1. NGA roll-out Infrastructure competition in convergent markets (Case of Spain) TAIEX - Kiev 14-10-2011 Fabio del Alisal Director for International Affairs

2. 2 Index  Market: Offer and Demand  Regulation of the broadband markets  A focus on NGA roll-out and uptake

3. 3 Market: Offer and Demand

4. 4 Broadband mainly commercialized in bundles InternetInternet + telephoneTV + InternetTriple play 200812%71%2%15% 200910%73%1%16% 2010 (Residential) 3,3%75,6%1,3%19,9% 2010 (Business) 32,3%64,2%0,04%3,5%

5. 5 Broadband mainly commercialized in bundles

6. 6 NGA penetration (speeds)  High speeds available... >20 Mbps not yet very significant Many operators offer BB products > 20 Mbps ... but not purchased by users June, 2010 CMT Annual report 2010 Price (euros) %

7. 7 Broadband penetration BB Penetration 23,2% Low FTTH penetration Evolution of BB lines (thousands) CMT monthly note - August 2011 > 70% of cable accesses upgraded to DOCSIS 3.0 Cable modem Alternative xDSL operators DSL TelefónicaBB

8. 8 Market shares by number of access lines CMT monthly note - August 11

9. 9 Broadband prices Telefónica is the most expensive in every speed range CMT Report of competitive situation – June 2010 Euros / month BitstreamLLU

10. 10 Competition level CMT monthly note - August 11 Competition specially active.. Increasing competition specially from alternative operators based on unbundling. Telefónica Cable operatorsRest

11. 11 Market shares by number of access lines CMT monthly note - August 11

12. 12 Broadband prices (geographical variation) There are less expensive access offers, however they are geographically restricted to densely populated areas Offers restricted to specific geographical areas Offers in all the national territory Euros / month

13. 13 Market shares (geographical variations) Although…again geographic differences 37% (competitive areas) Telefónica predominates, but market share slightly decreasing in favour of altnets 68,8% (uncompetitive areas) Telefónica market share high and steady CMT Report of competitive situation - June 2010 TelefónicaCableLLUBitstream access

14. CONTEXT FOR NGAs REGULATION 14/27

15. THE CONTEXT FOR NGAs REGULATION 1.Migration to Next Generation Networks  Substitution of copper by fiber  Evolution to IP and separation of networks and services  High bit-rate application (IPTV, HDTV, video streaming, etc.) 2.Interplatform competition  Docsys 3.0 vs FTTX 3.Cost savings/investments  A single platform for all services.  Reduction of access points (less access switches)  High barriers for passive infrastructure deployment 4.Different technological architectures with different implications  POINT TO POINT VS. POINT TO MULTIPOINT  FTTH, FTTC, FTTB, FTTN 5.National plans to encourage NGAs migrations 15/27

16. THE EC RECOMMENDATION ON NGAs REGULATION 16/27

17. EC RECOMMENDATION ON ACCESS TO NGAs September 2010: European Commission Recommendation on regulated access to Next Generation Access Networks (NGA)  One of the key tools devised by the EC to fulfill the objectives established in the EU Digital agenda.  It sets a common framework for NGAs regulation along the EU.  A lot of discussion in the previous versions. Criticism from NRAs: Too prescriptive.  NRAs obliged to take “outmost account”. Departures to adapt to national context need to be justified. Encourage investment in NGAs Safeguard efficient competition Ensure a level playing field in the EU single market Balance 17/27

18. EC RECOMMENDATION ON ACCESS TO NGAs: PRINCIPLES (1) 1.Reference wholesale access offer for:  Unbundled local loop  Passive infrastructure (ducts, etc.) 2.Passive infrastructure: implementation of a database accessible to all operators  Geographical location for each element  Capacity  Other relevant technical characteristics 3.SMP: new WBA products available 6 months before marketing retail products. 4.Application of the principle of equivalence  Access provided under the same conditions to internal and to third- party access seekers 18/27

