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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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© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 1March 2010Emerging Markets & Next-Gen Broadband
Emerging Markets & Next-Gen Broadband
Benoît Felten, Principal Analyst
Wally Swain, Senior VP
March 30, 2010
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 2March 2010Emerging Markets & Next-Gen Broadband
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
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 3March 2010Emerging Markets & Next-Gen Broadband
Poll
What region of the world are you most interested in?
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 4March 2010Emerging Markets & Next-Gen Broadband
Asia-Pacific Emerging FTTH
India:BSNL targets 700K customers
in 2009, 7M by 2015Other smaller initiatives around
new property developments
China:8M homes connected with
FTTB/H, especially in the southSPs are China Telecom and
China Unicom
Malaysia: Incumbent TM targets 1.3M homes in or around Kuala
Lumpur
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 5March 2010Emerging Markets & Next-Gen Broadband
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 400KSubs low at estmated 70K
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 6March 2010Emerging Markets & Next-Gen Broadband
Latin America Emerging FTTH
Brazil: Telefónica deploying FTTB in
Sao Paulo [~100K homes passed)GVT deploying FTTH in various cities (est. 600K customers over
FTTB)
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 7March 2010Emerging Markets & Next-Gen Broadband
The FTTH Conundrum
• The copper network is on its last leg
• FTTH is the end-game, and telcos know it
• The amount of capex needed to replace the copper network is not aligned with short-term telco vision
• Cable upgrade to DOCSIS 3.0 and competitive fiber roll-outs (from altnets, municipalities or utilities) threaten incumbent positions as network providers
The question for telcos is:
How do I make a necessary but considerable investment in optimal conditions?
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 8March 2010Emerging Markets & Next-Gen Broadband
Solutions to Enhance the FTTH Business Model
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 9March 2010Emerging Markets & Next-Gen Broadband
What’s Different About Emerging Markets?
Lower labor costs
Favorable public policy
Much smaller addressable
market
Lower ARPU
Slower takeup
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 10March 2010Emerging Markets & Next-Gen Broadband
Lower Labor Costs
• Lower labor costs mean lower cost per home passed• Labor installing the fiber network• Labor installing connections in the home
• Lower labor costs mean lower ongoing maintenance costs
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 11March 2010Emerging Markets & Next-Gen Broadband
Proxy for Relative Wage Scale
Purchasing Power ParityInverse Scale Proxy for Wages Relative to the USA
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 12March 2010Emerging Markets & Next-Gen Broadband
Favorable Public Policy
• Regulatory conditions are often favorable to wireline incumbents
• In some countries, there is no effective competition on the service layer
• Expanding broadband penetration is an issue for all emerging markets’ governments
• Many NGO studies link economic growth with penetration of advanced communications services
• Many have explicit programs to help• Education• Lower cost of PCs• Stimulus or other direct investment programs
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 13March 2010Emerging Markets & Next-Gen Broadband
Smaller Addressable Market
• Directly impacts takeup• Especially in broad deployments• Or where government money is tied to broad deployments
• Can also mean higher equipment costs because of lower volume
• There are fewer people in emerging markets who are economically capable (or willing) to invest in high-end triple services
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 14March 2010Emerging Markets & Next-Gen Broadband
Lower ARPU
• Partly because of lower income
• Partly because of lower prices• Operators lower prices to broaden appeal• “Unfair competition” with pirate master antenna systems keep prices
down
• Households in emerging markets spend less on triple-play services
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 15March 2010Emerging Markets & Next-Gen Broadband
Where Is There Enough Purchasing Power for FTTH?
• We assume that households will willingly spend up to 60% of their ICT budget (reserving the rest for PCs, mobile, etc.)
• Few emerging markets can support a broad FTTH deployment (blue bar)
• Most can support a limited deployment (red bar, focused at the top 10% of households)
• Some particularly disadvantaged countries can only have very limited deployment
- 0.50 1.00 1.50 2.00
Africa*
Argentina
Brazil
China
Colombia
Croatia
Greece
Hungary
India
Indonesia
Latvia
Lithuania
Malaysia
Mexico
Pakistan
Peru
Philippines
Rest of Asia-Pacific
Rest of Latin America
Romania
Russia
Saudi Arabia
Thailand
Turkey
Ukraine
Venezuela
Vietnam
Unlikely for BP to Work
Broad Deployment
Narrow Deployment
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
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 16March 2010Emerging Markets & Next-Gen Broadband
Deployment Scenarios
Broad Deployment
A significant proportion of the population can afford triple play, which makes a broad, developed-market-style deployment feasible.
• Venezuela• Turkey• Saudi Arabia• Malaysia• Greece
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.
•Vietnam•Thailand•Russia•Romania•Philippines•Peru•Mexico•Lithuania•Latvia•Indonesia•Hungary•Brazil•Argentina
• Ukraine• Pakistan• India• China• Africa
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 17March 2010Emerging Markets & Next-Gen Broadband
Comments on the Model
• The model seems aligned with existing developments, except for India and China
• 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.
• Venezuela is perhaps less likely to see FTTx deployment soon than suggested because of local specifics.
• The model should be considered a good overall tool for quick determination of likely markets for FTTH to emerge
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 18March 2010Emerging Markets & Next-Gen Broadband
Disruptive Factors
• The general trends the model suggests can be disrupted by a number of things:
• Local government interventions can accelerate deployment in their territory, either through financial subsidies or partnership.
• Limited regulatory barriers may allow new entrants to move at a grass-roots level, as showcased in Eastern Europe.
• 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.
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 19March 2010Emerging Markets & Next-Gen Broadband
Which Force Is Greater In Your Market?
Lower labor costs
Favorable public policy
Much smaller addressable
market
Lower ARPU
Slower takeup
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 20March 2010Emerging Markets & Next-Gen Broadband
Q&A
Download a snapshotYankee Group’s 2010 Next-Generation Access Service Study
http://www.yankeegroup.com/research/next-gen_study_snapshot_registration.html
Our essential analysis of next-generation access service portfolios, pricing and bundling strategies for 20 broadband operators across the globe
© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 21March 2010Emerging Markets & Next-Gen Broadband
Thank You
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Benoît Felten, Principal [email protected]
Wally Swain, Senior [email protected]
Upcoming Yankee Group webinar:4G Mobile Backhaul EvolutionTuesday, April 27, 2010 | 11am ETRegister at www.yankeegroup.com