Hong Kong Broadband NetworkHong Kong Broadband Network: : 100100\\1000 Mbps Broadband 1000 Mbps Broadband

Service LaunchService Launch

16 November 200416 November 2004HiuHiu Lai Court, Lai Court, KwunKwun Tong Tong

Hong KongHong Kong

22

DisclaimerDisclaimerThis paper is just a brief summary of some aspects of the CompanThis paper is just a brief summary of some aspects of the Company and/or its subsidiaries and is y and/or its subsidiaries and is for general information only. Whilst every effort has been madefor general information only. Whilst every effort has been made to ensure accuracy, no to ensure accuracy, no responsibility can be accepted for errors or omissions, however responsibility can be accepted for errors or omissions, however caused. caused.

No representation nor warranty, expressed or implied, is made byNo representation nor warranty, expressed or implied, is made by City Telecom (H.K.) Ltd. City Telecom (H.K.) Ltd. and/or its subsidiaries, its directors or officers with respect and/or its subsidiaries, its directors or officers with respect to the completeness of any to the completeness of any information and the accuracy of any information contained on thiinformation and the accuracy of any information contained on this paper, or that any information s paper, or that any information contained herein remains unchanged in any respect as of any datecontained herein remains unchanged in any respect as of any date or dates after those stated or dates after those stated herein or as of any dates after the date hereof.herein or as of any dates after the date hereof.

The information contained on this paper does not constitute any The information contained on this paper does not constitute any recommendation by City recommendation by City Telecom (H.K.) Limited and/or its subsidiaries, its directors orTelecom (H.K.) Limited and/or its subsidiaries, its directors or officers that any recipient should officers that any recipient should participate in the Company in any manner whatsoever. Each recipparticipate in the Company in any manner whatsoever. Each recipient should make its own ient should make its own independent appraisal, evaluation, assessment and investigation independent appraisal, evaluation, assessment and investigation as deemed necessary by the as deemed necessary by the recipient. No responsibility for any loss occasioned to any perrecipient. No responsibility for any loss occasioned to any person acting on or refraining from son acting on or refraining from acting as a result of material in this paper is accepted by Cityacting as a result of material in this paper is accepted by City Telecom (H.K.) Limited and/or its Telecom (H.K.) Limited and/or its subsidiaries, its directors or officers.subsidiaries, its directors or officers.

All Rights Reserved.All Rights Reserved.

The IP FutureThe IP Future

44

The IP Future The IP Future –– Global Global VerizonVerizon companies are the largest providers companies are the largest providers of of wirelinewireline and wireless communications in and wireless communications in the United States. the United States. VerizonVerizon is currently in the is currently in the process of replacing traditional fixed line process of replacing traditional fixed line central office switches with Packet Switches. central office switches with Packet Switches. Ivan Seidenberg, CEO, Ivan Seidenberg, CEO, ““TodayToday’’s s broadband offerings are good broadband offerings are good –– but not but not good enoughgood enough. . Neither DSL or cable Neither DSL or cable modems are capable of delivering to the modems are capable of delivering to the individual customers the speed and individual customers the speed and power the power the VerizonVerizon already delivers to the already delivers to the large customers. Nor do they have the large customers. Nor do they have the upstream capacity to optimize the upstream capacity to optimize the communications power of the new communications power of the new generation of electronics and digital generation of electronics and digital appliances.appliances.”” Extract from IvanExtract from Ivan’’s speech at s speech at Consumer Electronics Show, 8 January Consumer Electronics Show, 8 January 20042004

““Between them, the three carriers have cut Between them, the three carriers have cut back the value of their longback the value of their long--distance distance networks by US$18.4 billion [networks by US$18.4 billion [AT&T US$11.4 AT&T US$11.4 billion, MCI and Sprint US$3.5 billion billion, MCI and Sprint US$3.5 billion eacheach]]…… The charges, stated MCI in a press The charges, stated MCI in a press release release ““reflect the overall industry reflect the overall industry environment, including recent regulatory environment, including recent regulatory decisions that impact the prospects for decisions that impact the prospects for MCIMCI’’s consumer businesss consumer business””””, as reported by , as reported by Light Reading, 04 November 2004.Light Reading, 04 November 2004.

