FTTH/FTTx Deployment Strategyin Switzerland

April 24th, 2012

Dr. Peter Kempf

Swisscom (Schweiz) AGWholesaleStrategic Business Development

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Scope of this presentation

• Market situation

• Regulator, anti-trust authority, and politics

• Design principles for FTTH networks

• FTTH partnerships

• Summary and conclusions

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Broadband penetrationSwitzerland on rank 2 of OECD countries

0

5

10

15

20

25

30

35

40

Nether

land

sSwitz

erlan

dDen

markKor

eaNor

wayFra

nce

Icela

nd

Unite

d King

dom

Germ

any

Sweden

Luxe

mbo

urg

Belgiu

mCan

ada

Finlan

d

United

Sta

tes

Japa

n

New Z

eala

ndAus

tria

Isra

elEst

onia

Austra

liaSpa

inSlov

enia Italy

Irelan

dG

reece

Hunga

ryPor

tugal

Czech

Rep

ublic

Polan

d

Slovak R

epub

licChi

leM

exico

Turke

y

Source: OECD

DSL Cable Fibre/LAN Other

OECD Fixed (wired) broadband subscriptions per 100 inhabitants, by technology, June 2011

OECD average

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Market shares broadbandInfrastructure competition bites

Market Shares Total: 3‘020‘000 Market Growth 2011 +5,3%

DSL (Swisscom)55%

DSL (SwisscomWholesale)

17%

Cable (upc Cablecom)18%

Cable (others)10%

50% DSL (Swisscom)

4% DSL (Swisscom Wholesale)

28% Cable(upc Cablecom)

18% Cable (others)

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FTTH is the end gameNo other technology is able to deliver the bandwidthsneeded in the long term

100 Mbit/s

1 Mbit/s

10 Mbit/s

1992 1997 2002 2007 2012

20 Mbit/s

50 Mbit/s

E-mail Web 1.0Web

TV HDTV

SuperHDTV

Web 2.0

FutureApplications

Multi-roomHDTV

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Scope of this presentation

• Market situation

• Regulator, anti-trust authority, and politics

• Design principles for FTTH networks

• FTTH partnerships

• Summary and conclusions

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Telecom stakeholders agree on joint standards for FTTHResults of “Fibre Round Table” moderated by regulator

• The multiple fibre model prevails- Avoiding parallel networks- Competition is ensured

• The fibre optic network is open to everyone- Network and service providers have access under the same conditions

and to various network levels- Consumers are free to choose their telecom provider

• Uniform standards- Operators use the single connector type for plugs in homes- Customers shouldn't encounter any problems when switching providers

(Project ALEX “Active Line Exchange”).Conclusion of the 4th FTTH roundtable

of 5 October 2009

Standards open way to FTTH investment co-operations

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Antitrust authority with a different view of thingsNo exemption from sanctions was granted

• Swisscom and partners voluntarily submitted the co-operation contractsto WeKo (Swiss anti-trust authority).

• WeKo issued a report for five of the co-operations in September 2011and criticized a couple of clauses as anti-competitive agreements:

– L1 exclusivity (partners can sell unbundled fibre exclusively)– investment protection (right to change from investment partnership

to rental)– compensation payments (if market share of one of the partners

deviates very much from his investment share)– right of first refusal (if one of partners wants to sell fibre network)

• The contracts were negotiated taking into account the critical points.

• WeKo issued a report for another two of the co-operations in February2012.

• The assessment of critical points with partners is still on-going.

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Influence of politicsLocal and regional governments push for FTTH

Electorate

26 cantons

CH: ConfoederatioHelvetica

2596 municipalities

Owns 57%of

Ownership ofregional electricity

companies

Ownership oflocal electricity

companies

Responsible for sector regulationand anti-trust surveillance

BAKOM (telco)ELCOM (electricity)WEKO (anti-trust)

Responsible formaintaining andimproving localinfrastructure andlocation factors

≈700electricitycompanies

Universalserviceobligation

Federalgovern-

ment

Cantonalgovern-

ment

Localgovern-

mentMandate to roll out FTTH

Mandate to roll out FTTH

Ballot about FTTH roll-out

Not all activities are co-ordinated with Swisscom roll-out plans

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Scope of this presentation

• Market situation

• Regulator, anti-trust authority, and politics

• Design principles for FTTH networks

• FTTH partnerships

• Summary and conclusions

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Priorisation of FTTH roll-out areasFTTH cannot be rolled out economically everywhere

0

10'000

0 1'000 2'000 3'000 4'000 5'000 6'000 7'000 8'000 9'000 10'000 11'000 12'000 13'000 14'000 15'000

