0 development of bba market in moscow alexander gorbunov vice-president for strategy &...
TRANSCRIPT
1
Development of BBA Market in Moscow
Alexander GorbunovVice-President for Strategy & Development, Comstar-UTSConference «The Future of Fixed Communications» 24 May 2007, Moscow, Marriott Grand Hotel
2
Regions + International
Comstar: General Information
Revenue: $47M Alternative operators
in 5 RF regions Foreign companies
(Ukraine, Armenia, Greece)
Revenue: $236 M Alternative operator Major player on corporate
market
Corporate Elite apartment
houses
Revenue: $802 M Traditional operator 4,3 M lines
Operators Corporate Individuals
Revenue: $153 M Dial up access ADSL #1 in BBA
SMEs Individuals
Moscow and Moscow region
Comstar is a universal operator generating the revenue of more than $1 blnand having a strong position in the Moscow market
25% A holding with controlling stock in 7 IRCs and Rostelecom
LSE: CMSTFree float 35%capitalization:
3bln.+
51%
67% 52%
Mobile
DLD/ILD
53%
50%
3
Comstar: Main Elements of the Strategy
1
2
3
45
6
7
Restructuring
Integration
BBA
MGTS Modernization
Regional expansion
Convergence
Svyazinvest
Making installation, setting up and maintenance procedures more simple
Bundled offers with tariffs for voice services
Enhancement of Public DN core
Pilot solutions in respect of combined network for voice and data
Development of ADSL
Combined offer (IP-TV)
Use of wireless technologies to develop BBA solutions for corporate customers and high-end individuals
Getting a synergy effect from ADSL development projects in Moscow and regions
Development of unique market offerings based on ADSL
Optimization of sales andmaintenance channels
BBA is a strategic priority of Comstar development and concernsmost of strategic initiatives
4
Comstar: Position on the Moscow Market
other(>500 companies)
Golden Telecom
RTC
other(> 200 companies)
RTC
Corporate Operators
$0,86 $2,16 $1,18
Moscow market of fixed communications (Y2006) - $4,2 bln
0%
20%
40%
60%
80%
100%
Individuals
MG
TS
• Three tariffs• BBA growth• DLD/ILD market liberalization
• Growth in SME segment• Increased effectiveness
• New regulatory rules • Tariffs
Comstar50%
other
RTC
Comstar Group of companies is the leader on a fast growing market of services for individuals
Corporate
Operators
Individuals• MGTS: 3,8 M lines• Insignificant share of
DLD/ILD• Comstar-Direct: >400K
ADSL lines• New tariff structure
(possibilities for bundled offers)
• Merger of 3 leading alternative operators
• Comstar-Direct: ADSL for small businesses
• Comstar and MGTS services are regulated
• Growth together with market growth
Comstar:27% 22% 7%Growth 2006
Comstar30%Comstar
19%
Data source: Direct INFO
18%
5
2003 2004 2005 2006 2007 2008 2009 2010
3,8 3,8 3,9 3,9 3,9 3,9 4,0 4,0
0
1
2
3
4
5
Households (mln)
Actual Forecast
2003 2006 2010E
PCs penetration
Internet connections (% PC)
BBA (% Internet)
41% 69% 75-80%
66% 68% 78-83%
11% 60% 92-97%
~1,0 M
2,6 M
2007 is the year of the most significant growth in the number of BBA users CAGR 2006-10 (19%)
Growth drivers:• PCs penetration• Internet connection• Replacement of dial-up access• Internet-content development
- without PC- PC without Internet-Dial Up- BBA
BBA Market in Moscow
BBA market in Moscow goes through tremendous upgrowth on the wave ofincreasing number of PCs and technologies
6
BBA: Main Questions for the Operator
2007 2008 2009
1. How to increase market share?
3. What will happen to price and speed?
2. How to develop TV?
4. How to develop wireless BBA?
5. What supplementary services can increase ARPU?
6. How to improve subscriber loyalty?
BBA market evolution puts a number of key strategic questions beforean operator
7
1: How to Increase Market Share?
2007 2008 2009
1. How to increase market share?
3. What will happen to price and
speed?
2. How to develop TV?
4. How to develop wireless BBA?
5. What supplementary services can increase
ARPU?
6. How to improve subscriber loyalty?
• What determines a market share?• What is the market share dynamics indicative of ?• How to estimate the market share correctly?
