September 2008September 2008

ByBy

Paul BrignerPaul Brigner

Executive Director, Internet and Technology PolicyExecutive Director, Internet and Technology Policy

Verizon CommunicationsVerizon Communications

September 2008September 2008

ByBy

Paul BrignerPaul Brigner

Executive Director, Internet and Technology PolicyExecutive Director, Internet and Technology Policy

Verizon CommunicationsVerizon Communications

Communications Communications Industry Trends – A Look Industry Trends – A Look

AheadAhead

2

Major Paradigm Shifts Redefine Telecom MarketMajor Paradigm Shifts Redefine Telecom Market

The Wireless Paradigm— Anytime/anywhere/high bandwidth connectivity— Lifestyle/business personalization— “On-net/off-net” vs “Local/LD” pricing — Consumer electronics lifecycle for handsets are shorter than

traditional telco product lifecycles

The IP Paradigm— Universal connectivity and standards— Greater control by users at the “edge”— Voice as an IP application vs basic service — Value creation through broad-based investment

The Broadband Paradigm (wireline and wireless)— Accelerates and intensifies the impact of wireless and IP— Extends high-capacity capabilities from hubs to endpoints— Drives interactive applications and services – platform to help

address key social concerns – energy efficiency, environment, education, health care

— Convergence

3

Communications MetricsCommunications Metrics

54 percent of all homes now have broadband

82 percent of all Americans have a cell phone

16.1 million African American homes had broadband in 2007– 40.2 million African Americans in total

— Increased from 5.6 million in 2005 to over 16 million last year— About 40 percent of all African American homes had broadband –

more than 54 percent of white homes

Number of poor (those making less than $30,000 annually) connected to broadband – 10 million last year

— Thirty percent growth last two years

71 percent of African Americans, 74 percent of whites and 84 percent of Hispanics have cell phones

— Yet half of all African Americans do some sort of non-voice data service every day and only 38 percent of whites do

4

The World Has ChangedThe World Has Changed

To…From…

Mobile and Converged

Broadband

Multi-media

Packetized

Optical Infrastructure

Open architecture

Market-based regulation

Wireline

Narrowband

Voice-centric

Circuit-switched

Copper infrastructure

Proprietary architecture

Traditional Regulation

5

Telecom Sector ChangesTelecom Sector Changes

POTS – plain old telephone service

“Old World”— Common carrier regulation – no competition

Today – Competition in communications markets

Evidence? Line loss by telephone carriers Wireless cannibalization VoIP offered by cable operators 8-10% annual line loss across sector In 2007 VZ had 4% lines loss to cable VoIP plus another

4% lost to wireless– 33M Households in Verizon footprint– 2M lines per year lost

6

U. S. Market is VeryCompetitive in BroadbandU. S. Market is VeryCompetitive in Broadband

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Verizon’s StrategyVerizon’s Strategy

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Verizon Largest Cap ExInvestor in the U. S.Verizon Largest Cap ExInvestor in the U. S.

Capital Expenditures (in US$ billions)

Year Ending Sept./Dec.

Source: Yahoo Finance data

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Verizon’s Broadband DeploymentVerizon’s Broadband Deployment

No company has committed more resources to network upgrades – more than $63B in since 2004

FTTP – Undertaking a very ambitious roll-out of passive fiber optic cable to customer’s homes and businesses

DSL – Continuing to extend the reach of DSL— Nearly 80% of our lines are DSL-capable; 90% in urban areas

EV-DO (wireless broadband) – Reaches 228 million people today— LTE by 2010 with possibly 75 megabits down

Other technologies – exploring innovative and cost-effective ways to bring broadband to more customers

— Partnerships with non-profits such as One Economy to bring broadband to low income customers living in subsidized housing

— New highly-flexible fiber from Corning allows tighter bends for installations in cities

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Upstream DownstreamMbps

Applications and Media BandwidthApplications and Media Bandwidth

5 10 15 20 250 100510152025100

File Sharing, Home Video Sharing/Streaming

Multi-Player Gaming, Interactive Distance Learning

Large File Sharing

HDTV Video-on-Demand

Network Hosted Applications and Storage

Video Conferencing, Premises Surveillance, Two-way Signing

Telemedicine

SDTV Video-on-Demand, Telecommuting

Premises Web Hosting

Next Generation 3D TV

Web Surfing

Real-Time SDTV, Network PVR

FTTPCable Modem

ADSL

Dial-Up

Platform for current and future content and applicationsPlatform for current and future content and applications

Upstream Speed Increasing in Importance!

