ihug’s LLU Strategy

(based on iiNet DSLAM Strategy and Results)

David Diprose: ihug GM Regulatory

Who is ihug?ihug is part of the iiNet group…

3rd largest ISP in Australasia Approx 680,000 customers, approx 185,000 broadband Over 800 staff in 4 offices, 2 countries

iiNet has the 2nd largest DSL network in Australia Over 85,000 customers connected to it On target for 90% metro coverage by Jan 2007

ihug is the 2nd largest DSL provider in NZ Over 25,000 UBS customers

Also major voice business in both countries

Local Loop Unbundling

Allows ISPs to install DSLAMs on existing copper wires to provide

better value broadband.

ULL is “Unconditioned Local Loop” meaning full access to the copper wire that connects a customer’s house to Telecom’s suburban exchange

There are two mechanisms for a Carrier to obtain direct access to the copper:

LSS ( Line Sharing). Competitor has partial access to the copper line and able to insert broadband ADSL only, running on a different frequency to voice. Telecom retains the voice component.

ULL (Full Unbundling). Competitor has full access to the copper line. Competitor physically terminates line from customers premises to their own equipment located in Telecom’s exchanges.

For both methods, Telecom would charge a monthly fee per line to cover maintenance and overhead costs. The rate that Telecom can charge is likely to be subject to regulation.

ihug buys wholesale ADSL port (UBS) from Telecom Price based on speed, from $24.50* (256k) to $30.40* (2.0M) All the equipment in the exchange belongs to Telecom Customer purchases telephony from Telecom.

* Figures from Current Residential Telecom UBS High Volume Pricing

ihug owns its ADSL port and rents it to the customer ihug pays Telecom for spectrum share (LSS) $9.00* per month

to use the broadband part of the copper wire to the house Customer purchases telephony from Telecom or elsewhere

* Figures from Australian LSS Pricing dispute – Assume similar figure for NZ

ihug owns its exchange ADSL equipment (as per previous slide) ihug pays Telecom $9.00 for LSS (spectrum share) ihug resells a voice service entirely provided by Telecom ihug pays Telecom line rental of (retail less 5%) per month* Total monthly payment to Telecom approx $45

* Proposed 1 April wholesale rate from Telecom

ihug owns the ADSL and voice equipment at the exchange ihug rents the whole copper line to the house (ULL) and pays

Telecom $12.00 per month* ihug delivers ADSL broadband (same as slide 2) ihug provides dial tone for telephony as well ihug saves $33 per month, per customer, compared with slide 3

* Subject to regulatory pricing of Telecom’s unbundled services)

iiNet - why DSLAMs?

Need to differentiate on product Reduce cost base Provide protection from wholesale squeeze Cheapest way to deploy broadband Leverages large scale copper network

It fits in with corporate strategy to build volume and

then use infrastructure to reduce cost / developproduct

It is a myth that fibre is needed to provide acceptablebroadband – existing copper still has a big future

The Business Case

There are different models for deployment (insidean exchange, or adjacent), the viability is simplybased on customer density (retail or wholesale)

Note1: These are example costs onlyNote2: Upper limit of ACCC recommendation

Customers Rent / Power1 Tie Cable1 Backhaul Per Port LSS2 Port/mth

100 2,000 250 4,000 62.50 9 71.50

200 2,000 500 4,000 32.50 9 41.50

300 2,000 750 4,000 22.50 9 31.50

400 2,000 1,000 4,000 17.50 9 26.50

500 2,000 1,250 4,000 14.50 9 23.50

600 2,000 1,500 4,000 12.50 9 21.50

700 2,000 1,750 4,000 11.07 9 20.07

800 2,000 2,000 4,000 10.00 9 19.00

900 2,000 2,250 4,000 9.17 9 18.17

1000 2,000 2,500 4,000 8.50 9 17.50

OPEX Items ($ per month)

Current iiNet DSLAM network 210 exchanges built 85,000 customers on iiNet DSLAMs 120,000 ports deployed All states covered Ericsson are our HW partner

Performance vs. Speed

On iiNet’s network, customers can choose from four profiles with varying

levels of stability in a dynamic web-based interface. Safe (for ADSL1 modems. Limited to 8Mbps) Controlled (for where line quality is low) Standard (default) Thrill-seeker (pushing the limit)

Actual Speed Statistics

Customers on iiNet DSLAM

Customers on products that allow high speeds

Customers synced at ADSL2+

Opportunity to look at max attainable DL speeds indifferent product segments.

