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Washington, DC / London / Paris / Singapore

February 2014

Presented by:

Jason MarcheckService Director,

Service Provider Infrastructure

Erik M. KeithPrincipal Analyst, Digital Media

and Fixed Access Infrastructure

Video Service and Technology Drivers2014 and Beyond

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Key Service and Subscriber Metrics

Impact of 4K/UltraHD TV

Fixed Access Network Evolution

Vendor Positioning and Differentiation

A 20/20 View of Video, in 2020 and Beyond

Agenda

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Key Video Service and Subscriber Metrics

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Cisco Visual Networking Index: Key Metrics

By 2017, there will be ~3.6 billion Internet users, >48% of the world’s projected population (7.6 billion)

By 2017, >19 billion global network connections

• Fixed/mobile personal devices, M2M connections, etc.

Faster Global Fixed Broadband Network Speeds

• Globally, the average fixed broadband speed will increase 3.5-fold from 2012 –

2017, from 11.3 Mbps to 39 Mbps

• Globally, the average fixed broadband speed grew 30% from 2011 – 2012, from

8.7 Mbps to 11.3 Mbps

Increased Global Use of Video Services/Applications

• Global network users will generate 3 trillion Internet video minutes per month,

equal to 6 million years of video per month, 1.2 million video minutes every

second, or more than two years’ worth of video every second

• Globally, there will be nearly 2 billion Internet video users (excluding mobile-

only) by 2017, up from 1 billion Internet video users in 2012

The Video World According to Cisco…

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Cisco VNI Metrics

Video

• Steady replacement of SD with HD (720/1080 broadcast)

• By 2016, HD Internet video will comprise 79 percent of VoD traffic

• 4k/UltraHD in the pipeline (e.g., Netflix)

Data-Centric Perspective

• By 2017, Global IP traffic will surpass 1.4 Zettabytes per year

• By 2017, IP Video traffic will account for 73% of Internet traffic

Tablets are fastest growing residential device/connection category:

• 2012: 81.6 million tablets

• 2017: 425 million tablets

• 39.1% CAGR

Web-Enabled TV 2nd fastest category:

• 2012: 179.3 million Web-Enabled TVs

• 2017: 827 million Web-Enabled TVs

• 35.8% CAGR

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Cisco VNI: Global Mobile Data Traffic Forecast, 2013-2018

Wi-Fi Offload Will Surpass Cellular Traffic

• More mobile data traffic will be offloaded onto Wi-Fi from mobile-

connected devices (17.3 exabytes per month) than will remain on

mobile networks by 2018 (15.9 exabytes per month)

• By 2018, 52 percent of global mobile traffic will be offloaded onto

Wi-Fi/small cell networks, up from 45 percent in 2013.

Global Mobile Application Analysis: Video Remains on Top

• Mobile video traffic will increase 14-fold from 2013 to 2018 and will

have the highest growth rate of any mobile application category.

• By 2018, mobile video will be 69 percent of global mobile traffic, up

from 53 percent in 2013.

• By 2018, web and other data applications will be 17 percent of

global mobile traffic, down from 28 percent in 2013.

• By 2018, streaming audio will be 11 percent of global mobile traffic,

down from 14 percent in 2013.

• By 2018, file sharing will be three percent of global mobile traffic,

down from four percent in 2013.

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4K/Ultra HD Impact

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Ultra HD (4K, 8K)

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4K Ultra HD, Step One

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Beyond 1080p

Japan: Ministry of Internal Affairs and Communications

• 4K Broadcasts by July 2014, first by CS satellite system, then by BS satellite system and OTA stations

• FIFA World Cup 2014

• 8K-resolution broadcast trials by NHK, January 2014! (2 years early)

• Goal: 8K mass market service implementation by NHK for 2020 Olympic Games (via broadcast satellite)

Latin America: 4K tests

• Telefonica Servicios Audiovisuales,Services H2 2014

• TV Globo

• Confederation Cup

4K and 8K Broadcast TV: That’s Really Happening?

