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BROADBAND CHINA?   WHAT & WHY?      Xiaolin Lu       iBIT, Inc     November, 2004
What is this all about? China cable and telecom industries are  migrating from state-owned to market-driven  industries…....
KEY ISSUES                    Business                   Opportunities                        Operations        Regulatory...
AN INTERDEPENDENT WORLD                   Service & Technology                           Regulation                   Oper...
CHALLENGES TO THE     TOP LINE
THE RESIDENTIAL PIE: USCable Dominates    ILECs Dominates          Cable LeadsVideo Market       Voice Market             ...
TELEPHONY USAGE: CHINA         700                                                                                        ...
OPPORTUNITIES: TRIPLE PLAY    Create a customer destination        Reduce churn        Create differentiation    Build...
TOP THREE US CABLE COMPANIES 120%                                                                    1.1                  ...
THE IMPORTANCE OF THE BOTTOM LINE:After the bubble, it is not just          revenue…
HSD SERVICE REALITY     550     500                58% growth     450$M     400     350     300           1Q02         2Q0...
US CABLE INDUSTRY EXPENDITURE              18              16              14              12In Billions              10  ...
WALL STREET PERCEPTION                     US    ARPU/month       72.00    EBITDA Margin      35%    EBITDA            25....
TECHNOLOGY ORSOMETHING ELSE ISCHANGING THE USER   BEHAVIORS
HOW TO PREDICT THE FUTURE…  The cost for 128 kilobytes of memory will fall   below $100 in the near future.               ...
Hard Disk Storage                       Moore’s Law          Cost per MB                           Smoore’s Law!          ...
VIDEO COMPRESSION                                   Commercial                                   Availability   MPEG and ...
EVOLUTION OF BROADBAND ACCESS                         1000.000                                                            ...
PROLIFIC VIDEOIP+Storage+Portability+….
REAL-TIME VIEWERSHIP IS ERODING          2001/2002               2003/2004                2005 and beyond VCR/DVD         ...
SOMEHOW, THEPOLICEMAN DOES HAVE  SOME POWERS…..
REGULATION AND BUSINESS: US                  VOICE                 DATA          VIDEO                 Communication     ...
THE “DRIVERS” FOR FTTH   Competition to Cable       MSOs has 63% share of HSD vs 37% for the carriers   Favorable regul...
OPTIONS     LEC   Narrowband   Switched                             DLC                                         Rebuil...
CHALLENGES                     Cable             ILEC            OverBuilderEmbedded                      HFC            T...
WORLDWIDE PENETRATION( Thousands )Source : RHK Inc. (www.rhk.com)
LOOKING FORWARD….                               500                               450Millions of Paying Customers         ...
CITY-CITY-WIDE WI-FI IN CHASKA, MN          WI-  Cityoperated, 16 square mile coverage area  Public safety, low-cost res...
KEY ISSUES             User BehaviorRegulation   Technology      Wall Street             Bottom Line
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Broadband China? - What and Why

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Presentation on APOC 2004 about global broadband business and challenges to China operators.

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  • Gordon Moore’s prediction was of course, that we would double the number of transistors every 18 months, and that has held up. That said, hard drives have actually double capacity every year. In the last few years, however, this has slowed to roughly 40%. Now, however, there is an obscure technology called Perpendicular magnetic recording or PMR. This technology allows bits to be stacked perpendicular on magnetic platters and raising the capacity by an order of magnitude while at the same time reducing power consumption. These drives are 18 months from initial production and will first show up in corporate storage systems. But after that, they will quickly find their way into other commercial and home applications. Predictions are that by the summer of 2010 Terabyte portable media devices will be available.
  • Transcript of "Broadband China? - What and Why"

