Hartwig Tauber

Director General

FTTH Council Europe

• Founded in 2004, non-profit organisation

• More than 100 members

• Members: manufacturers, construction & engineering companies, NPO, academia

The Organisation

• The vision of the FTTH Council Europe is a sustainable future enabled by Fibre to the HomeThe Vision

• The mission of the FTTH Council Europe is to accelerate the FTTH adoption by all broadband stakeholders through education and promotion in order to enhance the quality of life, contribute to a better environment and increased competitiveness.

The Mission

FTTH Worldwide June 2009

2 M >30 M> 4 M

...and FTTH continues to grow

Global

FTTH/FTTB

Ranking

• 13 European economies in

the Global Ranking

• But big economies like

Germany, France, UK etc.

are missing

• If European Union would

be seen as one economy

(like USA) then only 0.6%

penetration and no

mentioning in Global

Ranking

FTTH in Europe

Status June 2009

• 2.0 Mio. subscribers,

13 Mio. homes passed

(excluding Russia)

• 3/4 of subscribers

in just 6 countries

• 241 projects in Europe;

Majority of projects are

driven by municipalities

and utility companies

Source: FTTH-Council Europe/IDATE 2009

Evolution of FTTH/B subscribers in Europe (1)

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Evolution of FTTH/B subscribers in Europe (1)

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The need for fiber

• Access bitrate demand

continues to grow

exponentially

• Bitrate demand is driven

by both sustainable

throughput and latency

requirements

• Bitrates of 100 Mbit/s

and above can only be

provided by fiber

True broadband access

will be synonymous with

FTTHSource: Broadband Bandwidth Study,

FTTH Council Europe/Ventura

Pricing of Broadband

and FTTHFTTH Council Europe & Yankee Group

Overall analysis of strategies• Throughout the study it became apparent that three different strategies were at

play on the market. These strategies drive different approaches to services:

The broadband utility strategy

focuses on the access. They aim to

provide high quality reliable

internet access to as many

customers as possible.

The expand and cash-instrategy consists in a wide

network deployment with little

service added value until a critical

mass of customers is met.

The keep it premium strategy

aims for sexy NGA services at

premium prices, to address a small

customer base without

cannibalising existing revenues.

Often Witnessed In:

Local/municipal projects

Utility led projects

Altnets

Often Witnessed In:

Local Operators

Altnets

Cable Operators

Often Witnessed In:

Incumbents

Cable Operators

Low competition countries/areas

ARPU

TAKE-UP

Service portfolio overview

Communication

Services

Entertainment

Services

Wider-Economy

Services

IP

Telephony

Free Nat’l

Calls

Free Int’l

Calls

Commercial

FMC

Rich

Voice

TV

Videophony

IPTV

VoD

User

Shared-TV

Web 2.0

On TV

TV on PC

Web

on TV

Terminal

Videophony

Traffic

Information

Home

Surveilance

Home

Monitoring E-Health

Remote

Elderly

Care

E-Administration

Integrated

FMC

Widespread

Growing

Emerging

Enabling Services

Catch-Up

TV

E-Education

Interactive

TV Content

Envisaged

Home Tech SupportUp to 1000/1000 HSI

QoS GuaranteeHome Network Mg’t Up to 100/100 HSI

Up to 50/20 HSIWireless

DVR

All HD

HD

Advanced

EPG

Exclusive

Content

3D-TVApps on TV

(Open STB APIs)

NPVR

LAN Router

Child Protection

Pricing (broadband)• When comparing prices, projects

with high set-up fees tend to be penalized even if the prices examined are done so over a two year period.

• Generally, North American prices tend to be higher than European prices, which tend to be higher than APAC prices.

• There is a tendency for BB utilities to have lower prices although set-up fees can again offset this (Mälarenergi and Dong)

• Unsurprisingly, competitive intensity in a given country tends to drive prices down.

Price Comparison for Broadband (~30/30)(Normalised USD)

Broadband: as close to 30/30 as possible

0 20 40 60 80 100 120 140 160 180

R eggefiber

M N ET

F ree

KT

H KB N

N T T

SK B ro adband

Swissco m

Virgin M edia

Orange

Video tro n

Verizo n

D o ng

B elgaco m

T ransact

Lyse T ele

Surewest

A T &T

D u

M älarenergi

Pricing Differences are Huge

• Prices difference in Europe (examples):

• Netherlands:

– KPN: 100/6 MBps package with premium triple play: EUR 110,--

– OnsNet: 100/100 MBps internet only: EUR 32,50

• Portugal:

– PT: 100/10 MBps package with premium triple play: EUR 64,90

– Soneacom: 100/10 MBps package with premiumtriple play: EUR 64,90

– ZON: 100/6 MBps package with premium triple play: EUR 64,90

Pricing (downloaded megabyte)• North American prices per

Mbps are the highest, and Asia-Pacific are the lowest.

