The State of African FTTH - Xalam Analytics

The State of African FTTHTuesday November 16th 2017

Produced in Association With

Speakers

Guy Zibi

Managing Director,

Xalam Analytics

Iain Morris

News Editor, Light Reading,

for Connecting Africa

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

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’

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

© Xalam Analytics LLC - 2017

The Multiple Facets of African Fibre

*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

InternationalTerrestrial Backbone

Metro Fibre

FTTS

FTTH/P

FTTB

FTTC

Today’s Focus

7

We are witnessing a race to conquer the African digital home


Rising middle class

Expanding video content

options

A shortage of affordable high-

bandwidth options for

home connectivity

The Drivers

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

Addressing the Home Connectivity Shortage

8

The pace of FTTH deployments has accelerated


Africa Homes/Premises Passed by FTTH

Source: Xalam Digital Analytics estimates

Map View – FTTH Deployment Status in Africa

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

0.00

0.50

1.00

1.50

2.00

2.50

2012 2013 2014 2015 2016 2017

Ho

mes

/Pre

mis

es P

asse

d b

y FT

TH/P

-0

00

Central Africa East Africa North Africa Southern Africa West Africa

More FTTH/P premises passed added over the over the 2016-2017 period -

than over the previous 10 years combined

It took ~6 years to hit the 1m threshold; it will take ~2 years to

get to the 2m mark

9

African FTTH in context – small, but growing fast


Africa Broadband Connections by Access Technology Type – 2017 Forecast

Source: Xalam Digital Analytics estimates

Mobile Broadband

~260m

Fixed Broadband

~12m

4G

~40m

xDSL

~10mFTTH/P~650k

10

Exploring Critical Questions


2. Which markets are most ripe for FTTH/P

growth?

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?

4. FTTH/P vs. ADSL, 4G –Complementary, or

substitutive?

11

Is African FTTH a luxury? – Part 1


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

The Case Against African FTTH/P

Which markets are most ripe for FTTH/P

growth?

13

Market and regulatory structures are fundamental to FTTH upside


Source: Xalam Digital Analytics Research

LAYER 1 –PASSIVE INFR.(Fibre ducts,

etc.)

LAYER 2 -ACTIVE INFR.

LAYER 3- Bitstream

services

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

RETAIL BROADBAND ISPs RETAIL BROADBAND ISPs RETAIL BROADBAND ISPs

EXAMPLES

The African WayFTTH/P Market Structures

14© Xalam Analytics LLC - 2017

For the most part, suboptimal market conditions to drive FTTH growth

Distribution of African FTTH/P Connections by Type of Market StructureMap View – by Type of Market/Regulatory Structure

LLU - Heavily Regulated

3%

Integrated Telcos/No

Sharing62%

Lightly Regulated Wholesale

35%

Based on estimates and definitions by Xalam Digital Analytics; Based on data as of September 2017Source: Xalam Digital Analytics Research

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.

Is there enough demand for FTTH/P ?


Finding the African FTTH/P Addressable Market

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

ResidentialHouseholds in semi-urban or

rural areas

1

2

3

Who Gets Fibre? Traditional Target Market Segmentation

Priority 1

Priority 2

Priority 3 – Only South Africa

and Mauritius have reached

this phase

Deployment Costs

Low High


Challenging the Existing Model: The Vumatel Gamble

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 COMPANY

THE PLAN

THE IMPACT

To offer 100 Mbps FTTH/P in the South African popular, low-income 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 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.

Alexandra, Johannesburg – Photo Credit – Techcentral.co.zaSource: Vumatel interview with Techcentral.co.za

FTTH/P vs. ADSL, 4G


Looking for the FTTH upside – Migration, leapfrogging, and incumbent resistance

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

-20% 0% 20% 40% 60% 80% 100% 120%

*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

Africa FTTH Attractiveness Matrix – The ADSL and 3G/4G Factors

ADSL Availability/Penetration

Low High

Low

High

3G

/4G

Ava

ilab

ility

/Pe

ne

trat

ion

Migration to FTTH

Migration to FTTH

Strong Demand -

Leapfrogging to FTTH

Weak Demand -

Leapfrogging to FTTH

Significant ADSL incumbent resistance

Broadband Penetration of

Population

Fixed Broadband Penetration of

Urban Population

Algeria

Mauritius

Tunisia Namibia

Zimbabwe South Africa

Morocco

Senegal

Egypt

Angola

Nigeria

DRCGhana

Kenya


FTTH/P will replace ADSL – The question is how fast

0

50

100

150

200

250

2010 2011 2012 2013 2014 2015 2016 2017 F

Bro

adb

and

Co

nn

ecti

on

s -

Tho

usa

nd

s

ADSL FTTH

Evolution of FTTH vs. ADSL in Mauritius

Sources: Mauritius Telecom; CSO; Xalam Digital Analytics estimates

0

10

20

30

40

50

60

70

2010 2011 2012 2013 2014 2015 2016

Tho

usa

nd

s

ADSL FTTH

Evolution of FTTH vs. ADSL in Cote-d’Ivoire

Sources: Operators; ARTCI, Xalam Digital Analytics estimates

No credible FTTH competition + Incumbents sweating their ADSL assets = ADSL dominates;

The question is whether this keeps up long term

Full Cannibalization – Subscribers move to fibre as soon as it’s available; FTTH priced at,

or below ADSL levels.


Our thesis – Mobile broadband helps build the case for FTTH

We see low to non-existent correlation between MBB

uptake and FTTH uptake – but it’s early

But MBB is nonetheless a precursor to FTTH – markets with low MBB penetration

typically have low FTTH penetration as well

MBB helps build the economic case for FTTH

1

2

3-10%

0%

10%

20%

30%

40%

50%

60%

0% 10% 20% 30% 40% 50% 60% 70% 80%

FTTH

Pen

etra

tio

n o

f FB

B A

dd

ress

able

MBB Penetration of Population

Dots indicate penetration data in 15 African markets over 2010-2017 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

MBB Penetration vs. FTTH Penetration in 15 African Markets – 2010-2017

The correlation between MBB and FTTH penetration has been low;

While they both provide Internet connectivity, the two technologies have fundamentally different supply and demand drivers;

They’re complementary, rather than substitutive.

FTTH outlook, winning the race, and that

luxury question


FTTH Outlook – Fuzzy, yet excellent

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 2020.

FTTH Connections in Africa – 2016F – 2021F

0.00

0.50

1.00

1.50

2.00

2.50

3.00

2015 E 2016 E 2017 F 2018 F 2019 F 2020 F

FTTH

/P C

on

nec

tio

ns

-m

illio

n

Africa to hit the ~2m FTTH connection mark in 2020

> 1.5m new FTTH connections will be added over the next three years

Four big FTTH wildcards: Nigeria, Algeria, Egypt, Tunisia


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

*Share of FTTH connections held by the market’s top 2 mobile operatorsSource: Xalam Digital Analytics Estimates

0%

20%

40%

60%

80%

100%

120%

South Africa Nigeria Kenya Zimbabwe Mauritius

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.


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

The Case Against African FTTH/P

Substantial amounts of metro fibre already being built to support 4G, 5G

Over the long run, ADSL will not cut it

Mobile broadband pricing will remain high for home/business usage

5G isn’t here – and will have its own issues (e.g. spectrum..)

Africa will not leverage the fourth industrial revolution without FTTH/P

The Case For African FTTH/P

Is African FTTH a luxury? – Part 2

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 02138

London

[email protected]

@xalamanalytics

www.xalamanalytics.com

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The State of African FTTH - Xalam Analytics