C A L I X U . S . R U R A L B R O A D B A N DQ 1 2 0 1 2 R E P O R T

WEST

SOUTHEASTN

ORTH

EAST

MIDWEST

West: Video streaming traffic 15% above U.S. upstream average

Midwest: Social Media use 19% above U.S. upstream average

Northeast: Online shopping 46% above U.S. upstream average

Southeast: File Sharing 116% above U.S. upstream average

Video streaming accounted for 64%

of downstream Internet traffic

7.5% of users accounted for

more than 60% of Internet traffic

Fiber access network subs generated 2.3

times more traffic than copper subs

ExEcutivE Summary

Welcome to the Q1 2012 calix u.S. rural Broadband report. Each quarter, Calix shares a snapshot of the previous quarter’s Internet traffic and applications utilization based upon data aggregated from a subset of Compass Flow Analyze deployments at different sized wireline communications service providers serving rural America. For this Q1 2012 snapshot, over 50 service providers from every corner of the U.S. provided data, drawing information from over 100,000 subscriber endpoints. Networks monitored consisted of both copper and fiber access infrastructures, and access technologies deployed in these networks included ADSL2+, VDSL2, GPON, and point-to-point gigabit Ethernet.

The Calix U.S. Rural Broadband Report continued to improve in both the breadth and sophistication of its analysis. The number of service providers monitored grew quarter-over-quarter, and the number of applications tracked increased substantially from 130 in Q4 2011 to over 180 in this report providing an increased level of granularity. The result: The industry’s most in-depth view of broadband traffic characteristics and trends affecting the rural U.S.

This data sample was compiled over the course of the three months constituting the first quarter of 2012 (January, February, March) from over 100,000 network endpoints monitored by Compass Flow Analyze software from Calix.

u.S. rural internet traffic usage insights

Definition of Endpoint

For this report, the definition of an “endpoint” is a unique IP address. This is an extremely useful definition when monitoring network traffic, but can sometimes present challenges when applied to other widely used measures like “subscribers,” “households,” or “devices.” In a world without “NAT’ing” (Network Address Translation), every endpoint would correspond with a unique device. However, most residential households are now “NAT’ed,” meaning that gateways in the home function as address management filters for the network, assigning sub-addresses for each device connected to them while maintaining a single iP address for the home. Most DSL subscribers, for example, have a modem in the home serving as a gateway, thereby limiting the number of IP addresses seen by the network to one. Today, most fiber customers do not have a home gateway. As a result, endpoint data may not reconcile directly to typical measures. Endpoint data, however, does provide a clear view of traffic, utilization, and trends within the network.

Definition of internet traffic

The Calix definition of Internet traffic is focused only on network traffic that is delivered unmanaged over the Internet. It does not include managed network traffic such as IPTV, VOD, RF video, and traditional Voice.

Depending on the services offered by a specific service provider, this “managed traffic” can constitute a significant portion of overall network traffic. This fact may make comparisons to other less granular traffic studies difficult. However, Internet traffic is the right measure for such critical metrics as bandwidth caps and over-the-top video. Calix Internet traffic as a metric provides an apples-to-apples comparison among all service providers about the Internet- focused traffic in their network, regardless of the number or type of managed services that they deploy.

Service Provider Profile

The Calix U.S. Rural Broadband Report for Q1 2012 focused on wireline communications service providers deploying advanced broadband services in predominantly rural areas. A growing mix of 50 privately and publicly held independent operating companies and cooperatives from every region of the country (Northeast, Southeast, Midwest, West) were represented – a subset of the broad range of Flow Analyze deployments across North America.. They ranged in size from less than 1000 to more than 50,000 subscriber lines. All delivered broadband services over both copper and fiber – including some that delivered broadband exclusively over fiber. The average number of subscriber lines was over 6500.

