PT Telkom Indonesia Evaluating the Evolution of Access Networks to Support HDTV/VoD A Case Study on IPTV Deployment presented by He n ri S etiawan Wyatno (R esearcher of R&D Center PT Telkom ) Carrier Ethernet World APAC Congress November 2-4, 2009 Renaissance Hotel, Kuala Lumpur, Malaysia

Content TELKOM in Brief The Nature of IPTV Services IPTV Business Model Summary IPTV Design and Deployment

TELKOM Ownership ... TELKOM is the largest full service and network provider in Indonesia, owned by the Government of Indonesia and Public . (Total shares = 20,159,999,280 , including 1 Dwiwarna share series A ) as of March 31 , 2009 Government Public 52.47% 10,320,470,711 share s Treasury Stock 490,574,500 share s 47.53% 9,348,954,069 share s The biggest publicly listed company in Indonesia ( Market cap : Rp.152 Tn , or + 13.23 % of total market cap. at IDX) TELKOM listed at the Indonesia Stock Exchange (IDX), the New York Stock Exchange (NYSE) as well as the London Stock Exchange (LSE) on November 14, 1995, and also Public ly Offering Without Listing (POWL) at Tokyo Stock Exchange (TSE)

TELKOM Core Business Market leader with more than 90% market share Operated by Division : Reg. Div 1-7; FWN Div; Infratel Div; CISC Div; Enterprise Div; and Subsidiaries : CONSOLIDATED UNCONSOL New Wave Business with significant growth Operated by: No.1 cellular operator with more than 49% market share Operated by: AWI Finance B.V Balebat Property , telco infrastructure, trade and finance services , call center and directory, and printing As of March 31, 2009 Others

AWI Finance B.V

Balebat

TELKOM’s Map of Operations Covers all over Indonesia : 33 provinces and 440 districts Regional I Sumatera Island Regional II Great Jakarta Regional III West Java Regional IV Central Java & DIY Regional V East Java Regional VI Kalimantan Regional VII Eastern Indonesia Bali, Nusa Tenggara, Sulawesi, Maluku & Papua 7 Regional Division 913 Customer Service Point / PlasaTELKOM (11 shared with GraPARI) More than 317 K Warung Telkom Subscribers in Java (70%) 4 Areas 11 Regional Sales 71 GraPARI (51 shared with PlasaTELKOM) 271 Gerai HALO Subscribers in Java (70%)

7 Regional Division

913 Customer Service Point / PlasaTELKOM (11 shared with GraPARI)

More than 317 K Warung Telkom

4 Areas

11 Regional Sales

71 GraPARI (51 shared with PlasaTELKOM)

271 Gerai HALO

Access revenues will contribute >80% of revenues, despite increased contribution of VAS (i.e. IPTV) post 2010 Broadband Revenues – Indonesia Industry ARPU VAS ARPU may reduce decline in overall ARPU if IPTV experiences reasonable take-up in Indonesia Globally, IPTV has not been a profitable stand-alone business in most cases The challenges for IPTV in Indonesia are even greater due to low broadband penetration and limited population who can afford IPTV Assuming moderate take up, IPTV market is expected to reach US$112 million (~1.5 million subscribers) in Indonesia by 2013 Telkom currently has an aggressive plan for IPTV, with a planned commercial launch in Q4200 9 Source: Ovum, A.T. Kearney Analysis 2008

VAS ARPU may reduce decline in overall ARPU if IPTV experiences reasonable take-up in Indonesia

Globally, IPTV has not been a profitable stand-alone business in most cases

The challenges for IPTV in Indonesia are even greater due to low broadband penetration and limited population who can afford IPTV

Assuming moderate take up, IPTV market is expected to reach US$112 million (~1.5 million subscribers) in Indonesia by 2013

Telkom currently has an aggressive plan for IPTV, with a planned commercial launch in Q4200 9

Content TELKOM in Brief The Nature of IPTV Services IPTV Business Model Summary IPTV Design and Deployment

The Nature of IPTV/VOD Services IPTV/VOD services are inherently resource-intensive, with unpredictable demand fluctuations. The issues that define the nature of IPTV/VOD services and lead to unpredictability and resource-intensiveness include: VOD/Unicast Concurrency: VOD session concurrency has a direct effect on the amount of unicast network traffic, and is therefore a major variable in network design and reliable service delivery. Initial peak concurrency rates will likely be about 10 percent, although as VOD content and features such as nPVR are added, unicast video is expected to grow to more than 20 percent in the short term. This excludes unicast traffic as part of the channel- change mechanism, which can be on the same order of magnitude as VOD/nPVR during commercial blocks. Broadcast Channel Concurrency: The number of broadcast channels watched concurrently affects multicast replication throughout the network. Internet Group Management Protocol (IGMP) snooping can be deployed to block unwatched channels by pruning the related multicast tree branches, thereby optimizing bandwidth usage in the first, second, and third mile, based on actual viewing patterns. HD Content Growth: HD content grows in direct proportion to increased network bandwidth, whether broadcast or unicast. Even with advances in compression technologies, an MPEG-4 HD stream will consume a maximum of 8 Mbit/s. Many service providers believe the amount of HD will be a significant differentiator, making the addition of as much HD content, as quickly as possible, a top priority. STB Proliferation: The number of STBs per household – and features such as multichannel viewing for picture-in-picture and multi-angle viewing – further compounds bandwidth requirements as more channels are accessed concurrently per household. North American service providers are projecting somewhere between two and three STBs per home on average.

