The Open Services Exchange Model Telecom 3.0. Thomas Martin

Broadband Opportunities and Challenges Opportunity Gain and maintain strategic position Economical, social, and technological leapfrog Experiences to take advantage of Challenges Which business model? Investments? Which strategy? How to acquire resources and skills? Which partnerships? 2

Telecom Evolution Telecom 1.0 The historical telecom model: One typically stateowned company builds and operates infrastructure designed for voice and later on adopted to support first-generation Internet services Single value chain Linear OpEx increase with services demand Limited motivation for service innovation 1800 4

Telecom Evolution Telecom 1.0 Telecom 2.0 The historical telecom model: One typically stateowned company builds and operates infrastructure designed for voice and later on adopted to support first-generation Internet services Single value chain Linear OpEx increase with services demand Limited motivation for service innovation The emergence of new telecom operators (e.g., Swedish broadband company) deploying IP NGN highbandwidth symmetrical infrastructure designed for triple-play next-generation Internet services Single value chain Innovation walled garden but limited incentive for service innovation; therefore continues downward ARPU pressure 1998 7

Example Telecom 2.0 Challenger Swedish Broadband Company B2- Bredbandsbolaget Startup in 1998, in 2005 27% of all Broadband Connections in Sweden Sold to Telenor on 23 May 2005 for 600 M 8

Telecom Evolution Telecom 1.0 Telecom 2.0 Telecom 3.0 The historical telecom model: One typically stateowned company builds and operates infrastructure designed for voice and later on adopted to support first-generation Internet services Single value chain Linear OpEx increase with services demand Limited motivation for service innovation The emergence of new telecom operators (e.g., Swedish broadband company) deploying IP NGN high-bandwidth symmetrical infrastructure designed for triple-play next-generation Internet services Single value chain Innovation walled garden but limited incentive for service innovation; therefore continues downward ARPU pressure The Open Services Exchange Model in which Virtual Service Providers (VSPs) offer their products over the IP NGN infrastructure on equal terms Efficient diverse value chain in a market economy empowering continues diverse service innovation Continued ARPU growth with minimal turnover 2009 9

Telecom evolution Vertically Integrated Model Open Services Exchange Model Services & Content SERVICES & CONTENT Network (Backbone & Access) New Model Needed NETWORK (BACKBONE & ACCESS) Passive InfraStructure PASSIVE INFRASTRUCTURE 10

Typical Telecom Financial Behavior in Multiservice Environment CapEx OpEx ARPU Turnover Telco 1.0 $/Sub. $/Sub. $ $ Subscribers Subscribers Subscribers Subscribers Telco 2.0 $/Sub. $/Sub. $ $ Subscribers Subscribers Subscribers Subscribers Telco 3.0 $/Sub. $/Sub. $ $ Subscribers Subscribers Subscribers Subscribers 11

Improved Financial Behavior of Telco 3.0 CapEx OpEx ARPU Turnover CapEx not sensitive to subscription as services production costs incurred by the VSPs Predictable financials as CapEx and OpEx tightly controlled by system OpEx not sensitive to subscription as services production and support costs incurred by the VSPs ARPU growth as a result of continued service improvement and innovation No turnover as users alternate between VSPs but within the Open Services Exchange $ $ $ $ Telco 3.0 Subscribers Subscribers Subscribers Subscribers 12

The Open Services Exchange Model Complete Ecosystem for the Service Innovation Economy VSPs and End Users Open Services Economy Open Services Exchange Operator AppStore-type open economy in which customers can offer and purchase services on equal terms Open Services Exchange (OSE): Service innovation and governance ecosystem operated by an OSE Operator (OSEO) Open Services Exchange Network Open Services Exchange Network (OSEN): NGN symmetrical IP infrastructure providing connectivity and quality service delivery Passive Fiber Network Passive Infrastructure Provider (PIP) taking advantage of right of way and utility economics 13

Passive infrastructure Provider (PIP) One or multiple entities to deliver coverage of target market Leveraging right of way of the central/local government or utility company Passive network can be deployed on demand or pre deployed for all/part of the potential subscribers Infrastructure must support high symmetrical bandwidth to stimulate services offering and innovation Operational aspects of the passive infrastructure deployment must be streamlined in line with the business case (e.g. work orders are automatically generated by the system) Passive Fiber Network 14

The Open Services Exchange Network Key Attributes Converged Resilient Intelligent Scalable Manageable Offers Single Network for Business and Residential Services Offers Industry s Most Resilient End-to-End Solution Service- Optimized Intelligence Enhances Service- Level Agreements Offers Dramatic Increases in Bandwidth, Subscribers, and Services Simplifies and Accelerates Deployment of Services Open Services Exchange Network 15

The Open Services Exchange Network Built on Cisco s IP NGN Architecture Business Corporate Residential STB Access Ethernet Node Ethernet Node Aggregation Node Carrier Ethernet Aggregation Aggregation Node Distribution Node Edge ESE Multiservice Core VoD TV SIP Content Network Business Corporate Aggregation Network MPLS/IP Core Core Network IP/MPLS Residential STB Ethernet Node Ethernet Node Aggregation Node Distribution Node Content Network VoD TV SIP Business Aggregation Node ESE Corporate Residential STB MPLS/IPoDWDM Optical Network 16

The Open Services Exchange Network Ethernet Access Platforms Optimized for both Consumer and Business Ethernet Services Deliver Service Availability and Resiliency Increased Services Scalability and Flexibility Enhanced QoS, Investment Protection, and Operational Manageability Cisco Catalyst 4500-E Cisco ASR- 9000 Cisco ASR- 9000 Access Aggregation Core Cisco MWR 2941 Cisco ME 3400E Aggregation Node Distribution Node 17

