broadband china? - what and why
DESCRIPTION
Presentation on APOC 2004 about global broadband business and challenges to China operators.TRANSCRIPT
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iBIT, Inc
BROADBAND CHINA?
WHAT & WHY?
November, 2004
Xiaolin Lu
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What is this all about?What is this all about?
China cable and telecom industries are
migrating from state-owned to market-driven
industries….
But what to do and why….
Learn from US experience after the bubble,
with so different regulatory environment?
Maybe….
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KEY ISSUESKEY ISSUES
Cost Structure ( technology platform)
Regulatory
Environment O
pera
tio
ns
Reali
ty
Business
Opportunities
Wall Street
Perception
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AN INTERDEPENDENT WORLDAN INTERDEPENDENT WORLD
Technology Service &
Operation Regulation
HFC HBO, Cost-
reduction FCC Cable ruling
DWDM High-capacity,
lower-cost Broke up of Ma Bell
CM/DSL HSD Title 1
Micro Processor Excel
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CHALLENGES TO THE CHALLENGES TO THE
TOP LINETOP LINE
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THE RESIDENTIAL PIE: USTHE RESIDENTIAL PIE: US
Cable ILECs Other
Video Voice Data
Source: Paul Kagan Associates
Cable Dominates
Video Market
ILECs Dominates
Voice Market
Cable Leads
High-Speed Data
Market
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TELEPHONY USAGE: CHINATELEPHONY USAGE: CHINA
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Fixed Line Mobile
mn
su
b
Local
32%
LD
19%
Mobile
43%
Data
6%
Sat
0%
Paging
0%
Telecom System Revenue: 1Q 2004
50.0
60.0
70.0
80.0
90.0
100.0
1Q/02 1Q/03 1Q/04
Fixed
Mobile Competition further
drives down the ARPU
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OPPORTUNITIES: OPPORTUNITIES: TRIPLE PLAYTRIPLE PLAY
Create a customer destination Reduce churn
Create differentiation
Build a common platform for innovation and
gain economy of scale
Increase ARPU (Average Revenue Per Unit)
Offensively and defensively change the nature
of services and products
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TOP THREE US CABLE COMPANIESTOP THREE US CABLE COMPANIES
54%
36%
15% 14%
0.9
58%
40%
17%
0
0.83
61%
34%
20% 20%
1.1
0%
20%
40%
60%
80%
100%
120%
Basic/HHP DTV % HSD % Voice % RGU/HHP
Comcast Time Warner Cox
Source: Company Data
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THE IMPORTANCE OF THE IMPORTANCE OF
THE BOTTOM LINE:THE BOTTOM LINE:
After the bubble, it is not just After the bubble, it is not just
revenue…revenue…
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HSD SERVICE REALITYHSD SERVICE REALITY
300
350
400
450
500
550
1Q02 2Q02 3Q02 4Q02 1Q03
56% network cost reduction
77% customer service call reduction
40% marketing cost reduction
70% cable modem cost reduction
58% growth
$M
Source: Comcast
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US CABLE INDUSTRY EXPENDITUREUS CABLE INDUSTRY EXPENDITURE
0
2
4
6
8
10
12
14
16
18
1996 1997 1998 1999 2000 2001 2002 2003
In B
illi
on
s
• Total $84 Billion capital expenditure, equates to $1,200 per customer
• With $52/month ARPU that is increasing, the 10 year ROI is huge
Source: Kagan World Media
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WALL STREET PERCEPTIONWALL STREET PERCEPTION
US
ARPU/month 72.00
EBITDA Margin 35%
EBITDA 25.2
Capex 10.0
FCF 15.2
Multiple 7
Value/Sub ($) 1,276.8
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TECHNOLOGY OR TECHNOLOGY OR
SOMETHING ELSE IS SOMETHING ELSE IS
CHANGING THE USER CHANGING THE USER
BEHAVIORSBEHAVIORS
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The cost for 128 kilobytes of memory will fall
below $100 in the near future.
- Creative Computing Magazine
December 1981
HOW TO PREDICT THE FUTURE…HOW TO PREDICT THE FUTURE…
At $100 for 128 KB, 256 MB
would cost $200K
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Hard Disk Storage Moore’s Law
Cost per MB Smoore’s Law!
$0
$2,000
$4,000
$6,000
$8,000
$10,000
1956 to 1985
$10,000……….…...………………………………1/10 Cent
$0
$10
$20
$30
$40
$50
$60
1986 to 1993
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
1994 to 2004
Source: Seagate
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VIDEO COMPRESSIONVIDEO COMPRESSION
MPEG and ITU are working
jointly on a new standard:
MPEG AVC (Advanced
Video Coding).