• FTTN prices are the highest while FTTH/B and DOCSIS 3.0 prices are comparable.

• Operators following Premium strategies are the highest priced. Utility and Cash-In have comparable prices• The exception is

Mälarenergi whose business model loads up-front costs and therefore skews the average.

Pri

ces p

er

Mb

ps d

ow

nlo

ad

(N

orm

ali

sed

US

D)

0 0,5 1 1,5 2 2,5 3 3,5 4 4,5

APAC

EMEA

NAM

0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 5

FFTN

DOCSIS 3.0

FTTH/B

0 1 2 3 4 5 6

Utility

Cash-In

Premium

By G

eo

gra

ph

yB

y T

ec

hn

olo

gy

By S

tra

teg

y

Pricing (triple play)• Triple play pricing is slightly less

dispersed than broadband pricing.

• Bundled-only offers (Free, Orange) or bundles with significant discounts (SK Broadband) tend to be better priced.

• Overall, North America tends to be the most expensive again and APAC the cheapest.

• Technology choices seem to have less of an impact on triple play prices than they have on broadband prices.

Price Comparison for Triple Play (Normalised USD)

Broadband: as close to 30/30 as possible

TV: basic package (when available)

Telephony: basic subscription

0 50 100 150 200

F ree

M N ET

Orange

SK B ro adband

Swissco m

R eggefiber

KT

N T T

H KB N

Virgin M edia

T ransact

Video tro n

Verizo n

D o ng

B elgaco m

Lyse T ele

A T &T

Surewest

D u

M älarenergi

ARPU• ARPU of the access line varies

considerably, even putting aside the fact that pure wholesale operations have lower ARPUs by definition.

• Again, US service providers have considerably higher ARPUs than in the rest of the world.

• For most SPs that have both legacy broadband and NGA, ARPUs are significantly higher (20-30% on average) even with service offerings that are not necessarily considerably different.

• Unsurprisingly, SPs with “utility broadband” strategies have lower ARPUs than those with more service oriented strategies.

ARPU through broadband access(Normalised USD)

Sources: Official releases, primary interviews, YG estimates

Missing: Du, M-NET & Transact

0 20 40 60 80 100 120 140

M älarenergi

D o ng

R eggefiber

F ree

H KB N

N T T

Swissco m

Orange

Virgin M edia

Video tro n

SK B ro adband

Lyse T ele

B elgaco m

KT

Surewest

A T &T

Verizo n

Wholesale

ARPUs

Economic considerations

and service strategies

• FTTH deployment payback ranges from 6 years to ~20 years.

• Large Incumbent: « The FTTH product will be profitable in 2010.»

• A number of fiber projects have already broken even (Lyse, HKBN, Mälarenergi)

• For most altnets, the key driver to adoption and also the most profitable service is broadband. TV tends to be low margin because of rights issues and Telephony is a low attractiveness service.

• Altnet: « TV is expensive to set-up and the rights are very expensive, especially for “small” operations like ourselves.»

• For most incumbents, the key driver to adoption is HDTV and the key revenue generator is legacy voice.

• Incumbent: « In the absence of significant penetration of IP Telephony, our most profitable product remains PSTN, but we believe that will diminish over time, hence the need to develop today the revenue generators of tomorrow.»

• Free estimates that its FTTH product will ultimately generate over 70% gross margin. HKBN currently generates around 30% and has a long term goal of 45%.

Key Learnings

• A number of FTTH

operations are already

profitable

• Service prices vary

widely accross

geographies

• NGA ARPUs are reliably

30+% above DSL ARPUs

• Broadband in itself is a

profitable product (in fact,

the most profitable for

many players)

• FTTH users currently

use 5 to 10 times as much

access line capacity as

DSL users

• FTTH-only operations

tend to be net

contributors of traffic to

the wider internet

• Peering and transit

dynamics are evolving

driven by NGA

• Most service portfolios are

currently designed to drive

adoption

• HD is a key driver for

adoption and the target for

service providers is to deliver

2+ simultaneous HD streams

• The SoHo market is

underserved with NGA

service offers and seems to

be a disregarded low-hanging

fruit

• Video communications are

seen as a crucial service and

enabler of wider-economy

services, but are still

underdeveloped

Economics &

Business Model

Usage &

Network Impacts

Services &

Innovation

FTTH COUNCIL EUROPE

Thank you for your attention!