Ovum's David Kennedy
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CommsDay Summit 2013

CommsDay Summit 2013

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  • $600m spent on network. Parents recently asked for funds for capex, debt repayment and spectrum renewal.

Ovum's David Kennedy Presentation Transcript

  • 1. The digital dividend spectrum auction – what’s the fallout? David Kennedy david.kennedy@ovum.com Research Director – Asia-Pacific April 20131 © Copyright Ovum. All rights reserved. Ovum is a subsidiary of Informa plc.
  • 2. Background – spectrum renewals  800MHz, 1800MHz & 2100MHz: 2013, 2015 and 2017.  800MHz: Government’s original price A$1.46/MHz/pop.  Independent consultants price – A$1.21-1.46/MHz/pop.  Final price announced (Jan 2012) at A$1.23/MHz/pop.  62% premium compared with A$0.76/MHz/pop average price at recent global auctions.  A$0.23/MHz/pop for 1800MHz and A$0.625/MHz/pop for 2100MHz.  Telstra = ~A$1.35b, Vodafone = ~A$1.2b, Optus = ~A$500m.2 © Copyright Ovum. All rights reserved. Ovum is an Informa business.
  • 3. Background – Digital Dividend auction  700MHz and 2.5GHz simultaneous auction  Set for April 16, 2013.  2x25MHz cap per bidder for 700MHz (total 2x45MHz on the market)  2x40MHz cap per bidder for 2.5GHz (total 2x70MHz on the market)  700MHz pricing controversy: A$1.36/MHz/pop reserve  11% premium to 800MHz renewal’s A$1.23/MHz/pop.  28% premium to A$1.06/MHz/pop average price at recent global auctions.  2x 20MHz block at 700MHz = A$1.2b minimum  2.5GHz: $0.03/MHz/pop reserve  Reserve set by ACMA, not the Minister3 © Copyright Ovum. All rights reserved. Ovum is an Informa business.
  • 4. Vodafone4 © Copyright Ovum. All rights reserved. Ovum is a subsidiary of Informa plc.
  • 5. Vodafone’s “no” to 700MHz makes sense  Has 25-30MHz of 1800MHz spectrum in all capital cities  At least 15MHz contiguous 1800MHz spectrum in all capital cities  Could comfortably rollout an LTE1800 metro play  Plans to launch LTE1800 in the metros in mid-2013  Supplemented by 42Mbps HSPA+ in capital cities/large towns  Eventually LTE2500 in metros (auction participation confirmed)  For now, better to spend A$600m (2x10MHz at 700MHz) on physical network.  High-speed backhaul (mostly dark fiber) rollout was only 30% complete at the end of August 2012.  Paid A$1.2b for license renewal  Distant Number 3 operator in the midst of re-inventing itself5 © Copyright Ovum. All rights reserved. Ovum is an Informa business.
  • 6. Vodafone – value-seeker provider  Re-inventing self as lower ARPU customers replace higher ARPU ones  “Our high value customers have departed faster than we can bring them in.”  “New subscribers are taking the lower end of our price plans. These customers are seeking value rather than seeing Vodafone as a brand alternative.”  Company expects net losses to continue until 1H13  22.7% share at 2Q12, down from 27% at end-4Q10.  Gross adds are OK – main problem is churn.  “We have a brand that has been damaged.”  Bill Morrow appointed CEO in March 2012: three years to turn business around 1. Cutting costs 2. Stabilising prices (hoping market will follow) 3. Continues to improve depth & speed of network and backhaul 4. Improving customer service.  2014: Optus, not Telstra, will be most at risk from improved performance at Vodafone.6 © Copyright Ovum. All rights reserved. Ovum is an Informa business.
  • 7. Telstra7 © Copyright Ovum. All rights reserved. Ovum is a subsidiary of Informa plc.
  • 8. Telstra: network supremacy  Ovum expects Telstra to secure at least 2x20MHz of spectrum at 700MHz.  “We fundamentally believe in network supremacy…[in terms] of network and spectrum.”  Usually spends A$700-800m on mobile network; A$1.2b this year (FY13). Twice as much as Optus.  Telstra won the 3.5G network battle: 42Mbps HSPA+ network reaches 80% of population.  “4G is a far cheaper way of carrying data. [We need]…to get more people on 4G.”  1.5 million LTE1800 customers (launch Sept. 2011).  LTE network to reach 66% of population (up to 2,500 base stations) by June 2013, up from 40%(1,000 base stations) in 4Q12.  Key differentiator: LTE in regional and metro areas.  High-capacity backhaul covers 97% of the population.  Base stations with fiber backhaul covers 93% of the population.8 © Copyright Ovum. All rights reserved. Ovum is an Informa business.