AVC is also known as:
H.264, H.26L, JVT, and
MPEG-4 Part 10
Best of breed compression
– very good for HD and SD;
interlaced and film content;
variety of content;
wide range of bit rates.
Commercial
Availability
MPEG-2
MPEG-4
H.264
Media Player
etc.
wavelets
1X 1.66X 3.00X 4.00+X
Now
2004
2005
2006
2007
2008
Encoding Gain Factor
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0.001
0.010
0.100
1.000
10.000
100.000
1000.000
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
year
do
wn
str
eam
ra
te [
Mb
/s]
V.26 V.27
V.29 V.33 V.34 V.34
V.90
ADSL2+/DOCSIS
VDSL/DOCSIS 2.0
VDSL2/DOCSIS 3.0
ISDN
voicevoice--band modemsband modems
EVOLUTION OF BROADBAND ACCESSEVOLUTION OF BROADBAND ACCESS
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PROLIFIC VIDEOPROLIFIC VIDEO
IP+Storage+Portability+….IP+Storage+Portability+….
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REAL-TIME VIEWERSHIP IS ERODING
2003/2004 2005 and beyond
Real-time viewing 94.3%
Real-time viewing 81.5%
Real-time viewing 59.9%
VCR/DVD
MSO’s DVR and SVOD
VOD movies
Viewer’s DVR
2.9%
0.6%
0.2%
1.9%
2.3%
6.5%
0.8%
8.9%
VCR/DVD
MSO’s DVR and SVOD
VOD movies
Viewer’s DVR
1.7%
29.4%
1.1%
7.8%
VCR/DVD
MSO’s DVR and SVOD
VOD movies
Viewer’s DVR
2001/2002
Source: Forrester
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SOMEHOW, THE SOMEHOW, THE
POLICEMAN DOES HAVE POLICEMAN DOES HAVE
SOME POWERS…..SOME POWERS…..
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REGULATION AND BUSINESS: USREGULATION AND BUSINESS: US
Communication
Services
Title 2
Regulation
Requirement
VOICE DATA VIDEO
Open Pipe Franchising
Business Selling Minutes Flat rate
+ Usage
Information
Services
Title 1
Content
Service
Title 6
None
All you can
eat buffet
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THE “DRIVERS” FOR FTTHTHE “DRIVERS” FOR FTTH
Competition to Cable MSOs has 63% share of HSD vs 37% for the carriers
Favorable regulatory climate No unbundle requirement on FTTH
Reduced churn on voice Bell have lost 10% of their residential line to UNE-P competition
But…..
DBS earned 18% market share of total TV HH in 5-6 years
At $1,200/HHP cost for aerial construction, and heavy underground buildup mix, can the RBOC afford it, in time?
Verizon SBC BellSouth Qwest
Aerial 45% 28% 32% 13%
Underground 55% 72% 68% 87%
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OPTIONSOPTIONS
LEC
Narrowband
Switched DLC
Rebuild
Network Upgrade
Cable modem
Deep Fiber Deep Fiber
PenetrationPenetration
Wireless
Mobility
Broadband
Cable
Broadband
Broadcast
FTTH
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CHALLENGESCHALLENGES
Cable ILEC OverBuilder
Embedded
Base HFC Twist Pair None
Upgrade Fiber deep
DOCSIS
xDSL
FTTH
Fiber/metallic
Overlay
Business Triple Play Triple Play Niche market
Challenge BALANCE
• Migrate from one service monopoly to multi-service duopoly • Or perhaps migrate from facility-based monopoly to
facility-independent multi-service duopoly
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Source : RHK Inc. (www.rhk.com)
( Thousands )
WORLDWIDE PENETRATIONWORLDWIDE PENETRATION
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0
50
100
150
200
250
300
350
400
450
500
Mil
lio
ns
of
Pa
yin
g C
ust
om
ers
2004 2007 2010
DSL
Cable
WiMax
Fiber
LOOKING FORWARD….LOOKING FORWARD….
Source : John Cioffi
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CITYCITY--WIDE WIWIDE WI--FI IN CHASKA, MNFI IN CHASKA, MN
City operated, 16 square mile coverage area
Public safety, low-cost residential broadband service
7500 homes passed, 1100 pre-registered
200 cells, <$500,000 CapEx
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KEY ISSUESKEY ISSUES
User Behavior
Wall Street Regulation
Bottom Line
Technology