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Technical Evolution of Optical Networks Towards New Revenue-Generating Applications

Wireless & Optical Communication Conference in Taipei on March 9th 2004

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X_ppt—2 All rights reserved © 2003, Alcatel

Asian Operators – Healthy and Growing in 2003

Increased revenue and profitability …

9.6%7.7%2.8%254 BE0.5%Total

16.0%

11.5%

6.0%

2003E2002Growth 03/02 E

2002Growth 02/01

17.3%2.2%30 BE7.6%Fixed & Mobile

8.3%4.4%111 BE4.9%Mobile

4.5%1.4%113 BE-5.1%Fixed

Profit MarginRevenue

Estimated CY2003Source: MSDW, Company data


Operators expect Revenues up, Costs down, Profits up

7.8%4.8%Data Rev/Total Rev

34.4%66.3%Capex/sales

20.3%24.0%Capex/sales

418385Lines/employee

$26.1$26.2ARPU

Mobile

Fixed Line

2,2732,111Subs/employee

$20.8$21.3ARPU

48.8%45.5%Overall Penetration

29.8%29.7%Overall Penetration

2003E2002Indicator

Stable Top line

Productivity up

Subscriber growth offsets ARPU decline

Data ARPU important

Cost Reductions

Source: Goldman Sachs. Figures are arithmetic averages, not weighted averages.


Strategic aspects in APAC: revenues and users growth

Number of Suscribers

0

200000

400000

600000

800000

[000] [000] [000]

Na rrowba nd S ubsc ribe rLine s

Broa dba nd S ubsc ribe rLine s

Tot a l P riva t e Circ uitConne c t ions

Type of use rs

1998A

1999A

2000A

2001A

2002E

2003E

2004E

2005E

2006E

2007E

Source: Pyramid Research

#Narrow band CAGR: 15%#Broadband CAGR: 167%#Leased Lines CAGR: 12%

Revenues

0

50000

100000

150000

200000

[US $m] [US $m] [US $m]

Voic e Broa dba nd P riva t e Circ uit

Re ve nue s pe r t ype

$Total CAGR: 3%$Broadband CAGR: 115%$Leased Lines CAGR: 9.7%

All rights reserved © 2002, Alcatel


Do the ABC: Opex improvements becoming as important as Capex improvements

> Network costs• Operations• Maintenance• Provisioning

> Access charges• Fees paid to use another

network> SG&A

• Sales & Marketing• Finance• Corporate Overhead

> Depreciation and amortization• Allocation of tangible and

intangible fixed assets

2002 Opex: $161 billion forNA ILECs and IXCs

Depreciation and amort.

23%

Network costs28%

Access charges

17%

SG&A32%

Source: RHK Inc. 2003


Revenues Opportunities: Growing demand for metro services

+35%407Content distribution/ Caching (wholesale)

8.

+41%673Web-hosting (ISP)6.+40%875Web-hosting (carrier)5.+20%1,126Native ATM4.+28%1,721VoIP (wholesale)3.+27%3,239IP-VPN2.+59%5,657Ethernet access1.

+63%246Unified Messaging10.+72%267IP multi-cast (wholesale)9.

+115%450IP multi-cast (retail)7.

5-year CAGR2007 Revenues($Millions USD)

Service

Source: Gartner Dataquest Apr03


Worldwide Revenues

Service/Year 2003 2007 Frame Relay $16.7B $16.7B Leased Lines $23.2B $24.2B Ethernet $1.2B $8.3B

Source: Infonetics Research


Services Price and Quality Positioning

Leased Lines 100 No Overbooking Frame Relay 70 CIR + BE nx64Kb/s Ethernet (Objective) 70 CIR + BE Network based IP VPN 45 No QoS CPE IP VPN 15 No guarantees

Source: Internal studies


The strategic aspects of the Metro network

The metro network has been up to recently built in overlaying networks, one per type of service.The current pressure for financial performance and cost efficiency, is leading operators to built metro networks with the following characteristics: Migrating services and protecting revenues Simplifying and collapsing the network reducing the number of overlaying networks.OPEX reduction through centralized OAMP


Yield management:One metro network or many?

How to achieve economies of scale?

Corporate services:Existing leased lines services and frame relayNew emerging Ethernet servicesFuture GPRS/EDGE/3G cellular services

Residential services:Existing ADSL servicesFuture VDSL servicesFuture GPRS/EDGE/3G cellular servicesEmerging Ethernet services


Yield management:One metro network or many?

CPN

CPN

CPN

POTS/ISDN

xDSL

PON

Cable

LMDSCPN

DS1/DS3

SONET/SDH

Class-5

ATM-switch

IP router

(N)BAS

Server Farms

PoPPoP

PoP

PoPPoP

PoP

COPoPPSTN core

ATM core

IP core

CorporateIntranetExtranetInternet

Head End

ethernet

Aggregation router

PoPMG

CO

2G / 3GMobile

BaseStation

Campusbusiness park

downtown subtending rings

Metro accessMetro core rings


Yield Management:One metro network or many?

QoS allows one network to better use complementary traffic matrixes on the same infrastructure.

SSoouurrccee:: AATT&&TT


Yield management:One metro aggregation system or many?

