FTTH Council Europe 2013presentationInvestor Day, 19th February 2013
ContentsFiber market overview and trends•   Infrastructure investment is one of the key drivers of Ernst & Young’s telecom...
Fiber market overview and trends                                   3Page 3
Infrastructure investment is one of the key drivers of Ernst &Young’s telecoms risk landscapeTop 10 risks in Telecommunica...
Strong growth is expected in FTTx worldwide but Europe is laggingother regions                                            ...
In Europe, fiber is better established in CEE countries and smallermarkets are seen leading in FTTH penetration by 2016   ...
The European regulatory landscape for fiber is shifting Ambitious FTTx penetration targets underpin EU policy ►    EU is p...
A number of risks and opportunities present themselves foroperators investing in fiber                                    ...
Capex guidance remains cautious as operators stagger their fibernetwork investments Fixed Operators CapEx/Revenues ratio b...
Fiber issues in the European r                             region:Country case studies                                    ...
Fiber network sharing model in FranceKey findings:►   Despite the relatively weak financial position of the French consume...
Telecom Italia’s network separation to accelerate the investment infiberKey findings:►   A lack of cable competition provi...
Open network model for the Dutch fiber marketKey findings:►   The Netherlands is one of the most competitive broadband mar...
Co-financing project to develop the Swedish fiber market   financingKey findings:►   Sweden is one of the world’s leading ...
Private and EU laws promote investments of fiber network inLithuaniaKey findings:►   FTTX has overtaken ADSL to become the...
Ernst & Young recommendations                                16Page 16
Ernst & Young recommendations for successful fiber strategies               ►   Sharing networks or using existing infrast...
A greater emphasis on metrics can support new messages to themarket on fiber progress           KPI domain                ...
Ernst & Young has extensive experience in advising operators onmaximizing the value of their fiber investments►   Extensiv...
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  1. 1. FTTH Council Europe 2013presentationInvestor Day, 19th February 2013
  2. 2. ContentsFiber market overview and trends• Infrastructure investment is one of the key drivers of Ernst & Young’s telecoms risk landscape 4• Strong growth is expected in FTTx worldwide but Europe is lagging other regions 5• In Europe, fiber is better established in CEE countries ; smaller markets will lead in penetration by 2016 6• The European regulatory landscape for fiber is shifting 7• A number of risks and opportunities present themselves for operators investing in fiber 8• Capex guidance remains cautious as operators stagger their fiber network investments 9Fiber issues in Europe: country case studies• Fiber network sharing model in France 11• Incumbent network separation to accelerate the investment in fiber 12• Open network model for the Dutch fiber market 13• Co-financing project to develop the Swedish fiber market financing 14• Private and EU laws promote investments of fiber network in Lithuania 15EY Point of view• Ernst & Young recommendations for successful fiber strategies 17• A greater emphasis on metrics can support new messages to the market on fiber progress 18• Ernst & Young experience in advising operators on approaches to fiber investment 19 FTTH Europe Council 2013 2
  3. 3. Fiber market overview and trends 3Page 3
  4. 4. Infrastructure investment is one of the key drivers of Ernst &Young’s telecoms risk landscapeTop 10 risks in Telecommunications Lack of regulatory1. Failure to shift the business model from minutes to bytes certainty on new market structures2. Disengagement from the changing customer mindset Lack of confidence in Failure to return on Privacy,3. Lack of confidence in return on investment define new investment Failure to shift security and business the business resilience metrics model from4. Insufficient information to turn demand into value minutes to bytes5. Lack of regulatory certainty on new market structures Insufficient information to Disengagement turn demand into value from the changing6. Failure to capitalize on new types of connectivity customer mindset Poorly formulated7. Poorly formulated M&A and partnership strategy M&A and strategic Failure to partnerships8. Failure to define new business metrics capitalize on new types of Lack of connectivity organizational9. Privacy, security and resilience flexibility10. Lack of organizational flexibilityFiber investment touches on many of the themes highlighted in our sector risks program► Lack of confidence in return in investment has seen fiber capex constrained in recent years in Europe► Lack of regulatory certainty on fiber market structure e.g. competing infrastructures, wholesale access has also held back i investment► Metrics to help evaluate national progress are lacking► Business model risks are pronounced in the fiber environment e.g. ability to charge premiums for fiber access FTTH Europe Council 2013 4
