Benoit Felten

© Copyright 2007. Yankee Group Research, Inc. All rights reserved.

Benoît FeltenPrincipal [email protected]

A World of Fiber

F2C – March 31sth, 2009© Copyright 2007. Yankee Group Research, Inc. All rights reserved. Page 2

France and the United States: A Love Story


Agenda

• FTTx in Europe

• Some conclusions on FTTx deployment dynamics

• How is this applicable to the US?


Sources: Fiber to the Home Council – End 2008

Fibered Europe

Sweden910k homes passed

400k subscribers200+ municipal networks

450 Service Providers over Open Access Model

Norway275k homes passed

180k subscribersVertically integrated utility

networksIncumbent (Telenor) stepping

up deployment

Finland420k homes passed

50k subscribersIncumbent (Elisa) deploying

selectivelySome municipal networksDenmark

620k homes passed90k subscribers

Energy companies deploying aggresively

Netherlands575k homes passed

170k subscribersMunicipal networks in large

citiesIncumbent (KPN) planning open access deployment

France4500k homes passed

180k subscribersIncumbent, two competitors

and cableco deploying

Spain300k homes passed

30k subscribersA few regional projects.Incumbent (Telefonica)

cautiously rolling out

Portugal200k homes passed

~15k subscribersCompetitive operator rolling

out

Germany280k homes passed

60k subscribersMunicipal projects in Cologne,

Munich and moreIncumbent deploys VDSL2

Slovakia430k homes passed

20k subscribersIncumbent (Orange) rolling out

Slovenia280k homes passed

50k subscribersIncumbent (Telekom Slovenje) and

competitive operator rolling out


Regulatory Models

Infrastructure Competition with sharing of in-building deployment

Unbundling of the fiber-loop with no bitstream obligation

Infrastructure Competition with n regulatory oversight of >30Mb/s

market for the next two years

Bitstream only delivery model over FTTN and FTTH infrastructure

Pole and duct sharing, no open access obligation over fiber

Regulatory approach

Significant debate over the nature of in-building deployment: single fiber (Orange) or multi-fiber

(Free) slows down deployment.

In addition, KPN subsidiary Reggefiber is offering bitstream access wherever the network is

deployed already.

Despite favorable conditions, Telefonica deployment is still uncertain.

Bitstream FTTN model is still not clearly defined. OFCOM working on Active Line Access product

which would be a form of Ethernet Bitstream.

Duopoly has maintained high price levels and limited service penetration (Verizon has ~20%

take-up)

Comments


Framing the Regulatory Agenda

• Announced Open Access on passive and active layers

• Went significantly beyond OPTA’s expectations in terms of allowing competitors on own network

• Initiative is to preserve network business in the face of cable and muni-fiber competition

• Announced a strategy of roll-out with 4 parallel fiber strands to every home (aggregation level unclear)

• Lobbies regulator for a symmetrical measure to be impose to competitive roll-out

• Initiative is to ensure universal access with owned or operated fiber and avoid costly and complex unbundling obligations.


FTTH Business Model Fundamentals• Take-up has a stronger impact

on payback than ARPU.

• Payback under 10 years is virtually impossible without at least 30% take-up (more reasonably 40%).

• The current generation of services (triple-play) is probably not sufficient to attract customers en masse, especially if FTTH is priced higher.

• Service differenciation (Sweden) or price equivalency (France) are crucial components to driving high take-up and making the business model work.

10% 20% 30% 40% 50% 60% 70% 80% 90% 100%35

45

55

65

75

0

5

10

15

20

25

30

35

40

45

50

55

Payb

ack

(yrs

)

Take-Up (%)

ARPU

(EUR

)

Sample FTTH Payback Periods(w. 1000 EUR/home costs and 45% gross margin)

0-5 5-10 10-15 15-20 20-25 25-30 30-35 35-40 40-45 45-50 50-55

Sou

rce:

Yan

kee

Gro

up, 2

008


Incumbents embracing Open Access?

<< In hindsight, KPN made a mistake back in 1996. We were not too enthusiastic to be forced to allow competitors on our old wireline network. That turned out not to be very wise.

