AGENDA

Multiplay on Broadband: first lessons and impact on the ARPU

- FASTWEB Case Study

Alessandro PETAZZI Marketing Manager, IPTV Services

IDATE 27th International Conference - Montpellier, 23 November 2005

PG. 2

Company and Market

Marketing Strategy for Multiple Play

Focus on IPTV

AGENDA

PG. 3

Company Overview

FASTWEB provides voice, Internet connectivity, data transmission and TV services over a single connection by using Fiber-to-the-Home/Office and DSL access technologies

The company offers its services to both companies and families

Integrated triple play offer

Founded in September 1999, FASTWEB is the leading alternative operator of fixed broadband telecommunications services in Italy’s main urban areas (7.5 million households, or one third of the Italian population reached as of Sept. 2005)

FASTWEB created a fully IP-based network totally independent from the incumbent’s infrastructure

The 2nd wireline network in Italy

Recognised pioneer in broadband and triple-play World first fully IP based network FTTx or DSL access as relevant to maximize return on invested capital Trusted supplier for mission critical application

Technological leadership

Vision from day one (back in 1999)

Rely on full-IP network to offer multiple services to both companies and families compete on differentiation and operate with higher capital efficiency

PG. 4

Foudation of Business Model - Creating a Triple Play Service

ARPU

~ € 900/year residential ARPU

> € 8,000/year Small business ARPU

~ € 2,000/year SoHo ARPU

Opex

Semi-fixed cost structure

Gross Margin

~ 75% Gross Margin on both residential and business segments

End-to-end infrastructure ownership and control

Highly capital intensive with high barriers to entry

Both business and residential markets served by the network

Single fully integrated IP network with no legacy technologies and IT systems

Selective geographical coverage

(7.5 mln households today, 10 mln final target vs 21 mln in Italy)

Triple play approach coupling higher ARPU with competitive commercial offer

PG. 5

Italian Broadband Market Share Evolution

Increasing Market Share Thanks To

Network expansion

Upgrade to certified 6 Mbit/s ADSL connection

Enrichment of IPTV content offering…

… while other players still lagging behind in terms of service offering

13% of national broadband net additions13% of national broadband net additions in 9M 2005 with an average population coverage of ~ 26%coverage of ~ 26%

Strong increase in market shareincrease in market share thanks to increase in coverage during the year

73 82 86 79

~ 1,100~ 1,200

~ 1,000

~ 750

~ 600

148

1H03 2H03 1H04 2H04 9M05

BB Mkt Net Adds FASTWEB

Market Share of National Broadband Net Adds

12% 11%9% 7%

13%

‘000

of

Acc

ess

PG. 6

Broadband Co-leader in Covered Areas

Telecom Italia has the highest share of broadband market, as its services are deployed with a 90% national coverage (like all the other alternative players)

With 644k customers FASTWEB is the #2 Italian Broadband playerFASTWEB is the #2 Italian Broadband player despite a significantly lower market coverage and is leader or co-leader with TI in the leader or co-leader with TI in the covered areascovered areas

FASTWEB11%

Telecom Italia Retail70%

Other OLOs5%

Telecom Italia Wholesale

14%

Mkt Shares of Total Broadband Market (September 2005)

100% = ~ 5.8 Mln BB Connections

Telecom Italia

Broadband Penetration on Covered Market (September 2005)

(*) FW Penetration on Areas Covered since 2000

(**) FW Penetration on Areas Covered since 2002

(***) Overall FW Penetration

(***)

(**)

(*)

100% = Number of households passed

Tin.itAlice~ 20%

~ 21%

~ 17%

~ 9%

~ 6%All Other Operators

PG. 7

FASTWEB Residential Offer

FASTWEB BaseFASTWEB Base Mega Internet OptionsMega Internet Options

TV OptionsTV Options

Voice OptionsVoice Options

FASTWEB’s residential offer:

• FASTWEB Base: Compulsory entry level

• Voice options: Optional flat and pay-per-use offers

• Internet options: Optional flat and pay-per-use offers

• TV options: Optional premium contents offers

FASTWEB’s residential offer is very flexiblevery flexible and can be customized in order to fully satisfy customers' needs

PG. 8

FASTWEB Base

FASTWEB Base is the entry level that enables FASTWEB Base is the entry level that enables customers to experience customers to experience 300 min per month300 min per month of:

• Carrier-class Voice over IP service (national and local land line calls included) and

• Broadband Internet @10 Mbit/s for Fiber, 6 Mbit/s certified for DSL

In addition:

• Voice mail from phone, PC and TV

• 4 mailboxes included

• Option for a diversified bouquet of premium video contents

• Option for TV-based Video-communication

FASTWEB Base costs:

• One off activation fee: 95 € with

number portability or 170 € with

new number

• Monthly fee: 25 €25 €, currently , currently

promoted at 19 € forever promoted at 19 € forever

low entry level pointlow entry level point,

possibility to add flat

voice/Internet and TV options

on top




PG. 9

Calculating a Sustainable Price Point

Value-based pricingValue-based pricing Flat Fee vs Subscription Fee: selling bundled value vs charging

back industrial costs

150 6€ 30 + 15 2€

150 4€

free 10€

free 1€

25€25€ Up to 21€ 15€ Up to 2€Monthly Fee

Voice Minutes Bundled

BB Internet Minutes Bundled

E-mail access

Voice Mail

Value Value

Need-based segmentationNeed-based segmentation Different value bundled for different customer needs: Voice,

Internet and TV Options triple play operators must have the best offer for all customer segments, not only for triple play customers!

Pay-per-use None

Pay for use None

n.a. None

19€/month19€/month

better thanbetter than



better thanbetter than


19€19€

PG. 10

Flat-Fee Voice Options

Italia Senza LimitiItalia Senza Limiti Città Senza LimitiCittà Senza Limiti

20€/month 14€/month

On top of

FASTWEB Base,

2 flat-fee voice

options are

available

Unlimited national land line

calls

Unlimited local land line

calls

“Italia Senza Limiti” and “Città Senza Limiti” can not be cumulated




PG. 11

Flat-Fee Internet Options

Unlimited

broadband

Internet access

Giorno e NotteGiorno e Notte

40€/month

On top of

FASTWEB Base,

3 flat-fee

broadband Internet

access options are

available

600 minutes per

month flat Internet

access

10 ore10 ore

10€/month

“Giorno e Notte”, “30 ore” and “10 ore” can not be cumulated




1,800 minutes per

month flat Internet

access

30 ore30 ore

20€/month

FASTWEB’s answer to the market need

of a price point at 20 € for ‘flat’ Internet

PG. 12

FASTWEB TV

To access TV contents, value added services and a S-VoD package, customers need to pay 8€/month

(and they get the STB for free until they keep their subscription)

True triple play with FASTWEB starts at 27 €/monthTrue triple play with FASTWEB starts at 27 €/month

(19€ with voice/Internet minutes included + 8€ for STB and S-VoD)

FASTWEB Set Top

Box provides

access to free TV

content and value

added services

Free to air Free to air

channelschannels

Free to satellite Free to satellite

channelschannels




VoD and S-VoDVoD and S-VoD

• 8 vod ‘channels’ with 1.300 programs (not movies) always available included in the fee

• Network PVR• 700 movies on-

demand from 3.5€ to 6€ each

• Dolby Digital 5.1, original language

PG. 13

TV Options

VoD and S-VoDVoD and S-VoD

8.0 €/month8.0 €/month

7.5 €/month7.5 €/month

16 €/month16 €/month



2 €/month 2 €/month eacheach






• Free STB rental with ONtv subscription

• 8 vod ‘channels’ with 1.300 programs (not movies) always available included in the fee

• Network PVR• 700 movies on-demand

from 3.5€ to 6€ each• Dolby Digital 5.1, original

language

PAY TVPAY TV A-la-carteA-la-carte Channels Channels

• Italian “Serie A” football at 5€/match and Champions Legue at 8€/match in pay per view

• Week-end Calcio: “Serie A” at 10€ for all the matches of the week-end

46 €/month 46 €/month combinedcombined

• Movies on-demand in DVD quality from 3€ to 5€ each

PG. 14

How Triple Play Drives ARPU

TLC services 817

Total ARPU

€/year

As of September 30th, 2005

% residential customers, by

TLC service take up

70TV services

100% ~500K

35%Flat

Bundled

30%Flat Voice

25%Flat

Internet

10%Pay-per-use only

100% = 887€

TV services ARPU, €/year (on non-for-

free TV service customers)

100% ~ 320€

35%VOD

65%Pay Tv & Thematic

Channels

TV service penetration

~ 30%

More than 2/3 of 2/3 of

total ARPU total ARPU

comes from comes from

flat monthly flat monthly

feesfees

Both Voice and Internet relevant, with Internet ARPU increasingly important

80% of non-for-free TV service has VOD; 60% has 80% of non-for-free TV service has VOD; 60% has Pay TV; 10% has thematic channelsPay TV; 10% has thematic channels

~ 13 VOD views per video customer per month, 1 buy~ 13 VOD views per video customer per month, 1 buy

¼ of total video customer are PVR users, 10 ¼ of total video customer are PVR users, 10 recordings per month per userrecordings per month per user

80% of non-for-free TV service has VOD; 60% has 80% of non-for-free TV service has VOD; 60% has Pay TV; 10% has thematic channelsPay TV; 10% has thematic channels

~ 13 VOD views per video customer per month, 1 buy~ 13 VOD views per video customer per month, 1 buy