19. EC RECOMMENDATION ON ACCESS TO NGAs: PRINCIPLES (2) 5.Migration path to NGAs:  Inform operators five years in advance  Inform about future network deployment plans. 6.Price regulation for wholesale access  Cost-orientation methodology  Risk-premium incorporated in cost of capital. 7.Definition of sub-national markets/remedies  Diversity in conditions of competition for NGAs  NRAs allowed to define differentiated markets 8.Incentives for joint deployments  When no SMP condition is met  Conditioned to implement duct capacity enough for third parties (to be used at cost-oriented prices). 19/27

20. NEW WHOLESALE ACCESS PRODUCTS FOR NGAs 20/27

21. NGAs LADDER OF INVESTMENT. NEW WHOLESALE ACCESS PRODUCTS ERG (09) 17 Report on NGA - Economic Analysis and Regulatory Principles “the principle of the ladder of investment remains valid in an NGA environment, but is expected to be a more sophisticated ladder, with changes in the relative importance of their rungs and, in general, different dynamics, as a consequence of a shift in the economic bottlenecks” 21/27

22. CASE STUDY: SPAIN 22/27

23. 23 NGA regulation - markets 4 and 5

24. 24 CMT NGA regulation: Regulatory objectives  Ensuring regulation technologically neutral  homogeneous regulation for fibre and copper…  although challenges posed by the migration to NGA must be addressed  Facilitating innovation and investment by all agents  Fostering sustainable competition  Promoting investment to achieve infrastructure competition Fostering competition Facilitating investments For the maximisation of benefits for consumers

25. 25 CMT NGA regulation: milestones CMT issues guidelines on NGA regulationJanuary 2008 May October November Interim measures in M4 Notification of draft measures M4 & 5 Public consultation on sharing of the in-house wiring EC opens Phase II in M5 December CMT re-notifies amended measures M5 and EC closes Phase II January Adoption of final measures M4&5 2009 February Adoption of symmetric measures for in-house wiring sharing

26. 26 Market 4 – overview of regulatory measures AimsRemedies Improve the competitive situation in the retail markets of copper-based offers of NGA-based offers LLU & SLU (facilitating FTTN unbundling) RO only for LLU LLU/SLU of copper (as in the 1st round) LLU/SLU of FTTH not included (not currently viable in a GPON scenario) Access to passive infrastructures (viable substitute for LLU operators in network upgrading process) General access to associated facilities (as in the 1st round) Duct Access (at cost oriented prices) Dark Fibre (when ducts not available) Facilitate the transition from the traditional to the NGA network Control of the migration process towards NGA Information with 6 months in advance about the NGA deployment Guarantees in the case of exchanges dismantling –5-year transitional period before dismantling –Begin when >25% of Telefónica’s clients connected to alternatives to copper Additional measures with impact on market 4 Decision on symmetric measures imposing the sharing of in-house wiring (at reasonable prices)

27. 27 The importance of duct access  Duct access is a facility hardly replicable  Constituting between 60%-80% of the costs related to FTTH deployment  Telefónica’s network is based on ducts Main regulatory obligations imposed on Telefónica  Access (chambers, ducts, posts)  Collocation  Cost-oriented prices  Reference offer Posts Chambers Ducts

28. 28 Duct access reference offer – experience so far Two years of duct access in Spain  First experiences in 2008  Final version in place from April 2010 Main features  Access to urban Telefónica’s passive infrastructure  Can be used to deploy fibre/coaxial but not copper  Online application with cartographic information  SLAs and KPIs Usage so far  1782 km of ducts used in the last 2 years…  … and more than 18.000 chambers  mainly requested for fibre deployments (Vodafone, Orange, Colt)

