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Presentation to international broadband operators on the trend of broadband business
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Xiaolin Lu
TREND: Broadband Business
An Industry Perspective
August 26. 2002
What is this all about?What is this all about?
Bubble burst, led by the US communication
industry – what to do in new environment?
European has similar and also different
regulatory and business environment.
What could learn from the US?
CHALLENGESCHALLENGES
Opportunities Street
Perspectives
Technology
Innovations
Industry
Environment
Operation
Reality
Assets
Financial
Markets
Competition Regulation
TOPICSTOPICS
Industry Perspectives
Technology Platform
Operation Challenges
PerspectivesPerspectives
andand
DynamicsDynamics
LANDSCAPELANDSCAPE
TELECOM IN USTELECOM IN US
AT&T
Worldcom
Spring
Qwest
AT&T
Worldcom
Spring
Qwest
“Unregulated” “Unregulated” Regulated or
Semi-Regulated
Long-Haul Metro Access
MSO
ILEC
CLEC
MSO
ILEC
CLEC
REGULATION AND BUSINESSREGULATION AND BUSINESS
Communication
Services
Title 2
Regulation
Requirement
VOICE DATA VIDEO
Open Pipe Franchising
Business Selling Minutes Flat rate
+ Usage
Information
Services
Title 1
Content
Service
Title 6
None
Flat rate
Regulation Business Platform
HARVEST ON REGULATIONHARVEST ON REGULATION
Open Access
Regulation (intend) Harvest
Open Conditional
Access
Open platform
CPE innovation
Digital Video Full digital platform
Managed Infrastructure
Managed Services: multi-
dimension business
INDUSTRY DYNAMICSINDUSTRY DYNAMICS
Cable ILECs Other
Video Voice Data
Cable Dominates
Video Market
ILECs Dominates
Voice Market
Cable Leads HSD
Market
Competition
from Satellite
Desire for more
revenue stream
Reduced margin
on circuit sale
Desire for change
of service nature
Reduced margin on
access sale
New business more
looks like video
CHANGING PERSPECTIVESCHANGING PERSPECTIVES
Competition
Digital Technology
New revenue
VideoVideo
ProprietaryProprietary
MonopolyMonopoly
Standard based
Capture shares
Expand the pie
Managed infrastructureManaged infrastructure
Service PackageService Package
New business modelNew business model
VoIP platformVoIP platform
Vertical serviceVertical service
DifferentiationDifferentiation
DataData
AccessAccess
Flat fee modelFlat fee model
VoiceVoice
Costly Costly
propositionproposition
Reduced margin
Regulatory
Changing service
nature
VoIP possible
Opportunity to
change the nature
of voice service
REALITYREALITY
Fantasy
New technology
Sale pitch
Assets
Embedded base
Investments
Opportunity
New revenue
Competition
How to maximize operation and economic scale?
How to differentiate our business from others’?
How to evolve the business and define the future?
What technology direction MSO should direct vendors to?
How to maximize operation and economic scale?
How to differentiate our business from others’?
How to evolve the business and define the future?
What technology direction MSO should direct vendors to?
Looking Forward: Triple PlayLooking Forward: Triple Play
Video
$128B
Voice
$75B
Data
$28B
CableCable VoIPVoIP
ILECILEC SDVSDV
VDSLVDSL
Standard based equipment
IP Infrastructure
OSS/BSS
New Services
Standard based equipment
IP Infrastructure
OSS/BSS
New Services
2002
POSITIONINGPOSITIONING
Content aggregation & delivery
Service-base infrastructure
Core Competence
Expand business
Go digital
Video Change service
nature
Data
Change service
nature
Voice
INTERDEPENDENCYINTERDEPENDENCY
Regional HFC
IP – DOCSIS
Service Platforms
OSS/BSS
Vertical and horizontal interdependent
Any change at any layer or any segment will affect others
Vertical and horizontal interdependent
Any change at any layer or any segment will affect others
UPGRADE
INDUSTRY EFFORTSINDUSTRY EFFORTS
DWDM
RF
DSP
Capacity
Quality
Reliability
Open CableOpen Cable
Universal set Universal set
top boxtop box
