Ventura Workshop

experience - knowledge - action

Business

Drivers

for FTTx

Richard Jones

[email protected]

RichardJones

Copyright Ventura Team LLP 2010 [email protected]

We are CONSULTANTS

Improve business performance –

helping organisations deliver

products, services and revenues

faster

Develop and implement the right

business strategy

Define the right technology

strategy

Build realistic, flexible business

cases and models – showing

realistic costs and revenue

scenarios

Win telecoms licences against

tough competition - at the right

price

Carry out better due diligence –

saving clients from costly errors

Launch new operators – getting to

revenues faster


We are CONSULTANTS

Improve business performance –

helping organisations deliver

products, services and revenues

faster

Develop and implement the right

business strategy

Define the right technology

strategy

Build realistic, flexible business

cases and models – showing

realistic costs and revenue

scenarios

Win telecoms licences against

tough competition - at the right

price

Carry out better due diligence –

saving clients from costly errors

Launch new operators – getting to

revenues faster

BUT


We are also CONSULTANTS…

…who started up our own operator in Sweden to demonstrate our capability

…so we also pass on our experience as an OPERATOR with 80,000 subscribers now


Our startup operator in Sweden is at an interesting point

80,000 subscribers

Residential and wholesale

FTTH services include residential:

100 mbps symmetric

>$12 in some cities

Internet, voice and TV

1,500 pops

FTTH, xDSL and WiMAX

750,000 homes passed

It has grown with our help

(but very little finance) to:


But aside from the numbers, it is also one of the most efficient operators in the world

…with 2,500 subscribers per employee


These are challenging times

Fibre trenches…


These are challenging times

…can seem more like these trenches

So what’s important in building up a business case?


You need to build strategies and business cases using knowledge and experience gained ‘on the ground’

You need to be FAST:

You never get enough time

There may be 100 iterations and scenarios


You need to build strategies and business cases using knowledge and experience gained ‘on the ground’

You need to be ACCURATE:

If you don’t really know what you’re doing -errors can cost 10’s or even 100’s of millions of Euros


We created a simple project assessment tool for the FTTH Council

Simple Questions Overall Report

Market Prices

Inputs Overview

Building Density

Access to Capital

Access to Home

Construction Method

IT Systems

Complexity of Services

Ease of Deployment

Management Team

Building Density

Access to Capital

Access to Home

Construction Method

IT Systems

Complexity of Services

Ease of Deployment

Management Team

Market Size

Competition

Market Maturity

Management Team

Channels or Existing Customer

Base

Opportunity Size

Revenue to Capex Ratio

Market Prices

Margin Potential

Revenue Potential

Capex Requirements

Derived

Assessment

Results

Overview of

Opportunity


Then we modified the criteria some more…..Price for BB ($) - monthly

<10 10 - 20 20 - 50 50 – 100 >100

Subscriber Target

<5k 5k – 20k 20k – 50k 50k – 100k >100k

Current/ PlannedTechnologies

Existing fibre or fast cable

Some fibre and/or

significant VDSL

Good DSL WiMAX and ‘bad DSL’

‘Bad DSL’ and3G

Density of Housing

<10% in apartments

10 – 25% in apartments

25 – 50% in apartments

>80% mediumapartment

blocks

>80% large apartment

block

Routing fibre No ducts and high cost to

dig

No/low ductsand high dig

costs

Some ductsand/or

medium cost digging

Good ductaccess and

low dig costs

Highpercentage of

ducts available

TV High satellite/cablepenetration +

piracy + content laws

High satellite/cablepenetration +

piracy

15 - 50%satellite/cable

<15% satellite/cable

penetration

Very low satellite

penetration


This is only a first step….

Gaining funding requires detailed and defendable business cases

ROUTING

FIBRE

HOUSING

DENSITY

TV

TECHNOLOGIES

PRICINGTV

Good News Minor Issue Problem


… but this approach gives you a first indication about your project…

ROUTING

FIBRE

HOUSING

DENSITY

TV

TECHNOLOGIES

PRICINGTV


What are the biggest drivers on your business case?

The simple answer is:

dig cost per metre

distance of street dug per home passed

IP transit costs

Penetration

ARPU

Let’s look at some of these in more detail


DIG COSTS


If your infrastructure is cheap – fibre is an easy win!


Fibre cannot be deployed everywhere unless you have significant advantages/help!!!

-

500

1,000

1,500

2,000

2,500 Passive Infrastructure CAPEX (GBP) per Home Passed by Geotype and Technology for Sweden

FTTC/VDSL

FTTH (GPON)

FTTH (PTP)

Source: Ventura Team LLP


Is it economic to do a whole country?

Answer: Only 50%-70% homes are economic

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Estimated Total CAPEX (GBP m) for Greenfield GPON in Sweden

Source: Ventura Team LLP


You can’t build everywhere in a city because of the costs of low density areas.