29. Remedies Access Meet reasonable requests for access to infrastructure resources When technical barriers arise, Telefonica shall offer alternatives (including dark fiber rental). Cost oriented prices Transparency Regulated Reference offer Provision of information on the technical and physical characteristics of the infrastructures associated to exchanges, including space availability (6 months after measures are in force) Non discrimination Quality parameters quarterly provided to CMT (for both wholesale and equivalent self- provided activities). Agreements reached between interested parties shall be communicated to CMT.  Incumbent’s reference offer:  On-line information system with cartographic maps of ducts, manholes, handholes and poles  Procedures and information systems to request information about space availability as well as request effective occupation  Technical specifications (rules on space usage and maintenance, space availability criteria, …)  Economic specifications (prices, …), SLAs, KPIs CMT APPROACH TO MARKET 4: DUCT ACCESS 29/27

30. 30 Sharing of in-house wiring (symmetric measures) Obligations Access to the fibre network elements located inside or close to the building The first operator to install the optical equipment/wiring inside the building shall meet all reasonable access requests Regardless the solution implemented, the first mover must ensure that the sharing is feasible (at proportionate cost & reasonable period) Obligation to negotiate reciprocal agreements Centralised management of network elements by first mover Reasonable prices TransparencyProvide information about the buildings with deployed optical wiring  Adopted in February 2009  Legal basis out side the EU Regulatory Framework  Scope: buildings with no ITC + new deployments  Currently, signed agreement amongst main operators (topologies, description of in-house elements, collocation database, first mover’s responsibilities, etc)

31. SYMMETRIC MEASURES IMPOSING THE SHARING OF IN-HOUSE WIRING Obligations Access to the fibre network elements located inside of close to the building The first operator to install the optical equipment/wiring inside the building shall meet all reasonable access requests Regardless the solution implemented, the first mover must ensure that the sharing is feasible and possible at a proportionate cost and within a reasonable period Obligation to negotiate reciprocal agreements Centralised management of the network elements by the first mover Reasonable prices Transparency Provide information about the buildings where the optical wiring has been deployed  12th Feb 2009: decision adopted  Legal basis: Article 13.2 LGTel (obligations on non SMP operators)  Scope  buildings with no ITC (only of residential and mixed use)  New and already initiated deployments 31/27

32. Symmetrical obligations complement the remedies imposed to Telefonica in the framework of market 4. SCOPE FOR THE SYMMETRIC OBLIGATION (I) Equipment collocation Tie cableDucts, manholes, handholeSymmetrical obligations inside buildings Sala de equipos Collocation Exchange Buildings Reference offer for duct access 32/27

33. SYMMETRICAL OBLIGATIONS: WHY?  Starting point is equivalent to all operators that intend to deploy FO inside buildings.  Operators face problems related to usage of (scarce) space in buildings and obtaining authorizations from the building owners.  Mechanisms must be established to simplify the operative of several operators interested in deploying fiber in buildings. 33/27

34.  Obligations are addressed to operators that deploy fiber optics inside buildings.  Not included operators whose deployment is based in other technologies (e.g. HFC).  Remedies apply to buildings where no ICT is enabled. ICT: rules for the deployment of telecom infrastructures inside buildings (areas for equipment, ducts for copper, coax and fiber).  Business buildings are out of scope. SCOPE FOR THE SYMMETRIC OBLIGATION 34/27

35. 35 Market 5 – overview of regulatory measures AimsRemedies Make regulation technologically neutral Wholesale broadband access available irrespective of: Copper-based offers NGA-based offers Adapt regulation to the new needs (e.g. new wholesale product adapted to business needs) “Enhanced bitstream” product: covering VDSL and fibre valid for VoIP services Strike the right balance between fostering competition and facilitating investments and innovation (emphasis on investments by alternatives on own infrastructure) Wholesale broadband access available up to 30 Mbps (it is considered that for premium offers above 30 Mbps alternatives can make use of the instruments available in market 4)

36. 36 New Ethernet bistream service (NEBA) !! Adopted in November 2010  Stemming from analysis of market 5  Pure Ethernet model both for residential and business costumers  Ensures VoIP reliability  Allows replication of NGA services in bitstream…  … but also differentiation from Telefónica  It emulates the behaviour of an own network  Tariffs according to the speed delivered at the Interconnection Access Point (instead of speed of every user) Available in pre-commercial terms in January 2012