    1. 1. BROADBAND CHINA? WHAT & WHY? Xiaolin Lu iBIT, Inc November, 2004
    2. 2. What is this all about? China cable and telecom industries are migrating from state-owned to market-driven industries…. But what to do and why…. Learn from US experience after the bubble, with so different regulatory environment? Maybe….
    3. 3. KEY ISSUES Business Opportunities Operations Regulatory RealityWall StreetPerception Environment Cost Structure ( technology platform)
    4. 4. AN INTERDEPENDENT WORLD Service & Technology Regulation Operation HBO, Cost- HFC FCC Cable ruling reduction High-capacity, DWDM Broke up of Ma Bell lower-cost CM/DSL HSD Title 1Micro Processor Excel
    5. 5. CHALLENGES TO THE TOP LINE
    6. 6. THE RESIDENTIAL PIE: USCable Dominates ILECs Dominates Cable LeadsVideo Market Voice Market High-Speed Data Market Video Voice Data Cable ILECs Other Source: Paul Kagan Associates
    7. 7. TELEPHONY USAGE: CHINA 700 Telecom System Revenue: 1Q 2004 600 Fixed Line Mobile Data Paging Sat 500 6% 0%mn sub Local 400 32% 300 200 Mobile 100 43% 0 LD 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 19% 100.0 90.0 80.0  Competition further Fixed drives down the ARPU 70.0 Mobile 60.0 50.0 1Q/02 1Q/03 1Q/04
    8. 8. OPPORTUNITIES: TRIPLE PLAY  Create a customer destination  Reduce churn  Create differentiation  Build a common platform for innovation and gain economy of scale  Increase ARPU (Average Revenue Per Unit)  Offensively and defensively change the nature of services and products
    9. 9. TOP THREE US CABLE COMPANIES 120% 1.1 Comcast Time Warner Cox 100% 0.9 0.83 80% 61% 58% 60% 54% 40% 36% 40% 34% 20% 20% 20% 15%17% 14% 0 0% Basic/HHP DTV % HSD % Voice % RGU/HHP Source: Company Data
    10. 10. THE IMPORTANCE OF THE BOTTOM LINE:After the bubble, it is not just revenue…
    11. 11. HSD SERVICE REALITY 550 500 58% growth 450$M 400 350 300 1Q02 2Q02 3Q02 4Q02 1Q03  56% network cost reduction  77% customer service call reduction  40% marketing cost reduction  70% cable modem cost reduction Source: Comcast
    12. 12. US CABLE INDUSTRY EXPENDITURE 18 16 14 12In Billions 10 8 6 4 2 0 1996 1997 1998 1999 2000 2001 2002 2003 • Total $84 Billion capital expenditure, equates to $1,200 per customer • With $52/month ARPU that is increasing, the 10 year ROI is huge Source: Kagan World Media
    13. 13. WALL STREET PERCEPTION US ARPU/month 72.00 EBITDA Margin 35% EBITDA 25.2 Capex 10.0 FCF 15.2 Multiple 7 Value/Sub ($) 1,276.8
    14. 14. TECHNOLOGY ORSOMETHING ELSE ISCHANGING THE USER BEHAVIORS
    15. 15. HOW TO PREDICT THE FUTURE… The cost for 128 kilobytes of memory will fall below $100 in the near future. - Creative Computing Magazine December 1981 At $100 for 128 KB, 256 MB would cost $200K
    16. 16. Hard Disk Storage Moore’s Law Cost per MB Smoore’s Law! $10,000……….…...………………………………1/10 Cent$10,000 $60 $1.00 $0.90 $50 $0.80 $8,000 $0.70 $40 $6,000 $0.60 $30 $0.50 $4,000 $0.40 $20 $0.30 $2,000 $10 $0.20 $0.10 $0 $0 $0.00 1956 to 1985 1986 to 1993 1994 to 2004 Source: Seagate
    17. 17. VIDEO COMPRESSION Commercial Availability MPEG and ITU are working jointly on a new standard: 2008 wavelets MPEG AVC (Advanced 2007 Video Coding). AVC is also known as: Media Player 2006 etc. H.264, H.26L, JVT, and H.264 MPEG-4 Part 10 2005 MPEG-4 2004 Best of breed compression – very good for HD and SD; Now MPEG-2 interlaced and film content; variety of content; 1X 1.66X 3.00X 4.00+X wide range of bit rates. Encoding Gain Factor
    18. 18. EVOLUTION OF BROADBAND ACCESS 1000.000 VDSL2/DOCSIS 3.0 100.000downstream rate [Mb/s] VDSL/DOCSIS 2.0 10.000 ADSL2+/DOCSIS 1.000 ISDN 0.100 V.90 voice- voice-band modems 0.010 V.34 V.34 V.29 V.33 V.27 0.001 V.26 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 year
    19. 19. PROLIFIC VIDEOIP+Storage+Portability+….
    20. 20. REAL-TIME VIEWERSHIP IS ERODING 2001/2002 2003/2004 2005 and beyond VCR/DVD 2.9% VCR/DVD 2.3% VCR/DVD 1.7% MSO’s DVR and SVOD 0.6% MSO’s DVR and SVOD 6.5% MSO’s DVR and SVOD 29.4% VOD movies 0.2% VOD movies 0.8% VOD movies 1.1% Viewer’s DVR 1.9% Viewer’s DVR 8.9% Viewer’s DVR 7.8% Real-time Real-time Real-time viewing viewing viewing 94.3% 81.5% 59.9%Source: Forrester
    21. 21. SOMEHOW, THEPOLICEMAN DOES HAVE SOME POWERS…..
    22. 22. REGULATION AND BUSINESS: US VOICE DATA VIDEO  Communication  Information  ContentRegulation Services Services Service  Title 2  Title 1  Title 6Requirement  Open Pipe  None  FranchisingBusiness  Selling Minutes  All you can  Flat rate eat buffet + Usage
    23. 23. THE “DRIVERS” FOR FTTH Competition to Cable  MSOs has 63% share of HSD vs 37% for the carriers Favorable regulatory climate  No unbundle requirement on FTTH Reduced churn on voice  Bell have lost 10% of their residential line to UNE-P competitionBut….. DBS earned 18% market share of total TV HH in 5-6 years At $1,200/HHP cost for aerial construction, and heavy underground buildup mix, can the RBOC afford it, in time? Verizon SBC BellSouth Qwest Aerial 45% 28% 32% 13% Underground 55% 72% 68% 87%
    24. 24. OPTIONS LEC Narrowband Switched  DLC  Rebuild Wireless  Mobility FTTH  Broadband Cable  Network Upgrade Deep Fiber Broadband Broadcast  Cable modem Penetration
    25. 25. CHALLENGES Cable ILEC OverBuilderEmbedded HFC Twist Pair None Base  Fiber deep  xDSL  Fiber/metallic Upgrade  DOCSIS  FTTH  Overlay Business Triple Play Triple Play Niche marketChallenge BALANCE• Migrate from one service monopoly to multi-service duopoly• Or perhaps migrate from facility-based monopoly to facility-independent multi-service duopoly
    26. 26. WORLDWIDE PENETRATION( Thousands )Source : RHK Inc. (www.rhk.com)
    27. 27. LOOKING FORWARD…. 500 450Millions of Paying Customers 400 350 300 DSL 250 Cable 200 WiMax 150 Fiber 100 50 0 2004 2007 2010 Source : John Cioffi
    28. 28. CITY-CITY-WIDE WI-FI IN CHASKA, MN WI-  Cityoperated, 16 square mile coverage area  Public safety, low-cost residential broadband service  7500 homes passed, 1100 pre-registered  200 cells, <$500,000 CapEx
    29. 29. KEY ISSUES User BehaviorRegulation Technology Wall Street Bottom Line
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