Forecasting the long-term evolution of broadband accesses and the role of new technologies Kjell Stordahl

Forecasting the long-term evolution of broadband accesses and the role of new technologies Kjell Stordahl

Agenda Broadband trends and drivers Relevant broadband technologies Broadband evolution Broadband technologies and the possibilities Impact of new technologies Long-Term broadband forecasts Conclusions

Broadband drivers and limitations Residential and Business sector User segments (Demographics, social and job-related networks, user involvement (YouTube, Facebook, Twitter --) Broadband coverage and increased speed Broadband technologies, market share Speed, tariff, applications, availability Terminal availability (PC) New and enhanced broadband applications Entertainment, Convergence

Some broadband trends Increased access speed in general Increased demand for upstream speed Changed user behavior (peer to peer, video) Communication one to multiples, multiples to multiples From consumers to prosumers who produce own content From TV distribution to video interactivity VoD - Vido on demand PoD - Program on demand PVR Personal video recorder Better TV quality: HD TV

Broadband technologies DSL - ADSL, ADSL2+, VDSL2 - S(H)DSL Cable modem/hfc FTTH/FTTB WiMAX Other (Satellite, PLC, ) CDMA 2000 HSPA LTE Fixed broadband Mobile Broadband WLAN/WiFi

Different technologies: Downstream capacity and mobility CDMA Mobility UMTS HSPA LTE WiMAX Mobile Nomadic/ Fixed 10 Mbps WiFi WiMAX Fixed 54 Mbps WiFi Fixed access LR- ADSL SHDSL ADSL ADSL2+ 8 copper pairs VDSL2 HFC DOCSIS FTTH 1 5 10 20 40 100 Mbps

Broadband technologies physical structure BSP ISP BAP ca 35 km Te lenor R & D / H L oktu DTT 3 km L L A P A P 1 km L A P ISDN/ADSL 0 km LAP LMDS VDSL FTTB LAP

Broadband penetration sum residential and business accesses per 100 inhabitants. Mean OECD countries and Western Europe Broadband penetration sum residential and business accesses. Mean OECD countries and Western Europe. 2002-2008. 30 25 20 OECD Western Europe 15 10 5 0 2002Q2 2002Q4 2003Q2 2003Q4 2004Q2 2004Q4 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4

Western Europe The countries: EU15 + Iceland, Norway and Switzerland EU15: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Luxembourg, Portugal, Spain, Sweden and UK Population: ca. 400 million No of households: ca. 170 million Persons per household: 2,5

Broadband penetration. Sum residential and business accesses per 100 inhabitants. Western Europe. End of 2008. OECD statistics. 40 35 30 25 20 15 10 5 0 Broadband penetration sum residential and business accesses. Western Europe. End of 2008. (OECD) Denmark Netherlands Norway Switzerland Iceland Sweden Finland Luxembourg United Kingdom Belgium France Germany Austria Spain Ireland Italy Portugal Greece

Broadband penetration (number of accesses per inhabitant) and population density OECD 2008Q4 OECD broadband penetration and population densities 40 Broadband penetration, Dec 2008 Population density, 2006 35 Broadband penetration (subscribers per 100 inhabitants, December 2008) Population density (inhab/km2, 2006) 30 25 Simple correlation = 0.22 20 15 10 5 0 600 500 400 300 200 100 0 Denmark Netherlands Norway Switzerland Iceland Korea Sweden Finland Luxembourg Canada United Kingdom Belgium France Germany United States Australia Japan New Zealand Austria Spain Ireland Italy Czech Republic Hungary Portugal Greece Slovak Republic Poland Turkey Mexico Source : OECD Nordic countries

Broadband penetration. Sum residential and business accesses per 100 inhabitants. Western Europe. 2002-2008Q4. OECD statistics. 40 35 30 25 20 15 10 5 0 2002Q2 Broadband penetration. Sum residential and business accesses. Western Europe. 2002-2008. OECD statistics 2002Q4 2003Q2 2003Q4 2004Q2 2004Q4 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 Denmark Netherlands Norway Switzerland Iceland Sweden Finland Luxembourg United Kingdom Belgium France Germany Austria Spain Ireland Italy Portugal Greece

Sources for broadband household statistics collected 1999-2007 OECD Idate/EU statistics OVUM IDC Earlier data: Forrester, Jupiter, IST/Tonic, CELTIC/Ecosys The broadband household figures presented is based on combination of data from the different sources The broadband is used as input for long-term household demand forecasts for Western Europe

