1. Next Generation Access BT/ISPA: 27 th July 2007

2. Agenda – BTs latest thinking Overview Bottlenecks & Points of Interconnection Complexity Risk Sharing Flexibility for Trials

3. Broadband UK: affordable, available and attractive? Top of G8, better than mains water Vast majority commercially funded Infrastructure competition: LLU, cable, wireless in over 70% of the country Even wider set of technologies for broadcast applications (esp. TV) Hundreds of nationwide service providers with a number of wholesale providers E.g., IP TV, mobile over broadband, broadband on the move, IP telephony, hybrid platforms... Bundles and packages with wireless, landlines, software as a service 99.6% broadband availability, over 12 million subscribers One of the lowest prices in the world Service and commercial innovation

4. Ample bandwidth for the vast majority today? Bandwidth and price tend to dominate marketing messages – simple to understand and compare, or is it? Typical customer uses much less than last mile capacity –Average bandwidth usage <30 kbit/s –Peak individual throughput much more constrained by internet and servers, peak time of day, also backhaul and core networks –But some intensive users e.g. streaming SDTV, peer-to-peer file transfer >200 MB/hour - who pay no extra However BT aware of growing public debate and keen to engage with end customers, Ofcom, CPs and other stakeholders e.g. BSG, content industry With long investment lead-times for NGAs, important to get right balance between supply-led and demand-led approach and take account of ongoing technology evolution e.g compression

5. Business Where is the last mile bandwidth an issue? What else drives customer experience? Example applications requiring different transmission rates & Quality of Service Internet Access Best Effort (e-mail, online gambling etc) On-line Gaming PC, Console P2P VoIP Communications (BE PC-PC, off-net PSTN quality) Video-Communications (web-cab to TV, Video calls, Conference) TV & Video VoD download/streamed, SDTV, HDTV Business applications Software as a service, IP- Centrex, VPN Need for high upstream rate as well as download rate Gaming QoS Service level Best Effort Access (d/s) Bandwidth 100 kbps1 Mbps10 Mbps10 kbps HDTV Video-on- demand VoIP Internet Access applications Video telephony Video Conferencing ???

6. BTs Access Network Today Local Exchange Telephone Pole (DP) Customer Overhead Distribution Underground Distribution Backhaul E-side Cables D-side Cables Street Cabinet (PCP) In Confidence manual cross-connection of e-side and d-side pairs

7. Street Cabinet (PCP) BTs Access Network Today Local Exchange Telephone Pole (DP) Customer Overhead Distribution Underground Distribution Backhaul E-side Cables D-side Cables …some older cabinets are more challenging! Whilst some cabinets are modern and easy to work with… In Confidence

8. Technology provides a number of options to accelerate last mile bandwidth Bandwidth (Mbit/s)[1]DownStream (Headline) Indicative DownStream (Median) Indicative UpStream (Headline) Indicative Upstream (Median) ADSL – Exchange based84-60.80.75 ADSL2+ (MSAN) – Exchange based 246-100.90.75 FTTC - VDSL2c5022-25c249 FTTP/GPONc75+burst 40+burst Broadcast satellite100s n/a Broadcast terrestrial digital TV 10s n/a Wireless (HSPA, LTE, WiFi, WiMax) 10s1-5++?<1

9. BTs strategy for UK broadband infrastructure Maximise the performance of existing copper infrastructure –Fix the customer experience issues starting from marketing messages, to selling, provisioning and operating –Tackle residual areas of non availability, making it near ubiquitous, with public funding support –Upgrade the current copper based broadband to ADSL2+ –Develop hybrid solutions: broadband, satellite/digital terrestrial, storage/processing, software Exploit 21CN investment to provide much more throughput capacity at lower cost; make this a competitive advantage for rich content services (TV) Provide targeted solutions to NGA with the best technology and commercial model in each case –Fibre to the Premises in Greenfield development –Selective participation in government funded opportunities where state aid case is clear. –Develop a targeted deployment Equivalent proposition Re-endorse the regulatory principles that have served us well to date (Equivalence in particular, as it drives the risk sharing and volume, both critical for the commercial case to work) but reflect the NGA requirements in the detail Communicate our plans and rationale openly to manage public policy pressure ensuring that BT does not get held responsible for UK NGA investment (or lack/delay thereof) Satisfy the vast majority of needs with our existing copper network Continue investment in core network Develop targeted NGA solutions Re-endorse Equivalence Actively engage customers and stakeholders

10. NGA becomes targeted Fibre deployment requires a lot of civil engineering –Requires time and money so inevitably some opportunities will be captured before others NGA investment becoming targeted –Where new greenfield sites are built –Where customers pay –Where developers or other commercial investors pay –Where taxpayers pay (with consequences to commercial investment?) –... How to make targeting fair and effective?