  5. 5. Strong growth is expected in FTTx worldwide but Europe is laggingother regions 1Worldwide Fixed Broadband Subs (%) by Technology, Q2 2012¹ ADSL remains the dominant broadband technology worldwide ► ADSL is still by far the most popular access technology on a global basis. ► Asia –Pacific continues to be the biggest overall region accounting for 45% of global fixed broadband connections in 2011 16.5% 20,0% ► Fixed broadband growth is slowing in many markets (i.e. Western European 2.9% Cable countries and US) as a result of increasing saturation and the continued strong DSL growth of mobile broadband. FTTH ► Fiber could to take over cable in 2013 if it maintains current take-up rates. FTTX 60,6%Global Consumer FTTH/FTTB subscriptions by area² European fiber connections are seen lagging other developed markets 1 226 M ► Global FTTH/B broadband connections will total 226 million in 2016, growing 250 CAGR: 25% at a CAGR of 25% between 2009 and 2016. 200 ► Significant revenue dilution is not expected as fiber penetration increases – Global FTTH/B revenue will reach $73 billion by the end of 2016 with a 2009- 2016 CAGR of 23%. 150 ► Asia -Pacific is the one region of the world where fiber emerged as a serious broadband platform thanks to positive government intervention – and is 100 expected to account for the majority of FTTx subscriptions going forward 48 M 50 ► Fiber is still a marginal technology outside of some markets in Asia, US and Russia: 0 ► Europe accounted for 11.4% of global FTTH/FTTB subscriptions and 2009 2010 2011 2012E 2013E 2014E 2015E 2016E 8.3% of FTTH/FTTB revenues in 2011 Americas Europe Asia-Pacific Middle East & Africa ► However, Europe accounts for a greater proportion of global wholesale fiber connections (20.7%) and revenues ( 25.7%), reflecting more 1. Point Topic, October 2012 established equality of access legislation compared to other regions 2. OVUM, April 2012 FTTH Europe Council 2013 FTTH Europe Council 2013 5
  6. 6. In Europe, fiber is better established in CEE countries and smallermarkets are seen leading in FTTH penetration by 2016 Eastern European markets are leading fiber growthEuropean FTTH/B + LAN Household Penetration (%), 1H12¹ ► The growth of Europe’s FTTH/B market is driven by the countries of Central and Eastern Europe due to favourable economic and demographic circumstances e.g. Ukraine ► In the first semester 2012, Lithuania was the FTTH/B market leader reaching over 30% household penetration, followed by Norway (18%) and Sweden (14.5%) and Bulgaria (12%) and Slovenia (10.5%). ► Over in Western Europe, Sweden, together with Norway, remain the largest FTTH/B markets: ► In Sweden, a policy of open access was rapidly adopted leading to healthy competition between providers, with FTTH offered as long ago as 1998 ► Other Nordic countries have learnt from the Swedish approach ► Incumbents only account for one-third of fibre homes passed in Europe > 10% 5% - 10% 1% - 5% <1% Smaller markets to remain ahead of the penetration curveLeading European FTTH markets by in 2016E² ► FTTH/B connections will reach over 32 million of European households inHousehold penetration % 2016 driven by a strong progress in many Eastern European countries, Lithuania 42,1% such as Russia, Ukraine, Bulgaria and the Baltics Norway ► Lithuania will confirm its leadership reaching over 42% penetration Sweden followed by Norway (28.2%) and Sweden (26.6%). Slovakia Latvia ► Analysts predict Italy, Germany, UK and Spain will still be under Denmark 10% penetration by 2016 Estonia ► Meeting the EU target of 30 Mbps for all households and 100 Slovenia Mbps for half of households will prove challenging Portugal Bulgaria ► There is increasing scope for FTTx rollout by local authorities and Russia regional power companies in Western Europe Netherlands 15,2% 0,0% 10,0% 20,0% 30,0% 40,0% 50,0%1. IDATE and FTTH Council Europe, October 20122. Heavy Reading, “European FTTH Forecast 2011-2016, February 2012 FTTH Europe Council 2013 6 6
  7. 7. The European regulatory landscape for fiber is shifting Ambitious FTTx penetration targets underpin EU policy ► EU is putting pressure on operators to accelerate broadband investments. The EU Commission’s Digital Agenda expects all Europ European households to have access to broadband speeds of at least 30Mbps by 2020, with half the population able to access speeds of m more than 100Mbps. ► Implied rollout costs are high (nearly 100% of homes passed and 50% of homes with subscribers) is €192bn ► Introducing modest levels of infrastructure sharing and reuse can bring € 10bn savingsMeasures have been taken to create an environment more favourable to investment► Ensure a stable pricing environment for wholesale copper access as incumbents migrate to fiber► More flexibility in next-generation wholesale products allowing altnets to get equal treatment when accessing the network of incumbent rivals as well as facilitating access to the