Open Services Exchange Operation Open Service Exchange operation offers the fully automated money-making machine of the Open Service Exchange Model. Features the VSP interface for service creation, sales, support, etc. A VSP service innovation incubation environment (ready billing, customer care, etc.). VSPs can offer services nationally (and even internationally) over the symmetrical infrastructure on equal terms. It is the end users marketplace interface for change of VSP choice, support, etc. VSP Innovation Open Services Exchange Operator End Users Demand 18

Open Services Exchange Operation VSPs create and promote services. End users buy services from the VPSs in the OSE marketplace using the web interface. The VSPs collect revenue and the OSEO tracks all transactions and facilitates the revenue sharing (VSP, OSEO, OSEN, and PIP). The VSPs must conform to the rules and systems of the ecosystem operated by the OSEO, creating customer choice and low OpEx. Penetration experience shows a high initial take rate and constant upward trend as users alternate between VSPs but within the OSE. ARPU follows an upward trend as service innovation and competition encourages new services replacing old. AMPU is high and predictable at each layer, taking advantage of expertise and economics of scale. 19

Open Services Exchange Model Service Innovation 21

The Open Services Exchange Model Go-to-Market OSE potential scenario VSPs and End Users Open Services Economy Local and International VSPs Open Services Exchange Operator Utility White Label Open Services Exchange Network Utility or Network as a Service Passive Fiber Network Utility or Municipality 22

The Open Service Exchange Model As deployed by Via Europa VSPs and End Users Open Services Economy Markeplace like appstore in which customers can offer and purchase services on equal terms Open Services Exchange Operator Open Services Exchange (OSE) Operated by Via Europa Open Services Exchange Network Network elements deployed either by Passive Network Owner or by Via Europa Passive Fiber Network Owned by Municipalities, Housing Companies or Utilities 25

Partnership with real-estate company REC provide - secure locations - electricity - Support staff (physical work) Co/No - active equipment - customer facing portal -NOC Pay off for REC - Higher value for real estate - Lower OPEX (automation / communication costs) - Strong service offering to end user Passive Fiber Network 26

The Open Services Exchange Network (OSEN) @Via Europa - Ethernet Access Platforms Catalyst 36xx/37xx/ME3400 based access Decentralized, fiber to the building, access in building Catalyst/7600 aggregation Cat36xx Access ME3400 Cisco 7600 Aggregation Node Aggregation Cisco 7600 Distribution Node Core Open Services Exchange Network 27

Subscriber Portal Example Service Subscription VSPs and End Users Open Services Economy 29

VSPs and End Users Open Services Economy 30

www.labs2.c om 31

www.labs2.c om 34

Add-On: WIFI WIFI Access Points deployed on all FTTH connected buildings Accessible for VE users and roaming support 35

Open Services Exchange Adaptation System 37

OSEM Recap Re-focusing on core competencies: Utilities, communities, governments to provide transport infrastructure OSE provides connectivity, portal, billing, apsstore VSP provide services Flexible and Innovative Concept to generate new revenue streams as well as to support BB build-out =>Full OSEM, providing Services on Open Infrastructure Real estate, utilities, national networks (stimulus) Revenue sharing amongst different OSEM partners (PIP,...) =>Hybrid OSEM legacy SP expanding their service portfolio by offering non-core services from VSPs on their OSE portal 38

Our Approach The Business Model as the Platform Business Goals Strategy Near-Term Initiatives Business Architecture Business Goals Initiatives Technology Architecture 39

Creating a winning business model Engineering Operations Marketing Finance Cisco CxO & Sales 40

Creating a winning business model CxO Cisco Marketing & Sales Teamwork towards agreed Business Model Engineering Operations Finance 41

Creating a winning business model Facilitation; Modeling environment and Expertise Know how from similar processes around the world; Modeling environment to automate process; subject expert engagement when needed; Cisco Top Management CxO Executive sponsorship ; guidance ; results and analysis Engineering Architecture Reflect Passive and Active infrastructure in the model while addressing needs Marketing & Sales Strategy Sales goals and plans commissions ; Service pricing and penetration strategies; new product offering ; churn patterns Marketing & Sales Finance Corporate Financial guidance Operations Operations Coats Reflect and analyze Operations to Optimize OpEx Accenting rules; Payment and receipts; Financing Options; Cost of Capital; Depreciation 42

Key message Why do customers leave = Someone gives better price or better performance or something they want Fiber is high ground, the key to control the battlefield - nothing beats fiber (not even fiber, first mover advantage, fiber gives lower OPEX and best performance) This turns the game in to a landgrab (fibergrab) Every block won is yours, forever (every block lost, is lost forever) Cherry picking makes is possible for many, many players to go in to the market 43

OSEM Recap Flexible and Innovative Concept to generate new revenue streams as well as to support BB build-out =>Full OSEM, providing Services on Open Infrastructure Real estate, utilities, national networks (stimulus) Revenue sharing amongst different OSEM partners (PIP,...) =>Hybrid OSEM legacy SP expanding their service portfolio by offering non-core services from VSPs on their OSE portal Re-focusing on and leveraging of core competencies: Utilities, communities, governments to provide transport infrastructure OSE provides connectivity, portal, billing, apsstore VSP provide services 44

OSEM Recap Why do customers leave = Someone gives better price or better performance or something they want Fiber is high ground, the key to control the battlefield - nothing beats fiber (not even fiber, first mover advantage, fiber gives lower OPEX and best performance) This turns the game in to a landgrab (fibergrab) Every block won is yours, forever (every block lost, is lost forever) Cherry picking makes is possible for many, many players to go in to the market 45