If you allow all your competitors on your network, all services will run on your network, and that results in the lowest cost possible per service. Which in turn attracts more customers for those services, so your network grows much faster.

An open network is not charity from us, in the long run it simply works best for everybody. >>

Ad Scheepbouwer (CEO, KPN)


Opening Dark Fiber

Opening Ducts

Regulatory responses for open access

ServicesOpening Lit Fiber

Opening Services

• oligopoly in major cities / dense areas• monopoly in tier 2 cities• patchwork network

• the « new » unbundling• oligopoly everywhere the network goes• one network or patchwork network?

• richer choice for customers (on paper) • numerous SP ecosystem (10s)•economy of bitstream?

• richer service environment• plethoric SP ecosystem (100s)

likely outcome

regulatoryapproach ex.

• Sweden

• UK• Netherlands

• Netherlands

• Spain• France


Exploring a new Open Access Model?

Vertical Integration

Network

Services

Unbundling

Passive AccessInfrastructure

Services

ActiveWholesale

Services

ActiveWholesale

Bitstream

Active Wholesale

Services


Services

?

? Wholesale

Serv

ices


Serv

ices

Serv

ices

Serv

ices

Serv

ices


Net Neutrality, NGA Style

• An attempt at defining net neutrality: « a guaranteed amount of customer-to-IX capacity dedicated to internet usage ».

• Hard to deliver in the copper world • all services use a single logical circuit

• « Easy » to deliver in the fiber world • services can be delivered over separate

lambdas.

• Verizon FiOS already uses this technology to deliver TV and broadband on separate logical streams.

• HKBN offers guaranteed capacity to the IX or your money back!


How is this applicable to the US?

• Is this applicable to the US ?

• Objection #1: The US is not like the rest of the world• Incumbents in the US do not have majority share• Ubiquitous Cable Penetration is unique to the US• US Wireless Competition is fiercer than elsewhere

• Objection #2: Which network needs to be the monopoly network?• Why should telcos be the ones who are “forced” to open up?• Smaller networks cannot be open access because of economies of

scale issues


Duopoly dynamics?

0

5

10

15

20

25

30

35

40

Denmark

Netherl

ands

Norway

Switzerl

and

Icelan

d

Sweden

Korea

Finlan

d

Luxe

mbour

g

Canad

a

United

Kingdo

m

Belgium

Franc

e

German

y

United

Stat

es

Austra

liaJa

pan

Austria

New Z

ealan

dSpa

in

Irelan

dIta

ly

Czech

Rep

ublic

Hunga

ry

Portug

al

Greece

Poland

Slovak R

epub

lic

Turke

y

Mexico

Source: OECD

Other

Fibre/ LAN

Cable

DSL

OECD Broadband subscribers per 100 inhabitants, by technology, June 2008

OECD average

• The US lags behind in terms of broadband penetration.• Could this be because of a less than efficient duopoly rather than

in spite of “vibrant duopoly competition”?


Price and penetration are correlated

• North American Prices per Mb/s download of NGA wireline broadband are the highest in the world.

• Price doesn’t explain everything, but the correlation between price and adoption doesn’t have to be demonstrated.

• In a duopoly, neither of the players are interested in lowering the prices. Pr

ices

per

Mbp

s do

wnl

oad

(Nor

mal

ised

USD

)

0 0,5 1 1,5 2 2,5 3 3,5 4 4,5

APAC

EMEA

NAM

By

Geo

grap

hy0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 5

FFTN

DOCSIS 3.0

FTTH/B

By

Tech

nolo

gy

Source: FTTH Council & Yankee Group


In Conclusion

1

2

3

Open Access makes economic sense for private players everywhere in the world

Vertically integrated NGA deployment will not happen with private money in a 3-5 year investment timeframe

Designing a profitable wholesale model for broadband is crucial to NGA deployment

4 Net Neutrality, NGA style is a first step to ensuring service competition.


Please visit our website:

www.yankeegroup.co

m

Thank you for your interest!

Benoît [email protected]: +3 618 243 189

Technology

Benoit Felten