1. 1 Multimedia over DSL: the way to new growth?

2. 2 An early state of development of Broadband Services on Telecom Networks  Penetration to be only about 8% of households in Europe by end 2002  Only PC users can have access  Speed is generally limited to a few hundred Kbs/s  Service is only rapid access to existing Internet services  Penetration to be only about 8% of households in Europe by end 2002  Only PC users can have access  Speed is generally limited to a few hundred Kbs/s  Service is only rapid access to existing Internet services

3. 3  Actual 2002 North America:18 M broadband customers Europe:13 M broadband customers  Expectations North America (Probe Research, Forrester Research) + 7 - 10 M new broadband users / year  4 - 6 % of homes switched to broadband per year Europe: 4% per year or more?  Actual 2002 North America:18 M broadband customers Europe:13 M broadband customers  Expectations North America (Probe Research, Forrester Research) + 7 - 10 M new broadband users / year  4 - 6 % of homes switched to broadband per year Europe: 4% per year or more? Fixed broadband subscription rate evolution

4. 4 Technically a lot more is possible  Speed can be 5Mbs/s for 70% of Europeans, directly from the telephone exchange  Video compression at 2Mbs/s and lower, allows multi-channel video services  Access to both PC and TV set allowed by reduced costs of set top boxes  Service offering can be much richer  Speed can be 5Mbs/s for 70% of Europeans, directly from the telephone exchange  Video compression at 2Mbs/s and lower, allows multi-channel video services  Access to both PC and TV set allowed by reduced costs of set top boxes  Service offering can be much richer

5. 5 ADSL & ADSL + from CO Bitrate vs. reach 0.5 1.0 2.0 3.0 4.0 5.0 VDSLremoteADSL+ADSLDistance km Downstream bitrate [Mbit/s] 8 7.4 6.2 5.5 3.0 1.0 14.5 13 10 5.9 3.0 1.0 12.0 10.0 7.2 3.5 1.0 0 22 15 3.5 0

6. 6 total annual broadband revenues [€] “More of the same” FTTEx electronics at CO FTTEx electronics at CO FTTArea electronics at centralized remote location FTTArea electronics at centralized remote location “Evolution … Pay & be paid as you Play” “Pay today” FTTCab electronics at copper cross connect (JWI : Junction Wire Interface) FTTCab electronics at copper cross connect (JWI : Junction Wire Interface) FTTU “Revolution… for existing, End game… for greenfield” A healthy investment cycle goes hand in hand with expected revenue stream evolution… CO ADSL ADSL (+) CO ADSL ADSL (+) CO VDSL CO PON Year

7. 7 Small & medium size businesses

8. 8 Small Businesses: DSL is becoming the standard 18.0%69%62%56%48%40%29% ALL SBs CAGR 2000-05 200520042003200220012000DSL Penetration Source: AMI Partners 2000 U.S. Small Business Strategy & Forecast 2000 - 2005

9. 9 DSL Services for Business Access  LAN to LAN networking Intranet and extranet solutions for SMEs  Private line services Complement to Leased line solutions  Multipair IMA/G.shdsl  Multiservice/multivoice lines (VoDSL)  IP services and solutions IP connectivity IP peering intranet/Extranet IP-VPN (GRE, IPsec, virtual routers, MPLS-VPN (RFC2547bis) IP services: IP QoS, intranet access, firewalling, portals, virus scanning  LAN to LAN networking Intranet and extranet solutions for SMEs  Private line services Complement to Leased line solutions  Multipair IMA/G.shdsl  Multiservice/multivoice lines (VoDSL)  IP services and solutions IP connectivity IP peering intranet/Extranet IP-VPN (GRE, IPsec, virtual routers, MPLS-VPN (RFC2547bis) IP services: IP QoS, intranet access, firewalling, portals, virus scanning

10. 10 Residential customers

11. 11 existing business High Speed Internet Access Premium Internet Basic Video Services Premium Video Services P2P applications (intensive downloads) - Set-Top-Box rental - 30 broadcast channels - Premium broadcast channels - Video-on-Demand - Pay-per-View / Time shifted TV - Entertainment / Gaming - E-Mail - Infotainment - Enhanced Teletex - Internet (customized for TV) - Portal / Kiosk services - T-commerce - Games (on-line gambling) PC usersTV users New services through ADSL video

12. 12 Revenue per user evolution PC owners TV owners Voice 45 € Low speed Internet 15 € Hi-speed Internet 35 € Moving to Voice 35 € TV Basic 35 € Hi-speed Internet 15 € TV Premium 25 € New ! Voice 45 € Voice 35 € TV Basic 35 € Internet on TV 10 € TV Premium 25 € New ! 2001 2009 Moving to

13. 13 A three step approach?  New services to the PC: broadband specific web sites, videoconferencing, teleworking, gaming, video on demand …  Interactive video to the TV set: internet access, video on demand, pay TV, time shifted TV, gaming, e-commerce: one channel  Full multimedia including broadcast channels: two to three simultaneous channels  New services to the PC: broadband specific web sites, videoconferencing, teleworking, gaming, video on demand …  Interactive video to the TV set: internet access, video on demand, pay TV, time shifted TV, gaming, e-commerce: one channel  Full multimedia including broadcast channels: two to three simultaneous channels

14. 14 A combination of technologies a way to speed up broadband penetration? VoD SERVER Vidéo distribution Production, Edition and Contribution Customer and Service Management Internet PACKET NETWORK Packaged Content (This Operator is a Broker) Satellite or DTT No limitation of the number of channels Interactivity Open system: access to all content providers No limitation of the number of channels Interactivity Open system: access to all content providers