• It is very difficult to determine the exact market share, estimates of different analysts differ considerably• Different subscriber accounting policy (in respect of accounting of non-paying subscribers) makes the direct comparison of operators’ announced data approximate, all operators have a natural tendency to maximize their indicators • The share of “double counting” increases, the share of users who use several providers grows (many users use dial-up access and Wi-Fi as a back-up Internet access)
8
~400
~350~200
~200~100
4,5
4,4 2,9 3,6
1,4 2,62,3
2,0
2,8
4,2
Subscriber Migration Dynamics
Akado, Corbina,CenTelHome networks
Abandoned
New Internet users
Dial-Up
Subscriber migration dynamics, thous. (March 2007, estimated figures)
In-housemigration
At present the main drivers for subscriber base growth areconnection of new subscribers and conversion of dial-up access subscribers, the mains factors influencing the choice of provider are price and convenience
Source: Polling ofsubscribers in sales offices (April 2006)
Reasons for choosing a provider (Comstar-Direct)
1
2
3
4
5
6
Price
Convenience
Speed
No other provider
Availability of «double-play»
Recommendations
9
Know by name Consider to be a leader
Have experience of use
Use now
92
85
39
65
33
9
44
21
9
34
17
9
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100% Comstar-Direct
Corbina
Akado
Centel
Golden Telecom (WiFi)
Mostelecom
Perception of Operators
Source: Polling of BBA subscribers (April 2007 )
Competition grows. Comstar-Direct maintains the leading positions. From among competitors Corbina is definitely perceived as player №2
Share of existing BBA users
10
Attraction and Retention (Comstar-Direct)
As a market leader, Comstar-Direct can target different segments in order to increase the number of subscriber connections and reduce churn
Attraction Retention
• Automatic increase of speed
• More mild policy in respect of subscriber disconnections
• Programs of more active work with debtors
• Development of supplementary services
• Analysis of reasons for churn and development of actions to eliminate them
• Programs, motivating transfer from Dial-Up
• Programs with large retail networks and PC manufacturers
• Direct mail and direct calling
• Promo-actions with companies of the group
11
2: How To Develop TV?
2007 2008 2009
1. How to increase market share?
3. What will happen to price and speed?
2. How to develop TV?
4. How to develop wireless BBA?
5. What supplementary services can increase
ARPU?
6. How to improve subscriber loyalty?
• What is Internet+TV service potential?• How to form pricing for TV services correctly? • What are an IPTV project economies?
• Income level in Moscow allows the majority of BBA users to connect pay TV services; however, this does happen because of reasonably great supply of open channels, numerous alternative leisure opportunities are complex/costly connection technologies. IPTV is not the best technology to provide traditional TV (without Internet) and is in low demand among consumers• IPTV gives consumers more interactive TV novel to user
12
Existing Potential Expensive TV Inexpensive TV
33%34%
30%
35%
0%
10%
20%
30%
40%
07/06 10/06 01/07 04/070
100
200
300
400
BBA Users
0%
10%
20%
30%
40%
Pricing Scenario
31%
34%
32%
29%
Subscriber Base Structure At Month End
Availability/Interest inPay TV
Available at home
Intend toconnect
Internet + TVPackage Selection
Trends in SubscriberBase
Archived plans
Internet
Internet + TV
Double-Play Potential Among Comstar-Direct Subscribers
Statistics and polls show 30-35% of subscribers interested in Internet + TV package, this share not varying noticeably
with the price for TV package
13
Current TariffPlans
Archived Tariff Plans
Internet +TV
1.6%1.2%
5.6%
2.5%
0%
2%
4%
6%
Internet +TV
-30%
-55%
Churn (April 2007)
Double-Play Economics
Provision of double-play Internet+TV service changes insignificantly subscriber marginal yield, but improves noticeably its loyalty to operator and generates
potential for VoD growth
Economics
• Additional ARPU comparable to license fee payable to content copyright holders
• Leased STB installation on soft terms
• Additional dealer’s fee
If Loyalty and Growth PotentialExcluded, VOD Economics Lose
to Pure Internet Economics
14
3: What Will Happen to Price and Speed?
2007 2008 2009
1. How to increase market share?
3. What will happen to price and
speed?
2. How to develop TV?
4. How to develop wireless
BBA?
5. What supplementary services can increase
ARPU?
6. How to improve subscriber loyalty?
• What speed level subscribers regard as acceptable/optimum?• Are subscribers willing to pay for speed?• Is there a business case for speed increase?
• Vigorous growth of BBA market has already led to an increase in average speed up to 1 Mbps, the level currently regarded as sufficient to the majority of subscribers• Massive investments made by operators in the solutions allowing to offer higher speeds. At the moment, the majority of households have several providers to choose from.• The number of operators that can co-exist profitably on the market and ensure ROI depends on competitive pattern.