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Fixed Access Network Evolution

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Cable Networking and Technology Evolution

DOCSIS 3.0, 3.1, 3.x

Node Splits, Deeper Fiber

Enhanced Spectrum: 1 GHz and above

CCAP (convergence of CMTS and Edge QAM/IP Video)

DOCSIS Provisioning over EPON (DPoE), EPON over Coax (EPoC) (including 10G EPON), RFoG

Example: DOCSIS 3.1 Goals:

>10 Gbps Downstream

>1 Gbps Upstream

Better spectral efficiency, new DS & US spectrum,

Enable Service Compatibility with FTTH

How Will Cable Operators Move Forward?

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Telco Fixed Access Network Evolution

Copper to Fiber Migration, Deep(er) Fiber

VDSL2 + Vectoring, also Bonding

G.Fast: 1 Gbps @ 100m (DS+US), via 106 MHz

BPON to GPON, GPON to 10G GPON, etc.

EPON to 10G EPON (Japan, Korea)

All FTTH to WDM-PON, eventually

Fiber Backhaul (Fixed, Mobile)

“Rumors of my death have been greatly exaggerated”

- Copper

How Will Telcos Evolve?

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Fixed Access Network Evolution: Alternative Operators

FTTH (active or passive)

Smart Grid: EPB Chattanooga, Clarksville DoE

Bristol Virginia Utilities (BVU)

Three Utilities in Tennessee, USA

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Fixed Access Network Evolution: Google Fiber

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Vendor Positioning and Competitive Differentiation

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Cisco

Strengths

• Videoscape Unity, including Videoscape Cloud, proves Cisco has successfully executed the $5 billion acquisition/integration of NDS into the Videoscape portfolio.

• The NDS acquisition yields Cisco additional video networking and Videoscape (Unity) software-centric portfolio benefits, e.g., NDS’ extensive TV middleware suite, content security and cloud video software platform.

• Cisco’s fixed access assets (cable, FTTH/GPON) and corollary installed bases bolster its validation and Tier 1 vendor status.

Challenges

• Although Cisco possesses undeniable cable video market credibility, its established traction in the telco video/TV space centers around IP STBs and aggregation/core routing infrastructure.

• The Videoscape Unity architecture embodies several moving parts, including cloud, network, and client solution elements.

• Cisco’s rivals will look to position adopting the Videoscape Unity platform and architecture as seeming to require operators to adopt an ‘all-Cisco’ infrastructure model.

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ARRIS

Strengths

• With the US $2.35 billion acquisition of Motorola Home, ARRIS instantly tripled its size and revenue base.

• ARRIS now possesses a more comprehensive recommendation engine and content discovery offering with the integration of the ThinkAnalytics and Digitalsmiths solutions.

• ARRIS’s partnership with Sling Media gives ARRIS exclusive distribution rights for Sling Media’s place-shifting technology, in both standalone devices and integrated solutions (ARRIS gateways).

Challenges

• The acquisition of Motorola Home is unprecedented for ARRIS in relation to the company’s history of more modest acquisitions.

• Rivals can assert the array of new partnerships means ARRIS is cobbling together third-party solutions because it lacks these key service enablement elements in-house.

• ARRIS continues to face major product line rationalization decisions that may still cause interruption to its overall video solution sales and marketing efforts.

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Ericsson

Strengths

• Ericsson’s 2013 acquisition of Microsoft’s Mediaroom assets yields new market share leadership in the IPTV/video segment and adds 40 new customers and 22 million STBs.

• Ericsson’s 2013 Red Bee Media acquisition expands its broadcast services portfolio substantially (i.e., 1,500 personnel), complementing its 2012 acquisition of Technicolor’s BSD.

• Ericsson offers the strategic platforms that can drive operator evolution of the MSV experience (e.g., unified caching technology featuring integrated Akamai solutions).

