Emerging Markets and Next-Gen Broadband

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Assumptions about Anywhere Network® deployment opportunities and constraints often break down when looking at emerging markets. Developed market constraints might not exist and costs might be much lower, but market conditions and prices are also very different. Is fiber to the home (FTTH) a marginal phenomenon for emerging markets, or could it be an interesting solution to help many of these markets leapfrog the copper era?

In this webinar, Yankee Group analysts Benoît Felten and Wally Swain detail existing FTTx deployments in emerging markets, examine opportunities for existing or new players to enter the next-generation access market and explore implications for technology vendors.

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Emerging Markets and Next-Gen Broadband

  1. 1. Emerging Markets & Next-Gen Broadband Benoît Felten, Principal Analyst Wally Swain, Senior VP March 30, 2010
  2. 2. Agenda State of Emerging Markets’ Fiber to the Home (FTTH) The FTTH Conundrum Building a Generic Business Model What’s Different About Emerging Markets? Q&A
  3. 3. Poll What region of the world are you most interested in?
  4. 4. Asia-Pacific Emerging FTTH India: BSNL targets 700K customers in 2009, 7M by 2015 Other smaller initiatives around new property developments China: 8M homes connected with FTTB/H, especially in the south SPs are China Telecom and China Unicom Malaysia: Incumbent TM targets 1.3M homes in or around Kuala Lumpur
  5. 5. Middle East/Africa Emerging FTTH Egypt: TMG has limited affluent area deployment (~30K) Telecom Egypt has a pilot deployment in Cairo Saudi Arabia: STC has pilot FTTH deployments, but no significant deployment as of yet UAE: Etisalat covers 700K homes with FTTH/B Du covers 400K Subs low at estmated 70K
  6. 6. Latin America Emerging FTTH Brazil: Telef ó nica deploying FTTB in Sao Paulo [~100K homes passed) GVT deploying FTTH in various cities (est. 600K customers over FTTB)
  7. 7. The FTTH Conundrum <ul><li>The copper network is on its last leg </li></ul><ul><li>FTTH is the end-game, and telcos know it </li></ul><ul><li>The amount of capex needed to replace the copper network is not aligned with short-term telco vision </li></ul><ul><li>Cable upgrade to DOCSIS 3.0 and competitive fiber roll-outs (from altnets, municipalities or utilities) threaten incumbent positions as network providers </li></ul>The question for telcos is: How do I make a necessary but considerable investment in optimal conditions?
  8. 8. Solutions to Enhance the FTTH Business Model
  9. 9. What’s Different About Emerging Markets? Lower labor costs Favorable public policy Much smaller addressable market Lower ARPU Slower takeup
  10. 10. Lower Labor Costs <ul><li>Lower labor costs mean lower cost per home passed </li></ul><ul><ul><li>Labor installing the fiber network </li></ul></ul><ul><ul><li>Labor installing connections in the home </li></ul></ul><ul><li>Lower labor costs mean lower ongoing maintenance costs </li></ul>
  11. 11. Proxy for Relative Wage Scale Purchasing Power Parity Inverse Scale Proxy for Wages Relative to the USA
  12. 12. Favorable Public Policy <ul><li>Regulatory conditions are often favorable to wireline incumbents </li></ul><ul><li>In some countries, there is no effective competition on the service layer </li></ul><ul><li>Expanding broadband penetration is an issue for all emerging markets’ governments </li></ul><ul><ul><li>Many NGO studies link economic growth with penetration of advanced communications services </li></ul></ul><ul><li>Many have explicit programs to help </li></ul><ul><ul><li>Education </li></ul></ul><ul><ul><li>Lower cost of PCs </li></ul></ul><ul><ul><li>Stimulus or other direct investment programs </li></ul></ul>
  13. 13. Smaller Addressable Market <ul><li>Directly impacts takeup </li></ul><ul><ul><li>Especially in broad deployments </li></ul></ul><ul><ul><li>Or where government money is tied to broad deployments </li></ul></ul><ul><li>Can also mean higher equipment costs because of lower volume </li></ul><ul><li>There are fewer people in emerging markets who are economically capable (or willing) to invest in high-end triple services </li></ul>