15
Factors Determining Consumer Behavior
100Мбм
3-10Mbps
1-3Mbps
512kbps
<512kbps
Do notknow
100Mbps
1-3Mbps
512kbps
<512kbps
Do notknow
Existing BBA
Users
0%
20%
40%
60%
80%
100%
<500
500-700
700-1000
1000+
<500
500-700
700-1000
1000+0%
20%
40%
60%
80%
100%
Potential BBA
Users
What speed meets your currentneeds?
What amount you spend/willing to spendon BBA (rubles/month)?
Existing BBA
Users
Potential BBA
Users
85% of consumers are satisfied with speed up to 3 Mbps, at that the majority of users are ready to spend 20-30$/month, yet would like to reduce these payment if
possible
16
5
10
20
50
100
0.1 0.2 0.5 1 2 5 10 20 50 1005
10
20
50
100
0.1 0.2 0.5 1 2 5 10 20 50 100
Consumer Choice and How Price/Speed Influences It
Choice among existing market offers
«Too expensive»
«Tooslow»
«Too expensive»
«Tooslow»»
Choice among market offers with reduced prices
Downstream Speed
Planprice ($/month)
Downstream Speed
Plan price ($/month)
• Irrespective of tariffs speeds up to 1 Mbps are considered to be
too slow
• With tariffs reduction ~50% prefer to reduce charge and maintain the speed• 30% reduction of price results in 20% reduction of ARPU
The most salable product - 1Мbps, further reduction of price has a negative impact on ARPU
17
?
Market Evolution Scenarios, Moscow
Increase of speedPrice reduction
Competition due to supplementary services and customer care.
«Price war»• Encouraging connections while maintaining ARPU• Transfer from low speeds (up to 1 Mbps) to optimal ones (1-2 Mbps)
• Competition due to supplementary services, convergence/bundled offers
• Aggressive price offers at high speeds from aggressive emerging competitors• Forced reduction of prices for 1-2 Mbps by Comstar-Direct
Fast market growth(subscribers,revenues)
Maintenance of revenue growthModerate growth of subscriber base
Fast growth of subscriber baseStabilization/fall in revenues
Market evolution scenarios will depend on rationality of emerging competitors’ pricing policy
2005-2007
18
10% 20% 30% 40% 50% 0
5
10
15
20
25
30
10% 20% 30% 40% 50%
Comstar-Direct
Comstar-Direct
Subscribers- % of flats in a house (new entrants)
Абоненты - % квартир в доме(new entrants)
RatioCapex/monthly ARPU (times)
RatioCapex/ monthly ARPU (times)
Market evolution scenarios, Moscow
With a current ARPU level, the operators investing in FTT should connect 25%-30% of households in a building, to recoup theirs investments.
• Payback of new entrants projects largely depends on achievable penetration
• «Unsound» price competition afflicts economically all operators, but is most painful for those with low penetration rates.
Competition through additional offerings and customer care «Pricing war»
19
ADSL penetration into homes.
As for FTT investment, Comstar-Direct has an advantage of selective approach to houses with a large number of ADSL subscribers
2,1 3,2 6,2 7,4 4,6 2,4
24.5%
17.2%
12.2%
8.0%
4.6%
1.7%
0%
5%
10%
15%
20%
25%
30%
Quantity of houses with 50 to 500 MGTS numbers (‘000)
Current penetration ADSL (%)
ADSL FTTx
• 100-150 $ per subscriber• Individual access • Speed up to 6 mbps for 90% of users• Scaleable CAPEX
• 40-50 $ per household regardless of penetration• Speed up to 30-50 mbps• HDTV option
20
4: How to develop the wireless broadband access?
2007 2008 2009
1. How to increase market share?
3. What will happen to price and speed?
2. How to develop TV?
4. How to develop wireless BBA?
5. What supplementary services can increase
ARPU?
6. How to improve subscriber loyalty?
• Who will be the key players on the wireless broadband market?• Which technologies best suit to different segments (WiMax, WiFi, 3G)?
• Cellular operators obtained licenses for 3G services and intend to actively deploy their networks as early as this year 2007.• Mobile WiMax is expected to appear in 2008-2009, likely to become a new breakthrough access technology
21
16-20 21-25 26-30 31-35 36-40 41-45 46-50 <600 600-1000 >1000
39%
25%
32%
22%
16%19%
8%
22%
17%
34%
0%
20%
40%
60%
80%
25% 16% 24% 16% 23% 19% 5% 21% 9% 23%
Laptop
PC+Laptop
For BBA users
Awareness of WiFi technology
Age Revenue ($/person)Interest in mobile access from notebook (% of owners)
Surveys show:wired&wireless Internet access is a hit package demanded from integrated operator.
Basis for BBA growth
High penetration of notebooks breeds interest in having a wireless access as well, seen by many as a matter-of- fact extension to wired access.