11. Vision: Targeting NGA to where customers demand is, Equivalently Fibre To The Cabinet (FTTC) solution evolution –Typical BT cabinet 300 lines/customers; BT has over 90000 cabinets –May need a new powered cabinet required for FTTC; minimum commercial level of about 80 subscribers may be difficult to reach (25% of all lines in a cabinet) (assume £10/month premium); May be simpler/lower cost options as technology develops. Establish a trigger level and prepayment by Communication Providers to determine where to deploy Make it possible to deploy anywhere but get paid up front to reduce stranded cash exposure Nationwide deployment but BT (and any CP) would have a choice where to deploy roll-out depending on customer demand Next Generation Access provided by Openreach at Layer 2 level at exchange –Broadband electronics in Openreach –Minimal difference in the end customer and Communication Provider interface whether FTTP or FTTC –Review of the operationally and commercially difficult sub-loop product currently in the Undertakings New technology solution New commercial model New point of equivalence (Openreach – BTW)

12. Sub Loop Unbundling vs Wholesale layer 2 service Sub Loop Multiple cabinets Multiple backhaul Multiple tie cables <10% of lines accessible* Wholesale Layer 2 Shared cabinet Shared backhaul Shared tie cable >80% of lines accessible* * Assumes aggressive commercial model:- high penetration rates, additional revenue, multiple CPs

13. Analysys report for OPTA, Jan 07 conclusions on Sub loop the use of SLU by an alternative provider is not economically viable as an alternative to continuing to use LLU…..we estimate that a business case for SLU would require both: –a market share greater than 55% of all broadband lines (including cable) in all areas served –Our highest estimate for incremental revenue (which assumes an increase in ARPU across all broadband users of EUR10 per month

14. Complexity Likely multiplicity of operators owning NGA infrastructure Patchwork deployment Range of possible models – including developer-led and campus models BTs SMP and USO not applicable? Need for new approach to ensure connectivity and interoperability – and choice of downstream supplier Long Rollout timeline (Civil works)

15. Hiding the infrastructure complexity to enable efficient innovation and competition nationwide End User CP – Wireless Access EU – Fixed and Wireless S Voice & Data Ethernet ONT 1 ONT N 32 Split CP1 CPN R OLT Enhanced Backhaul Offers D-side Copper Legacy E-side Openreach Handover point MSAN Fibre backhaul External Network Voice & Data T SLU NTE5 CP1 CPN Openreach EoI Layer 2 ONU CP1 CPN OLT Wifi WiMax 2G 3G Pt-Pt Access Fibre FTTP PON Access Fibre FTTP CP1 Core CP2 Core CPN Core Ethernet FTTCab – Copper DSide Common Ethernet presentation Layer 2 and standardised OSS to Unify Market above a limited range of physical media options Fibre to Cabinet – Brownfield Point–Point Fibre – Major business sites Fibre to Premises (GPON) Greenfield Other technologies as built Fibre and Wireless are complementary Next Generation Access Infrastructure A mix of Fibre Access Network designs with a unified service offering A basis for sustainable long-term access network investment Infrastructure investor x, layer 2

16. Reaffirming the regulatory principles and updating the detail Openreach formed to deliver underpinning infrastructure and Equivalence of Input for all –Communication providers and BTs downstream businesses are equal –Equivalence should continue in NGA –Openreach is only successful if the industry as a whole is successful Recognising the narrowing reality of bottleneck assets in light of technology and infrastructure competition Encouraging innovative ways to trial without making commitments to particular products or roll-out to be available Symmetric treatment of all investors in new assets Reviewing the universal service obligations and funding in light of multiple private and public investors and value chain fragmentation Stimulation of competition in higher layer network services and applications on all infrastructure

17. Investment Risk Agreement on need to reflect risk/return There are possible options –Trigger approach with up front payments –Anchor pricing –Utility regulation BT open to suggestions and keen to explore alternatives

18. Flexibility for trials Technical trials are essential first step May be exceptional semi-commercial cases where more dynamic cross-BT working required to develop feasible real world solutions –geographically – restricted –involving other CPs –testing demand-led models –will require experimental approach Need for exemptions?

19. UK NGA Vision? Not whether the UK has a monolithic NGA or not, but: An evolutionary delivery of innovative services at affordable prices to those who want to buy them, which means:- Responding to real demand In a commercially and technically innovative way That enables effective downstream competition everywhere And rewards the risk investors take