national broadband network to extend competition (i.e. Latvia, Ukraine, Austria Austria)► Promote public-private funding models such as in Switzerland (co-operation model), Sweden (co operation (co-financing project), Lithuania and Latvia (EU funding) where local regulator encourages incumbent to create partnership with other telcos, cablecos and utilities and it drives more and more the deployment of the next-generation telecom infrastructure (i.e. fiber generation fiber-optic network) developing a cost-sharing model among operators such as in France Regulatory Issues ► In Europe, regulation is historically less supportive of investment compared to other regions where governments have provided heavy subsidies (Japan, South Korea) or the US, which offers protection for private investment via a hands hands-off approach. ► A number of regulators have ignored the EC’s directive to unbundle fiber as there has been little interest from alternative operators. These contradictory trends underline that there is still debate surrounding the importance of network competition, and that it will continue for at least the next few years. ► In late 2008 the EC consulted on its regulatory strategy to promote NGA networks in Europe. New broadband VAS services requir require higher bandwidths which can effectively be supplied only through fiber (NGAs) or hybrid fiber/VDSL networks (local loop). ► Regulation continues to be a significant barrier to fiber access deployment in Western European countries, with mandates for unbundling and access to NGA networks for competitors, since regulation obliges incumbents to provide access to their network networks and so prevent them from creating monopolies trough the new infrastructure. ► NGAs are regulated by individual NRAs and some of these have already adopted access obligations on incumbents to NGA infrastructure (i.e. France, the Netherlands for FTTH). FTTH Europe Council 2013 7
  8. 8. A number of risks and opportunities present themselves foroperators investing in fiber § New service opportunities for telcos and content delivery Risks players are driving demand for high-speed broadband infrastructure e.g. HD/3D TV, time-shifted video recording § Fiber is a national productivity driver: FTTx can support§ A wide range of supply- and demand-side uncertainties: social policy in a country (i.e. health care, education, social § Customer willingness to pay a premium for fiber media) as well as accelerating the socio-economic benefits § Costs of deployment, civil engineering works and of e-government services (smart grids, e-science, e- managerial execution commerce) § Market dynamics and the evolving competitive § Increased scope for co-operation between operators situation such as the degree of competing themselves and players from different industry verticals to 2 infrastructures share/reduce the costs of rollout and improve the reach of new infrastructure § Macro-economic pressures (i.e. public debt, recession for some European countries) § Technology improvements: Vectoring and bonding techniques are capable of producing greater performance§ Alternative technologies: Technologies such as LTEcould levels from VDSL infrastructure reduce the appeal fiber in areas where there aren’t sufficient fixed broadband infrastructures (i.e. rural areas) § Increased role of public funding to stimulate fiber investments by ensuring the availability of affordable high-§ Competition : Cable operators leveraging DOCSIS 3.0 speed broadband in rural and especially in more remote technology who have enjoyed a traditional speed areas advantage § Opportunity for cablecos: to develop the fiber deploying it§ National broadband policies of some European countries to the location of the last amplifier which is located at the relating to the fiber roll out remains unclear, hampering foot of buildings (FTTB) the development of new broadband technologies§ The lack of profitability in the fiber business could be a deterrent to its roll out (i.e. retail prices for fiber-based access products are below those of copper in Sweden) Opportunities FTTH Europe Council 2013 8 8
  9. 9. Capex guidance remains cautious as operators stagger their fibernetwork investments Fixed Operators CapEx/Revenues ratio by Region, 1Q10-2Q12¹ Capex has been controlled in a challenging industry climate ► Revenue weakness has forced capex cutbacks both in Europe and North America. 