22
10 MB
100 MB
1 GB
10 GB
100 GB
10 20 50 100 200 500 1 2 5 10 20 50 100
Average traffic per active user (end of 2006)
Downstream speedkbps mbps
Dial-Up
EVDO-CDMA
GPRS
ADSL (unlimited)
ADSL (traffic)
20$ (0,2c/MB)
10$ (0,5c/MB)
20$ (7c/MB)
5$ (20c/MB)
New level (wired)
Wireless level
Current offerings: wired and wireless access
The take-up is driven by speed and price, and in both theses aspects the wired technologies are lagging seriously.
Experience learns: - Consumers tend to use all inclusive minutes - Fixed tariffs became «unlimited», price difference is more than 10х
Source : Comstar assesments
Old level (wired)
23
ADSL Wi-Fi Wi-Max
Wired Nomadic Wireless
Access еconomics:
Wireless access technologies in Comstar
Different technologies vary a lot in terms of access cost and will coexist as complementary. WiMaх will potentially surpass 3G in the field of wireless
access for laptops
• 100-150 $ per subscriber • Individual side• Speed up to 6 mbps for 90% of users •Scaleable CAPEX access • Cost of access ~0,05 c/MB
• 500-600 $ per hot spot• Shared access (multiple users)• Speed of 1-2 mbps for users• Effective when connected via ADSL • Cost of access ~0,5 c/MB
• 70-150K $ на BTS• Shared access • Speed up to 0,5-1 mbps for most users• Scaleable access СAPEX• Cost of access ~5 c/MB
Cost-effective for:
•Typical Internet user with •average income level
• Public places(HoReCa)
• Access anywhere as«premium» service.• Alternative access
WiMax vs. 3G: - Comparable economics in the network part- Constraints in roaming and mobility + Integration in onechip with WiFi+ High level of penetration intolaptops (in longer run)
24
0,01 c
0,1 c
1 c
10 cWiMax
WiFi
10 GB1 GB100 MB
15$
5$
5$2$
3$
Monthly usage
Cost of access (per MB)
Wireless extension to ADSL
Express cards to pay for access on a by-session basis.
ADSL
Future access models
25$
FTTx
Viewed by typical user all three technologies should coexist (due to a strong difference in cost of access)
«Common» subscriber :• WiMax outdoors• WiFi (where possible) as cheaper option
«Easy» subscriber :• By-session access• No need for special equipment
25
Typical user of Comstar (2010)
Comstar-Direct brings freedom, the Internet and direct access to new avenues.
Home WiFi modem
ADSL
WiFi network in public places
Comstar WiMax city-wide network
~15$/month
~5c/MB
~1$/hour
26
Investment story of Comstar in Moscow
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
1
2 3 4 5 6 7 8 9
2003 2004 2005 2006 2007 2008 2009 2010 2011
Voice
ADSL
Revenues from residential (as illustration)
2003 2006 2011 2003 2006 2011
2003 2006 2011 2003 2006 2011
2003 2006 2011 2003 2006 2011
3,8 7,4
0,36
19
Subscribers (M) ARPU ($)
• 2%/ up per year • Steadying
• Higher bit rate and service activation
• Penetration up
• Equipment penetration
• Growing use
Voice
ADSL
WiFi/WiMax
х
х
х
• WiFi (and WiMax) has low entry barriers, allowing an explosive growth in users and usage volumes.
New services
Wireless access opens new potentialities, enabling further growth in total revenues from residential users.
WiFi/WiMax
27
5-6: Questions for mature market
2007 2008 2009
1. How to increase the market share?
3. What will happen to price and speed?
2. How to develop TV?
4. How to develop BBA?
5. What supplementary services can increase
ARPU?
6. How to improve subscriber loyalty?
• More revenues and loyalty are produced by services “tied to operator” and not existing on their own in the Internet.• There is no one “catch-all” service, different subscribers use different services.• Most services have impact on loyalty and sign-up rates at the same time.
Operators with largest customer base will evidently benefit the most fromdevelopment of additional services.
28
MAIN CONCLUSIONS
• The market share presently depends on subscriber acquisition efficiency in broadband and conversion of dialup subscribers along with efficiency of retention program. Data showing market share are altered by different accounting policy and double counting.
• IPTV is an additional service for a third of subscribers, significantly strengthening their loyalty.
• A mass BBA consumer is wiling to pay up to 20$ for bit rates beyond1 Mbps, and further price-cutting is most likely to bring down ARPU and deteriorate economic conditions for all operators present on the market, affecting most the FTT operators x
• The BBA market will generate a new growth wave. ADSL, WiFi and WiMax are complementary, enabling operators to offer the best ratio price/quality to subscribers
• Operators with the biggest customer base will have a vital competitive edge in development of additional services when the market comes to maturity.