The State of African FTTH Tuesday November 16th Produced in Association With

Transcription

1 The State of African FTTH Tuesday November 16th 2017 Produced in Association With

2 Speakers Guy Zibi Managing Director, Xalam Analytics Iain Morris News Editor, Light Reading, for Connecting Africa

3 Agenda Introduction FTTH in Africa the Connecting Africa view How last-mile fiber is transforming the African broadband market the Xalam Analytics perspective including a comparison of different broadband access technologies, a look at whether fiber is really needed in Africa, the deployment contexts and the major players Q&A questions from the audience

4 The Connecting Africa view Africa still accounts for a tiny percentage of global FTTH connections (less than 1% last year), but there are hotspots of FTTH activity While income disparities are a barrier to FTTH expansion, some innovative approaches have made headway and several governments are also funding FTTH projects The take-up of higher-speed data services and growing interest in the cloud could spur FTTH deployment in some communities If the economic (and regulatory) challenges can be addressed, the market could develop rapidly; otherwise, the concentration of FTTH networks in city centers is likely to fuel the growing concern about Africa s digital divide

5 THE STATE OF AFRICAN FTTH HOW LAST MILE FIBRE IS TRANSFORMING THE AFRICAN BROADBAND MARKET A XALAM DIGITAL ANALYTICS PRESENTATION NOVEMBER 16, 2017

6 This is about the last mile The Multiple Facets of African Fibre Today s Focus International Terrestrial Backbone Metro Fibre FTTS FTTC FTTH/P FTTB *FTTS Fibre to the Site; FTTC Fibre to the Curb/Cabinet; FTTB Fibre to the Building *Subsequent references to FTTH/P in this presentation refer predominantly to the GPON variant. Source: Xalam Digital Analytics Research 6

7 We are witnessing a race to conquer the African digital home The Drivers Addressing the Home Connectivity Shortage Rising middle class Expanding video content options A shortage of affordable highbandwidth options for home connectivity Home connectivity remains a highly understated shortage in African ICT markets ADSL: too expensive and/or not good enough Mobile broadband great for smartphones, not so much to watch Netflix VSAT, WiMAX limited, expensive options 7

8 Homes/Premises Passed by FTTH/P The pace of FTTH deployments has accelerated Map View FTTH Deployment Status in Africa Africa Homes/Premises Passed by FTTH 2.50 It took ~6 years to hit the 1m threshold; it will take ~2 years to get to the 2m mark More FTTH/P premises passed added over the over the period - than over the previous 10 years combined Central Africa East Africa North Africa Southern Africa West Africa Source: Xalam Digital Analytics estimates Homes/Premises passed: premises that are ready for service; a short link can be connected to the premise upon order. Source: Xalam Digital Analytics estimates 8

9 African FTTH in context small, but growing fast Africa Broadband Connections by Access Technology Type 2017 Forecast Mobile Broadband ~260m 4G ~40m Fixed Broadband ~12m xdsl ~10m FTTH/P ~650k Source: Xalam Digital Analytics estimates 9

10 Exploring Critical Questions 1. Is FTTH/P a luxury for African markets? 3. Is there enough addressable demand to support FTTH/P in Africa? 5. Who is leading the FTTH/P race? 2. Which markets are most ripe for FTTH/P growth? 4. FTTH/P vs. ADSL, 4G Complementary, or substitutive? 10

11 Is African FTTH a luxury? Part 1 The Case Against African FTTH/P Rollout costs are high This is a sample text. Regulatory barriers are considerable Market structure, rights of way, building codes, etc. Africa is a predominantly wireless market Risk of Gigabit LTE, 5G superseding fibre The FTTH/P demand pool is not large enough 11