25,0% ► Telcos continue to work to transform their cost structures, and that will affect 20,0% both capex and opex trends going forward. ► The capex/revenue ratio average of fixed operators was about 13% worldwide 15,0% in 2Q12. Europe, including Russia, had the highest ratio with 15.7% despite the European economic crisis of the last quarters, reflecting pent-up capex 10,0% demand and top-line weakness 5,0% ► Capex demand remains the leading issue facing operators today – well ahead of margin management and regulation 0,0% 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Americas Europe Asia-Pacific MEA Capex demand is the leading issue facing operators today² Capex management will remain a leading operator concern: ► Incumbent operators will have to increase CapEx spending to bolster their networks in order to accommodate the expected growth in demand for VAS Increased competition services. Spectrum availability ► Analysts predict European telecom companies will have to invest €60 billion more on network CapEx in addition to the €100 billion currently projected Other through 2014. Most of this is likely to be financed with debt. Regulation ► Some companies with tighter headroom within existing financial ratios may have to reduce shareholder payments to accommodate the network Need to improve margins investment.Capex demand due to data growth ► The deployment of fiber still leads to high initial costs due to the complexity and costly nature of splicing fiber optic cables in comparison to welding 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% copper Percentage of respondents citing issue ► There are new routes to capex control - Some companies are starting to use several enhanced copper compression technologies, such as pair bonding, vectoring and phantoming, to double current ADSL speeds as an interim step1. OVUM, September 2012 while they delay investments in FTTH2. Ernst & Young, The future of the network, January 2013 FTTH Europe Council 2013 9
  10. 10. Fiber issues in the European r region:Country case studies 10 Page 10
  11. 11. Fiber network sharing model in FranceKey findings:► Despite the relatively weak financial position of the French consumer in last quarters and high levels of competition in the telecoms market, there are aggressive fiber deployments. Shared next generation network rollouts are not the sole preserve of mobile operators.► France’s fiber infrastructure is among the more developed in Western Europe. Much of the success of fiber in France has been due to the efforts of companies such as Numéricable and Free (using different fiber architectures) as well as municipalities and power utilities: non non- incumbent players have notable fiber ambitions► FT’s fiber deployment strategy, which predicts an investment budget of EUR2bn over the 2010 2010-2015 period, includes: ► Presence in 3.600 district across 220 metropolitan areas by 2015 ► Offering access 10 million households in 2015 and 15 millions in 2020 or 60% of French households► Among other network operator, SFR has formed a number of fiber sharing partnerships to dramatically reduced its investment bu burden: ► A shared deployment agreement with Bouygues Telecom in densely populated areas ► An agreement with France Telecom to pass 9.8 million homes by 2020 in less densely ► Populated areas, with SFR passing 2.3 million homes and France Telecom passing 7.5 million ► Using government subsidies to deploy services in rural areas► The fiber market outlook is uncertain given the participation of altnets in the FTTH rollout, the potential of cable to improve its position through partnerships, and the increasing competition ahead of Iliad’s mobile launch in 2012.► Barriers in deploying FTTH technologies that may limit its growth in the French market: ► The cost of deploying fiber networks is far higher than that of many other high high-speed networks ► Wireless technologies including LTE ► Other services competing for resources (IPTV, DSL-based internet services, mobile) based ► Municipal councils are contrary to invest in fiber Regulatory Topics ► In 2008 ARCEPs decision recommended last-mile network sharing opened the way for negotiations around FTTH deployments mile between France Telecom, Iliad, SFR, and Bouygues Telecom. Rival operators could access to FT’ ducts to deploy optical fiber. ► In October 2011 the French governments funding scheme was given the green light which enables operators to take advantage of €750m for the development of NGA in less populated areas of the country. 750m FTTH Europe Council 2013 11
  12. 12. Telecom Italia’s network separation to accelerate the investment infiberKey findings:► A lack of cable competition provides a strong enabling environment for fiber, with 400k subscribers and more than 2.55 millio homes million already passed by fiber in mid-2011. The Italian local loop infrastructure is denser than other markets, with short local loop l 2011. lengths and a high number of local exchanges as well as lower per-capita infrastructure costs in the country’s densely populated cities. capita► The Italian fixed incumbent Telecom Italia is looking to spin off its network in order to facilitate the removal of the remai remaining retail obligations on TI’s retail business which affect the role played by network technologies.► The TI’s network separation aims to seek new sources of profit, to reduce its debt, and to share costs with other operators. These factors could incentive Telecom Italia to invest in fiber making more realistic the EU Digital Agenda targets.