37. 37 Highly flexible product  NEBA conceived with a high list of commercial profiles... ...and more can be defined! predefined profiles categories Commercial profiles Validation profile

38. 38 Overview of bitstream products available  Once NEBA available, Telefónica will not be mandated to provide access to GigaADSL and ADSL-IP (only when overlapping of PoIs) Service Level Points of Interconnection (PoI) Protocol GigADSLRegional109 PoIATM ADSL-IP National1IP Regional50IP NEBARegional50Ethernet

39. 39 Ethernet aggregation xDSL: DSLAM IP GPON: OLT GigADSL Internet ATM aggregation DSLAM ATM Ethernet NEBA ADSL-IP national IP Other operator Internet IP ADSL-IP regional Overview of bitstream products available ATM

40. 40  Ensuring all necessary investment options are available (where viable) Optic access Local exchange Copper access FTTH FTTB FTTN COPPER Bitstream access Local loop unbundling Sub-loop unbundling Access to Telefónica’s ducts Other ducts In-house wiring CABLE Cable operator Up to 30 Mb/s Market 5 Market 4Not regulated Overview of Spanish NGA products

41. 41 Overview NGA regulation EU ^: only mandated in some cases

42. 42 Results on NGA roll-out and uptake

43. 43 NGA roll-out December 2010 DOCSIS 3.0 (ONO)FTTH (Telefónica) Higher coverage 6,8 million passed households (72%) Near 600,000 passed households Higher penetration 1,517 million active lines59,981 active lines Higher offered speeds Max speed 100 MbpsMax speed 50 Mbps

44. 44 NGA roll out (geographical variation) FTTH  203 exchanges equally distributed in competitive & less competitive areas  360.000 passed homes CMT Report of competitive situation - June 2010 FTTH optical exchanges FTTH exchanges DOCSIS 3.0  Distributed along all the territory  ONO (main cable operator) 5.100.000 DOCSIS 3.0 households passed (~ 70% total ONO network)

45. 45/14 Estimated (theoretical) maximum number of operators by zones Estimated NGAs viability in Spain More operators expected in urban zones (higher population density and income) Theoretical max: 3 alternative operators Theoretical max: 2 alternative operators Theoretical max: 1 alternative operators No alternative operators Note: number of operators estimated assuming a basic deployment in place by Telefónica + a cable network with a coverage similar to the current one.

46. 46 NGA coverage and take-up Spain in the European context FTTN / DOCSIS 3.0 FTTH / FTTN Cullen International, December 2010

47. 47 NGA penetration (geographical variation)  Concentrated in highly populated areas (Madrid and some medium cities)  Cable more spread across territory than FTTH FTTH only in 55 cities DOCSIS 3.0 in 120 cities CMT Report of competitive situation - June 2010 FTTH linesDocsis 3.0 lines

48. 48 OperatorTechnologyDownload speed TypePrice (excluding VAT, excluding promotions, 01/2011) MovistarFTTH50 Mbps Double play55 € / month Triple play76 € / month ONODOCSIS 3.050 Mbps Double play40 € / month Triple play44 € / month Adamo (on Asturcón network) FTTH100 Mbps Single play29 € / month Double play35 € / month RDOCSIS 3.0100 MbpsSingle play36 € / month NGA commercial offers 48 High price national offers Some more affordable offers in specific regions

49. 49 WHAT ABOUT MOBILE?

50. 50 Mobile broadband (datacards) Boost of take up in the last 3 years (yearly increase of around 60%) 3.354.437 lines (January 2011) CMT Report of competitive situation – June 2010 Thousands (datacards)

51. 51 Mobile broadband (geographical variations) Unlike fixed broadband…homogeneous competitive situation across territory CMT Report of competitive situation – June 2010