  • 9. Telstra: Network supremacy is safe  Jury was out on what (if anything) Telstra would do late-2013 and 2014…  In February 2013, announced plans to launch LTE900 (5MHz channel) in regional areas to improve range and depth of coverage.  Cements regional LTE differentiator  LTE Advanced at 900MHz and 1800MHz in 2013 in heavy traffic areas (metros).  KT to launch LTE-A at 900MHz in March 2014.  We expect launch of LTE2500 and LTE700 in 2015.  Resources to support strategy: A$2-3 billion excess free cash flow by FY15.  Telstra is helped by NBN payments.9 © Copyright Ovum. All rights reserved. Ovum is an Informa business.
  • 10. Optus10 © Copyright Ovum. All rights reserved. Ovum is a subsidiary of Informa plc.
  • 11. Optus: LTE is the “key battleground”  “We have to strengthen our core network and customer experience proposition.”  Got serious on “getting the network right” in late 2011, at which point Telstra has been winning share with huge postpaid subsidies since 2010.  21Mbps HSPA+ reaches 40% of population.  42Mbps HSPA+ handful of high traffic areas.  Goal: move to LTE ASAP over next 12-18 months.  “We can’t allow the network gap to open up with Telstra on 4G.”  Launched LTE1800 in Sept. 2012, one year after Telstra.  LTE1800: 5 capital cities + 2 regional areas (700+ base stations).  “Core capital cities” LTE strategy.  Will launch TD-LTE in 2013.  68 - 98MHz of 2.3GHz spectrum in most capital cities, bring LTE to Canberra and Darwin where no 1800MHz.  TD-LTE is a capital cities/metro play  Devices?  Trick is to make the perceived difference with Telstra as small as possible.11 © Copyright Ovum. All rights reserved. Ovum is an Informa business.
  • 12. Auction wash up12 © Copyright Ovum. All rights reserved. Ovum is a subsidiary of Informa plc.
  • 13. 700MHz auction -  Vodafone’s no-bid means its will remain a metro-focused offer  We expect Optus will bid for 2x10MHz, maybe 2x15MHz  2x10MHz would out them on a par with Vodafone’s 2x10MHz in the 800MHz band  It needs a regional LTE strategy based on 700MHz - it cannot afford to let Telstra get too much of a head-start  To recap, we expect Telstra may bid for 2x20MHz or even 2x25MHz  This would mean that spectrum will go for reserve price.  It would also mean 2x5MHz to 2x15MHz will potentially remain unsold  Put back out to auction at a later date? When? Whom?  Future price will depend on secondary market trends13 © Copyright Ovum. All rights reserved. Ovum is an Informa business.
  • 14. 2.5GHz auction – a metro market play  Vodafone has shown moderate interest, but already has a 2x20- 30MHz of good quality 1800MHz spectrum in metro markets  Telstra will be a strong bidder  Is #3 in 2.1GHz spectrum in metro areas  Is #2 in 1800GHz spectrum in metro areas  Optus will also bid, but has a significant amount of 2.3GHz spectrum  A relaxed approach to bidding would suggest they think TD-LTE device problems aren’t significant  We expect more rounds of bidding than at 700MHz, and final pricing at or above reserve, depending on location14 © Copyright Ovum. All rights reserved. Ovum is an Informa business.
  • 15. Q&A15 © Copyright Ovum. All rights reserved. Ovum is a subsidiary of Informa plc.
  • 16. Disclaimer All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Ovum (an Informa business). The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Ovum delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Ovum can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.16 © Copyright Ovum. All rights reserved. Ovum is an Informa business.