► Other operators are proposing a shared FTTH network based on pointpoint-to-point access in order to provide coverage to a significant proportion of the population. Metroweb plans an extensive fiber rollout to 30 large Italian cities by 2015, and in November 2012 agreed with WIND and Vodafone Italy for the latter operators to use its infrastructure to provide FTTH services in Milan.► In September 2012, Fastweb announced plans to invest €400 million to extend its next generation fiber 400 fiber-optic network to 20% of the countrys homes and businesses by 2016 as well as the cooperation for fiber investment with Telecom Italia to minimise capital costs of network rollout. Fastweb already covers around 2 million premises with its FTTH network and plans to spend €130 million by end-2013 to expand its FTTS network. Regulatory insights ► The local regulator recently announced Telecom Italia is obligated to provide physical and virtual fiber unbundling and bitstream, according to a January 2012 decision regulating wholesale access to TIs NGA network. This applies to the fiber terminating segments of the FTTH network, as well as the copper terminating segments of TIs FTTB network. ► ‘Fibre for Italy’ project, promoted by NGN Committee, aims to bring fiber to 20 million people in 15 of the largest cities by 2015. Telecom Italia is, in addition, committed to bringing FTTH/FTTB to a further 138 cities by 2018. ► In November 2010, Fastweb, Vodafone and Wind subsequently signed an MoU with the Ministry of Economic Development and , several other telcos (including TI, Tiscali, H3, BT Italia) to set up a vehicle company ( , (FiberCo) to oversee passive infrastructure. The local regulator was charged with developing a regulatory framework for equal access to the open infrastructure, focused on ar areas, where no operator has scheduled fiber roll out. ► Despite having a high speed broadband target that is in line with the ECs Digital Agenda goal, Italy currently hasn’t a clea clear national broadband plan FTTH Europe Council 2013 12
  13. 13. Open network model for the Dutch fiber marketKey findings:► The Netherlands is one of the most competitive broadband markets in Europe, where cable operators have the first mover advant advantage in super fast broadband via 90% + DOCSIS3.0 coverage. The two largest cablecos, Ziggo and UPC, continue to take market share within fixed broadband and quad-play strategies are well developed for many players. play► The Dutch fixed broadband market has developed well in recent quarters, driven primarily by the increasing number of retail f fiber connections. FTTH accounted for 4.5% of fixed broadband connections in 1Q12 according to regulatory data.► Incumbent operator KPN dominates the fixed broadband services in the Netherlands and is rolling out FTTH to build a superior offering, through an “open network” approach that mitigates capex risk in order to promote fiber and VDSL broadband with associated service bundles.► In the consumer market, KPN plans to deploy a mix of fibre-to-the-kerb (FTTK, based on VDSL technology) and FTTH. Furthermore, KPN kerb plans to engage in selective regional FTTH initiatives, partnering with building corporations and municipal governments.► Netherlands-based fiber provider Reggerfiber (in which KPN has a 51% stake) wants to expand its fibre-optic network to an additional 50 municipalities across the country and deploy a dedicated ultra-high- -speed FTTH network. The new network is expected to provide download speeds of up to 1Gbps and will be open for access by all operators. Work on the network is expected to be concluded in 2015. Regulatory insights ► In line with the EC’s Digital Agenda for Europe, the Dutch government introduced the digital cities agenda for 2011 2011–15. The government plans to build open NGA networks in the major cities of the country. ► Following regulatory approval, the incumbent operator KPN established a joint venture with infrastructure provider Reggefiber in 2011 to initiate FTTC and FTTH rollout. ► Access to fiber local loop for residential use (FTTH) is regulated and the local telecom authority is encouraging competition by allowing alternative operators to offer multi-play bundles over the secured network. play ► Regulator recently adjusted the existing access price caps in order to promote investments in NGN infrastructure but the re regulatory uncertainty due to the short term applicability of these tariff principles is reducing the levels of interest among operators operators. ► Local regulator OPTA imposed obligations on KPN in the high-quality wholesale broadband access market, including fiber bitstream quality access and a fiber unbundling obligation as a result of KPN’s peer peer-to-peer network plans. FTTH Europe Council 2013 13