WEST

SOUTHEAST

NO

RTHEAST

MIDWEST

application insights

Flow Analyze tracked the use of more than 180 subscriber-facing applications across eight different application categories. Although each of these categories offers its own discrete value to consumers, they are not all equal in the Internet Traffic that they generate, nor are they equal in the traffic that they generate downstream and upstream. For example, streaming media represented nearly two thirds of downstream Internet Traffic among U.S. rural service

providers, and Internet browsing represents another 22% of downstream traffic. However, the largest consumer of upstream Internet traffic was business services, which generated approximately 40% of upstream traffic. Other influences also affected Internet traffic, such as geography (the West tends to stream more video) and media type (subscribers with access to fiber access networks consumed more video).

internet browsing

business services

online gaming

U P S T R E AM DOWN S T R E AM

upstream downstream

file sharing

online shopping

social media

telephony andcommunications

video streaming

4.7GB

7%40%

3%8%

1%

1%

1%

1%

3%

5%

7%

64%15%

22%19%

32.7GB

(per quarter)

3%

% of u.S. rural internet traffic by application category

video Streaming

By far the biggest contributor to Internet traffic, video streaming represented 64% of downstream traffic and 15% of upstream traffic. Although brand names like Netflix and

YouTube are the face of video streaming, the network reality is that the majority of the traffic streamed from these sites is actually passed through content distribution networks (CDNs) like Level3, Limelight, and Akamai. In fact, these three CDNs carried over 83% of downstream Internet traffic, and more than 71% of upstream traffic. Another major contributor to video streaming was Flash applications, which produced nearly 8% of downstream traffic. Interestingly, there were some significant variations in video streaming traffic based on the endpoint’s geographical location and the type of network that served it. The West -- land of Hollywood and the Silicon Valley -- was the geographic region that streamed the most video – and video streaming accounted for nearly 70% of downstream traffic. The Southeast streamed the least video, with only 60% of the region’s downstream traffic classified as video streaming. The factor most strongly associated with a high volume of video streaming was a fiber network. Service providers whose networks were entirely fiber saw 70% of their downstream Internet traffic composed of video streaming – not surprising when you consider that fiber’s available bandwidth typically translates into a superior video viewing experience. Relative to Q4 2011, upstream video streaming traffic made the biggest shift as subscribers uploaded more video the Cloud.

aPPlication DoWnStrEam uPStrEam

Level3 38.4% 30.4%

Limelight 30.9% 24.2%

Akamai 14.5% 16.5%

Flash 7.7% 19%

360Streaming 3.6% 2.3%

YouTube 1.7% 2.6%

internet Browsing

With the Internet becoming a major source of education, commerce, information, and entertainment, it’s no wonder that Internet browsing generated

the second most downstream Internet traffic as well as upstream traffic. Not surprisingly, the major search engines and destination sites led the way in generating Internet traffic. Google dominated all browsing traffic, with over 76% of all downstream and nearly 48% of all upstream browsing related Internet traffic. However, a relative newcomer to the search engine market, Microsoft Bing, stood out clearly as the second highest traffic generator with over 13% of downstream traffic and nearly 44% of upstream traffic. Although such widely recognized destinations as CNN, AOL, and Wikipedia registered traffic, NewsCorp (Fox) and Yahoo! sites were the most significant of the other sites tracked, capturing approximately 5% and 2% of downstream traffic respectively. Interestingly, Yahoo! continued to slide in popularity quarter-over-quarter across most regions, registering approximately half the traffic it did in our inaugural report. Also compared to Q4 2011, Microsoft Bing continued to gain popularity, seeing a significant growth in traffic quarter-over-quarter. Calix Q1 2012 Rural Broadband Report results tracked very closely to published results from media tracking studies from comScore and Nielsen, suggesting that rural America’s tastes in Internet browsing are similar to the tastes of a predominantly urban population.

aPPlication DoWnStrEam uPStrEam

Google 76.3% 47.5%

Microsoft (Bing) 13% 43.9%

NewsCorp (Fox) 4.9% 1%

Yahoo! 2.2% 4.6%

Global Crossing 2.3% .7%

CNN, AOL, Wikipedia .7% 1.7%

An application area with a green or red arrow indicates a change of over 10% between Q4 2011 and Q1 2012.

