Ozgur Aytar


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Ozgur Aytar, Senior Research Manager, Pyramid Research
“Pricing Strategies”

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Ozgur Aytar

  1. 1. FTTH/B Pricing Strategies and Implications for Service Provider Performance Ozgur Aytar Pyramid Research FTTH Conference 2010 1
  2. 2. About Pyramid Research For nearly 25 years, Pyramid Research has been providing practical advice on years emerging market and service opportunities to leaders in the converged communications, media and technology industries. As the telecom research arm of the Light Reading Communications Network, Pyramid Research offers custom consulting and strategic advisory services based on rigorous quantitative and q g q qualitative analysis and broad g g p y geographical coverage, with expertise in over 100 countries. Pyramid Research is a recognized thought leader in the assessment of FTTH y g g and broadband opportunities, analyzing network deployments, adoption trends, technology performance, and vendor and operator business models. 2
  3. 3. Table of Contents FTTH/B service pricing trends across the selected networks Impact of service pricing on operating and financial metrics for FTTH/B services Pyramid perspective 3
  4. 4. The selected fiber networks were deployed as early as 2000 and as recent as 2009; uplink rates are significantly higher over the fiber networks in most instances SELECTED FTTH/B NETWORKS’ TECHNOLOGY UPLINK BANDWIDTH FOR FTTH/B-BASED TYPES AND COMMERCIAL DEPLOYMENT DATES BROADBAND ACCESS ‘00 ‘02 ‘05 ‘07 ‘08 ‘09 Commercial launch date Source: Pyramid Research, operators 4
  5. 5. Competitive environment and the level of service superiority drive the pricing for FTTH/B broadband access MONTHLY FEES FOR FTTH/B-BASED BROADBAND ACCESS* Monthly fees between High-end offers €18 and €33 (DL>50Mbps) Median= €21.04 Monthly fees between €15 and Mid-tier offers €160 (DL=25-50Mbps) Median= €66.46 Monthly fees Low-end offers between €20 and €97 (DL<25Mbps) Median= €39.12 Note: Monthly fees are before any discounts. Beeline’s low-end and mid-tier offerings feature unlimited bandwidth, whereas its high-end offering has a cap of 44GB. Source: Pyramid Research, operators S P id R h t 5
  6. 6. With the exception of NTT and KT all of the selected operators have set KT, broadband fiber prices at a premium, vying for higher-end broadband users… MONTHLY FEES FOR FTTH/B- AND xDSL or HFC-BASED BROADBAND ACCESS FROM THE SAME SERVICE PROVIDER FTTH/B prices -- when set at a premium -- are between 10% and 50% higher than the carriers’ alternative fixed broadband networks Source: Pyramid Research, operators 6
  7. 7. …still, FTTH/B broadband access prices are competitive with the prices of still comparable or high-end offerings over xDSL, HFC and mobile broadband networks from other carriers MONTHLY FEES FOR FTTH/B-BASED BROADBAND ACCESS VS. xDSL , HFC AND MOBILE BROADBAND OFFERED BY COMPETITORS Japan Korea NL Norway Russia UAE US FTTH/B xDSL HFC/DOCSIS 3.0 Mobile broadband Source: Pyramid Research, operators 7
  8. 8. Fiber-based triple-play Fiber based triple play bundles are more expensive than xDSL and HFC xDSL- HFC- based bundles, but included are superior features from more HD content to higher data speeds BASIC TRIPLE-PLAY BUNDLES BUILT AROUND FTTH/B AND XDSL/HFC France Japan Korea Netherlands Norway Portugal Russia* US FTTH/B xDSL HFC/DOCSIS 3.0 Source: Pyramid Research, operators *Double-play *D bl l 8
  9. 9. The higher the downlink speed, the lower the cost p megabit on g p , per g FTTH/B networks compared to alternative broadband networks COST PER MEGABIT: FTTH/B VS. xDSL , HFC AND MOBILE BROADBAND VS Japan Korea NL Norway Portugal Russia US FTTH/B xDSL HFC/DOCSIS 3.0 Mobile broadband Source: Pyramid Research, operators 9
  10. 10. Table of Contents FTTH/B service pricing trends across the selected networks Impact of service pricing on operating and financial metrics for FTTH/B services Pyramid perspective 10
  11. 11. In addition to service pricing, timing and speed of FTTH/B rollouts have pricing impacted the subscriber uptake levels for the selected operators FTTH/B SUBSCRIBERS – TOTALS AND % OF TOTAL SUBSCRIBER TAKE-UP RATES BROADBAND LINES, 1H 2009 FTTH/B PROVIDERS VS. COMPETITORS YEAR-OVER-YEAR 2Q09 Source: Pyramid Research, operators 11
  12. 12. While fiber broadband ARPU is 1 1 1 5x higher than market average, the 1.1-1.5x average emphasis should be on multiplay for a viable business case, given that CAPEX per home can be as much as €2,600 FTTH/B ARPU VS. OVERALL BROADBAND ARPU VS. CAPEX COMMITTED TO FTTx TRIPLE-PLAY ARPU, 2008 Note: Capex and capex per home take into account investments made or earmarked by operators to deploy fiber on poles and under the ground as well as the video infrastructure. The timeframes for these investments are different for each operator. Source: Pyramid Research operators Research, 12
  13. 13. Premium pricing hinders service competitiveness and limits adoption; p g p p ; service innovation and multiplay bundling are key to reach profitability NTT expects its fiber network to become profitable by early 2012 – nearly 12 years after the first rollout in 2000. FTTB networks promise faster payback period, as a result of lower CAPEX per home: HKBN became profitable in 2007, with just over 20% penetration of homes passed. Beeline (Vimpelcom) has achieved EBITDA positive with a 10% take-up rate. Verizon missed its target to reach operating income p g p g positive with its FiOS business in 2009; the ; operator recently lowered its pricing for FTTH products and plans to hit its target in 2010. Premium pricing for FTTH/B services is unsustainable, due to the rapid evolution to commoditization – an effect of competition. Multiplays and value-added services are key to a viable business case for value added FTTH networks, as they generate higher ARPU and create customer loyalty. In some markets such as Portugal, governments have made significant investments in the deployment of fiber networks to lower the CAPEX burden and encourage service innovation through open-access open access network business models. 13
  14. 14. Table of Contents FTTH/B service pricing trends across the selected networks Impact of service pricing on operating and financial metrics for FTTH/B services Pyramid perspective 14
  15. 15. Pyramid perspective Price continues to be the single most important determinant in the selection of a service provider for the majority of the world’s broadband customers. Pricing for FTTH/B services have been dictated by the level of market competition; the stronger the competitive pressures, the lower the prices. Against a backdrop of maturing broadband markets with limited room for organic growth, FTTH/B networks have largely strengthened the market position of the selected SPs, enabling them to enjoy higher uptake rates, customer satisfaction levels and customer loyalty as well as ARPU. CAPEX per home continues to be very high for FTTH and SPs will have to improve the other metrics -- from product attractiveness, customer satisfaction and ability to meet future demand to operational efficiency, ARPU, penetration of homes passed and revenue-generating services -- to make the FTTH investment a financial success. FTTH/B SPs have just scratched the surface to date; their competitive advantage will become more apparent as they accommodate new services and meet customer needs without rewiring homes or retrenching cables. 15
  16. 16. Thank Y Th k You. Ozgur Aytar Sr Manager Aytar, Sr. Pyramid Research e-mail: oaytar@pyr.com 16