Collective Industry Findings from the CEO Roundtable on Broadband Investment to Sustain Internet Growth

Transcription

1 BUILDING THE EUROPEAN DIGITAL INFRASTRUCTURE 2011 CEO ROUNDTABLE: ONE YEAR LATER Collective Industry Findings from the CEO Roundtable on Broadband Investment to Sustain Internet Growth GABRIELLE GAUTHEY, EVP ALCATEL-LUCENT 20 June 2012 COPYRIGHT 2011 ALCATEL-LUCENT. ALL RIGHTS RESERVED.

2 CROSS-INDUSTRY CEO INITIATIVE HOW TO ADDRESS BB INVESTMENT CHALLENGES (3/03/11 13/07/11) Change ahead needed! Need for 200 B investment in a context of Declining revenues of Service Providers Changing business models with Over-The-Tops European Commission VP for the Digital Agenda Neelie Kroes New approach beyond existing initiatives scope Inclusive: Not a carrier-centric initiative but an industry-wide effort embarking all ecosystem parties Executive led: 2 CEOs meetings in Brussels hosted by the Commissioner Forward looking: Embracing and driving change towards a new crossindustry standards use rather than preserving status-quo From 3 working groups to CEOs 11 proposals Wg1 -«New business models for Internet development» Wg2 -«Technical Framework for Digital Delivery - Interoperability and Standardization» Wg3 -«Investment framework and financing sources to foster NGA roll-out» Objectives were to find the NGA dynamics which will foster investment and help Europe in reaching the Digital Agenda broadband targets by COPYRIGHT 2011 ALCATEL-LUCENT. ALL RIGHTS RESERVED.

3 Participating companies Akamai, Alcatel-Lucent, Amazon, ARD/WDR, BBC, Belgacom, Bertelsmann AG, BT, Cisco, Cogent, Deutsche Telekom, ebay, EIB, Ericsson, Facebook, Fastweb, Google, Mediaset, Microsoft, Netlog / Massive Media, Nokia, NSN, Orange, Prisa, RIM, Samsung, Sony, Sony Music, Telecom Italia, Telefonica, Tel, a Sonera, Virgin Media, Vodafone, Voddler, Wind, Vivendi, Fnac.com, Skype, Apple, BSkyB, Eircom, Exalead, Free Iliad, Level 3, News Corp, Spotify, Tele2, Zed, TVN, Sigma TV

4 THE CONTEXT IS CHALLENGING DATA EXPLOSION, SUPPLY SIDE, POSITIVE ROI DEMAND SIDE IS IN CONTROL THIS IS VERY DEMANDING Smart phone density From 400 to 12,800 per km2 in 2016 Mobile data traffic x 25 times over Data over mobile 70% of networks traffic by 2016 (WIRELESS) SUPPLY IS CHALLENGING OPERATORS ARE LOOSING VALUE Less revenues for more investment required : how to unlock the network value to meet the user demand? 4 COPYRIGHT 2011 ALCATEL-LUCENT. ALL RIGHTS RESERVED.

5 NGA ROLL-OUT WALL OF INVESTMENT, EU IS LAGGING BEHING North America 65% 10-30% Europe 35% 5-10% China (2011) : 38 M FTTx subs FTTH Forecast : 80 M homes passed end M homes passed end 2015 U.S. (2012) : 8 M subs 22M Home passed Japan - Korea 80% >40% World, 2010 Legend Homes passed Homes connected North America and Asia-Pacific have taken the lead of NGA networks deployment 2 Source: Arthur D. Little, Exane BNP Paribas, Analysys Mason, IDATE Note 2: NGA includes wireline technologies providing ultra fast broadband (all FTTx technologies and DOCSIS 3.0)

