Market Overview: Assessing Growth Potential in Different Sectors and Countries for Carriers and Service Providers

Transcription

1 1 Capacity Asia 2004 (Hong Kong) 19 October 2004 Market Overview: Assessing Growth Potential in Different Sectors and Countries for Carriers and Service Providers Mira Bashi, Director, Data Services REACH Slide 1 Market Overview: Assessing Growth Potential in Different Sectors and Countries for Carriers and Service Providers 19 October 2004 Mira Bashi Director, Data Services Firstly, let me thank Capacity Asia for the invitation to talk at this conference. Mark, thank you also for your introductory remarks. Over the past 2 years, our industry and region has experienced some significant challenges. These range from an oversupply of capacity, to aggressive price compressions and stiffer competition.

2 2 Needless to say, with challenges come opportunities and what I hope to share with you today are just some of the bright spots and exciting developments to look forward to within our industry. As my CEO mentioned this morning, the global telecommunications epicentre is shifting from North America and Western Europe to the Asia Pacific. From a macro-economic perspective, five years ago, people seemed very certain about the way in which Asia was going to develop. China was always going to grow in leaps and bounds. However, what was perhaps an unexpected development is the incredible growth of India. An economically powerful India is making the region more influential than anyone could have foreseen. Economists are redoing their forecasts for Asia. India and China, coupled with established tigers of Asia - Japan, Korea, Taiwan, Hong Kong and Singapore, you can only forecast tremendous growth and opportunities for Asia. Our challenge is of course, how to harness this growth. I would now like to turn your attention to some of the specific growth areas and offer some ideas on how to harness this growth.

3 3 Slide 2 Routing Intra-Asia Traffic via the US slide : 100% of intra-asia traffic via US 70% Now: estimated 30% of intra-asia traffic via US Where is the Growth in Asia? IP Six years ago, 100% of IP traffic between countries in the Asia Pacific was transmitted via the US. Now, only 30% of intra-asia traffic is transmitted via the US. And what s interesting though is finding out what drives these traffic flows: It s broadband penetration. Broadband access speeds. Lower costs of intra-asian bandwidth. Applications which are bandwidth intensive. But most importantly, the development of local content.

4 4 If we turn our focus to the slide, the traffic flows are consistent with what you would expect to see with Asia moving from an outpost of the US to becoming an autonomous IP region. In addition, there is scope for the existing 30% of intra- Asia traffic being transmitted via the US to decrease further. Slide 3 So What Does This Mean? slide 3 IP network with regional strength You will require: 1. Your own IP backbone, or 2. A partner with a very strong regional IP network So what does all this mean? It means that delivering IP traffic with regional strength within Asia is key. You will either need your own IP backbone or partner with someone who has a very strong regional IP network.

5 5 Slide 4 Broadband Penetration by Region slide 4 Share of Broadband Lines Americas 24% Asia Pacific 44% EMEA 32% Source: Point Topic, 2004 Broadband There is no doubt that residential broadband has been and will continue to be a key driver of regional and international IP traffic. Broadband, and its faster always-on connections, is serving to accelerate the process of integration of Internet technologies into everyday life. With approximately 45 million broadband lines, the Asia Pacific region has more broadband connections than any other region. In addition, countries such as Korea, Hong Kong, Taiwan and Japan lead the world in terms of broadband penetration and the development of broadband applications.

6 6 You can see from the graph on the screen that South Korea has a broadband penetration rate of 23%, Hong Kong has 18% penetration, Taiwan - 13% and Japan has 11% penetration. This is before you take into account the potential of the region, keeping in mind that some of these countries have not yet really commenced their broadband ramp-up. Countries such as China, India, Indonesia, Thailand and Malaysia have outstanding potential. These countries have broadband penetration rates of less than 1%! It is interesting to look a little closer at China because although it has low broadband penetration, it ranks third globally in terms of number of broadband lines with 13m connections. In the second half of 2003, China had the world s largest percentage increase in broadband lines, recording a staggering 70% increase in connections! No doubt there are opportunities.