Challenges

• Ericsson faces portfolio rationalization challenges in integrating & retaining the Mediaroom team of over 400 people, and overcoming the perception that Mediaroom development has been neglected.

• While Ericsson is executing on its video product roadmap, many of its products are not comprehensively market-proven and must compete with more established, incumbent solutions.

• Despite strengths in the video/multimedia market, Ericsson’s lack of cable network infrastructure assets somewhat weakens its hand in articulating an end-to-end proposition/prime integrator expertise.

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Alcatel-Lucent

Strengths

• Alcatel-Lucent supports multiple mass-market TV/video networks, including 5.5 million AT&T U-verse TV subscribers as of Q4 2013.

• Alcatel-Lucent’s video networking portfolio development efforts have increasingly supported multi-screen implementations, led by core components such as the Velocix CDN platform.

• Alcatel-Lucent’s AppGlide Video Analytics service launch extends the company’s reach across three domains key to its long-term competiveness (OTT, video analytics, hosted CDNs).

Challenges

• With Microsoft’s sale of Mediaroom to Ericsson, Alcatel-Lucent loses one of its key IPTV product offerings and customer base references.

• Alcatel-Lucent has yet to quantify the Velocix EVE RBT processing and repackaging efficiencies, giving rival vendors such as Cisco the opportunity to downplay Alcatel-Lucent’s assertions.

• Major rivals Cisco, Ericsson and ARRIS can claim that their direct control over video headend assets bolsters their IPTV solution sales efforts.

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Harmonic

Strengths

• Harmonic’s commitment to technical innovation has resulted in market-leading positions in transcoding, MSV processing, scaling high-end post-production applications and multi-channel, multi-service HD H.264 encoders.

• The ProMedia software application suite showcases Harmonic’s ability to extend a compelling video networking platform addressing a wide range of customers.

• In the encoding/transcoding market segment, Harmonic continues to produce endorsements from operators and broadcasters such as BT Sport and the NBC Olympics.

Challenges

• Relative to major rivals Harmonic wields a comparatively smaller arsenal of corporate resources and a narrower product portfolio.

• Harmonic’s CDN and cloud platform market and development efforts have proven relatively cursory and passive in relation to many of its video networking rivals.

• Harmonic lacks the in-house portfolio assets to influence market penetration rates more directly, such as operator CDN, LTE, FTTH and DOCSIS 3.0/3.1 adoption.

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A 20/20 View of Video, in 2020 and Beyond

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Moving Towards 2020 and Beyond

Access Network Evolution: Key Enabler

• DOCSIS 3.1 by 2017; with CCAP and FTTH/PON Looming Large

• Deeper Fiber, FTTH, Advanced Copper Access

• LTE-A Complements, even Replaces Wireline

• Satellite Options Still Strong for Rural Markets

Disruptive Players Accelerate Service Velocity

• OTT Players

• Pay-TV Operators Must Partner, or Drop Prices

Are $200 Cable Bills Going Away?

• Wireline Voice Already an Afterthought, is Pay-TV Next?

• Younger Consumers Trending Away from Broadcast Model

• Will Over-the-Air TV Disappear Altogether?

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Moving Towards 2020 and Beyond

The Future is Cloud-y!

• Elimination/replacement of current, high-cost STBs

• Virtualization of CPE, Thin Client at Premise

• Cloud-based DVR, Guide/UI

• Custom(er)-tailored, Dynamic Advertising

4K is Coming Faster than Expected

• Affordable Price Points

• HEVC Paves the Way

• Content in the Pipeline

Pervasive Consumption Drives Network Efficiency Imperatives

• Increasing Video Traffic on Mobile Networks

• Wi-Fi Offload Demands Increasing Wireline Network and Service

Optimization

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Thank you for your time. Questions?

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Jason MarcheckService Director,

Service Provider Infrastructure

jmarcheck@currentanalysis.com

Erik M. KeithPrincipal Analyst, Digital Media and

Fixed Access Infrastructure

ekeith@currentanalysis.com

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within five business days after the second session.