FiOS Fiber to the Home

FiOS Redefining InteractivityFiOS Redefining Interactivity

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FTTP/FiOS Bandwidth – A Quantum LeapFTTP/FiOS Bandwidth – A Quantum Leap

Niagara Falls

•100 Meg Service Being Trialed•50/20 Meg Service available •20/20 Meg Service available•15/15 Meg Service for $65

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Power &

Battery

ONTONT

Data

POTS

OLT

FTTP - FiOS ArchitectureFTTP - FiOS Architecture

Internet

Video

Super Head End

BroadcastServices

SER

VideoHub

Office

VerizonBroadband Network

InteractiveServices

TDMSwitch

NetworkTransportSwitching/Routing

Local CO(Video Serving Office)

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Voice

Streaming VideoVideo ConferencingVCastHigh Speed AccessVideo ConferencingMusic and Video Content Multi-MediaMulti-Player GamingLarge File Transfer

Text MessagingPhoto Messaging E-Mail and PIM Small File Transfer

CDMA EV-DO(300-500 Kbps)

1XRTT(40-80 Kbps)

2007

2004

Today

Richness & Complexity

Wireless Evolving to AnEver Faster PlatformWireless Evolving to AnEver Faster Platform

Platform for mobile content and applicationsPlatform for mobile content and applications

Compatibility, Simplicity

LTE(Multi-

megabits)

2010

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Key Metrics Will ChangeKey Metrics Will Change

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Open Development Initiative:a Key Driver of InnovationOpen Development Initiative:a Key Driver of Innovation

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How is the U. S. Doing?How is the U. S. Doing?

The World Economic Forum ranks the U.S. 4th in “networked readiness,” which measures ICT development, taking into account the environment and individual and corporate usage and readiness. Denmark is 1st, Japan is 19th.

The Fiber to the Home Council estimates that North America has 2.91M fiber connections and has been growing annually at a rate of 97 percent. The number of FTTH connections continues to almost double annually in the U. S.  This compares to just 1M subscribers in all of Europe. Japan has far more subscribers but has been deploying fiber for far longer than any other country.

More than 12 million homes in the U. S. and Canada are passed by fiber networks compared to only five million in Europe. Nevertheless, as IDATE, a major European analyst firm put it “fiber to the home is still concentrated in only a few countries as Europe remains far behind leaders such as Japan and the US (emphasis added)”.

Verizon has more than 70% of the North American fiber connections and accounts for more than 11 million homes passed in the U. S.

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Over 1 Billion Internet Users Worldwide; growing by 10 million each month.

In 1996, 1.5 million gigabytes traveled through major U.S. Internet connection lines per month. By 2006, 700 million gigabytes traveled through major U.S. Internet connection lines per month.*Daily email traffic is expected to grow from 90.4 billion emails in 2007 to 102 billion emails in 2009.** Half of all email contains image spam, which is five times the size of traditional text spam.***Backbone traffic is doubling every 12-15 months

The amount of traffic, type of traffic, number of users and length of connection time are all increasing so traffic is expanding rapidly.

*the University of Minnesota Digital Technology Center

**IDC

***MSNBC

What Kind of Traffic Does What Kind of Traffic Does Today’s Internet Handle?Today’s Internet Handle?

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Broadband is a Platformfor Helping Solve Key ChallengesBroadband is a Platformfor Helping Solve Key Challenges

Health Care – Ninety percent of medical records are still paper

Energy Efficiency – Thirteen percent reduction in energy use from real time information on energy usage

Education – Truly individualized approaches and “learning communities”—Thinkfinity a major leap forward in this regard

Environment - Prudent use of technology could reduce human-induced global emissions by 15 per cent by 2020