7 7 Slide 5 Broadband Pricing and Download Speeds slide 5 China Korea Taiwan Japan $24 $35 $36 $36 2M 8M 3M 45M India HK $36 $51 Malay. 0.06M 6M $26 Philipp. 0.5M $50 Sing. 0.3M $ M Aust. $88 1.5M $45 3M $35 1.5M $34 1.5M UK $67 1M Ger. $69 France 2M $48 1M REACH research typical residential broadband packages, April, 2004 Broadband Pricing and Download Speeds When people talk about broadband they talk about monthly charges for packages, but this is only one part of the equation. The other part of the equation is access speeds. Let s look at the US approx US$35 per month will get you 1.5M. In the UK, US$67 per month will get you 1M and in Germany for US$69 per month you will get 2M. If we look at Asia, we have a wide range of packages India for US$36 per month you get 64k. At the other end of the spectrum there is Japan with significant download speeds at a very low price US$36 a month for 45M, and in Korea US$35 a month for 8M.

8 8 Many of the markets in Asia have download speeds that are significantly more than in the US and Europe. The reason this is so significant is because as broadband prices are driven down access speeds become an important differentiator. The higher the access speeds are in a market, the more traffic, and therefore the bigger the internet backbone needed to service these markets. Slide 6 So What Does This Mean? slide 6 Key Drivers: Mature markets are driven by access speeds Developing markets are driven by growth in subscriber numbers Strong IP delivery strategy What does this mean? Growth in mature markets is driven by access speeds whilst for developing markets, the key growth driver is subscriber numbers. Access will drive international capacity requirements, and, again the ability to deliver IP traffic across the region. Growth can be realised but you will need to have a strong IP traffic delivery strategy.

9 9 Slide 7 Content slide 7 Source: Gartner, 2004 Content What s also important to consider with broadband penetration rates and access speeds is the content and how this is a driver for traffic flows within a country, regionally and internationally. If you look at this slide you can see that while overall capacity demand continues to grow significantly, demand for capacity used for mission critical applications is growing at a slower rate about 50%. This tells us that a majority of the growth is driven at the consumer-end from basic access to voice to accessing an ever-increasing variety of entertainment and personal communication. However, while less growth is driven from mission critical, 50% more capacity per year is still a fairly solid number. If we take a closer look at where this growth is coming from it is the bandwidth hungry applications such as IPTV, webcasting and gaming.

10 10 If we look specifically at gaming. The Asia Pacific online gaming market is expected to grow at a compound annual growth rate of 19% to record US$1.84b in subscription revenue in These online gaming applications are incredibly bandwidth intensive and will continue to drive access speeds and IP requirements. There is no doubt that content in Asia is becoming more and more customized. If we look to the future, it is hard to overlook the potential of the Indian broadband market. In time, with the development of its broadband infrastructure, combined with the country s local content such as Bollywood and cricket, a massive population, and it is not hard to see that there are significant growth opportunities. But, in order to provide Asian customers with access to localized content you will need either a well connected regional IP network or access to a well connected regional IP network. You can now see how broadband technologies, their speed and penetration rates, are also influenced by the accessibility of content whether it be local, regional or internationally.

11 11 Slide 8 IPVPN slide 8 Revenue: 27% CAGR through 2007 Links regional hubs with thin routes Brings new customers (SMEs) to data networking US$M 1, IPVPN Now lets touch on data networking and some of the changes and opportunities we can forecast for Asia. According to Gartner, among the major data networking products IPL, ATM, Frame & IPVPN, only IPVPN shows significant revenue growth potential in Asia over the next few years. IPVPN s compound annual growth rate is expected to be approximately 27% over this period (from now until 2007). It is also worth noting that the product is still early in its life cycle and there is certainly a need for more end user education about IPVPNs value and suitability for applications.

12 12 In a recent end-user survey of over 200 telecom professionals within Asia, 45% were planning significant increase in IPVPN usage and over 70% planned at least some increase in usage. The survey also revealed that there was little enthusiasm for expanding Frame Relay networks. There will also be significant take-up of IPVPN from the growing number of Asian SMEs who will jump straight into data networking using IPVPN as the technology just as Frame Relay was initially expected to see customers migrate from IPL when, in fact, it brought data networking to a larger base of customers. In addition, some of the biggest opportunities for IPVPN may be in connecting regulated markets within Asia, with hub locations such as Singapore & here in Hong Kong. Currently with the varying licensing situation in Asia from fully regulated or closed markets to areas of intense competition building full, seamless data networking solutions can be a challenge. IPVPNs (whether they be CPE or network based) could be the service which bridges the gap.

13 13 Slide 9 So What Does This Mean? slide 9 You will need to offer IPVPN or find a partner who can Develop a migration path for Frame Relay So what does this mean? It means that if your customer base consists of corporates and SMEs, you will need to offer IPVPN or find a partner who can. You will also need to develop a migration path for Frame Relay.

