Neutral Host Networks


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Neutral Host Networks

  1. 1. Neutral Host Networks Delivering broadband to all Dr. Peter D Couch Head of Strategy Development
  2. 2. A Changing Market Context 14.0% 15.0% 12.0% 10.0% 10.0% 8.0% 6.0% 5.0% UK Monthly ARPU Performance and Forecast 4.0% 2.0% z Source: Ofcom, Enders Analysis, Ovum 0.0% 0.0% -2.0% -4.0% -5.0% -6.0% -8.0% -10.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2500 P B 2000 P B Network Traffic 1500 P B UK Monthly Mobile Network Traffic Forecast Source: Cisco VNI June 2009 1000 P B 500 P B 0 PB 2008 2009 2010 2011 2012 2013 ▌1
  3. 3. Strategic priorities Run for Efficiency Stabilise and [Obtain Return] Innovate and Grow Rapidly Networks Basic Service and Services Innovation Coverage Customer Content Care Devices Applications Outsource Scale up operations Rapid prototype and product launch Partner Efficiency Programmes Beta Products Systems Development Collaborative Development How do you enable network operators to focus on delivery of value from these growth areas? ▌2
  4. 4. Neutral Host: The Alternative Model Internet SLA MNO A MNO B Peering Points Core Network Aggregation Sites and Active Electronics To the Internet, MNO With support for multiple Backhaul, Routing and Provision of coverage and Networks and Back architectures including Traffic Management capacity via shared infrastructure Office Systems national roaming and active electronics E2E Monitoring and Optimisation Full network control, management, operation and ▌3 maintenance via a NOC and national field force
  5. 5. Neutral Host: The Alternative Model Neutral Host Ecosystem Infrastructure Provider Passive Infrastructure Assets Property and Implementation Operations and Maintenance Capital Technology Site Connectivity Network Monitoring Peering Points Integration Data Offload Provision IT Systems UK Data Spine Equipment Backhaul Vendor/s Provider/s ▌4
  6. 6. Revenue and cost: The current situation £bn P1: Roll Out P2: Mass Adoption P3: Maximise Value?? Actual Revenue Total Network Cost Time ▌5
  7. 7. Neutral Host: Revenue and Cost Dynamics A model that links subscriber take up with costs is critical to ensure shared incentives… £bn P1: Roll Out P2: Mass Adoption P3: Maximise Value Actual Revenue Neutral Host Cost Time ▌6
  8. 8. Case Study: Providing data services to ‘not spots’ Digital Britain established an aspiration that all UK households receive 2Mbps broadband by 2012 1.3m households that are greater than 3km from an exchange, using traditional services, are unlikely to be served by fixed networks What is the optimal way of providing 2Mbps broadband to these 1.3m households? Deployment of a Neutral Host wireless LTE network providing wholesale access, solving the current digital divide and providing an EBITDA opportunity to network operators at no capital cost 1 2 3 4 The addressable Roll out of BET will To maximise MNO ROI Delay of roll out is market does not require substantial their capex is best damaging to the UK’s support economically subsidy compared to utilised developing economic growth and viable independent wireless and neutral services and investing inhibits social inclusion network roll out host networks in dense urban areas ▌7
  9. 9. Case Study: Basic Cost Savings to MNOs Consumers are beginning to demand data ubiquity, as per voice, this needs to be delivered economically… Delivery of Service TCO (Capex + Opex) over 20 Years1 ▌ Incremental EBITDA of circa £25m p.a. for each 1500 MNO assuming a 33% market share of c.1m £165m households 1250 £363m ▌ Saving of circa £170m of capex 1000 £401m £198m Additional Capacity for Device Traffic 750 ▌ The neutral host network can be leveraged to £1,068m provide capacity for mobile data traffic 500 £667m ▌ This saves a further £165m over a 20 year period 250 ▌ Revenue implications from additional coverage have not been included in projections Cost Per MNO Saving Per MNO Neutral Host Cost Per MNO ▌8 1Source: Arqiva Internal Analysis, Value Partners
  10. 10. Case Study: Business Case for Operators A flexible commercial model results in attractive returns for MNOs: Commercial Model ▌ Low annual fixed access fee provides long term certainty of service ▌ Price per subscriber ties network success to operator ▌ Zero network capital expenditure for the operator ▌ Utilisation of existing retail and sales channels Neutral Host Financial Returns Individual Network Financial Returns ▌ 10 year cumulative revenue of c.£600m ▌ 10 year cumulative revenue of c.£600m vs. ▌ No network capex only CPE ▌ Capex commitment c.£170m + CPE cost ▌ Y3 EBITDA stream of c.£25m ▌ No EBITDA in Y1 – Y3 ▌ 10 year NPV: £200m1 ▌ 10 year NPV: £(28)m1 ▌9 NPV calculated on a 12% discount rate and 8.75 terminal value 1
  11. 11. Neutral Host: Delivering broadband for all - economically Provides Cost Savings to MNOs for new and existing networks to counter reducing ARPU Generation of producer and consumer surplus due to economies of scale Delivery of digital inclusion agenda and wider economic benefits ▌10
  12. 12. Neutral Host Networks Delivering broadband for all