¼ of total video customer are PVR users, 10 ¼ of total video customer are PVR users, 10 recordings per month per userrecordings per month per user

PG. 15

IPTV in a Global Supply-side Perspective…

World largest IPTV providers – Thousands of customers (Sept. 2005)

Telefonica (ES)

Free (FR)France Tel (FR)

PCCW (HK)

FASTWEB

100142 160 160

441

Telefonica (ES)

Free (FR)France Tel (FR)

PCCW (HK)

FASTWEB

10%

30%

51%

3%3%

World second largest IPTV provider in terms of

customerscustomers and

penetrationpenetration of the

total customer base…

…first for TV ARPUTV ARPU…

22% pay

31% pay

TV ARPU: 320 €/year

TV ARPU: 140 €/year

IPTV penetration on broadband customer base

PG. 16

SKYDTTFASTWEB

160

15%

30% on customer

base

12%10%

…but relatively small among Italy’s digital TVs…

… with a high penetration among customers interested

in the triple play concept (TV TV

as a ‘value extractor’as a ‘value extractor’)…

… and a lower one among total addressable customers (FASTWEB is first of all a telco supplier)

2,6003,300

SKYDTT FASTWEB

2% on addressable

families

Free sat dishes

2,200

Free sat dishes

FASTWEB

… and in a National Demand-side Perspective

Digital TV platforms in Italy – Thousands of customers

Penetration on potential customers

PG. 17

IPTV in FASTWEB strategy

1. Increase customer NPV through value extraction1. Increase customer NPV through value extraction Not necessarily triple play customers have longer average life

High speed of innovation required Special retention initiatives needed

TV has not been a strong ‘reason to buy’ FASTWEB for those who are not interested in its voice or Internet offers

However TV customers have a significantly higher ARPU

2. Contribute to differentiation vs other broadband offers2. Contribute to differentiation vs other broadband offers Multiple play can have little to do with churn…Multiple play can have little to do with churn…

And giving away premium content to subsidise broadband And giving away premium content to subsidise broadband adoption is not necessarily a smart move…adoption is not necessarily a smart move…

… … but multiple play does impact customer NPVbut multiple play does impact customer NPV

Multiple play can have little to do with churn…Multiple play can have little to do with churn…

And giving away premium content to subsidise broadband And giving away premium content to subsidise broadband adoption is not necessarily a smart move…adoption is not necessarily a smart move…

… … but multiple play does impact customer NPVbut multiple play does impact customer NPV

PG. 18

Consequences on IPTV positioning

1.1. Linear services are important for customer experience but…Linear services are important for customer experience but…

Difficult to differentiate vs satellite competitors only with them Only part of SKY premium content available through FASTWEB Limited rationale for bidding for (expensive) exclusive linear content

Difficult to act as pure neutral carrier (due to strong ties between content producers and existing TV platforms)

2. IPTV P&L must be self-sustaining2. IPTV P&L must be self-sustaining

PG. 19

Consequences on future product priorities

Opportunity to differentiate TV services and sustain competitive Opportunity to differentiate TV services and sustain competitive advantage by leveraging technologyadvantage by leveraging technology

Better and richer VOD product More majors, shorter time windows, balanced buy-rates (library vs

current) More types of VOD content (eg.: Disney’s Magic English) Push for pricing and bundling flexibility: permanent rental, SVoD, …

Other non-linear services Retroactive PVR, ‘personal TV’, multiplayer gaming, T-Betting,

community services, …

Better customer experience Replicate and enhance DVD experience

PG. 20

Actions Taken Next Actions

New Majors

New Interactive

Areas

New VoD Channels and

ContentNew user friendly

interface and remote

control

2005 2006

Maintaining focus on enhancing:

VoD Content – Not only movies

Interactive Services

User experience

Disney

Touchstone

Miramax

7,000 Subs

500,000 games per month in

the new gaming area

New dedicated channels for music,

fictions, reality shows and kids content

150,000 music video-clips watched in

September

World first experiment of edu-tainment on-demand

New Services

Executing Planned Strategy: Recent Actions and Next Planned Steps

PG. 21

New graphics, rules of navigation and editorial organization:New graphics, rules of navigation and editorial organization:

Easier access to content and services Same rules of interaction and navigation across different content areas Respect of existing customer base

Executing Planned Strategy : The new GUI (launched on November 21st )

PG. 22

The project of the new remote control has responded to two different needs:

1. USE: easier interaction with GUI (new remote and GUI have been designed coherently)

2. LOOK and FEEL: coherence with FASTWEB brand and image

Unified design (Pininfarina) to be Unified design (Pininfarina) to be applied by all HW vendorsapplied by all HW vendors

Executing Planned Strategy : The new remote (will be launched on December 1st)

PG. 23

Contacts

Thank you

Alessandro PETAZZI Marketing Manager, IPTV [email protected]

Documents

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