IPTV/VOD services are inherently resource-intensive, with unpredictable demand fluctuations.

The issues that define the nature of IPTV/VOD services and lead to unpredictability and resource-intensiveness include:

VOD/Unicast Concurrency: VOD session concurrency has a direct effect on the amount of unicast network traffic, and is therefore a major variable in network design and reliable service delivery. Initial peak concurrency rates will likely be about 10 percent, although as VOD content and features such as nPVR are added, unicast video is expected to grow to more than 20 percent in the short term. This excludes unicast traffic as part of the channel- change mechanism, which can be on the same order of magnitude as VOD/nPVR during commercial blocks.

Broadcast Channel Concurrency: The number of broadcast channels watched concurrently affects multicast replication throughout the network. Internet Group Management Protocol (IGMP) snooping can be deployed to block unwatched channels by pruning the related multicast tree branches, thereby optimizing bandwidth usage in the first, second, and third mile, based on actual viewing patterns.

HD Content Growth: HD content grows in direct proportion to increased network bandwidth, whether broadcast or unicast. Even with advances in compression technologies, an MPEG-4 HD stream will consume a maximum of 8 Mbit/s. Many service providers believe the amount of HD will be a significant differentiator, making the addition of as much HD content, as quickly as possible, a top priority.

STB Proliferation: The number of STBs per household – and features such as multichannel viewing for picture-in-picture and multi-angle viewing – further compounds bandwidth requirements as more channels are accessed concurrently per household. North American service providers are projecting somewhere between two and three STBs per home on average.

Key Challenges & Requirements

End-to-End IPTV Network Architecture Source : LightReading

Content TELKOM in Brief The Nature of IPTV Services IPTV Business Model Summary IPTV Design and Deployment

Service Impact on Capacity Needs at Each Network Link Source : LightReading

IPTV Design – A Case from Telkom

Open EcoSystem – IPTV Trial Architecture

Content TELKOM in Brief The Nature of IPTV Services IPTV Business Model Summary IPTV Design and Deployment

Methodology Business and Operational Transformation Project Objectives: To create a methodology for defining operator’s business requirements. Define case examples to facilitate internal and external discussions.

Pricing and Packaging

Telco’s Business Model Shop Window Network Provider Content Provider/Editor Service Provider Access Network Aggregation Provider (L2 o L3) Service Provider SP SP Content Reseller Editor Editor Editor STB STB STB STB STB Telco Other actors Contents Interface / Content Provider / Editore Content Provider / Editor SP Content Provider/Editor Service Provider Editor/ Content Provider STB

Build A Business Partner EcoSystem

Driven is Content Community Business User Individual Family User CP – Content Providers New Value Chain – Operator should find its advantage ous position to go after the new revenue/profit opportunities. Financial Education Health Media Network Operator End User SP-Service Provider User Interface Integrate many contents to provide good user experience Digital lifestyle and workstyle New user experience for consumer E2E solution for business user Cultivate new markets in cooperation with other industries New Business Model Integrated Service Provider

Digital lifestyle and workstyle

New user experience for consumer

E2E solution for business user

Content TELKOM in Brief The Nature of IPTV Services IPTV Business Model Summary IPTV Design and Deployment

Summary Although, there are technical challenges to be carefully managed during an IPTV deployment, service providers establishing an IPTV business risk commercial failure – because of their inability to fully understand market dynamics, not addresing unique buying characteristics of target customers, and not orchestratin gappropriate value constellations. For service providers that carefully consider the business models, risk sensitivities and overall strategy to maximize competitive strengths, there is an opportunity to compete effectively and grow shareholder value.

Although, there are technical challenges to be carefully managed during an IPTV deployment, service providers establishing an IPTV business risk commercial failure – because of their inability to fully understand market dynamics, not addresing unique buying characteristics of target customers, and not orchestratin gappropriate value constellations.

For service providers that carefully consider the business models, risk sensitivities and overall strategy to maximize competitive strengths, there is an opportunity to compete effectively and grow shareholder value.

Thank you for your attention... Contact Address : R&D Center of PT Telkom Indonesia Gedung Menara R&D Lt.4 Jl. Gegerkalong Hilir 47 Bandung , 40152 Indonesia Tel : +62-2 2 - 4572426 Fax : +62-2 2 - 2012262 Email : henry @telkom.co.id http://telkom-indonesia.com Any further questions?