The cost for outside plant (OSP) increases as the density of population decreases

Fewer apartments (and so more villas) mean more street dig to pass each potential subscriber

A

B

-

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

300,000,000

350,000,000

400,000,000

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

TR

EN

CH

ING

CO

ST

-O

MA

NI R

IALS

PERCENTAGE OF POPULATION IN MULTI-DWELLING UNITS

A

B

A represents the cost for a rollout in an area where 33% of people live in apartments

Percentage in Multi-Dwelling Units

B represents the cost where 90% of people in an area live in apartments

CO

ST

S

0% 100%


The density of housing has a major impact

EUROPE

At 3m of street per home passed

DIG CAPEX = 20 months ARPU


For comparison purposes, Dubai does not represent the ‘typical’ Gulf country


If you have to dig in roads/pavements, things get far worse

GULF

15m/home passed (mainly in roads/pavements)

DIG CAPEX = 140 months ARPU


Choosing where to dig within each city is vital

There are several approaches

If you have GIS data combined with census information


25 40 5070

704025 40

4025 25

25

25

Households per block

You can identify roads to pass by

looking for blocks of a reasonable size

identifying all the homes passed on these roads

calculating the distance dug compared to the homes passed

Choosing where to dig within each city is vital


This example shows the impact of selecting roads based on the largest block size

HIGHLIGHTS

875k homes – 4.4m/home

582k homes – 2.6m/home

Do you need:

big subscriber numbers?

OR

better profitability?

Smaller and more focussed deployments are needed if

competition is fierce

or

economics are poor


If you don’t have GIS then in some countries you can use Excel!!

The diagram on the right represents a block style city layout

Villas are shown with a V and apartment blocks (MDUs) with an A

By approximating the number of apartments per MDU you can estimate the street length needed to pass a certain number of homes


Zoom in on ‘typical’ areas to sample and

Count the houses

Count the apartments

Measure the street length

Otherwise use Google Earth


One GPON vendor had an Outside Plant design terminated with a four way block in the street.

Seems okay right?

Make sure you understand how your Outside Plant costs will influence final connection costs

HOMES (20m frontage)

Termination Block


Make sure you understand how your Outside Plant costs will influence final connection costs

The problem is that you have to dig the street again to connect to homes (SUB’s)

SUB SUB SUB SUB

That’s another 140m of dig!

HOMES (20m frontage)


Now let’s look at the sensitivity to the dig length and cost in this model

EXAMPLE

50,000 homes passed

5 metres of street dig per home passed

30% penetration first year

60% final penetration

Broadband 20

Telephone (rental and calls) 10

TV 12

Security or other misc items 2

Avg Rev / Home / Month 44


ARPU


What is your market’s ability and willingness to pay?

Factor How do we think about this factor?

Affordability Look at spending as percentage of GDP – compare to benchmarks. Is your market under-spending or already above expected values?Compare prices to similar marketsDo market surveysHowever… in some countries, the lack of alternative entertainment mean that the Internet can take further share of ‘wallet’

Competition You can’t turn back timeIf prices for equivalent services are below your target ARPU then you won’t achieve your objectives


What is your market’s willingness to pay?

Factor How do we think about this factor?

Take up There is a natural distribution of prices that people are willing to pay. If 80% of people would pay for a service below X then don’t expect your’s to sell at 2X

…this will impact the subscribers you can win and hence overall revenues

0

10

20

30

40

50

60

70

80

90

100

0

20

40

60

80

10

0

12

0

14

0

16

0

18

0

20

0

22

0

24

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26

0

28

0

30

0

32

0

34

0

36

0

38

0

40

0

Cu

sto

me

rs W

illi

ng

to P

ay P

rice

(%)

Price Per Month


Revenue has an enormous impact on performance….no, really!!

Once your core costs are covered then incremental revenue above variable cost is profit


Buying Activating Using Paying ChangeContacting

You can try to launch more products to boost ARPUD

ep

art

men

tsLifecycle

Product &

Services

Availability

Brand

Awareness

Corp

Comms

Mar

Comms

Product

Marketing

CRM/BSS

Networks

OSS

Sales

Care

Retail

CRM/BSS

Order

Management

OSS

CRM/BSS

Order

Management

OSS OSS

Sales

Care

Retail

CRM/BSS

Dealer

Management

OSS

Billing And

Collections

Sales

Care

Retail

CRM/BSS

Problem

Management

OSS

Sales

Care

Retail

CRM/BSS

Order

Management

Dealer

Management


Information

Requests

Account & Service

Management

Customer Problem

Management

Billing

Enquiries

Internet Quality &

Availability

Voice Quality &

Availability

Activate

Voice

Order Processing

& Fulfillment

Servicing

Customers

Rating

Invoicing

Deactivation &

Termination

CollectionTV Quality &

Availability

Activate

Internet

Activate

TV

Dunning

Adjustments &

Amendments

Buying Activating Using Paying LeavingContacting

Activate

Bundle

Data Quality &

Availability

Outbound

Customer

Notifications

But each one needs to be properly managed

Outbound

Campaigns

Retention & Follow

Up

Proactive Service

Improvements

Contact Center

Information &

Interaction

Outbound Surveys

Activate

VAS

Pro

ce

ss

Life

cycle

VAS Quality &

Availability

Complex

Sales

Dealer

Sales

CPE

Logistics


…and so getting more products to Launch Readiness will require many resources and take up huge amounts of management time

