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

WEST

SOUTHEASTN

ORTH

EAST

MIDWESTWest: File Sharing 26% above U.S. downstream average

Midwest: Streaming Media use 12% above U.S. upstream average

Northeast: Online shopping 41% above U.S. upstream average

Southeast: Online Gaming 55% above U.S upstream average

Video streaming accounted for 62%

of downstream Internet traffic

Less than 13% of users accounted for more than 70% of

downstream Internet traffic

Internet Traffic grew 53% in Q2

quarter-over-quarter

ExEcutivE Summary

Welcome to the third quarterly 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 broad range of different sized wireline communications service providers serving rural America. For this Q2 2012 snapshot, over 65 service providers from every corner of the U.S. provided data, drawing data from over 250,000 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 continues to improve in both the breadth and sophistication of its analysis. The number of service providers monitored continued to grow quarter-over-quarter, and the number of applications tracked increased substantially from 130 in Q4 2011 and 180 Q1 to over 250 in this report – providing an increased level of granularity. The result: the industry’s most in-depth view of broadband traffic characteristics and trends in the rural U.S.

This data sample was compiled over the course of the three months constituting the second quarter of 2012 (April, May, June) from over 250,000 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 – but the number is growing. 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 Q2 2012 focused on wireline communications service providers deploying advanced broadband services in predominantly rural areas. A growing mix of 65 privately and publicly held independent operating companies and cooperatives from every region of the country (Northeast, Southeast, Midwest, West) were represented. 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 5000.

WEST

SOUTHEAST

NO

RTHEAST

MIDWEST

Flow Analyze tracked the use of more than 250 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 62% of downstream Internet

Traffic among U.S. rural service providers, and Internet browsing represents another 23% of downstream traffic. However, the largest consumer of upstream Internet traffic was business services, which generated approximately 30% 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 consume more video).

application insights

internet browsing

business services

online gaming

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

upstream downstream

file sharing

online shopping

social media

telephony andcommunications

video streaming

7.1GB

7%30%

3%7%

1%

1%

1%

3%

4%

5%

17%

62%14%

23%19%

50.3GB

(per quarter)

2%

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

video Streaming

By far the biggest contributor to Internet traffic, video streaming represented 62% of downstream traffic and 14% 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 87% of downstream Internet traffic, and more than 87% of upstream traffic. Interestingly, there were some significant variations in video streaming based on where 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 65% of downstream traffic. The Southeast streamed the least video, less than 59% 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 nearly 69% 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 Q1 2012, upstream video streaming traffic made the biggest shift as subscribers uploaded more video to the Cloud.

aPPlication DoWnStrEam uPStrEam

Level3 37.2% 39.6%

Limelight 35.2% 30.6%

Akamai 12.8% 17.3%

Netflix 4.6% 3.6%

360Streaming 4.0% 2.7%

Flash 2.6% 3.5%

YouTube 1.3% 1.1%

internet Browsing

With the Internet becoming the 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 continued to dominate all browsing traffic, with over 80% of all downstream and over 48% of all upstream browsing related Internet traffic. Microsoft Bing stood out clearly as the second highest traffic generator with nearly 11% of downstream traffic and 43% of upstream traffic, although it seemed to lose some share to Google in Q2. Although such widely recognized destinations as CNN, AOL, and Wikipedia registered measurable traffic, NewsCorp (Fox) and Yahoo! sites were the most significant of the other sites tracked, capturing approximately 4% and 2.5% of downstream traffic respectively. Interestingly, Yahoo! seem to reverse its recent slide in popularity quarter-over-quarter across most regions – seeing an increase of over 10% quarter-over-quarter. Calix Q2 2012 Rural Broadband Report results track 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 80.3% 48.3%

Microsoft (Bing) 10.7% 43.2%

NewsCorp (Fox) 3.7% .8%

Yahoo! 2.5% 4.9%

Global Crossing 2.0% .9%

CNN, AOL, Wikipedia .7% 1.3%

An application area with a green or red arrow adjacent indicates a change of over 10% between Q1 2012 and Q2 2012.