15. 15 Is the customer willing to pay?  US Video Services Revenues in 2001 (per subscriber / month): Cable Network:$53 penetration rate = 70% DBS:$63 penetration rate = 15% Video purchase + rental:$16 (household/month) penetration rate = 100%  US Video Services Revenues in 2001 (per subscriber / month): Cable Network:$53 penetration rate = 70% DBS:$63 penetration rate = 15% Video purchase + rental:$16 (household/month) penetration rate = 100%

16. 16 V-o-D penetration on US Cable (source: Forrester Research)  Now: 8 Million (revenues ~ $ 20/ months per user)  2004: 24 Million expected  2007: 40 Million expected  Now: 8 Million (revenues ~ $ 20/ months per user)  2004: 24 Million expected  2007: 40 Million expected In 2007, half of US homes are expected to have V-o-D because of additional offering over DSL In 2007, half of US homes are expected to have V-o-D because of additional offering over DSL

17. 17 What are the bottlenecks?  Telecom Operators have high debt and declining wireline revenues  only invest if short term financial return is assured  The regulatory environment is confused because of debates and court cases  operators slow down investment in an uncertain environment  Telecom Operators have high debt and declining wireline revenues  only invest if short term financial return is assured  The regulatory environment is confused because of debates and court cases  operators slow down investment in an uncertain environment

18. 18 What are the bottlenecks?  No level playing field between Telecom Operators and Cable Operators  Other actors (content providers, aggregators, software houses, set top box manufacturers, etc.) are slowing down investment, uncertain about the time scale and content protection issues  the potential of technology is not realised  Early entrants experience heavy losses because of low revenue (single service) and high costs (no volume)  negative image is projected  No level playing field between Telecom Operators and Cable Operators  Other actors (content providers, aggregators, software houses, set top box manufacturers, etc.) are slowing down investment, uncertain about the time scale and content protection issues  the potential of technology is not realised  Early entrants experience heavy losses because of low revenue (single service) and high costs (no volume)  negative image is projected

19. 19 What competitive environment?  What is the objective of regulation: lowest price? Maximum competition? Broad service offering? Strong service penetration?  Where should competition exist: at all levels? Where there is most added value?  When should regulation happen: at the start of the service or when there is a market?  Is there a need to go beyond competition law?  What is the objective of regulation: lowest price? Maximum competition? Broad service offering? Strong service penetration?  Where should competition exist: at all levels? Where there is most added value?  When should regulation happen: at the start of the service or when there is a market?  Is there a need to go beyond competition law?

20. 20 Content Providers Aggregators Service Providers ATM/IP Network Providers Access Providers Telecom Operators Customer Set Top Box Providers Content Providers Aggregators Service Providers ATM/IP Network Providers Access Providers Telecom Operators Customer Set Top Box Providers The customer should ideally be able to choose any combination of actors to get access to a certain content The Actors aaaaaaaaaaaaaaaa aaaaaaaaaaaaaaaa bbbbbbbbbbbbbbbb bbbbbbbbbbbbbbbb cccccccccccccccc cccccccccccccccc dddddddddddddddd dddddddddddddddd eeeeeeeeeeeeeeee eeeeeeeeeeeeeeee ffffffffffffffff ffffffffffffffff gggggggggggggggg gggggggggggggggg

21. 21 MARGIN ACCESS TRANSMISSION SERVICES A model based on new added-value 10 20 30 40 50 60 COSTS € € ADSL OFFER HIGH SPEED ACCESS BUSINESS ACCESS ACCESS TRANSMISSION ACCESS TRANSMISSION SERVICES RESIDENTIAL MULTIMEDIA SERVICES

22. 22 An ideal revenue sharing model?  Operators: - provide access - billing - keep part of billed revenue t Service or Content providers: - advertise services - provide services - collect part of billed revenue  Operators: - provide access - billing - keep part of billed revenue t Service or Content providers: - advertise services - provide services - collect part of billed revenue i-Mode or Minitel model

23. 23 Looking back from the future  All homes will have wired broadband connectivity (copper lines, cable)  Additional broadband connectivity will be provided by mobile networks, wireless LANs, DTT, satellite  Service will be truly multimedia: voice, data, video, gaming, e-commerce…)  value of service will be at least as high as the value of connectivity  This multimedia broadband environment will be a major driver for related industries: consumer electronics, content, software, IT services...  All homes will have wired broadband connectivity (copper lines, cable)  Additional broadband connectivity will be provided by mobile networks, wireless LANs, DTT, satellite  Service will be truly multimedia: voice, data, video, gaming, e-commerce…)  value of service will be at least as high as the value of connectivity  This multimedia broadband environment will be a major driver for related industries: consumer electronics, content, software, IT services... Present policy should be determined by this view of the future Present policy should be determined by this view of the future

24. 24 Regulation in a multimedia environment: new objectives  Increase dramatically the level of service available to enterprise and residential users: higher speed, more content, greater interactivity.  Create an open service environment with appropriate revenue sharing models.  Encourage investment in broadband infrastructure.  Create a level playing field for competition at the transport layer using competing platforms (copper, cable,…) and loop unbundling.  Increase dramatically the level of service available to enterprise and residential users: higher speed, more content, greater interactivity.  Create an open service environment with appropriate revenue sharing models.  Encourage investment in broadband infrastructure.  Create a level playing field for competition at the transport layer using competing platforms (copper, cable,…) and loop unbundling.

25. 25 ARCHITECTS OF AN INTERNET WORLD