Broadband penetration, residential Market, Western Europe. 1999-2007 50 % 45 % 40 % 35 % 30 % 25 % 20 % 15 % 10 % 5 % 0 % Broadband penetration, residential market, Western Europe 1999-2007 1999 2000 2001 2002 2003 2004 2005 2006 2007

Market share DSL, HFC (Cable modem) and Other BB technologies, residential market, Western Europe. 1999-2007 100 % 80 % Market share evolution DSL, Cable, Other technologies, residential market, Western Europe 60 % 40 % DSL Cable Other 20 % 0 % 1999 2000 2001 2002 2003 2004 2005 2006 2007 Other means: FTTx, FWA and a rest category (satellite, PLC)

DSL coverage EoY 2006 Idate October 2007 In Norway the DSL coverage is about 94% in Q2 2009. The DSL rollout has stagnated because of: - Too long copper lines - Too small areas

What can be done for maintaining the DSL market share? Rollout of DSLAM in the residual broadband market if it is a business case Rollout of VDSL2 in areas around DSLAMs BSP ISP Rollout of supplementary fiber infrastructure shortening the copper line length Deutsche Telecom and British Telecom have significant actions for establishing a fiber network structure for VDSL2 and FTTx ca 35 km Te lenor R &D/ H L o ktu DTT 3 km L L A P A P 1 km L A P BAP ISDN/ADSL 0 km LAP LMDS VDSL FTTB LAP

Fastest advertised speeds, using DSL in Mbit/s September 2008 (OECD) Korea Japan Germany Denmark Finland France New Zealand Greece United Kingdom Sweden Portugal Ireland Iceland Australia United States Switzerland Spain Netherlands Italy Belgium Czech Republic Austria Norway Canada Luxembourg Slovak Republic Hungary Poland Turkey Mexico 0 20 40 60 80 100

Market share evolution cable/hfc, selected countries, Western Europe 2004-2008 60 % 50 % 40 % 30 % 20 % 10 % 0 % 2004Q2 Market share evolution Cable/HFC, selected Western European countries, 2004-2008 2004Q4 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 Belgium Denmark Finland France Germany Ireland Luxembourg Netherlands Norway Portugal 60 % 50 % 40 % 30 % 20 % 10 % 0 % Markets share evolution cable/hfc, selected Western European countries, 2004-2008 Austria Spain Sweden Switzerland UK 2004Q2 2004Q4 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4

Fastest advertised HFC speeds in Mbit/s per September 2008 (OECD) Fastest advertised broadband speeds, using cable, Mbit/s, Sept 2008 Japan Finland France Korea Spain Germany Portugal Australia Luxembourg Norway Austria Denmark Canada New Zealand Switzerland Netherlands Sweden Czech Republic Slovak Belgium Hungary Ireland Poland United Kingdom United States Mexico 0 20 40 60 80 100 120 140 160 180

Number of accesses FTTx, FWA and Rest BB technologies 2001-2007 Number of accesses in 1000 2500 2000 1500 1000 500 0 Broadband evolution FTTx, FWA and Rest technologies Western Europe 2001-2007 FTTx FWA Rest Other 2001 2002 2003 2004 2005 2006 2007 FTTx market share in 2007: 1,8%

Broadband access fiber deployment Greenfield Renewal and replacement in areas with much failures and low performance Fiber deployment deeper in the access network Fiber deployment utilizing established ducts FTTx rollout with IPTV Fiber deployment for catching market shares in established areas

Fiber access deployment Greenfield Renewal and upgrading in areas Utilizing Broadcast and broadband interactivity Infrastructure deployment Dedicated expansion in established areas

Europe: FTTx evolution (Idate Feb. 2008)

80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % Technology market share evolution 2004 2008. Selected countries Korea. Broadband market share evolution 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 2004Q4 Sweden. Broadband market share evolution DSL HFC Fiber Other 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 2004Q4 60 % 50 % 40 % 30 % 20 % 10 % 0 % DSL HFC Fiber Other 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % Japan. Broadband market share evolution DSL HFC Fiber Other 2004Q4 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % Norway. Broadband market share evolution DSL HFC Fiber Other 2004Q4 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4

Market share DSL, Cable modem (HFC) and Other BB technologies, residential market, Western Europe. 1999-2007 100 % 80 % Market share evolution DSL, Cable, Other technologies, residential market, Western Europe 60 % 40 % DSL Cable Other 20 % 0 % 1999 2000 2001 2002 2003 2004 2005 2006 2007 Other means: FTTx, FWA and a rest category (satellite, PLC)