Packet CablePacket Cable
EndEnd--toto--end IP end IP
platformplatform
Broadband Full Service Platform
DOCSIS
Cable HomeCable Home
Home Home
networknetwork N
G
C
N
Strategy
Network
System
Operation
Standards CL efforts MSO efforts
NETWORKSNETWORKS
HISTORICAL OVERVIEWHISTORICAL OVERVIEW
Class 4
Switch Class 5
Switch
SS7
Headend
FN FN
FN FN
Content Service (Title 6)Content Service (Title 6)
Selling contentSelling content
Broadcast, pushBroadcast, push--andand--pickpick
Content Service (Title 6)Content Service (Title 6)
Selling contentSelling content
Broadcast, pushBroadcast, push--andand--pickpick
Communication Service (Title 2)
Selling connection
Circuit, connection orientated
Communication Service (Title 2)
Selling connection
Circuit, connection orientated
Telco
Cable
LD
Internet
OPTIONSOPTIONS
LEC
Narrowband
Switched DLC
Rebuild
Network Upgrade
Cable modem
Deep Fiber Deep Fiber
PenetrationPenetration
Wireless
Mobility
Broadband
Cable
Broadband
Broadcast
FTTH
Photonic Moore’S LawPhotonic Moore’S Law: Unlimited: Unlimited
0.1
1
10
100
1K
10K
1985 1990 1995 2000
Year
Ca
pa
city (G
b/s)
TDM Commercial
WDM Commercial
TDM Research
WDM Research
DWDM Price Performance
0
200
400
600
800
1000
1200
1400
1996 1997 1998 1999 2000 2001
Year
Gb
ps
$0
$50
$100
$150
$200
$250
$300
$350
$/G
bp
s/K
m
Capacity Cost
Photonic Moore’S LawPhotonic Moore’S Law: Positive Trend: Positive Trend
DWDM IN CABLEDWDM IN CABLE
0
20
40
60
80
100
120
96 97 98 99 00 01 02
1
10
100
1000
10000
100000
1.5 Xmod EDFA DWDM HHP
Year
Co
st D
eclin
e %
HH
P/W
ave
le
ng
th
CABLE NETWORK EVOLUTIONCABLE NETWORK EVOLUTION CABLE NETWORK EVOLUTIONCABLE NETWORK EVOLUTION
Demand
Take Rate
Applications
User Behavior
Demand
Take Rate
Applications
User Behavior
Ban
dw
idth
per
Cu
sto
mer
Push Fiber
Deeper
Push Fiber
Deeper
Split Nodes Split Nodes
Higher RF
Efficiency
Higher RF
Efficiency
Time
HE/Hub FN
CO/HE RT
RT
RT
HFC
Migration
Switched
Structure
Cell-Bus
Volume
switching
Multi-stage
star
Predefined
PTP BW &
connection
switching Segregation
Aggregation Segregation
Aggregation Aggregation
Aggregation
It’s all about resource sharing through multi-stage
aggregation and segregation
Different cost structure, different efficiency
It’s all about resource sharing through multi-stage
aggregation and segregation
Different cost structure, different efficiency
NETWORK RATIONALITYNETWORK RATIONALITY
APPLICABILITYAPPLICABILITY
Switched
“Overlay”
Residential SOHO Large Business
HFC
Migration P
lug
-in
HE
HE
HFC IN THE MAKINGHFC IN THE MAKING
HE Primary
Ring
Primary
Hub
FN
FN
Broadcast Multi-Service
Segmentation
4X capacity
HFC IN THE MAKINGHFC IN THE MAKING
SH
SH
SH Primary
Ring
Primary
Hub
FN
FN
DWDM Transport
End-to-end Transparency
OXiomOXiomTMTM
CMTS
PH
mFN mFN
mFN mFN
mFNs replace all coax amplifiers Less active components
More bandwidth and flexibility
Deep fiber penetration with cell structure
Optical add/drop to daisy chain mFNs Reduced fiber management & labor
Provisioning for growth
Distributed processing at mFN
SH
SH
SH
XTR XTR XTR
WDM PON
S
Network Buildouts Network Buildouts -- CableCable
0
5
10
15
20
25
30
Ho
me
s (
Millio
ns
)
AT&T AOL-TW Comcast Charter Cox Adel Cblvsn Rogers Mcom Insight Classic
2-Way Homes Homes Not Upgraded
Source: Kagan
105.4M TV HH, 72.95M Cable HH, 69.2%
NETWORK MIGRATIONNETWORK MIGRATION
Continually improve current HFC capability DOCSIS 2.0 and beyond
Optimization of network architectures for opex reduction
Investigating new architecture for more flexibility and scalability New build
Expansion
Single platform, Core competence, Lower Capex and Opex
VIDEOVIDEO
5
59
30
89
22
45
25
70
36
82
106100
111
0
10
20
30
40
50
60
70
80
90
100
110
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Total Households
Analog Only Houses
Total Digital
Digital Cable
Satellite Digital
Analog Only
VIDEO: GOING DIGITAL!VIDEO: GOING DIGITAL!
