FTTH AGAINST THE ODDS 10 LESSONS

Transcription

1 FTTH AGAINST THE ODDS 10 LESSONS Richard Jones Chief Commercial Officer - Ventura Next Partner Ventura Team Chairman of FTTH Council MENA Smart Cities Committee richard@venturanext.com

2 A unique combination of skills that can help you at every step from a concept through strategy, business case, design, deployment up to managing the network STRATEGY, TECHNICAL AND REGULATORY CONSULTING FROM PERHAPS THE NUMBER ONE NGA/FTTH CONSULTANCY TRACK RECORD IN THE WORLD + CREATING AND MANAGING ULTRA-EFFICIENT NETWORKS THAT DELIVER HIGH NUMBERS OF SATISFIED CUSTOMERS WHILE MAXIMIZING RETURNS FOR NETWORKS OWNERS Created strategy and business case for the World s first 1 Gbps everywhere network for an incumbent Detailed planning support for $3 billion network investment (GCC) Creation of mini-nbn in Oman (FTTH) 150k homes Team in fibre LAN from 1998 World leading experience in running ultraefficient open access and exclusive networks Financing the active layer for fibre owners Running networks in smart cities, campuses, alt nets Changing the business model for operations

3 TEN LESSONS

4 LESSON 1 CONSUMER DEMAND FOR FASTER BROADBAND IS HEALTHY AND GROWING FAST We did work for the FTTH Council Europe which validated Neilsen s Law. This law suggests the fastest residential services in a country tend to double in speed every two to three years. The figure on the right shows some best fit examples of this. Residential broadband services as fast as 2 Gbps (Hong Kong) are now available and, with Ultra High-Def TV having 16 times the pixels (and therefore bandwidth requirements) compared to a current generation HD TV, there is no reason to believe Neilsen s Law will stop being valid. It s worth nothing that individual countries may be constrained not by demand, but by a lack of investment in improving infrastructure. For example, vectored VDSL2+ only achieves just over 100Mbps and although G.Fast can hit 600 Mbps, it requires serious investment in moving fibre very close to homes. Wherever a country is in terms of speeds at present, Neilsens s Law underlines the simple fact that subscribers want faster broadband and will continue to do so. LAW RELATES TO.. CAGR Compound over 10 years Nielsen Bandwidth 50% 57x Moore Computing 60% 100x Source: Ventura Team study for FTTH Council Europe

5 LESSON 2 LTE SEEMS EASIER FROM A NUMBERS PERSPECTIVE. but Nielsens Law, the decreasing ARPU, exploding data growth, disappearing profits makes LTE more of a complementary technology. With small data caps compared to fixed technologies, LTE will have its place in rural areas and as a mobile service in addition to fixed services at home and in the office.

6 LESSON 3 THE FIBRE BUSINESS CASE CAN BE FAR FROM EASY The business case for FTTX/H is generally very difficult. The upper right part of the diagram shows the cumulative free cash flow (FCF) line (in pink) for a simple case. FCF payback in less than 10 years is very rare. The characteristics of the FTTH business case compare very unfavourably on the surface with a wireless business case - although the level of competition and increasing data costs will have a significant impact on the attractiveness of wireless only business cases in the future. We believe that mobile only players in competitive markets will become almost extinct in the next five years. The simple rule is that FTTH will only be built in widespread deployments where: there are new developments the business case for FTTH in greenfield developments, smart cities etc. is a no brainer; countries have taken a political decision (e.g. UAE, Qatar); the number of people in multi-dwelling units is very high (leading to far lower capex compared to where most people live in individual homes); municipalities have invested in fibre networks already (e.g. much of Sweden); dig costs are very low and/or aerial fibre can be deployed (the latter explaining Verizon s low cost per home passed); there is a very high availability of ducts that can be re-used at low cost.

7 LESSON 4 TRY TO AVOID BUILDING WHERE YOU HAVE RED LIGHTS Price for BB ($) - monthly Subscriber Target Current/ Planned Technologies Density of Housing Routing fibre TV < >100 <5k 5k 20k 20k 50k 50k 100k >100k Existing fibre or fast cable <10% in apartments No ducts and high cost to dig High satellite/cable penetration + piracy + content laws Some fibre and/or significant VDSL 10 25% in apartments No/low ducts and high dig costs High satellite/cable penetration + piracy Good DSL 25 50% in apartments Some ducts and/or medium cost digging 15-50% satellite/cable WiMAX and bad DSL >80% in apartment blocks Good duct access and low dig costs <15% satellite/cable penetration Bad DSL and 3G >80% large apartment block High percentage of ducts available Very low satellite penetration

8 LESSON 5 THERE ARE THOSE WHO SEE THE VALUE OF MORE SPEED - BUT PRICE INCREASES LAG IMPROVEMENTS IN SPEEDS The premium for faster connections lags the speed increase provided Bandwidth +15% +436% Some will pay a premium for extra speed FTTx DSL Cable Prices have increased with faster services The premium is not as great as the multiple of bandwidth provided This is partly about competitive pressures but also about willingness to pay vs understanding of the benefits Willingness to pay will depend on existing speeds and ARPU s In this OFCOM survey in the UK, 40% of respondents would pay the equivalent ~$24 more per month to double their broadband speed Source: Detecon + Point Topic + VT LLP Analysis Source OFCOM UK Regulator

9 LESSON 6 HISTORICALLY, WHERE FIBRE IS COMPETITIVE ON PRICE IT KILLS DSL Where fibre is available at comparable prices, it will displace low to mid-end xdsl and mobile as the preferred home technology A number of FTTx projects have taken 70% or more share of homes passed In single dwelling unit areas our own operation could hit as high as 90% penetration These cases have benefitted from one or more of the following factors: 30%+ bundle price discount Killer content Great demographics and strong desire for true broadband High dissatisfaction with existing providers Local loyalty