All iiNet DSLAM customers All iiNet DSLAM customers that have high speed plans (BB2+) All iiNet DSLAM customers that have high speed plans and Sync at

ADSL2+

Sample Exchange – Riverton (Perth)

First – The picture before DSLAMs(These are the speeds available via Telstra ADSL)

Customers on DSLAMs (1013)Total iiNet Customers – all plans, all modems

Speed Distribution

Riverton all Customers (1013)

0

5000

10000

15000

20000

25000

0 54 108 162 216 270 324 378 432 486 540 594 648 702 756 810 864 918 972

Customers

Maximum Attainable DL

These customers are on the iiNet DSLAM but have not moved to high-speed products – they are still on 1500, 512 and 256 plans

Customers on BB2+ Product (545)Plans permit up to 24Mbps, but many ADSL1 modems in use.)

2800 kbps>90%

3800 kbps>75%

6800 kbps>50%

2800 kbps>90%

3800 kbps>75%

6800 kbps>50%

Customers synching at ADSL2+ (215) Customers on both ADSL2+ plans & using ADSL2+ modems)

3400 kbps>90%

5500 kbps>75%

9100 kbps>50%

3400 kbps>90%

5500 kbps>75%

9100 kbps>50%

Speed vs Distance (LoS)

Riverton ADSL2+ Customers (215)

0

5000

10000

15000

20000

25000

0.1 0.6 0.8 1.1 1.3 1.6 1.9 2.2 2.4 2.7 3.3

Distance (km)

Maximum Attainable DL Poly. (Maximum Attainable DL)

Speed Distribution

Riverton ADSL2+ Customers (215)

0

5000

10000

15000

20000

25000

1 22 43 64 85 106 127 148 169 190 211

Customers

Maximum Attainable DL

3400 kbps>90%

5500 kbps>75%

9100 kbps>50%

3400 kbps>90%

5500 kbps>75%

9100 kbps>50%

Lessons Learnt

Do not expect things have been done before (need to develop new processes)

Minimal visibility of the build process (before and during) Need collaborative partnership with vendor Need to broaden skill base, especially PM and technical

What would we do differently?

Build more capacity per exchange Build faster (where possible, go harder) Develop “self service” tools for customers before

launch

Summary – DSLAM Deployment has:

Allowed us to differentiate on product Reduced Cost Base Reduced reliance on Wholesale Suppliers Provided a building block for Voice (MSAN) Mitigate QoS issues for VoIP

iiNet has the second largest ADSL network inAustralia, we will continue to develop and buildon this base

Investment Plans LLU

“Assuming sensible LLU regulation, ihug is committed

to investing $20 + million CAPEX over 2 years*.”

This will provide the needed network infrastructure (DSLAMs) to cover over 100,000 kiwi households.

For example in Auckland, the deployment plan will provide service for approx 48,000 homes fed from 39 exchanges at a CAPEX of $11.2M.

ADSL2+ DSLAMs capable of 24Mbps.

* Initial investment for Stage one.

Key Investment Assumptions(*Subject to regulatory pricing of Telecom’s component services)

CAPEX per Exchange: approx. $77000 $50000 DSLAM $10000 backhaul circuit install charges $16000 Broadband Access Server $1000 Exchange cabinet install

CAPEX per Customer: $98.50 + $50 (Line move charge) = $148.50

OPEX per Exchange: approx. $9000 / month $8000 / month for backhaul $1000 / month for Exchange cabinet and power

OPEX per Customer: $14.50 + $12 (LLU Charge)* = $26.50 / month

HOWICK

CBD

MT ALBERT MT EDENREMUERA

PONSONBY

DEVONPORT

GLENFIELD

ST HELIERS

TODAY

10 Exchanges

$1.0m CAPEX

HOWICK

CBDMT ALBERT

MT EDENREMUERA

PONSONBY

DEVONPORT

GLENFIELD

ST HELIERS

HENDERSON

BIRKENHEAD

BROWNS BAY

AVONDALE

MANUREWA

PAPAKURA

TITIRANGI

MASSEY

ELLERSLIE

WHENUAPAI

ONEHUNGA

PAPATOETOE

BIRKDALEFORREST HILL

TORBAY

PAKURANGANEW LYNN

GLENDOWIE

TAMAKIGLEN EDEN

THREE KINGS

PHASE TWO

31 Exchanges

$5.7m CAPEX

HOWICK

CBDMT ALBERT

MT EDENREMUERA

PONSONBY

DEVONPORT

GLENFIELD

ST HELIERS

HENDERSON

BIRKENHEAD

BROWNS BAY

AVONDALE

MANUREWA

PAPAKURA

TITIRANGI

MASSEY

ELLERSLIE

WHENUAPAI

THREE KINGS

ONEHUNGA

PAPATOETOE

BIRKDALEFORREST HILL

TORBAY

PAKURANGANEW LYNN

GLENDOWIE

TAMAKIGLEN EDEN

TE ATATU

ALBANY

OTAHUHUMANUKAU CITY

MT ROSKIL

AUCKLAND

HAMILTON

WELLINGTON

CHRISTCHURCH

DUNEDIN

PHASE THREE

39 Exchanges

$11.2m CAPEX