podcasttv show

movie

hd movie

mp3

hd 3-d movie

8GB 75KB2.5GB 1.5GB 200MB 114MB 4MB 4MB

photos

E-mail

relative File Size of typical applications

Business Services

The advent of high speed, reliable broadband connections has resulted in the home becoming a virtual workplace – with a rise in telecommuting as well as an extension of the work environment into the home after normal work hours. This

has resulted in a significant rise in business-related Internet traffic. It is the third largest contributing category to downstream Internet traffic (7%) and the largest contributing category to upstream traffic (40%). Business traffic is primarily characterized by its unique security and authentication applications, like Virtual Private Network (VPN) and Encapsulating Security Payload (ESP), both of which saw large changes in upstream traffic between Q4 2011 and Q1 2012. Not surprisingly, Business Services usage seemed much higher in parts of the country that are seeing the strongest increases in job growth and telecommuting – like the West and Southeast.

aPPlication DoWnStrEam uPStrEam

VPN 67.1% 56%

ESP 19.6% 28.1%

SMTP 2.7% 6.5%

VMWare 2.7% 1.8%

PCoIP 1.6% 1.2%

MS Terminal 1.1% 2.6%

online Gaming

As online video gaming has grown rapidly as an entertainment activity, the graphics and interactive nature of the games have

become increasingly sophisticated. The resulting bandwidth demands have pushed online gaming into fourth place among the eight categories tracked -- both downstream and upstream. Gaming has a number of unique network characteristics, including tremendous sensitivity to latency and intense sporadic network requirements. Although video gaming only represented 3% and 8% of downstream and upstream traffic when viewed in aggregate, it represented 10% of downstream traffic and 33% of upstream traffic when gaming communications were active due to the quality of the graphics involved – on par with video streaming. There were also regional differences in video gaming traffic, with the Southeast registering 25% more online gaming traffic than the U.S. average.

File Sharing / network Storage

File sharing first emerged as a means of sharing music files, but has since expanded to include video files as well. As a result, it has become a meaningful contributor to overall Internet traffic. File sharing represented

approximately 1% of network traffic downstream and 3% of upstream traffic. Recognizable brand names like BitTorrent own the vast majority of this traffic, with approximately 90% of both the downstream and upstream Internet traffic in this category. Similar services like Limewire, WindowsMX, and Kazaa and standards like iSCSI make up small but recognizable portions of the remainder – presumably because of their focus on less bandwidth-intensive content like music. The dominance of BitTorrent in this area was even more pronounced in some regions like the Southeast.

aPPlication DoWnStrEam uPStrEam

BitTorrent 90.0% 89.4%

iSCSI 4.9% 6.2%

Limewire 3.0% 2.9%

WinMX 1.1% 1.3%

Kazaa .9% .2%

online Shopping

Few industries have been impacted as significantly by the Internet as retail. Companies like Amazon have transformed entire industry segments (think book retailing)

and championed the customer relationship management revolution. Because Amazon is an online shopping destination for virtually all goods as opposed to a shopping site dedicated to a narrow range of products, it’s not surprising that Amazon was the leading creator of online shopping Internet traffic. What may be surprising was its dominance over other sites like eBay and Craigslist. Amazon accounted for over 85% of downstream online shopping traffic and over 92% of upstream traffic. By comparison, eBay was a distant second at just over 7.3% of downstream traffic and over 5% of upstream. Craigslist, although it tracked third across North America with approximately 6.9% of downstream traffic and just over 2% in upstream, did have a strong quarter compared to Q4 2011. Specifically, Craigslist saw a seemingly stronger following in both the Midwest and the Northeast, where it jumped ahead of eBay as number two in downstream traffic behind Amazon.

We hypothesized in the Q4 U.S. Rural Broadband Report that the holiday shopping season may have skewed traffic in favor of pure retail sites like Amazon.com. Q1 results validated this hypothesis, as Amazon.com traffic dropped relative to other sites like Craigslist.com.

aPPlication DoWnStrEam uPStrEam

Amazon 85.2% 92.4%

eBay 7.3% 5.1%

Craigslist 6.9% 2.3%

CVS .3% .1%

iTunes .2% .1%

Social media

Despite the enormous popularity of such services as Facebook and Twitter, these services consume relatively little bandwidth (This may change rapidly as video becomes more integrated into social media).

