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© 2007 Verizon. All Rights Reserved. PTE12065 03/07
A Fiber Future
Challenges for markets and policy
Dennis WellerChief EconomistVerizonOECD WorkshopStavanger, Norway10 April 2008
2
Verizon’s Corporate ProfileVerizon Wireless♦ U.S. wireless customers 65.7 million♦ States w/wireless 49 plus D.C.
presence
Verizon Telecom♦ U.S. wireline access lines 41.4 million♦ Wireline broadband
connections 8.2 million♦ FiOS triple-play 1.5 million Internet
943,000 Video
Statistics as of 12/31/07
Verizon Business 150 countries446,000 route miles ofcable over six continents94% of Fortune 500
Investment in Vodafone Italia
♦ Premiere international provider of enterprise voice, Internet, data and managed services
♦ U.S. wireless customers♦ States w/wireless
presence
♦ U.S. wireline access lines♦ Wireline broadband
connections♦ FiOS triple-play
In early January, Verizon surpassed1 million FiOS video customers!
3
Deploying Fiber-to-the-Premises
Office ParksSmall Businesses
Residential
|X|
CircuitSwitch
CopperFeeder
CopperDistribution
SAI
OLT
New BuriedDevelopment
Splitter Hub
FTTP Full Build
ONT
ONT
ONT
ONT
ONT
ONT
Small Businesses
ONTSplitter
Hub
FTTP Overlay
ONTONT
ONTONT
4
Three Laser SystemsIn the GPON Network
Capacity at each splitter hub – Can serve as many as 32 customers
5
Fiber Deployment Status
2007 Deployment:• Over 9.3M premises passed in 17
states
2008 Deployment Objectives:• Pass 12.3M premises
2010 Deployment Objectives• Pass 18M premises by 2010
FTTP Deployed
Fiber Deployment on Track
6
FiOS Internet Results
2007 Results:• FiOS Internet customers
rose to 1.5 million
• Average penetration about 21% in all markets
• Monthly churn less than 1.5%
2010 Objective:• 35-40% penetration
70% of subscribers are new to Verizon broadband
Verizon FiOS Internet Subscribers and Penetration
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
2005 2006 20070%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Subscribers Penetration
1.5M
21%15%
687K
375K
12%
7
Comparisons – Platform Competition
Source: ITU World Telecom/ICT Indicators Database (2006), supplemented by OECD Broadband Statistics (Nov. 2007).
0 10 20 30 40 50 60 70 80 90 100
Iceland
Taiwan
Finland
Norway
Australia
Israel
Japan
Switzerland
Sweden
Belgium
Netherlands
Denmark
Hong Kong
Korea
Canada
U.S.
DSLOther
The category “Other” includes cable, fiber/LAN, and additional non-DSL platforms including satellite and BPL.
Percentage of Broadband Market Composed of DSL versus “other” Platforms
8
FiOS TV ResultsVerizon FiOS TV
Subscribers 2007: 943,000 FiOS TV customers
• Monthly churn less than 1.42%
• 99.8% subscribe to Expanded Basic
• 60% have HD and/or DVR
• 37.3% subscribe to movie or sports package
• 10.3% of gross sales have included Home Media DVR
• About two-thirds of customers came from cable
3K
348K
943K
0
200000
400000
600000
800000
1000000
2005 2006 2007
2010 Objective: 25% penetration
9
Linear and VOD Content Offerings350+ linear channels
GenresGeneral Entertainment
Sports
News
Information & Education
Women’s Entertainment
Shopping
Home & Lifestyle
Pop Culture
Music
Movies
Family
Children
People and Culture
Religious
Multicultural
10,000+ VOD titles
Free
Subscription
Transactional
Pay Per View
Basic Channels and Niche InterestsLocal, Sports, News, Info & Education, Women, Shopping,Home & Leisure, Pop Culture, Music, Movies, Family, ChildrenFree with Digital STB (e.g., Disney, Discovery, Nickelodeon, ESPN, MTV, A&E, HGTV, History, BET, Gospel Music, Expo TV)
PremiumsHBO, Cinemax, Starz, Encore, Showtime,The Movie Channel, Sundance, IFCFree with subscription to Premium Services
StandalonesWWE 24/7,Here!, Karaoke
Studio MoviesUniversal, Paramount,MGM, Fox, Sony,DreamWorks, New Line
EventsUltimate Fighting Championship,Jerry Springer
Sports & EventsEvents – Wrestling, Boxing, European SoccerESPN – GamePlan, Full Court, Boxing
10
Demand for Bundles
FiOS TV Customer Base • Bundles are common in the
U.S. marketplace not just through telco offerings, however, cable operators and resellers offer them (i.e., wireless resale), Verizon Freedom and DIRECTV
• 98.8% of FiOS TV base has 2nd product
• 77.3% of FiOS TV sales include FiOS Internet
8%
6%
Triple Play85.3%
FiOS TV+ Voice
FiOS TV + Data
FiOS TV Only
11
Transforming the HomeToday 2008 and Beyond
New wiring Existing wiring
$1,220
$880
$700
$933
'Jan 06 'Aug 06 'Dec 06 'proj. 10
Cost Per Premises Connected● Simplified in-home network
- no new wires● Enhanced customer experience &
customer interaction● Simplified installation process ● Evolution toward remote service
activation and maintenance
New wiring Existing wiring
12
Transforming the MaintenanceProcess
1.01
0.20
Voice & DSL FiOS
Network Trouble Report Rate -- Outside Plant(per 100 subscribers)
80%
Total field maintenance dispatches and OSP-related dispatches are already showing solid declines
* Percentages reflect 2006 data
13
Upstream DownstreamMbps
Applications and Media Bandwidth
5 10 15 20 250 100510152025100
File Sharing, Home Video Sharing/Streaming
Multi-Player Gaming, Interactive Distance Learning
Large File SharingHDTV Video-on-Demand
Network Hosted Applications and Storage
Video Conferencing, Premises Surveillance, Two-way Signing
Telemedicine
SDTV Video-on-Demand, Telecommuting
Premises Web Hosting
Next Generation 3D TV
Web Surfing
Real-Time SDTV, Network PVR
FTTPCable Modem
ADSLDial-Up
Platform for current and future content and applications
Upstream Speed Increasing in Importance!
Transforming Interaction
14
Investment by US Companiesand OECD Telecoms 2004-2007
Source: Yahoo Finance data
Year Ending Sept./Dec.
Capital Expenditures (in US$ billions)
15
Metrics for Major Telecoms
0
50
100
150
200
250
300
350
empl Rev lines
DTFTVZT
Figures in millions for 2007
Employment Revenues Lines
16
CAPEX Per line, Major Telecoms
capex/line
0
20
40
60
80
100
120
140
160
180
DT FT VZ T
capex/line
US dollars in 2007
17
CAPEX as Percentage of Revenue,Major Telecoms
capex/rev
00.020.040.060.080.1
0.120.140.160.180.2
DT FT VZ T
capex/rev
Figures for 2007
18
Policy Goals•Competition
•Investment
•Innovation
19
Investment Drivers• Product differentiation in platform
competition
• Ability to deliver on plan– Meet expectations of financial markets
• Real options value
• Integration of services
20
Regulatory Challenges• Franchise to provide video
• Access to apartment buildings
• Access to poles, ducts, conduits
• Policy toward competitive practices
• Requirements for sharing
21
Policy Choices for the Future
• Is policy free?
• No single answer
• Can we have platform competition?
• Is separation a solution?– For access?– For investment?
• Who will choose the technology?