12 Which markets are most ripe for FTTH/P growth?

13 Market and regulatory structures are fundamental to FTTH upside FTTH/P Market Structures The African Way LAYER 1 PASSIVE INFR. (Fibre ducts, etc.) GOVERNMENT-DRIVEN LAST MILE NATIONAL BROADBAND NETWORK (NBN)* EXTENSIVE WHOLESALE & UNBUNDLING REGULATIONS TO COMPEL INFRASTRUCTURE SHARING AT LAYER 2 AND 3 INDEPENDENT, LIGHTLY- REGULATED WHOLESALE MARKET ( LAYER 1 AND LAYER 2) NO EXPLICIT UNBUNDLING REGULATIONS ON FTTH INTEGRATED PLAYER FTTH BUILD-OUT THE ISP BUILDS ITS OWN FTTH INFRASTRUCTURE, CONTROLS THE ENTIRE VALUE CHAIN LAYER 2 - ACTIVE INFR. LAYER 3 - Bitstream services RETAIL BROADBAND ISPs RETAIL BROADBAND ISPs RETAIL BROADBAND ISPs EXAMPLES Source: Xalam Digital Analytics Research 13

14 For the most part, suboptimal market conditions to drive FTTH growth Map View by Type of Market/Regulatory Structure Distribution of African FTTH/P Connections by Type of Market Structure Lightly Regulated Wholesale 35% LLU - Heavily Regulated 3% Integrated Telcos/No Sharing 62% In most African markets, there is no external stimuli to roll out FTTH; It s up to individual market players to determine whether the timing is right and whether they have the capital to do it; Compounds the market s challenging economics in holding back growth; Only ~10% of markets are in expanding/accelerated mode for FTTH deployment many telcos are just holding off; Absent an exceptional grassroots, demand-driven effort, it s unlikely that even South Africa would have picked up. Based on estimates and definitions by Xalam Digital Analytics; Based on data as of September 2017 Source: Xalam Digital Analytics Research 14

15 Is there enough demand for FTTH/P?

16 Finding the African FTTH/P Addressable Market Who Gets Fibre? Traditional Target Market Segmentation 2 Priority 2 Office Parks/Central Business Districts/Foreign Institutions, Embassies Urban SMEs, Branch Offices Urban Residential Estates/Gated Communities Urban Institutions, Education, Government Urban Households & SOHOs Popular Residential Neighborhoods Rural Businesses/ Remote Offices Rural Residential Corporate customers and/or mid-sized companies located in the midst of urban areas, or in gated office parks Small businesses and corporate branch offices in urban/suburban neighborhoods, Residential households in gated estates or communities Government offices, Academic Institutions located in populated urban areas Residential households in non-gated communities; typically middle income Lower Income Households in densely populated urban areas SMEs and small branch offices in semi-urban or rural areas Residential Households in semi-urban or rural areas 1 Priority 1 3 Priority 3 Only South Africa and Mauritius have reached this phase Deployment Costs Low High 16

17 Challenging the Existing Model: The Vumatel Gamble THE COMPANY Vumatel a pioneer South African independent FTTH infrastructure provider; South Africa s second largest FTTH/P provider (after Telkom SA) in terms of homes passed. THE PLAN To offer 100 Mbps FTTH/P in the South African popular, lowincome township of Alexandra; Target price of ~ZAR 89/month (~USD $7); ~60k homes passed targeted by Q1 2018; Aerial fibre (no digging), ~20 to 1 contention; SA mobile data ARPU is ~$4-$8 a family of 3-4 would be able to afford the service THE IMPACT The conventional wisdom holds that there is no economic viability for FTTH in such a low-income neighborhood (see previous slide); Would capture some mobile data revenue upside; Can transform the African FTTH narrative and the rich-poor FTTH divide; Impossible? Mobile prepaid was invented in South Africa. Source: Vumatel interview with Techcentral.co.za Alexandra, Johannesburg Photo Credit Techcentral.co.za 17

18 FTTH/P vs. ADSL, 4G

19 3G/4G Availability/Penetration Looking for the FTTH upside Migration, leapfrogging, and incumbent resistance Africa FTTH Attractiveness Matrix The ADSL and 3G/4G Factors ADSL Availability/Penetration Low High Fixed Broadband Penetration of 90% Urban Population 80% 70% Mauritius Low Weak Demand - Leapfrogging to FTTH Migration to FTTH Egypt 60% 50% 40% Algeria High Strong Demand - Leapfrogging to FTTH Migration to FTTH 30% Morocco Tunisia Namibia Broadband Penetration of -20% 0% 20% 20% 40% 60% 80% 100% Population 120% DRC Angola Nigeria Zimbabwe 10% Kenya Senegal 0% Ghana -10% South Africa -20% Significant ADSL incumbent resistance *Broadband including Fixed Broadband + 3G and 4G connections; Fixed Broadband includes discrete connections through ADSL, Fixed Wireless Access, FTTH, leased lines and VSAT satellite; all data is 2017 estimate; Bubble size indicates annual USD connectivity market size (2017F); Source: Xalam Digital Analytics Estimates 19

