Getting to a Gig

Our journey towards delivering best in class broadband

Mike Lott – Head of Product

November 2014

Who is Chorus?

• New Zealand’s largest telecommunications infrastructure company with 1.8 million lines connecting homes and businesses

• Standalone, publically-listed company

• We build and operate a wholesale-only, open access network, supporting ~90 retail providers nationwide

• Operate a FTTN network designed for 10Mbps ADSL2+ and have recently released VDSL2 that reaches 60% of lines

• Forefront of building a new fibre network to more than 830,000 homes and businesses in partnership with Government

P2

We are the result of what happens when it becomes political

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Wired Broadband

Penetration Rates

Bro

adban

d C

on

necti

on

s p

er 1

00

popu

lati

on

May 2006:Governmentannounces

separation ofTelecom andregulatory

change

March 2008:

first launchof local loopunbundling

December2010:UFB

officially launched

September2007:

Broadbandovertakes

dial-up

NZ Dec 201330.2

broadband penetration

OECD average

27.0 broadband penetration

Source: OECD Broadband Portal (http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm)1: Chorus estimate based on growth. Statistics NZ estimated household broadband uptake to be 75% at June 2013 (Household Use of ICT survey).

Estimated1 77% of NZ households have

broadband today

15th in OECD –ahead of US,

Australia and Japan

UFB Vision: Fibre to the premises to 75% of New Zealand

Approach

– Open access to all

– Layer 1 & 2 fibre

– 33 Regional Tenders

– Low wholesale pricing, with free install for consumers

– Access only

– Wholesale only

4

$33bn in productivity benefits through fibre rollout

P5

$14.2bn $9.1bn $3.6bn $5.9bn

PLUS…..$5.5bn in growth benefits

Business Agriculture Education HealthcareSector

Potential savings

On December 1, 2011, Chorus was separated from Telecom NZ via demerger

The total separation

between the network and the services is transforming

the industry

Scope of the Chorus Network

P7

Two Phases of our Challenge

P8

• Establish a new business

• Build a FTTP network from a standing start

• Build a new IT stack separate from the integrated telco past

Start up

2012-4

• Get end user and community engagement

• Get customers connected

• Continue to support the demand for bandwidth

Sustain & Grow

2015+

Want to cover three things;

How we have used ngConnect to improve our business and engage outside of the telco sector

1. Innovation

We used to see it as a an inconvenience

2. Realising that

bandwidth growth was our friend We were building

fibre but who cares

3. Getting community

engagement

P9

Innovation

Continuously looking for better ways

For fibre deployment, it’s all about getting better at layer 0

P11

New underground fibre closure used for all connection types

New air blown fibre cable

more reliable

greater blowing distance

New air blown connection tube

Cheaper, stronger, smaller

New practices where existing duct or aerial is not available:

Use new hardened tube for SDU in line with other utility practices

multi-storey building cabling to support simple installation practices

ngConnect

P12

Connected service vehicle video

P13

http://www.youtube.com/watch?v=KRU00gcZRcI

Bandwidth Growth

The driver of our business

Demand is being driven by connected devices

Benchmarking Broadband – New Zealand’s path to generating global broadband envyP15

Source: IDC New Zealand Consumerscape 2014

OTT video

1-2 Mbps

Browsing

3-5 Mbps

SD TV

2 Mbps

HD TV

6-8 Mbps

Smartphone

1-2 Mbps

Online gaming

1-2 Mbps

HD gaming

6-8 MbpsVoIP

0.1 Mbps

Streaming music

0.3 MbpsVideo sharing

2 Mbps

Photo sharing

1 Mbps

HQ Video Calling

1-2 Mbps

Average # of smart devices in NZ homes increased from 2.9 to 5.2 in 3 years

Smartphones have grown from 13% penetration in 2011 to 68% in 2014

Tablets have grown from 4% penetration in 2011 to 39% in 2014

Stimulating annual bandwidth growth of 50%..