14 14 Slide 10 Mobility slide 10 China 1.2 billion people 20% wireless penetration Top 5 Country China USA December 2003 Subscribers 257.5m 157.3m Japan 79.8m Vietnam 85 million people 4% wireless penetration Indonesia 200 million people 3-4% wireless penetration Germany Italy Top 5 Country 62.3m 55.5m December 2009 Subscribers China 547.3m USA 223.9m India 116.6m India 1 billion people 3% wireless penetration Brazil Japan 106.1m 103.1m Source: EMC, 2004 Mobile Let s not forget the mobile opportunities - and there are many. According to a recent EMC report, by 2009, Asian countries will make up three of the top five countries in terms of mobile subscribers. Let s look at India for example. India is currently the world s 13 th largest market. It is forecast to quadruple in size to take third place with 117 million subscribers by The country is currently adding approximately 2 million subscribers a month!! Then you have countries like Vietnam with 85 million people and Indonesia with

15 million. These countries have very low penetration rates and plenty of potential. Growth is one thing, what is also important is that in Asia most people have never had fixed line telephony and are going straight to the latest wireless and internet services. As wireless and internet technologies converge opportunities will continue to emerge. We are already seeing the beginnings of this with the enormous number of SMS messages sent in Asia. In fact, Asia generated a massive 400 billion text messages last year, with an average of 68 text messages per month per mobile user (TMG research). In fact, Singaporeans are the SMS world champions. Singaporeans sent an average of 200 text messages per month, edging out the 196 sent on average in the Philippines. With the deployment of 2.5 and 3G technologies this is set to continue. These applications are bandwidth hungry and the networks supporting these applications will be required to handle voice, real-time data transmission, photography and electronic wallet functions. It should be obvious therefore that Quality of Service for convergence will evolve far beyond the traditional demands of the network. What does it mean: This is good news if you are a mobile service provider. If you are an international fixed line player, you need to look for ways your network & expertise can complement the needs of the mobile industry. So just to recap, some of the key drivers in Asia are IP, broadband, the development of content, IPVPN and mobile, and yet there are still many more such as VoIP, WiFi, Storage Area Networks and Optical bandwidth services but

16 16 sadly, we don t have time to cover them. Hopefully, with the ones I have shared with you today will give you a taste for the kinds of opportunities which exist in our region and industry. As you know, Asia is a wonderfully diverse, cultural and complex region and whilst it s easy to paint all the markets within Asia with the same opportunity brush, there are significant differences. With that in mind, if thought it would be useful to quickly look at some of the key geographic markets within Asia and their specific opportunities. Slide 11 China: The World s Workshop slide 11 Per 100 of population Color TVs *Computers Internet users Mobile-telephone subscribers Landline telephone subscribers Automobiles Source: Forecasting International Ltd. and The World Factbook, 2003 China has become the world s workshop. Let me give you some statistics: Over the past 25 years, its gross domestic product has expanded at an average of 9% a year.

17 17 Growth in foreign trade has averaged 15% annually since China s trade surplus with America is now twice the size of Japan s trade surplus with the USA. Every week, more than $1 billion US dollars of foreign investment flows into China. This all shows the global integration of China s economy, now the sixthlargest in the world with GDP of $1.4 trillion US dollars. If we take out the crystal ball, Goldman Sachs predicts that by 2040 China will overtake America as the world s biggest economy. If we look specifically at the telecommunications industry in China: Data revenues are projected to maintain a CAGR of over 17% through to International capacity allocated for internet access out of China has grown from 15Gbit/s in 2003 to over 42Gbit/s at the mid point of All this with an Internet user penetration of just 7% and a Broadband penetration of just 1%. So while the capacity requirements have driven impressive network growth, these numbers indicate a huge remaining upside when you consider the country s relatively low broadband penetration. China is one of the great growth opportunities in Asia and the World.

18 18 Slide 12 India: Offshoring Centrepiece slide 12 GDP Growth in India, % real change pa Year Population Literacy Internet penetration 1.05 billion 59.5% 1.7% Source: Asian Development Outlook 2004 Let s now turn to India. Again we see tremendous growth. India is growing by 8% a year. Last year the Indian stock market recorded its biggest annual rise in 12 years. Looking forward, Goldman Sachs suggests that over the next half century, India will continue to enjoy average annual growth of more than 5%. If they do this, by 2032, India s GDP will be bigger than Japan s. As most of you are aware, the Indian economy is being fuelled by a thriving business processing outsourcing industry. In 2003, this is estimated to have earned India $2.3 billion US dollars. It is also interesting that this represents some 80% share of the global market for outsourcing, according to Gartner. If we look specifically at the telecommunications industry. Like China, data service revenue is set to grow at over 17% per annum through 2008 and possibly even faster as de-regulation takes hold.

