1. The way forward for telecoms services Jeremy Steventon-Barnes Data Service Development Jeremy.Barnes@tellabs.com

2. Traffic Growth: Less for More? > Data traffic is growing rapidly > > 100% per year in Europe > Net growth is much larger than revenue growth > Data traffic is demanding in terms of > Bandwidth > Management > Wide range of standards for L2/L3 WAN variants Internet Traffic, 2001-2002, Europe Revenue/bit: -48% Traffic: 116% Revenue: 14% Source: RHK

3. EMEA Corporate Data Services Leased line services remain key revenue stream, but IP is the future

4. Key challenge How can we make new packet-based services as profitable as traditional leased line services?

5. Key dynamics > DSL deployment > Ethernet service growth > MPLS multi-service convergence > Mobile data and converged data cores

6. Who are Tellabs? > Most phone calls and Internet sessions in the US and other countries flow through Tellabs equipment > #1 market share in US bandwidth management > First to deliver scalable Ethernet on SDH virtual concatenation solutions > First to offer complete carrier-class data solutions integrating Layers 1-3 > Leader in cable telephony in Europe > A leading provider of voice-quality enhancement solutions

7. Who are Tellabs? > Financial strength: $1.1 billion in cash, no debt > $980m revenue in 2003, 40% outside North America > 3300 employees, 40% outside North America > June 2003: acquired IP/MPLS service edge leader Vivace Networks > May 2004: announced $1.9B acquisition of AFC (Advanced Fiber Communications)

8. DSL: friend or foe? Bad news… > Cannibalisation of leased line services > High quality + good margins substituted by best effort + low margins = bad for business > Regulators tend to unbundle service from network > Incumbents must work hard to avoid commodity bit carriage > Unavoidable…? Good news… > Larger addressable corporate data market (SME & SoHo) > Opportunities to pioneer premium corporate data services > Opportunities to pioneer new consumer services (eg video) > Fibre Access becomes a good alternative (eg Verizon) Service edge capabilities becoming increasingly critical: dumb DSLAMs  commodity bit carriage

9. Developing Profitable Ethernet services > Pure ethernet networks face challenges in quality, scalability and management > MPLS based solutions using PWE and VPLS resolve these problems – Tellabs 8800 is the basis for > NTT’s nationwide Ethernet service ( > 100 nodes) > MCI’s MAE Internet Backbone Peering Exchanges > PacketExchange’s pan-European Ethernet service > Ethernet management should leverage experience from scaling leased line management and grooming > Maximising ROI requires the right balance between Ethernet on SDH and Ethernet on Fibre

10. IP access, VPNs, Internet Connectivity Ethernet Native ATM DSL Leased Line Local Voice High Speed VPNs Low speed access High Speed Access or Edge IP/MPLS ATM Cloud Transport SDH Backbone Frame Relay FR SW Frame Relay IP Router PBX Applications The need for convergence Complex Layered Legacy Networks

11. Transport IP / MPLS Core Multi-Service Edge Any Service over MPLS IP access, VPNs, Internet connectivity Transparent LANs Frame Relay DSL Private Line Local Voice High speed VPNs ATM Ethernet over SONET FR SW PBX Reduce costs, increase flexibility

12. Summary: key dynamics > DSL: friend or foe? > Cannibalisation of leased line revenues > Unbundling network and service provision > Opportunities for differentiation at the service edge > Developing profitable Ethernet services > Early deployments lack quality, scalability & management > MPLS now the clear solution > Need to balance EoSDH with Ethernet on Fibre > MPLS multi-service convergence > Reduce costs, increase flexibility > Key network strategy for multiple tier 1 operators