Source = Kagan 2000 Databook
Today
DIGITAL CABLE SUBSCRIPTIONDIGITAL CABLE SUBSCRIPTION
0
5
10
15
20
25
4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Cablevision
Cox
Adelphia
Charter
Comcast
AOL TW
AT&T
00 01
Millio
n
Source: UBS Warburg
US CABLE DIGITAL PENETRATIONUS CABLE DIGITAL PENETRATION
0
5
10
15
20
25
30
35
40
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
% o
f B
asic
Su
b
00 01 02
Source: UBS Warburg
STRATEGIES
“Video”
“Video”
Growth
Strategies
Expand Expand
“Video”
Pie
Capture Capture
“Video”
Share
Recapture DBS Subs
Increase Subscription Rev$ Increase Subscription Rev$
Recapture Tape Rental
Get Ad Share From B’Cast
Own The Content
Non-TV Ad Market
Get Paid To Carry Content
Transaction Revenue
PRODUCT EVOLUTIONPRODUCT EVOLUTION PRODUCT EVOLUTIONPRODUCT EVOLUTION D
igit
al P
en
etr
ati
on
VOD VOD
Digital Plus Digital Plus
Digital Basic Digital Basic
Time
Extended VOD/PVR Extended VOD/PVR
ITV ITV
HDTV HDTV
Reduce churn Reduce churn
More revenue opportunity More revenue opportunity
INTERACTIVE TV MARKETINTERACTIVE TV MARKET
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2001 2003 2005 2007 2009 2011
Interenet TV
Direct Response
Internet Portals
IPG
VOD
T-Comm
$M
Source: Kagan
CONTENT DISTRIBUTIONCONTENT DISTRIBUTION
HE HFC Network
Regional
Network
CPE
DMC
Post production
Aggregation
1st level distribution
Post production
Aggregation
1st level distribution
Store and distribution
Conditional access
Store and distribution
Conditional access
Scale Flexibility
Open, managed infrastructure
HIGH SPEED HIGH SPEED
DATADATA
HIGH SPEED ACCESSHIGH SPEED ACCESS
North AmericanNorth American
7
13
22
30
3640
4448
5156
0
10
20
30
40
50
60
70
80
90
100
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09
HP
(M
illi
on
s)
Marketed Cable HSD HP Marketed DSL HP Other Subs Total HSD Subs
Source: Kagan
SPLIT THE PIE: 2001SPLIT THE PIE: 2001
US OnlyUS Only
32%
2%
66%
Cable
DSL
Other
Source: Kinetic Strategies
CABLE MODEM SUBSCRIBERCABLE MODEM SUBSCRIBER
0
2
4
6
8
10
12
4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Adelphia
Cablevision
Charter
Cox
Comcast
AT&T
TW
00 01
Millio
n
Source: UBS Warburg
MARKET DYNAMICS OF DATA BUSINESSMARKET DYNAMICS OF DATA BUSINESS
A Land Grab For 40 Million Existing Narrowband SubscribersA Land Grab For 40 Million Existing Narrowband Subscribers
0.32
0.240.6
13.9
7.9
5.4
4.119.8
15.7
15.4
1994
$0.6 B 2002
$28 B 2007
$55 B
$5.0B
18% Cable 57% 57%
E-Commissions
Advertising
Content
Access 50% 50%
36% 36% $9.9B
18% Cable
Increasingly difficult to capture value merely with access fee
Key sources of future value in the data business Advertising
Ability to close the transaction
Data business starts to look a lot like the video business
Increasingly difficult to capture value merely with access fee
Key sources of future value in the data business Advertising
Ability to close the transaction
Data business starts to look a lot like the video business
IP INFRASTRUCTUREIP INFRASTRUCTURE
CMTS HFC Network
(DOCSIS)
Managed
IP Network
CM
OSS
Server
Farm
MPLS/VPN/BGP
Optical Networking
Advanced OSS/BSS
MPLS/VPN/BGP
Optical Networking
Advanced OSS/BSS
Many IP Technologies DOCSIS Standard
Packet Cable Standard
Standard based end-to-end solution
Operation and scalability are the keys
New business model
Standard based end-to-end solution
Operation and scalability are the keys
New business model
KEY DIFFERENCIATIONKEY DIFFERENCIATION
Managed
Network
“Carrier”
Network
Service Service ISP ISP ISP ISP
Customers Customers
Content Pipe
VOICEVOICE
Voice Isn’t What It Used To Be…Voice Isn’t What It Used To Be…
13.7
39.3 39.7
73.7
30.844.323.743.6
103
1994
$93 B 2002
$149 B 2007
$170 B
15% 15%
Residential
LD
Residential
local
Total
Cellular 50% 50% 60% 60%
Cellular has already captured 50% of the value in a decade
Cellular has blurred the traditional residential-business segmentation
The residential wireline business is under significant pressure
Cellular has already captured 50% of the value in a decade
Cellular has blurred the traditional residential-business segmentation
The residential wireline business is under significant pressure
REDEFINE VOICE SERVICEREDEFINE VOICE SERVICE
Access to voice
network (Local,
Toll, LD, etc)
Vertical Services
CallerID, VoiceMail,
Integration, etc.