Program

Management

Business

Infrastructure

Space Building

Requirements

Organizational Design

People Policies

Business Systems

Business Plan

Refinement

Market Assessment

(product)

Customer needs

Target Segments

Value propositions

Product Development

& Strategy

Detailed Product

Definition

Pricing

Promotional & POS

Collateral Guidelines

Channel Approach

Branding &

Positioning

POS Production

Communication

Campaign

Network

development

Overlay

Local Access

International Access

Interconnect

Switch Technology

IN Architecture

Business Process

& IT Strategy

Billing & Collections

CRM

Call Centre

Service delivery

Inventory

Detailed Product

Definition

Product Launch

Management Framework

Management Reporting

High Level Launch Plan

Service Rollout Strategy

Go To Market Strategy

Resourcing Plan

Organizational Design

Process Framework

Communication Plan

Customer Experience

Framework

Product Performance

Reporting

Commercial Calendar

Attention & Engagement

Models

Deliverables

Key Milestones e.g. RFS,

Soft launch & Full

Commercial Launch

dates

Business Model

Partner Model

Key Business

Assumptions

Market Data/Segment

Plan

Branding Brief

Network Rollout Strategy,

Plans & Capabilities

IT Strategy & Capabilities

Quality Management Plan

Any key

Regulatory/Compliance

dates

Inputs


Product Lifecycle & Innovation Management Process

Stage 1 Stage 2 Stage 3Stage 0

Idea

Generatio

n

Assessment

& Development

Stage 5 Stage 6

Market

Management

GATE 1 GATE 2 GATE 3

Go for Initial

description

Go for Detailed

description

Go for

Implementation

Go for

Launch

Go for

Product Change

Idea

Definition

Initial

Description

Detailed

Description

Implementation Market

ManagementTermination

Sales,

Marketing,

Wholesale

Build Prop

Plan Deployment

Assess

Stage 4

GATE 6 GATE 7GATE 4 GATE 5

Business

Case

Go for

Business Case

Go for

Termination

Build IT

Build

Network

Operate / RUN

Sunset

The process is structured into six stages plus innovation pre-phase.

Seven gates are defined in order to help steering decision-making process.

Overview of the PLM - Process Master Architecture


…and in the end, creating too many products hurts your business

Creating more

scope for

errors

Creating more

products

Creating more

engineering

actions/visits

Creates service

change calls

Creating

complaint calls

Damages

reputation


PENETRATION


…and where fibre is competitive on price – it kills DSL

A number of FTTx projects have taken 70% or more share of homes passed

These cases have benefitted from one or more of the following factors:

30%+ bundle price discount

Killer content

Great demographics and strong desire for true broadband

High dissatisfaction with existing providers

Local loyalty

Where fibre is available at comparable prices, it will displace xDSL and WiMAX as the preferred home technology


…but how sensitive are cases to penetration?

EXAMPLE

50,000 homes passed

5 metres of street dig per home passed

Broadband 20

Telephone (rental and calls) 10

TV 12

Security or other misc items 2

Avg Rev / Home / Month 44


What if your market is very competitive?

If prices have hit a ceiling then you need to concentrate on:

Achieving a critical size through acquisition

Buying as a group (to achieve better discounts)

Concentrating on customer service reputation

Driving down internal costs

Number of Subscribers (k)

Business

Value

Asset value only

10 1000250

High growth

per

sub

Higher growth

Flattening out


So how do you get it right?

Change the rules…..use whatever means you can to reduce cost

Share ducts, dig as consortia, use utility companies’ asset

Choose the right towns and cities and then the optimum parts within them

You can only do ubiquitous services in very high density towns or with external assistance (i.e. government)

Beat xDSL speeds but do not go straight to your fastest potential speed immediately

Changing speed/service provides opportunities for PR and marketing advantage

You may not be able to afford to give subscribers ultra fast, unlimited connections

Your business strategy and model need to be very carefully refined – probably across multiple technology offerings in many cases


Operator Experience Includes:

Telecom Egypt

Vodafone (various operations)

Atheeb Consortium (Saudi)

Millicom International Cellular

Batelco

Colt Communications

BT

Pipex

Riksnet

Nordisk Mobiltelefon Group

Eircom

Turk Telekom

Bulgarian Telecom

Invitel+Pantel

Neuf Telecom

Deutsche Telekom

MLL Telecom

Investor Experience

Apax

RBS

Regulator Experience

Ofcom

DCMNR

Egypt NTRA

Vendor Experience

Huawei

ZTE

Alcatel

Ericsson

Motorola

WiPRO

Industry Clients

FTTH Council Europe

GSM Association

Market Experience

Egypt

Qatar

Oman

Saudi Arabia

Dubai

Poland

Ireland

UK

German

Mali

Sweden

Hungary

Greece

France

Rwanda

Estonia

Thank you… [email protected]

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Partners booth

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copy of:

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Biggest Mistakes

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