Facebook continued to dominate social media with 94% of downstream and nearly 96% of upstream Internet traffic in this category, and a nearly 10% improvement quarter-over-quarter. Other services like AOL Instant Messenger, MSN Messenger, MySpace, YahooIM, and SMS services share the remainder of the traffic, although MySpace made the most significant change – losing nearly half of its traffic during the quarter. Twitter barely registered – presumably because of its character limits.

aPPlication DoWnStrEam uPStrEam

Facebook 94.3% 95.7%

AOL Instant Messenger 6.0% 2.3%

MSN Messenger / MessengerQ 3.0% 2.2%

SMS 1.1% .6%

MySpace .7% .9%

YahooIM .6% .5%

telephony and communications

Although communications networks were originally built to deliver voice services, these applications have been dwarfed by other more bandwidth-intensive applications riding over the network. Basic communications

protocols are necessary for Internet connectivity, but leave a relatively small imprint on the network. The future may hold some interesting developments in this area, however, as new high definition voice codecs proliferate – providing for the ears what high definition video is already providing for the eyes.

aPPlication DoWnStrEam uPStrEam

NAT Traversal 33.3% 34.6%

POP 24.3% 17.3%

DNS 14.8% 18.1%

IMAP 12.1% 5.0%

SSH 4.2% 11.4%

Endpoint insights

Close scrutiny of endpoint utilization illustrates some surprising differences and commonalities in Internet use and its impact on network traffic.

Speed = use

The adage introduced in the movie Field of Dreams of “build it and they will come” seems to play out in the access network. For the first quarter of 2012, service providers that delivered broadband services exclusively over fiber saw their subscriber endpoints generate over 2.3 times as much downstream traffic and over 2.4 times more upstream traffic than copper-based subscribers. Interestingly, the advantage of fiber over copper in the downstream declined slightly since Q4 of 2011, presumably due to the increased deployment of VDSL2 copper technologies, and complementary technologies such as bonding and vectoring. Supporting this finding is the fact that the gap between the two technologies did not close nearly as quickly in the upstream – reflecting the asymmetric characteristics of VDSL that favor downstream traffic.

not all users are Equal

Although overall traffic generated by specific endpoints in a network varies widely, it is clear that a minority of endpoints generates a disproportionate share of network traffic. In copper networks, nearly 93% of endpoints generated less than 100 GB of downstream traffic a month. In contrast, the remaining 7% of endpoints accounted for 55% of overall downstream data consumption (an average of 231 GB per month per endpoint). In fiber networks, high-usage subscribers pushed the network even further, where the top 8% used more than 100 GB of downstream traffic a month, and accounted for approximately 65% of the downstream capacity in the network each month (an average of 333 GB per month per endpoint). Among the 30% of fiber subscribers who consumed more than 20 GB per month, they represented 91% of overall network traffic. Results were similar for copper networks, which saw approximately 30% of endpoints consuming more than 20GB per month represent approximately 88% of overall network traffic. On the other end of the spectrum in copper networks, nearly 18% of endpoints consumed less than 1GB per month, representing .2% of network traffic. In fiber networks, nearly 21% consumed less than 1 GB per month, consuming again just .2% of network traffic.

71GB10.6GB

31GB4.4GB

U P S T R E A M D O W N S T R E A M

FIBER

COPPER

0.6%4.6%

20.7%

74.3%

27.8%

28.5%

28.8%

14.9%

% of TotalInternet Traffic

% ofEndusers

Up to 2GB

2GB < 10GB

10GB < 50GB

more than 50GB

comparison of traffic Profiles for Fiber and copper access networks per Quarter % of network traffic used by Enduser Segments