• Low concurrent usage enables a good (but not perfect) experience today

• Concurrent use will drive network challenges

P16

Chorus Network Analysis

• Location = Auckland• Connection = 70Mbps VDSL• Netflix on Apple TV with WiFi to

standard router• LightBox on iPad (Gen 2)• Experience – no perceived quality

issues

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pu

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(M

bp

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Time (h:mm) on the evening of Thursday 12th September

Average 290kbps 6.26Mbps 8.42Mbps 6.32Mbps 230kbps

plus Lightboxusing 2Mbps

on iPadNetflix using 6Mbps on AppleTV

95% 97%

65%

92%

32%

63%

Percentage of copper lines by broadband capability

Basicbroadband

> 5mbps

VDSL

But building the network doesn’t mean the best experience happens automatically

Connection speed and connection volume

Benchmarking Broadband – New Zealand’s path to generating global broadband envyP18

Changes to our services to match the new model

1. Provide HD ready commercial services

P19

Emails and browsing

Social networking

TV and movies on demand

Video calling

Real time gaming

Cloud services

3+ simultaneous users

Regulated UBA

Boost VDSL

Fibre 100

Fibre 200

Pragmatists = Value and Info Seekers

Connected Matriarchs = Seek Connectedness (video calling)

Digital Natives = Entertainment Seekers, Gamers

Affluent Families = Entertainment, Efficiency

More UsersFewer UsersMainstreamUsage

Heavy Usage

Home Business = Certainty, Cloud

2. Enhance our fibre offerings

P20

3. Share more information about our network

P21

- - -UFB

Year 1-3

- - -UFB

Year 4-5

4. Ensure we deliver on Service Commitments

P22

ServiceCommitment

MarketOutcome

Minimum average throughput of 10Mbps from Handover Point to ETP

Broadband that supports HD Video

OperationalCommitment

Minimum 10Mbps VDSL Line Rate

ModemDSLAMRSP

EquipmentETP

Chorus Network

HoPAggregation

Network

End User Network*

RSP Network*

* Commitment excludes issues outside Chorus’ control e.g. RSP, End User and international networks

Capacity planned Aggregation Network

This has driven demand for ‘better broadband’

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16,000

10,000

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0

5,000

10,000

15,000

20,000

25,000

Unbundled copper Standard broadband (basic &enhanced)

High speed copper (VDSL) Fibre (GPON)

Chorus Broadband Lines: Quarterly Net Additions

Sep-13 Dec-13 Mar-14 Jun-14 Sept-14

Broadband growth remains strong

Standard mass market broadband is in decline

Growth is in high speed broadband

Average connection speed has increased steadily

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500,000

1,000,000

Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14

Ave

rage

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eed

(M

bp

s)

Co

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ecti

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Vo

lum

e

ADSL ADSL2+ VDSL GPON Connection Speed

10.83 MbpsDecember 01, 2011

15.26 MbpsSeptember 01, 2014

Community Engagement

How we are getting communities to care about fibre

Getting Community Engagement

P26

Deliver on the original

vision

Generate goodwill

while building the

fibre network

Excitement and demand

outside of the telcoindustry

Engagement as to why fibre was

being built

Created a competition; one town in New Zealand would get Gigabit services

We need:

TVC Launching Gigatown

P27

http://www.youtube.com/watch?v=cCDv6vRfW28

How it worked

• Using Social media, we set out to create 5 finalists who we would take to Chattanooga to see how they were leveraging fibre

• Social media posts, weighted by population size, meant that communities had to engage to win

• The winning town is selected from finalists based on judging of their plan for Gigabit Success and on supporter activity through social media.

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Story so far

P29

http://www.youtube.com/watch?v=PLWrWYTeBNU

• We have arguably been New Zealand’s most successful social media campaign and surprised ourselves at how successful it has been in bringing the towns together

• When the finalists saw what Chattanooga had done and how they had leveraged the infrastructure they came back doubly motivated

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Gig summary

P31

http://gigatown.co.nz/plan-for-gig-success

Impact for Chorus

Strong engagement in why fibre

Government has pledged to increase coverage of fibre to 85% and do more in the last 15%

Increased sales and a marked shift in perception of the quality of our infrastructure

Changed our products and approach, from being the bare minimum to being aspirational

P32

Getting to a Gig

Our journey towards delivering best in class broadband

November 2014