BT 21BT 21stst Century Network Project (21 CN).Century Network Project (21 CN)."This is a decisive move from narrowband to "This is a decisive move from narrowband to broadband, and from PSTN to broadband," broadband, and from PSTN to broadband," Paul Reynolds, Chief Executive of BT Paul Reynolds, Chief Executive of BT Wholesale. "Wholesale. "We will have a single network We will have a single network running multiple services, not multiple running multiple services, not multiple networks running multiple services in a networks running multiple services in a complicated way.complicated way.““ BT plans to begin mass BT plans to begin mass migration from PSTN to IP in 2007. As migration from PSTN to IP in 2007. As reported by ZDNet, 09 June 2004reported by ZDNet, 09 June 2004

Transparent Fixed Line “All-IP” Future

55

The IP Future The IP Future –– Hong KongHong KongNext Generation Networks Demand New Thinking.Next Generation Networks Demand New Thinking. ““Most Most people are using "traditional telecommunications networks". people are using "traditional telecommunications networks". These networks are designed to carry one type of services. These networks are designed to carry one type of services. Telephony, data and television services all have their separate Telephony, data and television services all have their separate networks. The network operators supply services to their networks. The network operators supply services to their customers bundled with the network connections. customers bundled with the network connections. Telecommunications networks are migrating to "next generation Telecommunications networks are migrating to "next generation networks". "Triplenetworks". "Triple--play" networks are already in operation. The play" networks are already in operation. The next generation networks are integrated networks carrying all next generation networks are integrated networks carrying all types of services. The traffic of the different services is simptypes of services. The traffic of the different services is simply ly enclosed in Internet Protocol (IP) packets transmitted over the enclosed in Internet Protocol (IP) packets transmitted over the networksnetworks”” MH Au, Director General, OFTA, 31 October 2004 MH Au, Director General, OFTA, 31 October 2004

HKBN is Everything-Over-IP

The HKBN Service OfferingsThe HKBN Service Offerings

77

The Network of the FutureThe Network of the FutureLaunch of Launch of ““BB100BB100”” 100 Mbps Broadband Service100 Mbps Broadband Service

No longer an Enterprise privilege No longer an Enterprise privilege …… taking symmetric 100 Mbps Metro Ethernet taking symmetric 100 Mbps Metro Ethernet Services to the Masses. Services to the Masses. Price Option A: HK$268/month (US$35/month) for unlimited access Price Option A: HK$268/month (US$35/month) for unlimited access to 100/20 to 100/20 Mbps local/intMbps local/int’’l internet bandwidth. l internet bandwidth. Price Option B: HK$1,980/month (US$254/month) for unlimited accePrice Option B: HK$1,980/month (US$254/month) for unlimited access to ss to 100/100 Mbps local/int100/100 Mbps local/int’’l internet bandwidth. l internet bandwidth. 100 Mbps will become 100 Mbps will become HKBNHKBN’’ss standard offering.standard offering.

Target Release of Target Release of ““BB1000BB1000”” 1000Mbps Broadband Service by 2Q05.1000Mbps Broadband Service by 2Q05.Progressive Ethernet upgrade path of 10/100/1000 Mbps over CategProgressive Ethernet upgrade path of 10/100/1000 Mbps over Category 5e ory 5e copper wiring.copper wiring.Gigabit Ethernet over Gigabit Ethernet over HKBNHKBN’’ss existing (Fiberexisting (Fiber--ToTo--TheThe--Building) FTTB/Metro Building) FTTB/Metro Ethernet infrastructure, i.e. no need for expensive additional FEthernet infrastructure, i.e. no need for expensive additional Fiber deployment. iber deployment.

FTTB/Metro Ethernet =

Inherent Bandwidth and Cost Advantages

88

The The ““BB100BB100”” EconomicsEconomicsFiberFiber--ToTo--TheThe--Building / Metro Ethernet PlatformBuilding / Metro Ethernet Platform

SelfSelf--owned fiber trunk capacity of 64,000 owned fiber trunk capacity of 64,000 GbpsGbps (2 x 200 core fibers)(2 x 200 core fibers)Confirms to 10/100/1000 Mbps Ethernet standardConfirms to 10/100/1000 Mbps Ethernet standardNetwork build cost of ~HK$1,000/home pass (~US$130)Network build cost of ~HK$1,000/home pass (~US$130)

The EconomicsThe EconomicsGross margin on Gross margin on ““BB100BB100”” ~80%.~80%.““BB100BB100”” tariff of HK$268/month > 2.5x tariff of HK$268/month > 2.5x ““BB10BB10”” standard tariff of HK$98/month.standard tariff of HK$98/month.AllAll--in in ““BB100BB100”” costs < 2.5x costs < 2.5x ““BB10BB10””. . UpUp--sell existing 400,000+ FTNS subscribers.sell existing 400,000+ FTNS subscribers.

