Dig Now

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Presentation for the OECD Workshop on Fibre Investment in Stavanger, Norway on April 10 and 11, 2008

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  • For SlideShare: Presentation given to OECD Workshop on Fibre. There is a paper on the same subject by the OECD called the Future of Fibre Networks and Investment available at http://www.oecd.org/dataoecd/49/8/40390735.pdf
  • Dig Now

    1. 1. Dig now <ul><li>But will anyone dig? </li></ul>Stavanger, April 10 2008 Rudolf van der Berg [email_address]
    2. 2. Disclaimer No. 2 June 2009 The opinions expressed here are my own. They do not represent the view of Logica
    3. 3. Situation OECD governments are pressured (not) to do something about broadband No. 2 June 2009 Job Growth Innovation Green Society Weightless Society World Peace Proponents Waste Too Soon No Government Competition Opponents Government
    4. 4. Dig Now or dig later? Paul Keleher, Flickr No. 2 June 2009 What needs to happen if our country wants to remain competitive? <ul><li>Technology </li></ul><ul><li>How much bandwidth will users demand? </li></ul><ul><li>Are the current networks enough? </li></ul><ul><li>Do we need to dig fibre? Will some other technology not save us? </li></ul><ul><li>Market </li></ul><ul><li>Will the market provide what end-users and businesses require? </li></ul><ul><li>Who will pay for the investments? </li></ul><ul><li>Will the markets develop to a competitive situation with multiple providers of infrastructure? </li></ul>
    5. 5. Dig now No. 2 June 2009 Fibre to the curb is the minimum, but will you get it? <ul><li>Technology (discussed in previous sessions) </li></ul><ul><li>End-users need 50/10 Mbit/s. SME’s more. </li></ul><ul><li>Current Cable/DSL not enough. FTTC for VDSL2/Docsis3 minimum </li></ul><ul><li>No mobile broadband without FTTC for backhaul. </li></ul><ul><li>FTTH ideal. It removes technology as a bandwidth barrier </li></ul><ul><li>Market </li></ul><ul><li>Market outcome = possibility to monetize benefits + possibility to invest. </li></ul><ul><li>Different market position, different opinion </li></ul><ul><li>Those that benefit from the network will not build it, those that build it will not monetize its benefits. </li></ul><ul><li>Market for networks will not see multiple competitive infrastructures </li></ul><ul><li>Governments in unique position as they can internalize the benefits and have the possibility to invest. </li></ul>
    6. 6. Market No. 2 June 2009 New entrants Short term investors Service providers Customers <ul><li>Market Parties: </li></ul><ul><li>Customers </li></ul><ul><li>Service providers </li></ul><ul><li>Investors </li></ul><ul><ul><ul><li>Long term </li></ul></ul></ul><ul><ul><ul><li>Short term </li></ul></ul></ul><ul><li>Network owners </li></ul><ul><ul><ul><li>Incumbent </li></ul></ul></ul><ul><ul><ul><li>New entrant </li></ul></ul></ul><ul><ul><ul><li>Wireless </li></ul></ul></ul><ul><li>Governments </li></ul>Market outcome = possibility to monetize benefits + possibility to invest. Let’s look at demand, money and supply
    7. 7. Market parties – Customers No. 2 June 2009 Cannot monetize benefits + no possibility to invest <ul><li>Characteristics </li></ul><ul><li>Don’t care about technology </li></ul><ul><li>Never asked for email, Youtube, SMS </li></ul><ul><li>All services, anytime, everywhere </li></ul><ul><li>No generic user profile </li></ul><ul><li>Possibility to Monetize </li></ul><ul><li>Mostly non-monetary benefits (no commuting, healthcare, security, communication) </li></ul>Kalandrakas, Flickr <ul><li>Possibility to Invest </li></ul><ul><li>Fixed Monthly Budget </li></ul><ul><li>Budget is enough for new networks </li></ul><ul><li>No investment upfront </li></ul>
    8. 8. Market parties – Service providers No. 2 June 2009 Low possibility to invest + medium possibility to monetize <ul><li>Characteristics </li></ul><ul><li>Services and Networks ≠ Chicken and Egg (No runway, no airline) </li></ul><ul><li>Services adapt to infrastructure </li></ul><ul><li>Some are unique, others commodities (Google/Ebay vs email/VoIP) </li></ul><ul><li>What used to pay for networks is now free </li></ul><ul><li>Possibility to Monetize </li></ul><ul><li>Profit? </li></ul><ul><li>Who really benefits from infrastructure? Airline or Hotel? </li></ul><ul><li>Possibility to Invest </li></ul><ul><li>ARPU services low. (Google: $6.25/month/OECD broadband user) </li></ul><ul><li>The combined profits of service providers may be just enough to finance the network </li></ul>Demand side wants it, but cannot invest
    9. 9. Market parties – Long term investors No. 2 June 2009 High possibility to invest + risk averse <ul><li>Characteristics </li></ul><ul><li>10-30 year horizons </li></ul><ul><li>Pension funds </li></ul><ul><li>Steady yield and inflation compensation </li></ul><ul><li>Very risk averse </li></ul><ul><li>Like infrastructure </li></ul><ul><li>Burned by long haul fibre </li></ul><ul><li>Possibility to Invest </li></ul><ul><li>Norwegian state pension fund: €256 billion </li></ul><ul><li>Biggest fear: </li></ul><ul><li>Competing networks </li></ul><ul><li>Bankrupt network may rise from ashes, with clean balance sheet. </li></ul><ul><li>Mutually assured destruction </li></ul>