  14. 14. Co-financing project to develop the Swedish fiber market financingKey findings:► Sweden is one of the world’s leading countries for fiber deployment due to the concentration of population within the greater areas of the three largest cities as well as being the first country in EU to develop widespread local access fiber infrastructure.► The consumer FTTH/B accounted for 31.2% of the total consumer fixed broadband connections at the end of 2011, with 929 thousa thousand subscriptions and 7% of household penetration.► Numerous networks open to a range of content and service providers have been built by organizations other than telcos, including municipalities, regional governments, housing associations and local utilities.► Fiber sector has been promoted by the co-financing model supported by several players (government, public entities, local regulator, energy and telecom operators).► Sweden has adopted a pragmatic hands-on approach to the delivery of fiber, with residents even instigating the engineering side of on projects (digging trenches). This opens the possibility for homeowners to go one step further and deploy their own fiber conn connections through which to connect to service providers.► In recent years, the incumbent operator TeliaSonera planned to collaborate with external operators, municipalities, building owners and housing co-operatives to launch one of Sweden’s largest infrastructure projects, including fiber network. operatives► TeliaSonera owns the largest share of fiber in Sweden, with about 45% of total coverage. Existing competition is based on local networks, and there is no practical competition in the national market for fiber. Regulatory insights ► According to the 2010 decision, TeliaSonera has to provide access to both its fiber and copper infrastructure applying cost cost-based pricing for these services based on an LRIC model. ► As far as wholesale broadband services is concerned, TeliaSonera must set the same tariffs for bitstream access over both copper and fiber networks as imposed by the regulator. ► The local regulator, PTS, has been focusing on improving the adoption of fiber fiber-based broadband services by co-financing the network deployment costs in cooperation with the local municipalities and other operators (utilities, telecoms). ► In October 2010, the Swedish government promoted the Rural Development Program under which PTS will co co-finance the costs incurred towards deployment of fiber broadband networks in rural areas. As of mid mid-October 2011, PTS had granted SEK88m ($13m) aid for co-financing broadband deployment in 19 counties across the country. The government further plans to allocate financing SEK75m ($11m) to the PTS, to be spent under the Rural Development Program in 20122012–14. FTTH Europe Council 2013 14
  15. 15. Private and EU laws promote investments of fiber network inLithuaniaKey findings:► FTTX has overtaken ADSL to become the most popular fixed-broadband access platform, a testament to the country’s investment in t broadband the next-generation telecom infrastructure in recent years.► The country has one of the highest FTTH/B penetration rates in the world (30% in 2Q12), as the broadband sector s highly comp competitive, meaning that providers and operators have to be strategic and innovative to win customers for their products. In 2011, fiber penetration grew two percentage points, the fastest rate in Europe.► FTTB is more prevalent as it is more cost effective than FTTH as the fiber connection is shared among a number of end users a although the overall cost of FTTH/B generally limits construction to high-density areas and greenfield developments. density► In Lithuania fiber installations have the advantage that many residents live in buildings with often several stories of apart apartments, which makes the FTTP business case more attractive, as well as labour costs lower than Western European countries.► Lithuania’s incumbent operator TEO provides 300Mb/s converged service bundles, one of the fastest in Europe in the fixed broa broadband market.► TEO is continuing in deployment of its next-generation fiber-optic network thanks to existing funds, though the company was able to use optic the provisions of the Law on Corporate Profit Tax. TEO deployment of FTTH started in multi . multi-residential buildings and business centres while now the network is being spread to single houses where business cases are composed.► In 2008, Lithuania introduced “The Rural Area Information Technology Broadband Network”, project financed by EU funding, which allows FTTX providers (TEO, Dokeda, Cgates, Elekta, Splius and others) to offer services through the network on a wholesale basis. Regulatory insights ► The government has supported FTTH through tapping into EU funding to build a fiber backbone network across the country such as the Rural Area Information Technology Broadband Network. FTTH Europe Council 2013 15
  16. 16. Ernst & Young recommendations 16Page 16