No Customer Premise Equipment Adjustments NeededNo Customer Premise Equipment Adjustments NeededUnlike Unlike xDSLxDSL & Cable Model platforms, modem& Cable Model platforms, modem--free Metro Ethernet can be free Metro Ethernet can be upgraded from 10 Mbps to 100 Mbps without need to change CPE.upgraded from 10 Mbps to 100 Mbps without need to change CPE.This facilitates easy upgrade process from a service provisioninThis facilitates easy upgrade process from a service provisioning standpoint.g standpoint.

US$35/month revenue on ~US$130/home pass capex.

99

The The ““BB100BB100”” ServiceServiceMass Market Price PointMass Market Price Point

A Mass market offering rather than a technology showcase.A Mass market offering rather than a technology showcase.Priced at a mild premium to legacy ADSL offerings but delivers 1Priced at a mild premium to legacy ADSL offerings but delivers 166--155x 155x more bandwidth.more bandwidth.HKBN is creating a negative HKBN is creating a negative ““Digital GapDigital Gap”” –– mass market has more mass market has more choice and value than premium segment.choice and value than premium segment.

Expect Expect VirualVirual Subscriber Service TakeSubscriber Service Take--upupOnce you tried it, you wonOnce you tried it, you won’’t turn back.t turn back.Expect strong wordExpect strong word--ofof--month referrals, i.e. low acquisition costs.month referrals, i.e. low acquisition costs.BandwidthBandwidth--onon--Demand option is possible.Demand option is possible.

Cannot be matched by Legacy xDSL platforms

1010

The The ““BB1000BB1000”” ServiceServiceInherent advantage of existing FTTB / Metro Ethernet networkInherent advantage of existing FTTB / Metro Ethernet network

Minimum additional investmentMinimum additional investmentGigabit Ethernet Standard, delivered over Cat 5e copper Gigabit Ethernet Standard, delivered over Cat 5e copper –– no need for expensive no need for expensive additional fiber deployment. additional fiber deployment. Lower cost will be Lower cost will be ““partlypartly”” pass to consumers.pass to consumers.Capitalizes on Capitalizes on HKBNHKBN’’ss excess selfexcess self--owned fiber capacity.owned fiber capacity.

Future ProofFuture ProofInternet Autobahn Internet Autobahn …… as fast as your CPE can go.as fast as your CPE can go.Current high end PCs/Laptops already come standard with 10/100/1Current high end PCs/Laptops already come standard with 10/100/1000 Mbps 000 Mbps Ethernet ports. Ethernet ports.

Internet Autobahn – No Speed Limit

As Fast As Your CPE Can Go.

Why Metro Ethernet?Why Metro Ethernet?

1212

HK Broadband DeploymentHK Broadband Deployment

Ethernet (HKBN)Ethernet (HKBN)

VDSLVDSL

ADSLADSLCable ModemCable Modem

DialDial--upup

StandardStandard

64Kpbs64Kpbs64Kbps64KbpsNANA““1G1G””

640Kbps640Kbps5M*5M*

1.51.5--6M6M8M*8M*

18,000 ft / 5.5 Km18,000 ft / 5.5 KmNANA

““2G2G””

10/100/1000 Mbps10/100/1000 Mbps10/100/1000 Mbps10/100/1000 Mbps100 m #100 m #““3G3G””

10Mbps10Mbps10Mbps10Mbps4,000 ft / 1.2 Km4,000 ft / 1.2 Km““2.5G2.5G””

UpstreamUpstreamDownstreamDownstream

Bandwidth Bandwidth Distance LimitationDistance Limitation““GenerationGeneration””

Source: Public Information from Various Operators

Notes: *Shared, # Distance from end use to LAN switch. LAN switch can then be connected via fiber, at which point there is no distance limit

Metro Ethernet Provides HKBN with a Structural Bandwidth Advantage

1313

The Bandwidth AdvantageThe Bandwidth Advantage

Notes: ^ For 100/20 Mbps for Local/Int’l bandwidth option. Tariff for 100/100 Mbps for Local/Int’l bandwidth option is US$253.48/month* Per Call Center tariffs, Nov 2004# Per TA Legislative Council Brief, “Review of Type II Interconnection Policy” dated 6 July 2004, “Capacity deployed on Hong Kong Cable Television Limited’s (HKCTV) network for telecommunications is limited. Only one channel in the spectrum over the coaxial cable is deployed for a cable modem service. The rest of the spectrum is used for broadcasting. The capacity over this channel (8 Megabits per second for download operation and 5 Megabits per second for upload operation) is shared by a number of buildings in the same cluster. The capacity is way below that available to a building connected by a fibre-based access network..”

