ITU workshop, 07/09/03 — 1 All rights reserved © 2003, Alcatel An Industry View of NGN Wireline Geneva July 9, 2003 Jean-Pierre Lartigue VP Business Strategy, Fixed Networks

ITU workshop, 07/09/03 — 2 All rights reserved © 2003, Alcatel Optical Core Multi-protocol IP/MPLS/ATM Core Towards a Smarter Consolidated Network Consolidated Services PoP AnyAccess AnyService AnyBackbone Metro Ethernet Aggr. Multi-service ATM Aggr. Multi-service Optical Aggr. Broadband Access IP/MPLS Core Network management Switching Evolution Traditional VPNs Leased Lines Internet Access IP-VPN Ethernet VPN Hosted Services Services for Mission Critical Business Aplications Routing Evolution Application services Edge network MPLS G-MPLS

ITU workshop, 07/09/03 — 3 All rights reserved © 2003, Alcatel NGN Wireline/Voice, an evasive market? Softswitching investment Market by IDC 0 1,000 2,000 3,000 4,000 5,000 6, Million $ June 2000August 2001July 2002 Delay Decline

ITU workshop, 07/09/03 — 4 All rights reserved © 2003, Alcatel NGN Wireline covers three market segments >Competitive Voice: >Competitive Voice: Long Distance Bypass & local competitive basic IP Telephony >Broadband NGN: >Broadband NGN: New business and high end residential Broadband services, including Voice + services >PSTN evolution: >PSTN evolution: Incumbents’ traditional Voice Local & Long Distance/transit services Different dynamics - different solutions requirements Common NGN building blocks

ITU workshop, 07/09/03 — 5 All rights reserved © 2003, Alcatel Broadband seen as a key catalyst across segments WW NGN CAPEX (Mio €) Source: Conservative analysts perspectives for Softswitch, C-AGW and TGW market WW NGN Voice Equipment market (1) Voice over BB competition New BB services Managed communications. Multimedia PSTN & BB convergence

ITU workshop, 07/09/03 — 6 All rights reserved © 2003, Alcatel (1) Regulation, competition offering and perceived end-users needs Market perspective for Competitive Voice An early growing niche market >Long Distance Bypass: >Long Distance Bypass: a proven NGN voice service Alternative Long Distance for Competitive operators Bypass to out-of-region for incumbents >Internet (PC) Telephony >Internet (PC) Telephony deployed in some countries Niche service to High End residential or businesses Residential Voice over Broadband >Emerging Residential Voice over Broadband competition Yahoo BB Japan (1.6 Mio Subs), Voice over Cable (2.9 Mio Subs) Cheap basic telephony bundled with High Speed Internet Yahoo example: $3.3/subs/month & $0.06/3minutes (local, LD,US)

ITU workshop, 07/09/03 — 7 All rights reserved © 2003, Alcatel Market perspective for Broadband NGN Premises of a new Broadband Economy market Source: Jefferies & Company, RHK, Yankee Group Subscribers (000) Total CAGR = 47% DSL 49% CAGR Cable 41% CAGR 0 20,000 40,000 60,000 80, , , , , , DSL Cable Satellite FWA FTTU/Other  DSL annualized service provider revenue end 2002 > 14 Bn €  Starts to compensate for voice revenues erosion  Growth rate continues at > 2M lines per month

ITU workshop, 07/09/03 — 8 All rights reserved © 2003, Alcatel Market perspective for Broadband Grow Broadband services value in three waves TIME Business Access High Speed Internet access $ Residential Multimedia Today Address new audiences (PC, TV, console) with new services (gaming, personal communication, content sharing) Move aggressively into HSI Build on existing infrastructure & start with underserved SOHO segment Observed timeframe to generate positive contribution For an incremental Consumer: 12 to 14 months For an incremental Business subscriber: 4 to 6 months

ITU workshop, 07/09/03 — 9 All rights reserved © 2003, Alcatel Market perspective for Broadband NGN Raising Managed Communications for Small businesses End-user segments ServicesProfile Full hosting seekers (45%) Hosted IP PBx Web call centers Web hosting Hosted messaging IP Videoconferencing E-commerce Conservatives (25%) Traditional voice High Speed Internet Average access needs - no real leading service Networkers (30%) IP & Voice VPNs Web call centers IP Videoconferencing Remote worker or Multi site & remote Stronger interest in turn-key solutions Source: Alcatel end-users analysis Security & mobile office

