progressive

decommission • Traffic migrated to

NBN • NBN Co. pays Telstra

HFC

• Progressive de-activation except Foxtel

• Traffic migrated to NBN • NBN Co. pays Telstra per

disconnection

Decommission

Non - Binding

12

Telstra & Government Agreement

Source: Gartner, 10B Telstra Agreement,2010

Signed a non-binding agreement with Government

In principle assumes structural separation of (Ret. & Wholesale) without enabling legislation being passed

Leases it ducts, pits and exchanges, 20 to 30 years

Migration of its 9 million copper (PSTN) and HFC customers on NBN Co Fiber

Telstra

Reduced CAPEX requirements and relief from funding major parts of its USO. Contract for 10 years - 2022

Multiple Revenue Streams

Written commitment for not to be barred from LTE (4G) Spectrum

Relief from the regulatory burden of local access disputes (local loop), lawyers are out, and marketers are in

Government

Practical agreement for structural separation of Telstra (without legislation being passed)

Regulatory reforms long demanded by the Australian Competition and Consumer Commission (ACCC)

A wholesale open-access network available nationally to RCSPs on equitable access conditions

13

Telstra & Government Agreement

Source: Gartner, 10B Telstra Agreement,2010

NBN Co

Access to Telstra's backhaul network infrastructure for a more rapid FTTP roll-out, revenue starts early

Telstra as its largest retail customer

A wholesale open-access network available nationally to RCSPs on equitable access conditions

Hurdles

Telstra shareholders to approve the agreement by 2011 (1st Quarter)

ACCC to approve it, consultations with NBN Co to finish by Nov, 2010

Telstra Separation with NBN Co Legislation Passed by Senate and Lower House

14

Telstra & Government Agreement - Pre Business Plan

60% Govt. Funded

= 26 Billion

40%

NBN Co. Raised by

Bonds

(not on Govt Bal. Sheet)

= 17 Billion

100% =

43 Billion

(no trail for this no’s since inception)

43 Billion Capex

11B to Telstra

26 Billion

9 Billion

=

Leases Telstra Ducts,

Pits & Exchange

2 Billion

=

USO (Telstra -

2022)

15

76% Govt. Funded

= 27.1 Billion

24%

NBN Co. Raised by

Bonds =

8.6 Billion

100% =

35.7 Billion

35.7 Billion Capex

Telstra & Government Agreement - Post Business Plan

Source: NBN CO Business Plan Summary

13.8B to

Telstra 27.1

Billion

11.3 Billion

=

Leases Telstra Ducts,

Pits & Exchange

2.5 Billion

=

USO (Telstra -

2022)

13.8 Billion by 2020 To Telstra

49.6 Billion 8.6

Billion

16

Telstra & Government Agreement

7 Year Stock Trend

Source: Yahoo 7

P/E ratio below 15 (Avg on ASX) – not a growth stock, only dividend stock

If 28c fully franked dividend cant be maintained stock price will plummet as stock is hold by Superannuation firms and baby boomers (low risk appetite). NBN payments will help in maintaining div.

17

72% Govt. Funded

= 27.1 Billion

28%

NBN Co. Raised by

Bonds =

10.3 Billion

100% =

37.4 Billion

37.4 Billion Capex

Post Business Plan - No Agreement

Source: NBN CO Business Plan Summary

18

Politics on NBN

Opposition

Lost crucial support of two Independents, Tony Windsor and Rob Oakeshott

Wants productivity commission to study the cost benefit analysis, as it suggests to deliver a commercial rate of return, not the low 6-7%, lost the motion in parliament by 73-72

Wants Infrastructure Australia to do the analysis

Source: Gartner, 10B Telstra Agreement,2010, The Australian

Government

Conceded to Greens to let parliament decide privatisation of NBN after it’s completion.

Wants Business Case to be published

19

Politics on NBN

Source: Comm Sec, 2010

Budget & Debt

Vital for Labor Govt. to be in surplus (for historical reasons) to drive Economic Credentials. Liberals are using this as a scare campaign. In comparison to other OECD we are doing quite well

20

Impact of NBN on Industries

NBN

Telecom, Media

&

Entert. Utilities

Healthcare

& Biomedical

Tourism

Education &

Learning Govt.

Retail

Financial Services

Manufact.

&

Logistics

21

Impact of NBN on Telstra

Structural Separation

Functional Separation

Partial Structural Separation

22

Adjusted Structural Separation (Least Initial Cost)

Partial Structural Separation - Likely Approach

Network Services

ITS

Access N/W

Core & Edge N/W

OSS

BSS

Retail Wholesale

Impact

Impact

Impact

The wholesale and retail (including TE&G and TB) continue to function as separate units with minor modifications such that wholesale has NBN as one of the primary customer.

Part of the access (copper and HFC) is decommissioned and customers are migrated to NBN. NBN uses Telstra ducts/pipes and backhaul (spare bandwidth) for a service charge.