Downstream Upstream US$/month

Verizon Fiber-To-The-Premise Service Tariffs5M bps 2M bps 39.95 15M bps 2M bps 49.95 30M bps 5M bps 199.50

HKBN M etro Ethernet 10M bps 10M bps 12.56 100M bps^ 100M bps^ 34.36 1000M bps 1000M bps TBC

PCCW Netvigator ADSL*6M bps 640Kbps 24.87

iCable Cable M odem*8M bps# 5M bps# 14.23

Bandwidth is a sustainable Bandwidth is a sustainable competitive advantage. competitive advantage. Superior bandwidth will enable Superior bandwidth will enable HKBN Brand upgrade from HKBN Brand upgrade from ““CheapCheap”” to to ““ValueValue””. . HKBN will Release flagship HKBN will Release flagship BB1000 1,000 Mbps service BB1000 1,000 Mbps service by 2Q 2005.by 2Q 2005.

1414

Consumer ExperienceConsumer ExperienceSuperior BandwidthSuperior Bandwidth

Dedicated bandwidth within Metro Ethernet plus FiberDedicated bandwidth within Metro Ethernet plus Fiber--ToTo--TheThe--Building Building backbone capacity.backbone capacity.Unlike cable modem accessUnlike cable modem access’’s shared infrastructures shared infrastructure

Symmetric BandwidthSymmetric BandwidthUnlike ADSL and VDSL standards that normally have limited upstreUnlike ADSL and VDSL standards that normally have limited upstream am versus downstream bandwidth, Metro Ethernet provides symmetric versus downstream bandwidth, Metro Ethernet provides symmetric upstream and downstream bandwidth.upstream and downstream bandwidth.

Upgradeable Bandwidth from 10 Mbps to 100 MbpsUpgradeable Bandwidth from 10 Mbps to 100 MbpsWithout the need for Customer Premise Equipment (Without the need for Customer Premise Equipment (egeg ADSL and ADSL and Cable Modems), Ethernet Metro can be upgraded from 10 Mbps to 10Cable Modems), Ethernet Metro can be upgraded from 10 Mbps to 100 0 Mbps without entering consumer premise. Mbps without entering consumer premise.

1515

Business ConsiderationsBusiness Considerations

Different “Incremental and Legacy” Considerations

Distance limitations to Routers Distance limitations to Routers –– Requires Requires high density to justify business case. high density to justify business case.

Mass residential deployment Pioneered by Mass residential deployment Pioneered by HKBN in 2000.HKBN in 2000.

Relatively high initial investment Relatively high initial investment –– needs needs critical mass to justify business case.critical mass to justify business case.

OffOff--thethe--self enterprise standard.self enterprise standard.

EthernetEthernet

Shared bandwidth.Shared bandwidth.Shared nature make this standard Shared nature make this standard

inappropriate for corporate applications. inappropriate for corporate applications.

Success based subscriber driven Success based subscriber driven capexcapex ––low incremental risk for incumbent Cable TV low incremental risk for incumbent Cable TV operator.operator.

Adequate for early broadband applications. Adequate for early broadband applications. Commercially available since mid/date Commercially available since mid/date

1990s. 1990s.

Cable ModemCable Modem

Distance limitations to DSLAM.Distance limitations to DSLAM.““Swiss CheeseSwiss Cheese”” coverage limitations if coverage limitations if

selective VDSL upgrade is deployed.selective VDSL upgrade is deployed.High upgrade costs due to CPE deployment. High upgrade costs due to CPE deployment.

Success based subscriber driven Success based subscriber driven capexcapex ––low incremental risk for incumbent PSTN low incremental risk for incumbent PSTN operator.operator.