ITU workshop, 07/09/03 — 10 All rights reserved © 2003, Alcatel Market perspective for Broadband NGN Telephony, embedded in BB residential services Music download VOD Video/audio streaming On-line gaming Entertainmen t content , chat, and instant message Unified messaging PC- and cable- based telephony Video conferencing Commun- ication Walled Gardens, security Virtual models and tours Enabling / Productivity tools “Click and talk“ audio/video support On-line care Embedded BB NGN telephony services Wired & unwired connection

ITU workshop, 07/09/03 — 11 All rights reserved © 2003, Alcatel Market perspective for Broadband NGN Telephony, embedded in BB residential services Music download VOD Video/audio streaming On-line gaming Entertainmen t content , chat, and instant message Unified messaging PC- and cable- based telephony Video conferencing Commun- ication Walled Gardens, security Virtual models and tours Enabling / Productivity tools “Click and talk“ audio/video support On-line care Embedded BB NGN telephony services Wired & unwired connection

ITU workshop, 07/09/03 — 12 All rights reserved © 2003, Alcatel

ITU workshop, 07/09/03 — 13 All rights reserved © 2003, Alcatel Market perspective for Broadband NGN Home networking: a key dimension for future Alice’s Video portal Alice’s Phone Alice’s Home

ITU workshop, 07/09/03 — 14 All rights reserved © 2003, Alcatel Market perspective for Broadband NGN BB NGN net contribution to an Operator’s wireline business Source: Alcatel analysis, (1) includes full cost impacts (billing, network management, network impact); HIS: High Speed Internet, BBE: Entertainment Share of operators’ Wireline value (% NPV DCF ) BB NGN Business BB NGN Residential Hosted IP PBX Messa- ging Video- conf. IP PhoneMessa- ging HSI, BBE, VPN Total BB 3.6% Payback: ~12 monthsPayback: ~30 months

ITU workshop, 07/09/03 — 15 All rights reserved © 2003, Alcatel Market perspective for PSTN evolution Not yet a shift from PSTN to full NGN >Traditional switching telephony is still preferred choice Economically competitive Optimised (voice services regulation & feature) & robust Existing investment protection >Operators anticipating evolution towards NGN Network consolidation opportunities Replacement of end-of-life TDM technology >Evolution scenario and timing specific to local situations Constraints of legacy architectures Feature parity requirements Broadband penetration

ITU workshop, 07/09/03 — 16 All rights reserved © 2003, Alcatel Market perspective for PSTN evolution ~25% estimated OPEX savings for large deployments TDM drawbacks Layered & meshed network Many network nodes Large footprint per node Dedicated networks for individual services NGN voice improvements Self managing More flat networks Less # service-related nodes Reduced # switching ports Lower site costs per node Shared voice & data resources Centralised management Reduced transmission capacity Cheaper new SW development

ITU workshop, 07/09/03 — 17 All rights reserved © 2003, Alcatel Market perspective for PSTN evolution Upfront CAPEX remains the key barrier: C4 networks Note: CDE included. Important impact on 200K project. Network description in note page Relative C4 equipement Cost (%) TDM 1 hop TDM 50% 1 hop 50% 2 hops TDM 2 hops NGN with trunking gateway Complex C4 networks replaced with NGN

ITU workshop, 07/09/03 — 18 All rights reserved © 2003, Alcatel Market perspective for PSTN evolution Upfront CAPEX remains the key barrier : C5 networks Large obsolescence or extension in BB markets NGN Voice comparable with TDM costs C5/NGN replacement under consideration Risk hedging (maintenance, failure, BB Voice) Fast PSTN/BB access synergies Other situations Primary TDM investment NGN-readiness of the infrastructure BB, the main next investment wave Limited obsolescence or extension TDM still advantageous No major C5/NGN replacement Gradual access (& mobile) synergies

ITU workshop, 07/09/03 — 19 All rights reserved © 2003, Alcatel In summary >NGN build out will occur from three different markets Competitive voice, Broadband NGN & PSTN Evolution >Broadband, a key catalyst to opening the opportunities for new NGN services Basic voice over BB Managed Communications for SMEs Embedded telephony in new residential BB services >PSTN will progressively be improved with NGN components Converging PSTN & BB infrastructure over time

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