  17. 17. Ernst & Young recommendations for successful fiber strategies ► Sharing networks or using existing infrastructure can cut strongly CapEx for incumbent, completely transforming the fiber business model ► Partnership among incumbents and smaller operators or potential partners such as local municipalities or utilities would be a good strategy to reach positive outcomes for all market players ► Alternative operators, including those supported by large mobile operators, can form JVs with peers and/or prioritize access to existing ducts (wholesale business model) as well as focusing their rollouts in veryNew Business specific places (cities or even streets) where demand is likely to be high. This will involve isolating regulatoryApproach and financial incentives ► Mobile players could act as consolidators for smaller fixed fixed-line providers since they require fixed-line infrastructure to offload mobile data traffic and support quad quad-play propositions ► Co-financing program supported by telecoms, public entities and other operators could support the fiber financing deployment in a region or area in order that involved players can divide risks and costs of infrastructure. ► Operators should focus more and more on marketing and communication strategies dedicated to their services, products and solutions promoting the benefit of new broadband technologies. ► Consider multiple network strategies (fixed and mobile broadband) to provide convergent services, devices and platforms (i.e. TDC in Norway) to create a consistent customer experience regardless of device accessInnovative typeProcesses,Future ► The ROI for a fiber deployment is likely to be realized over a period of five to fifteen years, depending onStrategies market conditions. Telecom operators have to consider fiber deployment as a long long-term investment and look beyond the short-term financial burden to the opportunities for long term long-term service differentiation ► The migration of all customers to fiber in a short term would maximize FTTH network efficiency and minimize risks associated with the payback period. Western European telcos need to speed up network rollout and customer migration. 17 FTTH Europe Council 2013
  18. 18. A greater emphasis on metrics can support new messages to themarket on fiber progress KPI domain Efficiency Usage Environment ► AMPU: Average Margin Per User ► Data MB per user per month ► Smartphone/tablet penetration % ► CPGA: Cost Per Gross Add ► RGU per user ► Broadband penetration % ► SUC: Subscriber Up-selling Cost ► M2M customers/end points ► Pay-TV penetration % Customer ► Average call-handling time ► M2M ARP-SIM ► Cloud/virtual IT penetration % ► Contact center calls per sub ► Average contract lifetime ► ARPU % of disposable income ► Capex/sales per sub ► Kwh per user ► Cost per MB transmitted ► Revenue per cell site ► FTTH/VDSL homes passed ► OPEX per cell site ► Kwh per cell site/Terabyte ► 4G population coverage % ► BTS downtime % ► M2M ARP-SIM per MB ► In-home 3G coverage % Network ► Dropped call rate % ► BTS peak capacity % ► Points of presence (POP) ► BTS Single RAN % ► Network utilization % ► Cell site density (BTS per km²) ► Bps/Hz/BTS ► On-net traffic % Investor insights Investor insights Investor insightsKey financial ratios ► Profitability of new services ► Data consumption ► Incremental revenue potential► Return on equity ► Cost of serving customers ► New forms of connectivity ► Share of customer wallet► Return on capital employed ► Quality of customer service ► Cross-selling execution ► Market reach► Return on invested capital ► Network resilience/efficiency ► Network load ► Network rollout► Equity/assets ratio► Net debt/EBITDA ► Spectrum efficiency ► Energy consumption ► Network density► Operating cash flow margin► FCF yield Business environment Operator performance 18 FTTH Europe Council 2013
  19. 19. Ernst & Young has extensive experience in advising operators onmaximizing the value of their fiber investments► Extensive experience in business modeling for ► Built a volume, revenue and cost forecasting complex decision support. model for a major fixed-line incumbent, as part Consumer of the process of setting their business rates► Developed a bottom-up geographic model for a demand major European incumbent, building over with the tax authorities. 1,300 local business cases to schedule the ► Conducted consumer research investigating fiber rollout, both in terms of timing and access Decision Pricing take-up drivers and switching triggers in the support strategy technology. European triple/quad play market. The► Helped clients evaluating and improving their business process for planning and executing their case for project portfolio. Capex fiber Competitor► An optimized capex management process management analysis results in more transparency, better decisions and reduced process costs. Regulatory Profitability strategy and analysis ► Assisted both NRAs and operators in pricing economic reasoning to influence regulatory► Developed product profitability models that process, eg, in the regulatory market analysis. enable ROCE1 analysis by product or bundle. These can be used as an input to bid models ► Extensive experience in access pricing for and decision-support for fiber investments. (regulated) wholesale services such as LLU2, wholesale broadband access, and in managing wholesale portfolios. 1) ROCE = Return on Capital Employed 19 2) LLU = Local Loop Unbundling FTTH Europe Council 2013 Next generation access - The business case for super-fast broadband
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