Adequate for early broadband applications. Adequate for early broadband applications. Commercially available since mid/late Commercially available since mid/late

1990s 1990s

ADSL / VDSLADSL / VDSL

DisadvantagesDisadvantagesAdvantagesAdvantagesTechnology ChoiceTechnology Choice

1616

Demographic ConsiderationsDemographic ConsiderationsFiber-To-The-Building / Home Pass Cost

HKBN ~ US$130US Suburban ~US$1,000-1,500

HKBN’s Metro Ethernet Deployment is a Customized Hong Kong Solution

The HKBN FTTB/Metro Ethernet The HKBN FTTB/Metro Ethernet NetworkNetwork

1818

Cisco Global Showcase Cisco Global Showcase –– Metro EthernetMetro Ethernet

Hong KongHong Kong’’s largest alternative Broadband Network s largest alternative Broadband Network –– 1.2 1.2 mnmn homes pass today homes pass today with committed expansion to 1.6 m homes (75% of Hong Kong).with committed expansion to 1.6 m homes (75% of Hong Kong).Not just a Not just a fibrefibre pass, it is Endpass, it is End--toto--End connection to the 3,700 buildings (full End connection to the 3,700 buildings (full vertical and horizontal coverage) vertical and horizontal coverage) –– 3,100 residential and 600 commercial.3,100 residential and 600 commercial.Capable of 100 Mbps symmetric access. Capable of 100 Mbps symmetric access.

1919

The InThe In--Building Building BlockwiringBlockwiring

Equipment Cabinet

Distribution Box

Horizontal Cable

4 Pairs per Cat-5E cable

2020

Superior DesignSuperior Design

Fiber-To-The-Building

Zone Design• Smaller Trunk Size (1/4 in this 2-zone example)• Less than 100m for each Cat-5E• Support 100M FE (Up/Down)

2121

EndEnd--toto--End OwnershipEnd Ownership3 Points of Interconnection

HKBN Has No Type II Access

Forward Opex and Operational Advantages

Source: OFTA

2222

The Biggest Alternative NetworkThe Biggest Alternative Network•• Equivalent to coverage of 1.15 million householdsEquivalent to coverage of 1.15 million households•• 53% of total 2.17 million total households in Hong Kong53% of total 2.17 million total households in Hong Kong•• According to the report by the TA to According to the report by the TA to LegCoLegCo on 6 July, 53% on 6 July, 53%

households in Hong Kong are covered by at least two network households in Hong Kong are covered by at least two network operators (Incumbent + one new entrant).operators (Incumbent + one new entrant).

HKBN’s Coverage: 53% of all

Households

Coverage by all 2nd

Networks : 53% of all Households

2323

TerritoryTerritory--wide Coverage wide Coverage

Over 400 Bldgs

150 - 200 Bldgs

100 - 150 Bldgs50 - 100 Bldgs10-50 Bldgs

2424

Pure Pure FibreFibre NetworkNetwork•• Over 90% selfOver 90% self--owned endowned end--toto--end direct end direct fibrefibre by Q1 2005 (by Q1 2005 (FibreFibre

to the Building)to the Building)

2525

Ample of CapacityAmple of Capacity•• The transmission equipment The transmission equipment

deployed by HKBN could deployed by HKBN could provide up to 320 provide up to 320 GbpsGbps per per fibrefibre core paircore pair

•• 2 x 200 2 x 200 fibrefibre cores in each cores in each route, i.e. 64,000 route, i.e. 64,000 GbpsGbpscapacity.capacity.

At least one 200-core fibrecable laid in each of this

PVC pipe

2626

Fully Redundant Fiber Backbone

Target Completion :

2005

2007 / 2008

2727

EverythingEverything--OverOver--IPIP

PSTNPSTN

HKBN IP network (e.g. GSR, 3550,

2950)

HKBN IP network (e.g. GSR, 3550,

2950)

～TDM

Ethernet

Ethernet

Ethernet

Ethernet

～

or

～

VoIP Class 5 Switch

InternetInternet

IAD (VoIP Gateway)

MPEG-2 EncoderSet Top Box

2828

One IP Platform for All ServicesOne IP Platform for All Services

Voice

Different Head-end Equipment Cisco-Powered IP Network

2000: Broadband

2002: Voice-Over-IP

2003: Pay-TV

2004: E-1s Corporate

Data

2005/6: W

ireless/WiM

ax

New Services

at on same IP Network

Optical Fiber Core

Internet

Leased Line

Video

New

Service

Different Optical Fiber Cores

Traditional Networks HKBN All-IP Network

The End.The End.