1. Public TeliaSonera International Carrier Daniel Sjoberg, Reykjavik, August 25th Bringing knowledge, quality and stability to the communications industry

2. Public “Outlining requirements for new network services and examining how the optical core can be cost effectively upgraded to support them" Daniel Sjoberg Head of Technology TeliaSonera International Carrier

3. 3 ?

4. 4 Requirements More Capacity & Cheaper How the optical core can be cost effectively upgraded? Lower Price from Vendors

5. 5 Outline Current drivers for international Capacity Future Requirements Cost Drivers For International Carriers –Comparison between IP and DWDM Conclusions

6. 6 TeliaSonera International Carrier Target To be one of the top three profitable carriers in the wholesale segment in Europe. Business scope Focus on offering wholesale capacity and IP services to network and service providers over the wholly-owned European and the trans-Atlantic networks. TeliaSonera IC will also run its own IP network and maintain and operate its peering points and relationships in Europe and in the US. The international voice business will at the same time be focused to international interconnect agreements and bilateral routes.

7. Public Current drivers for international Capacity

8. 8 TSIC Infrastructure X ducts 96 Fiber pares One fiber pare lit and used for –DWDM –IP –SDH –Voice IP & Voice is “buying” wavelengths at Market price Voice is buying IP and SDH at Market price This enable us to create Business Case for all PoP’s and services DWDM SDHIP VOICE

9. 9 TSIC Business Logic ConsumersCorporate Service Providers TSIC For TSIC to understand future service requirements, we need to understand end customer markets.

10. 10 General Business Comments IP has higher Margin per MBPS then SDH & DWDM SDH & DWDM gets Profitable with Volume alone IP price should be “lower” per MBPS then long haul SDH & DWDM price IP gets Profitable with Volume and tight Cost control IP DWDM

11. 11 Drivers For International Capacity IP –Main driver for International Capacity either through IP Transit or building own Backbones for IP Fixed Voice –Most Voice Network already in place. Might be incentive to replace bilateral with cheaper leased lines Private Line & VPN –Legacy VPN network might upgrade but highest growth will be in IP VPN. –In Markets with cheap capacity SDH will still be alternative to VPN’S Mobile –Little demand today for International Capacity, will change with increasing data usage –Consolidation and price pressure might drive need

12. 12 Drivers for International Capacity Capacity Time Best Effort IP IP VPN Mobile Fixed Voice Private Line & VPN

13. 13 Wholesale Buying behavior IP –Still same old IP Transit –Bundle solutions with MPLS SDH –In Western Europe mainly smaller ISP –Still growing in Eastern Europe –Price and Growth decrease due to Ethernet DWDM –Buying Circuits not Networks –Still volume growth but also price erosion

14. Public New Requirements & Future Network Services

15. 15 “People tend to overestimate what can be done in one year and underestimate what can be done in five or ten years.”

16. 16 What will drive new requirements? Broadband –Peer to Peer dominating –Today not quality minded Media –Using legacy systems –Will migrate but are very quality minded VPN –Traffic growing due to change is behavior that might be enable through cheap capacity Mobile –Still for closed Networks –Internet vs Mobile Networks, the next big battle

17. 17 Capacity pricing Cost Broadband Service 70 % of the cost are fixed including last mile & Equipment 30% is traffic related This will drive pricing down for International Capacity Gives opportunity for new International services Fixed Cost (Last Mile & Dslam) IP Traffic Margin 30 % 70 %

18. 18 Capacity Alternatives SDH/SONET DWDM/WDM Ethernet CARRIERS By far the dominating solution Few large customer, mainly carriers Flexible Solution for Corporate customers, Service Providers and………. Carriers ATM IP SERVICE PROVIDERS Ethernet Might over time be replaced by new technology Service platform for the future Flexible Solution for Corporate customers

19. 19 Ethernet – One Solution? Ethernet ATM, F/R, IP, SDH, Ethernet ATM, F/R, IP, MPLS, SDH, Ethernet, DWDM CustomerLast MileMetroLong Haul ATM, F/R, IP, MPLS, SDH, Ethernet, DWDM

20. 20 When Technology shift? Road to IP VPN Private Networks Public Networks X.25 ISDN Private Lines Public Internet F/R and ATM IP VPN PSTN Ovum 2001 Lessons on Migration New service have only triggered large scale migration when two conditions are met New service must offer substantial cost savings for existing applications Match or exceed the quality and reliability

21. 21 Traffic Mix TeliaNet 1997 - 2002

22. 22 Transatlantic Traffic Pattern OLD NEW

23. 23 Investing at the right time 60 – 80 % of Cost for IP is OPEX Of those more then 50% fixed 20 – 40 % % is depreciation Depreciation cost goes up –with 20 % if customer is delayed with 6 month –with 50 % if the delay is 12 month For IP investment timing is everything to maintain Product profitability

24. 24 Future IP Concept – IP like Voice? Global Routes European Routes Customer Routes Broadband Routes US Peers Routes Back Up ConnectServer Colocation IP TransitIP Connect How will this impact the optical Network planning?

25. 25 Future IP Concept Physical Connection (Local Loops) Logical Connection (BGP) Service Creation (Routing announcement)Service Modules IP Transit/ IP Connect Metro Network

26. 26 Next coming Years SDH Customer will migrate towards DWDM and Ethernet bringing requirements from current SDH service 40 G will make sense on certain stretches for IP Backbones 10 G Ethernet will be used as Backbone links Not likely that routers will use GMPLS to provision capacity GMPLS will be use to improve OPEX

27. 27 Current Network & Service Platforms IP Transit SDH DWDM Voice ATM/F/R Ethernet Products Current Platforms IP SDH DWDM Voice Server Colo

28. 28 Capacity Grooming? UNITE DXC 4/4 2.5 G 622 Mbps 155 mbps Xtreme DWDM 10 G Use DXC 4/4 - muxing, - grooming, - protection / restoration - and fast provisioning Connecting 10 G directly to DWDM equipment because of no grooming possibilities

29. 29 Current Network & Service Platforms IP Transit SDH DWDM Voice ATM/F/R Ethernet Products New Platforms IP SDH/DWDM Voice Server Colo Will this save money for Carriers? 10 G Ethernet? GMPLS ?

30. Public Network Cost

31. 31 TS IC Cost Allocation Project TSIC initiated Cost allocation project late 2002 Purpose was to allocated all company cost onto Product Platform Based on allocation create Long Term P&L based on growth Scenarios Used it as base for Network & Product Strategy

32. 32 Cost for upgrading Time Cost ? Current operation, investing based on customer, will short term be effective on Corporate Cash Flow Change in technology might long term give lower production cost Very difficult to say what to recommend

33. 33 DWDM Cost

34. 34 Conclusions New Requirements on Optical Wholesale will be driven from Corporate Customers Ethernet will initially take growth from SDH then from DWDM Most optical network are in the beginning of depreciation that will delay upgrades Capex is not the only key cost component for profitable optical service “People tend to overestimate what can be done in one year and underestimate what can be done in five or ten years.”

35. 35 Thank you for your attention! carrier-sales@teliasonera.com www.teliasonera.com/carrier

36. Public The Nordic and Baltic telecommunications leader