10 LESSON 7 UNLIKE IN MOBILE SERVICES YOU CAN INCREASE ARPU OVER TIME! The perception of fibre value is set on one day one take care with customer proposition CATV burned some franchise areas but others built successfully using long term pricing strategy Hong Kong Broadband - New Contract ARPU (HK$) H2013

11 LESSON 8-1 BETA RESULTS FROM VENTURA S EUROPEAN COUNTRY MODEL SUPPORT THE VIEW THAT YOU HAVE TO SELECT FIBRE LOCATIONS CAREFULLY GPON is a more cost effective approach for single operator residential networks than P2P - especially in low density areas This chart estimates the cost for doing GPON and P2P based Fibre to the Home as well as FTTC in different cities in Sweden (used as an example). The denser cities show lower costs per home passed than smaller towns and villages. 2,500 Passive Infrastructure CAPEX (GBP) per Home Passed by Geotype and Technology for Sweden 2,000 1,500 1, Smaller town sizes FTTC/VDSL FTTH (GPON) FTTH (PTP)

12 LESSON 8-2 BETA RESULTS FROM VENTURA S EUROPEAN MODEL SUPPORT THE VIEW THAT YOU HAVE TO SELECT FIBRE LOCATIONS CAREFULLY Typically, only 50%-70% homes may be economic The chart on the right synthesizes the previous data to show how the incremental cost of covering from 0 to 100% of the population increases substantially as you leave the more dense areas. 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - Estimated Total CAPEX (GBP m) for Greenfield GPON in Sweden 0% 20% 40% 60% 80% 100%

13 TRENCHING COST - OMANI RIALS LESSON 9 THE CAPEX FOR HOMES PASSED IS STRONGLY INFLUENCED BY THE MIX BETWEEN APARTMENTS IN MULTI-DWELLING UNITS (MDU S) AND VILLAS In this example from work done in Saudi Arabia, the difference in capex costs for the same number of homes passed can vary by 150% from area to area (shown right). This models a number of costs for areas of different density with point A representing an average density area and B showing the capex at an area of 90% occupation of apartments. The cost for outside plant (OSP) increases as the density of population decreases. Fewer apartments and more villas means more street dig to pass a potential subscriber. 400,000, ,000, ,000, ,000, ,000, ,000, ,000,000 50,000,000 - A A 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% PERCENTAGE OF POPULATION IN MULTI-DWELLING UNITS B represents the cost where 90% of people in an area live in apartments A represents the cost for a rollout in an area where 33% of people live in apartments B B

14 LESSON 10 NOT BUILDING THE RIGHT AREAS FIRST For the same rollout, target areas, capex etc. Companies frequently consider the headline capex amount but don t look at the timing of funding etc. Building in the wrong areas first can remove 3% off the project return (IRR) Mismanaging the capex procurement can cut up to 23% off the project return

15 A FEW LESSONS FROM OUR CONSULTING PROJECTS AND OWN OPERATIONS

16 LEVERAGE EXISTING INFRASTRUCTURES E.G. POWER ESB IRELAND WHAT WAS DONE? Idea to use existing inter-city fibre infrastructure plus ability to do overhead cabling to create FTTH network Input on assumptions and technical support/review Vodafone chosen by ESB as operator partner RESULTS Aiming to connect 500,000 homes in Ireland Leveraging semi-state assets that are too dangerous for others to exploit Open-access approach to avoid state aid issues Aiming to support the Irish economy with leading edge fibre where previously there was very poor network quality 50 TOWNS 500k HOMES 26 COUNTIES

17 USE NEW INFRASTRUCTURE BUILDS HAYA WATER - OMAN Leveraging the opportunity of creation of a new wastewater network WHAT WAS DONE? Idea to use trenching for sewer network to create FTTH network Business concept to implementation Government support and coordination with civil works contractors was critical RESULTS A mini-nbm for the Muscat region 150k homes to be passed with FTTH Equivalent access for up to three providers

18 TARGET YOUR MARKET BUT DELIVER VERY EFFICIENTLY WHAT WAS DONE? Targeting areas in South Africa in suburbs Keys are: identifying demand in areas in advance of building super-efficient network management RESULTS Recent launch The first gigabit residential FTTH in Africa? Subscribers have a choice of services

19 BE INCREDIBLY EFFICIENT Our team created an operator that rose to number four in the World for broadband service value and combined 155k subscribers across the retail service provider and open access operator with in the group The company is profitable despite the very low prices This reflects the hard work of the team a focus on operational excellence simple product offering reducing errors and so also opex 2,500 subscribers per employee! 100 MB Table 1: Lowest cost/megabit by country, operator and tariff the top 10 (PPP rates) Country, ISP and tariff $/Mb Hong Kong, HKBN, (bb Fibre Home 1000) Japan, KDDI, (FTTH AU-Hikari Mansion Giga) Romania, Romtelecom, (Clicknet Power) Sweden, Riksnet, (Riksnet Broadband 100) (Source: Point Topic

20 STRATEGY, TECHNICAL AND REGULATORY CONSULTING FROM PERHAPS THE NUMBER ONE NGA/FTTH CONSULTANCY TRACK RECORD IN THE WORLD CREATING AND MANAGING ULTRA-EFFICIENT NETWORKS THAT DELIVER HIGH NUMBERS OF SATISFIED CUSTOMERS WHILE MAXIMIZING RETURNS FOR NETWORKS OWNERS