6 CROSS-INDUSTRY CEO INITIATIVE 11 INDUSTRY PROPOSITIONS RIGHT ENVIRONMENT NET NEUTRALITY EUROPE NEEDS HEALTHY COMPANIES WILLING AND CAPABLE TO INVEST Scale and specialisation are overall market trends There should be one binding European framework SUSTAINABLE BUSINESS MODELS AND EFFICIENT USE OF SCARCE RESOURCES Fostering traffic management differentiation (while securing Best Effort) Business models could be two-sided, based on commercial agreements INVESTMENT MODELS MARKET FOR NGA WILL BE DIFFERENTIATED BASED ON LOCAL CIRCUMSTANCES In areas with no infra-competition, co-investment models will be promoted Roll-out context improvement with demand stimulation, de-risked investment and reduction of roll-out costs 6 COPYRIGHT 2011 ALCATEL-LUCENT. ALL RIGHTS RESERVED.

7 MIX OF TECHNOLOGIES TO MEET DA TARGETS FTTX FOR COST-EFFECTIVE AND QUICK ROLL-OUTS CAPEX (index) Source: Alcatel-Lucent PON/P2P 100+ Mbps VDSL2 Bonding Mbps FTTH ADSL Mbps co FTTA LTE 30 Mbps FTTN VDSL Mbps VDSL Mbps FTTx fiber investment can be leveraged for FTTH FTTB/Curb Vectoring Mbps Vectoring Mbps FTTB/Curb VDSL Mbps 1 0 Access HW ADSLx CO CPE FTTN VDSL2 MDU cabling FTTB (apartment building) Cabinet FTTH (single house) Civil works Fiber All technologies (LTE included) require fiber deep in the network Ensure Active infrastructure-based competition 7 COPYRIGHT 2011 ALCATEL-LUCENT. ALL RIGHTS RESERVED.

8 NGA ROLL-OUT INVESTMENT MODELS Investment needed Payback End-user Services, Content & Apps (residential, public & business) Active Network (network equipments, business & operation support) Passive Infrastructure (trenches, ducts, fibre) 20% >200 B 80% Few m-3y 5-7y 15-25y Different optimized financial instruments per layer May require innovative investment models

9 NO FIT BETWEEN INVESTMENT PROFILES AND NGA OPPORTUNITIES ROI Lack of investment in NGA networks Telecom Operators Infrastructure Funds High risk : No focus on Telecom Wait and see Insufficient ROI: Cherry picking Digital Gap Wait and see NGA roll out Risk Solution calls for: CAPEX reduction to increase ROI, lower risk via long-term usage contract

10 TELECOM INDUSTRY DOES NOT SEEM TO FULLY MEET THE REQUIREMENTS OF INFRASTRUCTURE FUNDS Conditions for infrastructure funds to invest Investors seeking exposure to a periodic, stable and guaranteed cash flows Indication of sectorial funds focus over the next two years very low very high Need for a regulated market with contained competition and strong barriers to entry Necessity to make investments fit with infrastructure funds risk profile: Advocate for separation of passive layer vs. active and retail to lower risk on the passive layer part Guarantee of a single fibre network in case of operating cable operators and a maximum of two fibre networks in a given area where there is no cable operators Participation of the incumbent in the Netco 1.Energy 2.Roads 3.Rail/Metro 4.Ports 5.Airports 6.Water 7.Waste 8.PPP/PFI 9.Telecoms 10.Infrastructure services Source: Contribution, Deloitte 2010, Arthur D. Little

11 NON-LISTED INFRASTRUCTURE FUNDS: 41 B SINCE ,2 13, ,3 10 4,4 4, , ,9 0, Nombre de Fonds levés / en levée Montant total levé / en levée (Md$) Source: Preqin Many Infrastructure funds are available

12 NGA INVESTMENT MODELS MAIN OUTCOMES Local circumstances will prevail for NGA roll-out No One-size fits all In some areas, infrastructure competition already fierce (presence of cable operators) will lead to mixed FTTx access technologies (fibre closer to end-user premises) In policy-driven areas, public intervention will be required - Solutions should not only be built on geographic segmentation but also with a layered approach, allowing co-investing models and use of derisking financial instruments In all areas, Mobile demand is also driving progressive migration towards fibre backhauling Intervention from long term investors would be a key enabler to improve current NGA roll-out dynamics