    10. 10. Market parties – Short term investors No. 2 June 2009 Medium possibility to invest + Short term <ul><li>Characteristics </li></ul><ul><li>Shareholders in existing telecom firms </li></ul><ul><li>5 year horizons </li></ul><ul><li>Above market returns </li></ul><ul><li>Possibility to Invest </li></ul><ul><li>Invest in IPO’s </li></ul><ul><li>Or buy from initial investor (without money going to the company) </li></ul><ul><li>Private Equity </li></ul><ul><li>Different kind of short term investment </li></ul><ul><li>Creating value and/or sweating assets </li></ul><ul><li>Interested in structural separation </li></ul>Money side dislikes yield or risk
    11. 11. Market parties – Incumbent fixed networks No. 2 June 2009 High possibility to invest + low possibility to monetize <ul><li>Characteristics </li></ul><ul><li>Owners of existing infrastructures </li></ul><ul><li>Expand networks easier/cheaper because of established position </li></ul><ul><li>Dominated by short term shareholder value </li></ul><ul><li>Possibility to Invest </li></ul><ul><li>Free cash flow declining, but enough for investments </li></ul><ul><li>Will invest when forced by competition or regulator </li></ul><ul><li>Limit investments to locations where competitor present </li></ul><ul><li>Prefer sexier investments abroad or in services </li></ul><ul><li>Sometimes beg for government support and/or (service) monopoly </li></ul><ul><li>Possibility to monetize </li></ul><ul><li>failed investments in services and content, </li></ul><ul><li>in neutral networks relegated to dumb pipe </li></ul>
    12. 12. Market parties – New entrants No. 2 June 2009 Low possibility to invest + low possibility to monetize <ul><li>Characteristics </li></ul><ul><li>Providers of access networks (ULL/Wholesale) or utilities </li></ul><ul><li>Dependent upon incumbent for copper, backhaul, facilities </li></ul><ul><li>Limited to denser populated areas </li></ul><ul><li>Possibility to Invest </li></ul><ul><li>Want to move up the value chain </li></ul><ul><li>Sometimes backed by billionaires or utilities </li></ul><ul><li>Face strong competition from existing players </li></ul><ul><li>Need +/- 40% penetration for FTTH </li></ul><ul><li>Need to get it right first time </li></ul><ul><li>Possibility to monetize </li></ul><ul><li>Accept position as commodity provider </li></ul>
    13. 13. Market parties – Wireless No. 2 June 2009 High possibility to invest + low possibility to monetize <ul><li>Characteristics </li></ul><ul><li>Provide 3G networks </li></ul><ul><li>Think about 4G and Wimax </li></ul><ul><li>Need FTTC for 4G and Wimax backhaul </li></ul><ul><li>Possibility to Invest </li></ul><ul><li>Good strong revenues </li></ul><ul><li>Revenues under attack </li></ul><ul><li>Prefer to piggy back FTTC developments </li></ul><ul><li>Possibility to monetize </li></ul><ul><li>More successful than fixed in services </li></ul><ul><li>Difficult in an All-IP world (IMS no success) </li></ul>Market: Only when forced to
    14. 14. Governments No. 2 June 2009 High possibility to invest + high possibility to monetize <ul><li>Characteristics </li></ul><ul><li>Caught between proponents and opponents </li></ul><ul><li>Have privatised telecoms in ’90s </li></ul><ul><li>Faced with monopolies </li></ul><ul><li>Looking into structural/functional separation </li></ul><ul><li>Traditional role in network infrastructure </li></ul><ul><li>Possibility to Invest </li></ul><ul><li>Would only need to invest part to get whole </li></ul><ul><li>Should demand open network in return </li></ul><ul><li>Best position is low in the stack (ducts, fibre) </li></ul><ul><li>Possibility to monetize </li></ul><ul><li>Great societal benefits. Large or small it all adds up </li></ul><ul><li>Efficiency benefits within government </li></ul>Hey now, are we back to pre-90s? Rageforst, Flickr
    15. 15. Conclusion No. 2 June 2009 Those that benefit will not build it, those that build it will not benefit. <ul><li>Demand side </li></ul><ul><li>There is demand </li></ul><ul><li>Value not known upfront </li></ul><ul><li>Money Side </li></ul><ul><li>There is money </li></ul><ul><li>Risks and Yield unattractive </li></ul><ul><li>Supply Side </li></ul><ul><li>There is only room for one (2?) </li></ul><ul><li>Shareholders say no </li></ul><ul><li>New entrants face battle uphill </li></ul>Governments - What are you looking at me for? Flickr, ESGPHOTO
    16. 16. Conclusion No. 2 June 2009 To solve the deadlock players will have to step out of their comfort zone <ul><li>Demand side </li></ul><ul><li>Cooperate on bottlenecks (bandwidth) </li></ul><ul><li>Money Side </li></ul><ul><li>Accept medium - long term yield and risk </li></ul><ul><li>Supply Side </li></ul><ul><li>Accept that you provide a utillity </li></ul><ul><li>Enable not deliver services </li></ul><ul><li>Governments </li></ul><ul><li>Accept that infra competition is flawed </li></ul><ul><li>Regulate natural monopoly on infra </li></ul><ul><li>Push open and competitive services </li></ul>Flickr, ESGPHOTO Yewenyi, Fliickr
    17. 17. No. 2 June 2009 Title of Presentation

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