Average Monthly Phone Bill: Constant
Time
$
Price competition Product Differentiation
Convenient
Lower cost
More service value
Convenient
Lower cost
More service value
Benefit to Consumer
Differentiation
Customer retention
Additional revenue
Differentiation
Customer retention
Additional revenue
Benefit to Cable
Low-cost bundled offering
Web based provisioning
Persistent voice
Low-cost bundled offering
Web based provisioning
Persistent voice
VoIP
VoIP REALITY
CMTS
HFC NIU
CM
HDT 5ESS
Router
SONET
Local IP
PSTN
Internet
Coexist NIU/HDT, CM/CMTSCoexist NIU/HDT, CM/CMTS
Existing 5EExisting 5E
Coexist NIU/HDT, CM/CMTSCoexist NIU/HDT, CM/CMTS
Existing 5EExisting 5E
Cost saving in accessCost saving in access Cost saving in accessCost saving in access Intelligent IP metro networksIntelligent IP metro networks
Classify Classify ---- PolicyPolicy
Accommodate legacyAccommodate legacy
Intelligent IP metro networksIntelligent IP metro networks
Classify Classify ---- PolicyPolicy
Accommodate legacyAccommodate legacy
Today’s ArchitectureToday’s Architecture
HFCHFC
Internet
Local IP
Network
Separate voice and data platforms sharing the same
HFC network
HE
CMTS
HDT
PSTN
SONET
5ESS
CM
NIU
Transition: IP Digital TerminalTransition: IP Digital Terminal
HFCHFC
PSTN
Internet
Local IP
Network
Integrated voice and data over HFC network
Utilize 5ESS platform for voice interconnect & features
HE SONET
5ESS
EMTAEMTA
IP
DT
Ro
ute
r
CM
TS
EndEnd--toto--End IP PlatformEnd IP Platform
HFCHFC
PSTN
Internet
IP
Network
PSTNPSTN
GatewayGateway
EMTAEMTA
Cost reduction through common IP infrastructure
New revenue with emerging IP-based services
Flexible user interfaces stimulate more creativities
Ro
ute
r
CM
TS
PH
Softswitch
VoIP Over Cable NetworkVoIP Over Cable Network
CMTS HFC Network
(DOCSIS)
Managed
IP Network
CM MTA CMS
MG
SG
HFC Network
(DOCSIS)
CM MTA
CMTS
MGC
PSTN
SS7
MS
OSS
Server
Farm
TGS
DHCP & DNS
TFTP or HTTP
RKS
Provisioning
CMS: Call Management server MGC: Media Gateway Controller
MS: Media Server MG: Media Gateway
SG: Signaling Gateway
CABLE TELEPHONY SUBSCRIBERCABLE TELEPHONY SUBSCRIBER
0
0.5
1
1.5
2
2.5
4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Cablevision
Cox
AT&T
00 01
Millio
n
Source: UBS Warburg
TRIPLE PLAYTRIPLE PLAY
Create a customer destination Reduce churn
Create differentiation
Build a common platform for innovation
and gain economic scale
Increase ARPU
Offensively and defensively change the
services/products nature
OPERATION REALITYOPERATION REALITY
OPERATION CHALLENGESOPERATION CHALLENGES
Diversed
Business
Margin
Cash flow
Operation
structures
Assets based
ARPU driven
Scale
Balance sheet
Scale and efficiency
Re-train wall street
Scale and efficiency
Re-train wall street
OPERATION STRUCTUREOPERATION STRUCTURE
-- Industry exampleIndustry example
CTO COO
East West Engineering Technical
operation
System System System System System System HFC IP Service PM NOC
Execution Platform
Centralized strategic decision
Distributed daily execution
Centralized strategic decision
Distributed daily execution
OPERATION LOGICOPERATION LOGIC
Strategy
Engineering Operation
Vendors
Business case
Guidelines
Processes
Guidelines
Processes
Leverage/utilize Leverage/utilize Support Support Support Support
SUMMARY: SUMMARY: The Industry TrendThe Industry Trend
Change business dynamics
Leverage and grow core competence
Harmonize operation structures and
processes
Utilize industry resources
Improve and leverage economic scale