  14. 14. Lower ARPU <ul><li>Partly because of lower income </li></ul><ul><li>Partly because of lower prices </li></ul><ul><ul><li>Operators lower prices to broaden appeal </li></ul></ul><ul><ul><li>“Unfair competition” with pirate master antenna systems keep prices down </li></ul></ul><ul><li>Households in emerging markets spend less on triple-play services </li></ul>
  15. 15. Where Is There Enough Purchasing Power for FTTH? <ul><li>We assume that households will willingly spend up to 60% of their ICT budget (reserving the rest for PCs, mobile, etc.) </li></ul><ul><li>Few emerging markets can support a broad FTTH deployment (blue bar) </li></ul><ul><li>Most can support a limited deployment (red bar, focused at the top 10% of households) </li></ul><ul><li>Some particularly disadvantaged countries can only have very limited deployment </li></ul>The ratio of estimated triple-play ARPU to estimated household ICT monthly spending (ICT spending is generally 4-8% of GDP) Unlikely for business plan to work
  16. 16. Deployment Scenarios <ul><li>Broad </li></ul><ul><li>Deployment </li></ul><ul><li>A significant proportion of the population can afford triple play, which makes a broad, developed-market-style deployment feasible. </li></ul><ul><li>Venezuela </li></ul><ul><li>Turkey </li></ul><ul><li>Saudi Arabia </li></ul><ul><li>Malaysia </li></ul><ul><li>Greece </li></ul>Dense Deployment Only the wealthiest part of the population can afford triple-play services, which limits deployment to dense urban areas where they dwell. Cherry-Picked Deployment Only the richest of the rich can afford triple play, which means deployment will be cherry-picking gated communities and super-rich land developments. <ul><li>Vietnam </li></ul><ul><li>Thailand </li></ul><ul><li>Russia </li></ul><ul><li>Romania </li></ul><ul><li>Philippines </li></ul><ul><li>Peru </li></ul><ul><li>Mexico </li></ul><ul><li>Lithuania </li></ul><ul><li>Latvia </li></ul><ul><li>Indonesia </li></ul><ul><li>Hungary </li></ul><ul><li>Brazil </li></ul><ul><li>Argentina </li></ul><ul><li>Ukraine </li></ul><ul><li>Pakistan </li></ul><ul><li>India </li></ul><ul><li>China </li></ul><ul><li>Africa </li></ul>
  17. 17. Comments on the Model <ul><li>The model seems aligned with existing developments, except for India and China </li></ul><ul><li>It suggests that huge populations may be able to sustain FTTH deployment in some areas, even if a vast majority of the overall population doesn’t have the purchasing power. </li></ul><ul><li>Venezuela is perhaps less likely to see FTTx deployment soon than suggested because of local specifics. </li></ul><ul><li>The model should be considered a good overall tool for quick determination of likely markets for FTTH to emerge </li></ul>
  18. 18. Disruptive Factors <ul><li>The general trends the model suggests can be disrupted by a number of things: </li></ul><ul><ul><li>Local government interventions can accelerate deployment in their territory, either through financial subsidies or partnership. </li></ul></ul><ul><ul><li>Limited regulatory barriers may allow new entrants to move at a grass-roots level, as showcased in Eastern Europe. </li></ul></ul><ul><ul><li>National-level interventions can have a longer and more widespread impact. The likelihood of such interventions, however, is very much tied to the amount of resources available in national coffers. </li></ul></ul>
  19. 19. Which Force Is Greater In Your Market? Lower labor costs Favorable public policy Much smaller addressable market Lower ARPU Slower takeup
  20. 20. Q&A <ul><li>Download a snapshot </li></ul><ul><li>Yankee Group’s 2010 Next-Generation Access Service Study </li></ul><ul><li>http://www.yankeegroup.com/research/next-gen_study_snapshot_registration.html </li></ul>Our essential analysis of next-generation access service portfolios, pricing and bundling strategies for 20 broadband operators across the globe
  21. 21. Thank You www.yankeegroup.com Read analyst blogs at blogs.yankeegroup.com Watch analyst videos at youtube.com/yankeegroup Follow us on Twitter: @YankeeGroup Fan Yankee Group at facebook.com Benoît Felten, Principal Analyst [email_address] Wally Swain, Senior VP [email_address] Upcoming Yankee Group webinar: 4G Mobile Backhaul Evolution Tuesday, April 27, 2010 | 11am ET Register at www.yankeegroup.com

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