hd movie

2.5GB

movie

1.5GB

tv show

200MB

podcast

114MB

mp3

4MB4MB

photos

75KB

E-mail

hd 3-d movie

8GB

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 (30%). Business traffic is primarily characterized by its unique security and authentication applications like Virtual Private Network (VPN) which continued to see large changes in upstream traffic between Q1 2012 and Q2 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 Northeast and Southeast.

aPPlication DoWnStrEam uPStrEam

VPN 83.8% 77.3%

SMTP 2.8% 8.2%

VMWare 2.6% 2.0%

PCoIP 2.7% 1.1%

Lightcore 2.5% .2%

MS Terminal 1.3% 5.5%

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 7% of downstream and upstream traffic when viewed in aggregate, it represented 8% of downstream traffic and 23% of upstream traffic when gaming communications are 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 55% more upsteam 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’s become a meaningful contributor to overall Internet traffic. File sharing represented

approximately 1% of network traffic downstream and 5% upstream. Recognizable brand names like BitTorrent own the majority of this traffic, with nearly 75% of downstream and 71% of upstream Internet traffic in this category, but its leadership seems to be eroding quickly at over 10% quarter-over-quarter. Similar services like Limewire, WindowsMX, and Kazaa and standards like iSCSI make up the remainder – presumably because of their focus on less bandwidth-intensive content like music. That said, iSCSI seem to be gaining popularity as a file sharing option, with significant growth quarter-over-quarter. The strength of BitTorrent in this area was even more pronounced in some regions like the Southeast, while iSCSI seemed to be gaining popularity in the West.

aPPlication DoWnStrEam uPStrEam

BitTorrent 74.8% 70.5%

iSCSI 22.4% 27.4%

Limewire 1.2% 1.2%

WinMX .9% .8%

Kazaa .8% .1%

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 85% of downstream online shopping traffic and nearly 95% of upstream traffic – and seems to be growing in its influence. By comparison, eBay fell from a distant second to third in downstream traffic at just over 6% of downstream traffic during Q2 – a decline of over 10% – and although it retained its position in second place with 3% of upstream traffic in this category, it lost significant traffic versus previous quarters. Craigslist seems to be on the rise, moving into second position across North America with approximately 8.5% of downstream traffic – a significant rise over Q1. In fact, Craigslist has now jumped ahead of eBay as number two in downstream traffic behind Amazon in all regions tracked – a position in did not have in any region in Q4 2011.

aPPlication DoWnStrEam uPStrEam

Amazon 84.9% 94.9%

eBay 6.0% 3.3%

Craigslist 8.5% 1.7%

CVS .4% .1%

iTunes .2% .1%

Social media

Oh how the mighty have fallen. Facebook saw a dramatic drop in traffic as its IPO woes and other challenges carried over into a decline in overall traffic. The company fell nearly 100 basis points when compared

quarter-over-quarter. That said – Facebook is still the dominant player in this category, garnering 85% and 93% of downstream and upstream traffic respectively. Services like AOL Instant Messenger and MSN Messenger seemed to be the biggest beneficiaries, each gaining more than

10% new traffic compared with Q1 2012, with MSN seeing particularly strong growth. MySpace, YahooIM, and SMS services share the remainder of the traffic. 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).Twitter, for example, barely registered in our traffic analysis – presumably because of its character limits.

aPPlication DoWnStrEam uPStrEam

Facebook 85.0% 93.2%

AOL Instant Messenger 6.6% 2.5%

MSN Messenger / MessengerQ 5.8% 2.2%

SMS 1.5% .5%

MySpace .7% 1.0%

YahooIM .4% .6%

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. Among these applications, Encapsulating Security Payload (ESP) stands out as the application with the most imprint, garnering 47% of downstream traffic and 55% of upstream traffic. 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