Number of households in residential zones

Co

sts

per

ho

use

ho

ld

Too expensive to build FTTH

FTTH roll-out is economically feasible

Rural areas

Agglomerations

Cities

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100 Mbit/s

1 Mbit/s

10 Mbit/s

1992 1997 2002 2007 2012

20 Mbit/s

50 Mbit/s

E-mail Web 1.0Web

TV

HDTV

SuperHDTV

Web 2.0

FutureApplications

12

Customer needsBandwidth demand increases rapidly

Multi-roomHDTV

VDSL

Vectoring

29.2.2012: Channels of Swiss nationalbroadcast company are available in

High Definition only

Band

wid

thD

eman

d

FTTH

pen

etra

tion

10%

30%

2017

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InfrastructureFTTH is only part of optical fibre expansion

• The overall optical fibre network consists not only of theaccess network between the local exchange in the neighbourhoodand the individual home.

• For years, Swisscom has been laying fibre cables to the neighbourhoods,(Fibre to the curb/neighbourhood – FTTC; aka VDSL).

• In 2012, Swisscom continues to invest in the FTTC expansion and willconnect more than 300 communities with VDSL.

• Swisscom also investigates the use of other technologies to bring higherbroadband speed to the customer.

– VDSL with Vectoring– Fibre To The Distribution Point (FTTDP)

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VDSL push continuesSwisscom enables 80% of households for HDTV

98% ADSL coverage

100% broadband coverage according to basic service provision (≥ 1 Mbit/s)

89% VDSL coverage

80% HDTV enabled

EoY 2011

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Fibre To The Distribution PointMini node in the manhole (pilot)

Source: Berner Zeitung, 23.11.2011

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Ultra-broadband roll-out in SwitzerlandChoice of technology dependent on costs and competition

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Scope of this presentation

• Market situation

• Regulator, anti-trust authority, and politics

• Design principles for FTTH networks

• FTTH partnerships

• Summary and conclusions

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Dynamics of fibre roll-outPartnerships already exist in 14 cities, municipalities,regions and cantons 18

Swisscom only

Cooperation

Partnership agreementsigned

Today:> More than 364,000 homes and businesses have been connected by optical

fibre to the basement at the end of year 2011 (more than 90% in co-operation areas).

Goal:> End of 2015: More than 1 million homes and businesses connected to the

basement (1/3 of the households).

Geneva

Basel St. Gallen

Fribourg

Lausanne

Berne

Pfyn

Lucerne

Lugano

Winterthur

Sion

Thusis

Uster

Köniz

Solothurn

Bellinzona

EbikonZugBiel

Weinfelden

KüsnachtErlenbachHerrlibergMeilen

DietlikonZurich

Upper Valais

Thun

GlandNyon

Riehen

Chur

HerisauTeufen

Adliswil

Yverdon-les-Bains

Derendingen

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Financial benefitsCo-operations help Swisscom to reduce the FTTHcapex per household

Letter of Intent Signed in 2012• Bellinzona• Derendingen• Gland

Negotiations on-going withother potential partners

FTTH capex per household Areas where one partnerstarted to build alone

Capexfor build-alone

Capexin co-operation

100%

≈ 60%

More co-operations to come

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Multi-fibre architectureCo-operation is possible at the manhole or at the PoP/CO

Shar

e of

inve

stm

ents

: 40

%

Share of investments: 40 % Share of investments: 20 %

1

2

PartnerNetwork

PartnerNetwork

OMDF

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Summary & Conclusion

Only one technology provides sufficient bandwidth in the long term: FTTH• 364T homes passed at EoY 2011.• About 170T additional homes planned for 2012.

Bandwidth demand is increasing rapidly• FTTC roll-out in parallel.• Vectoring and other interim technologies under investigation, until

FTTH is available everywhere.

Capex for FTTH must be strictly managed• Priority list based on construction costs and competition.

FTTH roll-out in co-operations preferred• Reduction of capex per household.

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Thank you very much for your attention!

Questions? Comments? Suggestions?

Peter.Kempf@swisscom.com

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Short Profile of Peter Kempf

Dr. Peter KempfSenior Strategic Marketing ManagerSwisscom Switzerland AG, CH-3050 BernEmail: peter.kempf@swisscom.com

� Peter is responsible for special and strategic projects within SwisscomWholesale - with special emphasis on the strategic implications of commercialand regulatory pricing. Peter focuses on the development of cooperation andpricing models for Swisscom’s FTTH roll-out and is involved in the negotiationswith potential FTTH co-operation partners.

� Peter joined Swisscom in 2003. He acted as “Head of Pricing” for SwisscomMobile until December 2007.

� Before joining Swisscom, he was a consultant with Boston Consulting Groupand PA Consulting Group where he focused on the telecommunicationsindustry and worked on a broad range of projects related to strategy &business development, costing, and M&A.

� Peter holds a Ph.D. in physics from the Technical University of Braunschweigand a Master of Science from SUNY Albany.