rural life moving into the Fast lane … But Still Has a lot of catching up to Do

The rumored slow pace of life in rural America may be giving way to faster broadband speeds, but rural areas clearly started from farther behind. The most common peak downstream broadband rate consumed by endpoints in rural America was between 1.5 Mbps to 3 Mbps in Q1 2012. During the quarter, 60% of rural broadband subscribers received a maximum downstream broadband speed of 3 Mbps or less – approximately one-eighth of the U.S. peak downstream average published by Akamai in its most recent published ”State of the Internet” report. In fact, 71% of rural subscribers received a downstream broadband speed that was slower than the target for the Connect America Fund (CAF) of 4 Mbps, and approximately 90% fell below the CAF upstream target of 1 Mbps. Upstream rates remained slow as well, with 95% receiving 1.5 Mbps or less. Of the remainder, the highest reported speed was approximately 250 Mbps upstream. Not surprisingly, copper subscribers had lower peak speeds than fiber subscribers. 75% of copper subscribers had peak downstream rates lower than 4 Mbps. Nearly half of all fiber customers had peak downstream rates of more than 3 Mbps. About 3% of rural subscribers saw broadband speeds higher than the 24 Mbps peak average identified by Akamai in the U.S. However, those subscribers in rural America who do have access to the high-end broadband services are doing very well, with pockets of the rural America enjoying speeds in excess of 100 Mbps – and in some cases reaching up to 1 Gbps.

Peak rural u.S. Broadband Speeds

implications for Bandwidth caps and Behavior-Based marketing

Extending the idea that all users are indeed not equal, it can also be said that not all users are paying equally for bandwidth consumption. However, service providers are likely not offering broadband service packages that reflect real-world use. Many service providers today are beginning to impose bandwidth caps to keep the small percent of users who use the most bandwidth in check. Clearly, these users present a challenge. However, most service providers have approached this challenge from a punitive perspective. A better understanding of who is using this bandwidth, why, and how may enable service providers to address this in a more opportunistic (that is, profitable) manner.

With the kind of analysis provided by this report, it’s easy to determine the network inflection point at which a small subset of endpoints consume a disproportionate amount of capacity. The subscribers associated with those endpoints can be identified and proactively approached as opportunities rather than problems. They can be offered new service packages that better correlate with their use. The majority of these endpoints, for example, are heavy users of video streaming. A package that offers a superior video streaming experience may offer the service provider the opportunity for an up-sell, and the subscriber with a better experience – a potential win-win for both parties. By correlating traffic data with specific user profiles (high sustained upstream capacity use, for example, can be associated with telecommuters and home businesses, whereas sporadic high upstream capacity use can be associated with online video game players), service providers can create targeted service packages that cater to these audiences. There is great potential for new revenues, high satisfaction, and reduced churn.

33% < 1.5 Mbps

7% 10+ Mbps

38%

1.5 - 4 Mbps

22% 4 - 10 Mbps

1035 North McDowell Petaluma, CA 94954 T 1 877 462 2549 F 1 707 283 3100 www.calix.com

How to contact calix

Petaluma Headquarters 1035 N. McDowell Blvd. Petaluma, CA 94954 707-766-3000

conclusions

This publication of the Calix U.S. Rural Broadband Report for Q1 2012 provides a unique perspective into the Internet traffic patterns of rural America. Calix believes that it is the only snapshot of the market that focuses in depth on Internet usage in the rural U.S. and reconciles applications information to network endpoints – paving the way for proactive, actionable marketing response.

In Q1 2012, we added substantially more service providers and endpoints into our analysis, and we began tracking a significantly high number of applications. We also began tracking peak broadband speeds this quarter for the first time. We will continue these improvements in future quarters, resulting in an increasingly granular view of Internet traffic, use, and progress in rural America. We look forward to sharing this enhanced data set in the coming quarters, and the value that time will provide in providing increasingly insightful trend information to our analysis.

Flow Analyze is a software tool deployed in

a software-as-a-service (SaaS) model that

provides a comprehensive view of network

utilization by monitoring NetFlow information.

The information monitored via Flow Analyze is

subscriber centric, not IP address centric, and

as a result provides extraordinary accuracy

in monitoring subscriber traffic down to the

level of services, ports, and interfaces. Flow

Analyze provides a unique view not only of

Internet traffic, but also of the applications

constituting that traffic. Learn more about

Compass Flow Analyze and/or request a free

live demo and 30-day free trial by visiting:

http://www.calix.com/compass/flow_analyze/.

Flow ANALYZE