MediaGateways

MediaMediaGatewaysGateways

Voice ServicesVoice ServicesVoice Services

DSLAMsDSLAMsDSLAMs

FR NodesFR NodesFR Nodes

BSTs

Nodes B

BSTsBSTs

Nodes BNodes B

BB ServicesBB ServicesBB Services

NB ServicesNB ServicesNB Services

MobileServicesMobileMobile

ServicesServices

LL ServicesLL ServicesLL Services

1640FOX1642EM

1650SMC1660SM

1662SMC1670SM

1692MSE1696MS1641SX

OMSNCWDMWDM

MultiserviceAggregation

Device

16401640FOXFOX1642EM1642EM

1650SMC1650SMC1660SM1660SM

1662SMC1662SMC1670SM1670SM

1692MSE1692MSE1696MS1696MS1641SX1641SX

OMSNOMSNCWDMCWDMWDMWDM

MultiserviceMultiserviceAggregationAggregation

DeviceDevice ETH ServicesSAN servicesETH ServicesETH ServicesSAN servicesSAN servicesFTTBFTTBFTTB

FTTBFTTBFTTB

ATMEthernet

ATMATMEthernetEthernet

CONSOLIDATEDBACKBONE

IP/MPLSSDHWDM

CONSOLIDATEDCONSOLIDATEDBACKBONEBACKBONE

IP/MPLSIP/MPLSSDHSDHWDMWDM

ATMEthernet

ATMATMEthernetEthernet

ATMATMATM

ATMATMATM

PDH/SDHPDH/SDHPDH/SDHEthernetEthernetEthernet


Connectivity requiredin the WAN

Connectivity between large hubsConsolidated trafficQoS managed in the enterprisePoint to point leased lines type of services

sufficeVCX, LCA, GFP are the solutions adoptedVCX, LCA, GFP are the solutions adopted

Connectivity between small branches and large hubs and LAN to LAN connectivity

Volatile trafficQoS managed by the service providerPoint to multipoint services welcomeMPLS switching is the solution adoptedMPLS switching is the solution adopted


Initiating Ethernet Point to Pointwith ISA Ethernet boards

GFPLCAS ( V.Cat )

OMSN

OMSN

OMSN

OMSN

OMSN

STM-16

Note: - Node #1 is equipped with 1 x FE port (100 M), where its traffic is multicasted into towards two directions (two head ends) with STP protocol activated at the client side

- FE mapped in N x VC3/VC12

Node # 3

Node # 1

Node # 2

63 x 2M 3 x 45 M

GbE#1 (200 M)1 x FE (100 M)

GbE#1 (200 M)4 x STM-1o

4 x STM-1o

Build # 1

ISA-ETH V2 ISA-GBE


Note: - Node #1 is equipped with 1 x FE port (100 M), where its traffic is multicasted towards two directions (two head ends) with STP protocol activated at the client side.

-Node #3 is equipped with 1 x FE port (100 M) with 100 BaseFL interface to reach the remote node which is equipped with FE extender. The FE traffic is also multicasted towards two direction (two head ends) with STP protocol activated at the client side.

GbE#1

GbE#1

GbE#2

GbE#2

GFPLCAS ( V.Cat )

RemoteEthernetExtension

Build # 2

63 x 2M 3 x 45 M

4 x STM-1o

1 x FE (100 M)

4 x STM-1o

STM-16

OMSN

OMSN

OMSN

Node # 3

Node # 1

Node # 2

1 x FE (100 M)

OMSN

OMSN

Continuing Ethernet Point to Pointwith ISA Ethernet

ISA-ETH V2 ISA-GBE FE Extender


GbE#1

GbE#2

GbE#2

L2

L2

GFPLCAS ( V.Cat )

L2 = Layer 2 Aggregation

4 x STM-1o

4 x STM-1o

1 x FE (100 M)OMSN

OMSN

OMSN

OMSN

OMSN

STM-16

Node # 3

Node # 1

Node # 2

Extending Ethernet Point to Multi-Pointwith ISA Ethernet

63 x 2M 3 x 45 M

GbE#11 x FE (100 M)

RemoteEthernetExtension

1 x FE (100 M)

Build # 3

FE Extender



ISA-ETH V2

ISA-GBE

ISA-PR-EA


L2

L2

GFPLCAS ( V.Cat )

L2 = Layer 2 Aggregation

L2

L2

STM-16

OMSN

OMSN

OMSN

OMSN

OMSN

Node # 3

Node # 1

Node # 2

Extending Ethernet Multi –Pointto Multi-Point

with ISA Ethernet 63 x 2M 3 x 45 M

GbE#11 x FE (100 M)

4 x STM-1oGbE#2

GbE#3GbE#1

4 x STM-1o

GbE#2RemoteEthernetExtension

Build # 4GbE#3



GBE Extender

ISA-ETH V2

ISA-GBE

ISA-PR-EA


Conclusions

The metro network holds the key to revenues generation and operator’s profitability.It is also the most capital intensive piece of infrastructure.Tight financial controls will be applied to metro investments strongly focusing on risk management and ROI.

The only way to achieve these objectives is to have a single convergent multi-service transmission metro network.

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