19 19 Current capacity constraints will ease with the new cable systems scheduled for completion over the next few years. While this may serve to drive down prices, it will also spur demand growth, particularly for IPVPN services. This is due to the fact that India has a lot of new users, many of whom are from the BPO sector, who will bypass old technology and go straight into advanced technologies. Slide 13 Asia-Pacific Revenue Projection slide China, 11% India, 8% Others, 81% China, 15% India, 12% Others, 73% Source: Gartner Other Markets But, you should not walk away from this presentation thinking that the only growth markets in Asia are China and India. The charts that you can see in this slide clearly highlight that there are also many other opportunities outside of India and China.

20 20 Markets such as Japan, Korea, Taiwan - with their growing gaming and IPTV applications - and Singapore being the front office for many companies as they outsource to India. As well as developing markets such as the Philippines, with its developing call centre businesses, plus Thailand, Malaysia, Indonesia and of course Vietnam, which is just starting to develop as a BPO market. Slide 14 Harnessing the Potential slide 14 Understand your strengths and weaknesses Look for common elements in the growth areas Match your capability to the opportunities Balancing time to market with insourcing or finding a partner Harnessing Potential As I have mentioned, there are many different growth options across many markets, products and technologies. It s easy to become overwhelmed by the seemingly disparate opportunities and get caught up in hyped statistics. So how do you harness these opportunities? By keeping things SIMPLE. Being clear and about your customer segment, focusing your business on your identified customer segment and possessing a detailed understanding of their

21 21 needs and wants, and then matching those requirements with your identified strengths and capabilities. One thing I hope has become apparent to you during this presentation is how incredibly diverse Asia is. The opportunities and the customers are diverse diverse in their reach, product and service requirement. It will certainly be a challenge for any provider to be able to meet all the requirements without some form of investment and time for development. This then presents the next challenge time to market. You can most certainly insource and build the capability, or perhaps this is when you may consider using a partner. A partner that already possesses the strengths that will help you address your weaknesses or service gaps. The next challenge then becomes, what do you look for in that partner.

22 22 Slide 15 What customers will expect slide 15 Era of specialization and customization Customers will expect always on connectivity Little tolerance for outages or delays Customers will expect you to manage and integrate seamlessly with your partner What customers will expect We are entering an era of customisation and specialization. In order to really satisfy your customer needs, you will need to be either a specialist in serving a particular geographic market or a particular application. New technologies and the convergence of mobile and data are developing at such a rapid rate that customers now expect always on connectivity wherever they are. This means that there will be little tolerance for outages or delays. For example, when I travel I always check ahead to see whether the hotel that I am staying at and now expect that all airports will have WiFi access. Call me demanding? Maybe I actually believe my standards are increasing in line with the industries development.

23 23 As a result of this, customers will not expect you to own your presence everywhere in fact, they are very accepting of the fact that you may have to use partners in order meet their requirements of seamless coverage and time to market. But, in return for this, they will expect the best in quality, reach and response. They will expect you to manage and integrate seamlessly with a partner and provide them with seamless connectivity and service. The focus will not be on owning the network, but rather owning the customer relationship and forming a bond with a customer where that customer trusts you to deliver with confidence. When identifying a partner your selection should not be based just on the product/network/feature mix, it should also be about how well your business can integrate with that partner from a customer and service perspective.

24 24 Slide 16 What to look for in a Partner? slide 16 The right partner should: Help provide seamless integration Complement and enhance your service portfolio Understand the market Match your customer s requirements Help you grow your business The right partner should: 1. Help provide seamless integration. 2. Complement and enhance your service portfolio. 3. Understand the market. 4. Match your customer s requirements. 5. Help you grow your business. So in closing, I have outlined many opportunities for our region and for our industry and I hope you find them equally exciting and challenging as I do. The key to success for all of us will be how focused we are in servicing our targeted customers.

25 25 Customers will demand the best quality, reach and response, and you may not be able to provide this by yourself in every location. Your success will therefore depend upon your ability to manage and seamlessly integrate with your partners. So a lot will rest on your ability to select and manage the right partner and I wish you all the very best in that endeavour. Slide 17 THANK YOU.