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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
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Poll
What region of the world are you most interested in?
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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
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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
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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)
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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?
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Solutions to Enhance the FTTH Business Model
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What’s Different About Emerging Markets?
Lower labor costs
Favorable public policy
Much smaller addressable
market
Lower ARPU
Slower takeup
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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
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Proxy for Relative Wage Scale
Purchasing Power ParityInverse Scale Proxy for Wages Relative to the USA
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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
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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
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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
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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
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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
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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
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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.
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Which Force Is Greater In Your Market?
Lower labor costs
Favorable public policy
Much smaller addressable
market
Lower ARPU
Slower takeup
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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
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Thank You
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Benoît Felten, Principal Analystbfelten@yankeegroup.com
Wally Swain, Senior VPwswain@yankeegroup.com
Upcoming Yankee Group webinar:4G Mobile Backhaul EvolutionTuesday, April 27, 2010 | 11am ETRegister at www.yankeegroup.com