The current arrangement could be used as an initial phase towards a complete structural separation in future

ROI dependent on providing access to duct/pipes, use of backhaul and migration of customers

23

Impact on IT

Fulfillment

Assurance

Inventory Operations

\

Fulfillment

Strategy, Infrastructure & Product

Product

Lifecycle

Management

Infrastructure

Lifecycle

Management

Cutomers

Enterprise Management

Shareholders Employees Other Stakeholders

Strategy &

Commit

AssuranceOperations

Support &

Readiness

Billing

Inventory

Impact Impact

Impact

Note: No impact on Billing is perceived

24

Post NBN

Australian Stock Exchange

1.37 Trillion Market Cap.

Source: The Age, The Australian

Information Asymmetry

(Adverse Selection)

1.37 Trillion

2,260 Listed Companies

Impact - 25% of Listed Companies

25

Match Mismatch

Mismatch Match

Post NBN – Retail, David Jones

Co - Creation

Functional Products

Innovative Products

Res

po

nsi

ve

S

up

ply

Ch

ain

E

ffic

ien

t

Su

pp

ly

Ch

ain

Consultations on Skype/Google Voice

Sales Staff and Teller will use smart device like iPad

Virtual Showroom (pre view shopping)

Entire World as Display

Source: HBR - What is the Right Supply Chain For Your Product, PSFK , Future of Retail

26

Post NBN

Source: The Age, The Australian, Auspost

Embraces Digital World, e-Services new biz. unit, focusing on opportunities such as secure, identity-verified, digital communications, e-commerce

Declines in letter offset by the growth in parcels, retail and business-to-business express delivery

“When email was invented, Telstra gained and Australia Post lost. Anything that acts to shift economic activity from the physical to the

digital would automatically benefit communications providers “– Lindsay Tanner

1st Australia Post in 1809 at Circular Quay

Today, 4,000 postal outlets, including 2,500 in rural. Maintain 10,000 street posting boxes.

Superannuation Centres

Parcel Delivery for Online Stores (DJ, Myers, Zara)

27

Melbourne, AUS

California, USA

Post NBN - Seminar or Lecture

Source: The Future Apps of NBN, 2009

28

Post NBN - Software

Source: Source: APIs and Open Platform –Federico Cargnelutti

Turning Products into Open Platforms

Moving from licensing model to Utility and Brokerage (using API’s)

Commodity Software or Business Process will be enabled via Cloud

29

Customer

Allied Health and

Diagnostic Professionals

Private Providers

NGO Sector

Family and Communities

Pharmacists

Clinicians and Nurses

GPs

Jurisdictions

Consumer

E-Health - Building a Wired Health Care System

Objective is to provide the right information to the right person at the right place and time to optimise health care outcomes

Source: Deloitte, National Health Strategy, The Way Forward, 2010

Today

Customer

Allied Health and Diagnostic Professionals GP’s

NGO Sector

Family and Communities

Jurisdictions

Clinicians and

Nurses Private Providers

Personal Health Profile

Pharmacists

Online Informati

on and Communi

ties

Clinician Policy Maker Customer Customer

Consumer

Tomorrow

30

E-Health is Inevitable

Source: Deloitte, National Health Strategy, The Way Forward, 2010, The Australian

Public hospital doctors in Victoria to get iPads in 2011, Victorian Govt.

31

E-Health

Source: The Future Apps of NBN, 2009

Medial Research Collaboration

Education

Multi Scale Bio Medical Imaging

32

Utilities - Smart Grid

Source: IBM Smart Grid Framework, How Stuff Works , Smart Grid Blog

From Supply Driven to Demand Driven: Market forces & convergence of more active customers has created the need to evolve the traditional energy value chain

Towards an industry with multidirectional flows of information

33

Post NBN - Fifth Domain Warfare

Stuxnet is a Windows -specific worm discovered in June 2010

Source: Wikipedia, Symantec, The Economist

Function is to take control of industrial facilities. Searches for very high speed electrical motors, controlled via SCADA systems. These are used to spin gas centrifuges, which is one way uranium can be enriched into fissionable material.

At speed of light, Global in nature, Preparation is less visible

34

Summary

Monopoly of Telstra in PSTN space is removed by Monopoly in Wholesale space (Fiber only)

Telstra & NBN – both need each other for their survival

The 21st century infrastructure project needed for a service economy like us

Lot of industries will be impacted and new services and business model will emerge

NBN has become a political battle

35

Thank you

End of Document

For further information, please contact:

Name: Vishal

Title: Client Services Manager

Address: Infosys Technologies Australia Pty Ltd

Level 5, 818 Bourke St

Melbourne VIC 3000 Australia

LAN: (03) 9860 - 2429

Mobile: 0438 580 349

Email: vishal01@Infosys.com