Norwegian residential market: Market share evolution DSL, Cable/HFC, FTTx and other technologies 2000-2008 (PT Norwegian regulator) 100 % Market share evolution DSL, Cable/HFC, FTTx and Other technologies, Norwegian household market 80 % 60 % 40 % 20 % 0 % DSL Cable/HFC FTTx Other 2000 2001 2002 2003 2004 2005 2006 2007 2008

Fiber access evolution Japan, Korea, US and Western Europe 2004 2008Q4 60 % 50 % 40 % 30 % 20 % 10 % 0 % 2004Q4 Fiber market share evolution. Selected areas. Japan Korea US Western Europe 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 47,9% 43,1% 4,0% 1,4% Western Europe

Status: EU Regulation of Next Generation Access network (NGA) The EU commission is developing a Recommendation on NGA The Recommendation has been delayed Deadline for the first hearing was November 2008. Because of much disagreement a new hearing is in process. The objective with the NGA access regulation has been to foster investment and innovation in a new and enhanced infrastructure while preserving a strong market competition It seems that the NGA fiber regulation will be close to the present twisted pair regulation Still it is uncertainty regarding the final recommendation

ETNO comments to draft recommendation ETNO (European Telecommunications Network Operators): Europe is lagging behind other regions in fiber deployment New access network require investments up to 300 billions Euro Key focus should be to make a recommendation on how to boost risky investments by all operators and accelerate network deployment ETNO recommends to improve/change formulations on key areas: Appropriate role for symmetric regulation Market led approach to technology and network architecture Regularity certainty, predictability Pricing flexibility Fair risk sharing in access pricing

Fixed broadband and mobile broadband. Market and market segments Fixed broadband Mobile broadband Specific residential segments: students, flexible home locations, newly established families, cottages, etc Specific business segments: Nomadic offices, etc

Customer transitions and churn DSL MBB HFC/cable FTTx Nearly absorbing technologies

Customer transitions and churn DSL DSL is loosing market share MBB Transitions from DSL to MBB especially by young user groups HFC/cable FTTx

Customer transitions and churn DSL MBB MBB is the fastest growing technology HFC/cable FTTx

Diffusion models for long-term broadband access forecasts Logistic four parameters model: Y t = M/(1 + e α +β t ) γ Y t is the accumulated demand at time t M the saturation level α level parameter β, γ growth parameters.

Broadband residual market ADSL, Long Range ADSL WiMAX Mobile broadband (Fiber)

Long-term market potential M for broadband accesses The long-term market potential, M, is estimated independently The long-term market potential depends on: Broadband coverage: 100% - residual market Access speed coverage which changes over time Mobile broadband substitution Market share of uses who never will order a broadband subscription

Broadband residential penetration forecasts 2008-2012 80 % Broadband penetration forecasts, residential market, Western Europe, 2008-2012 Penetration (%) 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Separate market share forecasts are made using the four parameter Logistic model for: HFC FTTx FWA (Mainly WiMAX) Rest (Satellite, power line connection - PLC) The last forecasts for DSL market share are found as the difference between the total market and the separate market share forecasts

Technology market share forecasts, residential market, 2008-2012 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % Technology market share forecasts, residential market, Western Europe, 2008-2012 DSL Cable FTTx FWA Rest 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

FTTx and FWA market share forecasts 5 % FTTx and FWA market share forecasts, residential market, Western Europe, 2008-2012 4 % 3 % 2 % FTTx FWA 1 % 0 % 2004 2005 2006 2007 2008 2009 2010 2011 2012

Risk Assessment Techno-economic tool Demand for the Telecommunications Services Long-term broadband forecasts Services DB Architectures Geometric Model Revenues OA&M Costs Investments First First Installed Installed Cost Cost Economic Inputs Cash flows, Profit & loss accounts Year 0 Year 1 Year n... Year m Life Life Cycle Cycle Cost Cost NPV NPV IRR IRR Payback Payback Period Period

Conclusions DSL market share reaches maximum HFC market share reduction stops Fiber access catches significant market share Regulation of fiber access in NGA creates significant uncertainties and so far limited demand WiMAX catches market share in the residual market Mobile broadband compete with fixed broadband and takes significant market share from specific user groups FTTH/FTTB/VDSL2/HFC-DOCSIS 3.0 will in the long run be the most attractive broadband solutions LTE will in the long run (not before 2012) catch DSL market share by offer higher capacity than DSL