frans van camp

FTTH Moves The Market

FTTH Conference 2012 Munich, February 15

Frans van Camp


Agenda

Background on Conjoint Analysis Study

Insights from Conjoint Analysis Study

Implications for Incumbents

Implications for Cable

Conclusions


We developed the Fiber Transition Model (FTM), a decision support tool for operators, service providers, regulators and investors

Use Cases

• Network Operators/Service Providers – Strategic/Business Planning – Product Management – Management Learning

• Regulators – Market Simulation

• Investors – Due diligence


FTM uses Conjoint Analysis (CA) and dynamic modeling to overcome shortcomings of typical business planning/market models

Typical model FTM

Shortcoming #1 - Reliance on ‘guestimates’ regarding market

shares

Shortcoming #2 - Assumes that competitive environment is static

Shortcoming #3 - Weak, static links between modules

Use of Conjoint Analysis to model customer behavior and derive

theoretical market shares

Each actor is modeled individually, with its own technology roadmap, rollout strategies and propositions

Incorporates various dynamic feedback loops with respect to

portfolio, market shares, network capacity and performance


Study was performed in the Netherlands in September/October 2010 by Blauw Research • A total of 3600 respondents (300/province) participated in web-based

survey

• Survey was designed around 9 attributes, which make up a typical dual/ triple-play proposition; technology by inference

• Resulting dataset provides basis for Dutch version of FTM

– TV provider (9) – #channels (5) – #HD channels (4) – Price TV (6)

– BB provider (6) – Download (6) – Upload (4) – Price BB (4)

– Telephony (2)


Observed dynamics are probably also applicable in other cable-rich countries and at a local level elsewhere

Dutch Market Fixed Broadband Coverage Europe

#Households

Internet penetration

7M

>80%

DSL coverage 99%

Cable coverage 93%

Market share DSL broadband ~55%

Market share Cable TV 90%

Market share DVB-T 8%

Market share IPTV 2%

Market share Cable broadband ~40%

FTTH coverage ~13%

Market share FTTH broadband ~5%

GRIT

FRCYNOSKIEPLFIATCZSEUKLTSI

ESDEDKLV

ROEELUHUPTBEBGNLMT

DSL Cable Fiber

FTTB/FTTH Ø 15%

Cable/HFC Ø 52%

DSL: Ø 93%

No

cabl

e C

able

w/ 2

5-50

% re

ach

Cab

le w

/ 50-

75%

reac

h C

able

w/

> 75

% re

ach

Note: EU-27 countries + Norway; data for Switzerland not available Source: iDATE, European Commission, Solon


Agenda





Conclusions


Pricing and brand reputation dictate over 60% of consumers’ choice of proposition

Broadband:TV

~3:1

Cable TV:IPTV

~4:1

Attribute Importance

Price Prov ider Download Telephony

Upload #channels #HD channels

>60%

IPTV on par with analog cable

Price BB:BB provider: ~5:2

Price TV:TV provider: ~3:5


Given current bandwidth demand, symmetrical propositions appear to have limited appeal and enjoy only a small price premium

Download:Upload

~5:1

Fiber Premium

8-15% Or ~€5 in absolute terms


As bandwidth demand rises, the average Dutch consumer seems to be only marginally more likely to migrate to FTTH as to cable

46.6 45 41.4

32.6 33.4 35.1

20.8 21.6 23.5

xDSL Cable FTTH

Avg. down/up: +10/+1 Mbps

Avg. down/up: +30/+3 Mbps

Current situation

Customer Preferences

∆ = +0.8%

∆ = +0.8% ∆ = +1.7%

∆ = +1.9%


Agenda





Conclusions


Survey data illustrates why incumbents may still hesitate to invest in fiber at this point in time • In the longer term, incumbents will need fiber to successfully compete

with cable

• Currently, most incumbents face something of a Catch-22 situation when it comes to the timing of their fiber investments – Too early : insufficient demand/interest – Too late : churn to cable

• There is no single best answer to the timing of fiber investments, as a lot

depends on how bandwidth demand and competitive dynamics develop

Incumbents should avoid ‘build-it-and-they-will-come’ strategies and rely on demand aggregation and competitive pricing instead


Assumptions

• 3 xDSL providers – KPN – Tele2 – Online

• 1 Cable operator (UPC)

• 1 FTTH provider (KPN) – Portfolio A:

– 30/30 @ €55 – 50/50 @ €65 – 100/100 @ €85

– Portfolio B: – 50/50 @ €55 – 100/100 @ €65 – 500/500 @ €85

• Instant migration, no customer inertia

Gap of ~10% to be closed by marketing

push

30%

Demand threshold

40%

Autonomous FTTH Demand

∆ = +1.9%


DSL upgrades in areas not yet served by FTTH will help incumbents to counter the threat of cable throughout their FTTH rollout

• It will take incumbents many years to build a national fiber infrastructure

• As bandwidth demand rises, churn to cable is likely to increase in areas not yet served by FTTH

• It is far more difficult and expensive to win a customer back than to migrate an existing customer

• An ability to offer higher bandwidth DSL propositions (i.e. 60/6 and 80/6 Mbps) would greatly reduce churn to cable

• When offered alongside FTTH, these DSL propositions will reduce FTTH’s preference share by 2.5% (21→18.5)

59 65

41 35

Current DSL upgrade

Customer PreferencesxDSL Cable

Effect of DSL Upgrade

∆ = +6%


Agenda





Conclusions


In the absence of FTTH and DSL upgrades, the competitive balance gradually shifts in cable’s favor as bandwidth demand rises

Linear Growth (20%)

15

25

2012 2015

Linear Growth (50%)

40 Mbps

20 Mbps

40 Mbps

20 Mbps

Customer Preferences Customer Preferences


To maintain its market position once FTTH is widely available, cable needs further infrastructure investments too

• Cable trumps xDSL and fiber, until fiber prices come down by 20-30%

• In order to compete with FTTH speeds and retain high-end customers, cable networks need to be upgraded

• Both coax and fiber upgrade options are available

• Lacking a burning platform, such decisions may prove even harder than those currently faced by incumbents

• Involvement of private equity may complicate things further

Cable trumps xDSL...

20/2/€35 25/1.5/€35 1.07

40/3/€45 60/6/€35 1.28

xDSL Cable

x

= = Comparative attractiveness cable

= Equally attractive

...and fiber...

60/6/€35

120/10/€55

50/50/€55

100/100/€65

1.40

1.27

Cable Fiber

...until fiber prices come down

60/6/€35

120/10/€55

50/50/€37

100/100/€51

=

=

Cable Fiber


Agenda





Conclusions

Conclusions

Competition between incumbents and cable operators drives FTTH deployments and shifts market balance • Incumbents’ FTTH deployments are more likely to be driven by national

TV markets’ competitiveness than by consumers’ bandwidth demand

• Over the coming years, the competitive balance is expected to shift in cable’s favor

• Incumbents’ longer term competitive position depends as much on their own strategic choices as those of their cable competitors

WWW.XSINSIGHT.COM

WWW.FIBERTRANSITIONMODEL.COM

frans van camp

Technology

conjoint analysis ca

conjoint analysis studywe

conjoint analysis studyftm

conjoint analysis studypricing

conjoint analysis studystudy

xdsl cable ftth

threat of cable

competewith cable