20 Broadband Connections - Thousands Thousands FTTH/P will replace ADSL The question is how fast Evolution of FTTH vs. ADSL in Mauritius Evolution of FTTH vs. ADSL in Cote-d Ivoire Full Cannibalization Subscribers move to fibre as soon as it s available; FTTH priced at, or below ADSL levels No credible FTTH competition + Incumbents sweating their ADSL assets = ADSL dominates; The question is whether this keeps up long term F ADSL FTTH ADSL FTTH Sources: Mauritius Telecom; CSO; Xalam Digital Analytics estimates Sources: Operators; ARTCI, Xalam Digital Analytics estimates 20

21 FTTH Penetration of FBB Addressable Our thesis Mobile broadband helps build the case for FTTH MBB Penetration vs. FTTH Penetration in 15 African Markets % 50% 40% The correlation between MBB and FTTH penetration has been low; 1 We see low to non-existent correlation between MBB uptake and FTTH uptake but it s early 30% 20% 10% While they both provide Internet connectivity, the two technologies have fundamentally different supply and demand drivers; They re complementary, rather than substitutive. 2 But MBB is nonetheless a precursor to FTTH markets with low MBB penetration typically have low FTTH penetration as well 0% 0% 10% 20% 30% 40% 50% 60% 70% 80% -10% MBB Penetration of Population 3 MBB helps build the economic case for FTTH Dots indicate penetration data in 15 African markets over period; *MBB = Mobile Broadband (3G and 4G connections); Broadband addressable market includes households able to afford $20/month connection, based on income levels + addressable business demand (formal businesses only). Source: Xalam Digital Analytics Research 21

22 FTTH outlook, winning the race, and that luxury question

23 FTTH/P Connections - million FTTH Outlook Fuzzy, yet excellent FTTH Connections in Africa 2016F 2021F > 1.5m new FTTH connections will be added over the next three years Africa to hit the ~2m FTTH connection mark in Four big FTTH wildcards: Nigeria, Algeria, Egypt, Tunisia 2015 E 2016 E 2017 F 2018 F 2019 F 2020 F The addressable market is still narrow unless Vumatel proves there s a different way; The investment climate is not positive in some critical markets; Regulatory action is largely non-existent; Any forecast highly subject to large operator decision-making and they ve been skittish on FTTH/P; But there are few better alternatives - we expect FTTH to overtake ADSL and become the primary terrestrial alternative to mobile broadband in sub- Saharan Africa by

24 Winning the race for the digital home/business Top tier telcos cannot ignore FTTH/P Top 2 MNOs Combined Share of FTTH Market in Sample Countries* 2017F 120% 100% 80% 60% Africa s largest telcos have been slow to get into FTTH; They have generally fallen behind; concerns around demand, CapEx under pressure, etc. But market structure and capital requirements suggest that they ll catch up fast whenever they are ready. 40% 20% 0% South Africa Nigeria Kenya Zimbabwe Mauritius *Share of FTTH connections held by the market s top 2 mobile operators Source: Xalam Digital Analytics Estimates 24

25 Is African FTTH a luxury? Part 2 The Case Against African FTTH/P The Case For African FTTH/P Rollout costs are high Substantial amounts of metro fibre already being built to support 4G, 5G Regulatory This is barriers a sample are considerable text. Market structure, rights of way, building codes, etc. Over the long run, ADSL will not cut it Africa is a predominantly wireless market Mobile broadband pricing will remain high for home/business usage Risk of Gigabit LTE, 5G superseding fibre 5G isn t here and will have its own issues (e.g. spectrum..) The FTTH/P demand pool is not large enough Africa will not leverage the fourth industrial revolution without FTTH/P 25

26 Xalam Digital Analytics. The answer is in the data. Xalam Analytics, LLC Part of the Light Reading Research Network US Office: 1 Mifflin Place, Harvard Sq. Suite 400 Cambridge, MA London