ESP 54.8% 54.8%

NAT Traversal 11.9% 11.9%

POP 6.4% 6.4%

DNS 10.0% 10.0%

SSH 5.9% 5.9%

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. Google’s fiber access experiment in Kansas City seems to be validating the demand for high bandwidth services, with their public announcement that 90% of “Fiberhoods” targeted generated enough demand to qualify to be passed by Google fiber. Our findings in rural America seem to be complementary – showing that that broadband subscribers who are served by fiber generate more Internet Traffic than those with a copper access media. For the second quarter of 2012, service providers that delivered broadband services exclusively over fiber saw their subscriber endpoints generate 87% more downstream traffic and nearly 10% more upstream traffic than copper-based subscribers. Interestingly, the advantage of fiber over copper in the downstream continued its decline in Q2 2012, presumably due to the increased deployment of VDSL2 copper technologies, and complementary technologies such as bonding and vectoring.

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 88% of endpoints generated less than 100 GB of downstream traffic a month. In contrast, the remaining 12% of endpoints accounted for 31% of overall downstream data consumption. In fiber networks, high-usage subscribers pushed the network even further, where the top 13% used more than 100 GB of downstream traffic a month, and accounted for approximately 70% of the downstream capacity in the network each month. Among the 44% fiber subscribers who consumed more than 20 GB per month, they represented 94% of overall network traffic. Results were similar for copper networks, which saw approximately 38% of endpoints consuming more than 20GB per month represent approximately 93% of overall network traffic. On the other end of the spectrum in copper networks, nearly 20% of endpoints consumed less than 1GB per month, representing .1% of network traffic. In fiber networks, nearly 13% consumed less than 1 GB per month, consuming again just .1% of network traffic.

61GB7.1GB

32GB6.5GB

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

FIBER

COPPER

0.3%2.5%

14.8%

82.5%

23.9%

23.0%

30.7%

22.4%

% of TotalInternet Traffic

% ofEndusers

Up to 2GB

2GB < 10GB

10GB < 50GB

more than 50GB

comparison of traffic Profiles for Fiber and copper access networks

% of network traffic used by Enduser Segments

8%10+ Mbps

32%< 1.5 Mbps

35%1.5 - 4 Mbps

25%4 - 10 Mbps

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 Q2 2012. During the quarter, 55% of rural broadband subscribers received a maximum downstream broadband speed of 3 Mbps or less – approximately one-tenth of the U.S. peak downstream average published by Akamai in its most recent published ”State of the Internet” report. In fact, two-thirds of rural subscribers received downstream broadband speed that are slower than the target for the Connect America Fund (CAF) of 4 Mbps , and approximately 93% are below the ultimate CAF upstream target of 1.5 Mbps. Of the remainder, the highest reported speeds were 1 Gbps upstream. Not surprisingly, copper subscribers had lower peak speeds than fiber subscribers. 69% of copper subscribers had peak downstream rates lower than 4 Mbps. 51% of all fiber customers had peak downstream rates of more than 3 Mbps. About 2% 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.

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How to contact calix

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conclusions

This third publication of the Calix U.S. Rural Broadband Report for Q2 2012 provides a unique perspective into the Internet traffic patterns of rural U.S. Calix believes that it is the only snapshot of the market that not only focuses in depth on Internet usage in the rural U.S., but in reconciling applications information to network endpoints, paves the way for proactive, actionable marketing response.

In Q2 2012, we added substantially more service providers and endpoints into our analysis, and we began tracking a significantly higher number of applications. We also continued our tracking of peak broadband speeds in rural America – a statistic that garnered a lot of interest from the media, trade press, and policy makers. We will continue these improvements in future quarters, resulting in an increasingly more granular view of Internet traffic, use, and progress in rural America. In our Q3 2012 report, we plan to take a close look at expected spikes in Internet Traffic generated by the Olympic games. We look forward to 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/.