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© Copyright 2010. Yankee Group Research, Inc. All rights reserved. Page 1March 2010Emerging Markets & Next-Gen Broadband

Emerging Markets & Next-Gen Broadband

Benoît Felten, Principal Analyst

Wally Swain, Senior VP

March 30, 2010


Agenda

State of Emerging Markets’ Fiber to the Home (FTTH)

The FTTH Conundrum

Building a Generic Business Model

What’s Different About Emerging Markets?

Q&A


Poll

What region of the world are you most interested in?


Asia-Pacific Emerging FTTH

India:BSNL targets 700K customers

in 2009, 7M by 2015Other smaller initiatives around

new property developments

China:8M homes connected with

FTTB/H, especially in the southSPs are China Telecom and

China Unicom

Malaysia: Incumbent TM targets 1.3M homes in or around Kuala

Lumpur


Middle East/Africa Emerging FTTH

Egypt: TMG has limited affluent area deployment (~30K)

Telecom Egypt has a pilot deployment in Cairo

Saudi Arabia:STC has pilot FTTH deployments, but no

significant deployment as of yet

UAE:Etisalat covers 700K homes with FTTH/B

Du covers 400KSubs low at estmated 70K


Latin America Emerging FTTH

Brazil: Telefónica deploying FTTB in

Sao Paulo [~100K homes passed)GVT deploying FTTH in various cities (est. 600K customers over

FTTB)


The FTTH Conundrum

• The copper network is on its last leg

• FTTH is the end-game, and telcos know it

• The amount of capex needed to replace the copper network is not aligned with short-term telco vision

• Cable upgrade to DOCSIS 3.0 and competitive fiber roll-outs (from altnets, municipalities or utilities) threaten incumbent positions as network providers

The question for telcos is:

How do I make a necessary but considerable investment in optimal conditions?


Solutions to Enhance the FTTH Business Model


What’s Different About Emerging Markets?

Lower labor costs

Favorable public policy

Much smaller addressable

market

Lower ARPU

Slower takeup


Lower Labor Costs

• Lower labor costs mean lower cost per home passed• Labor installing the fiber network• Labor installing connections in the home

• Lower labor costs mean lower ongoing maintenance costs


Proxy for Relative Wage Scale

Purchasing Power ParityInverse Scale Proxy for Wages Relative to the USA


Favorable Public Policy

• Regulatory conditions are often favorable to wireline incumbents

• In some countries, there is no effective competition on the service layer

• Expanding broadband penetration is an issue for all emerging markets’ governments

• Many NGO studies link economic growth with penetration of advanced communications services

• Many have explicit programs to help• Education• Lower cost of PCs• Stimulus or other direct investment programs


Smaller Addressable Market

• Directly impacts takeup• Especially in broad deployments• Or where government money is tied to broad deployments

• Can also mean higher equipment costs because of lower volume

• There are fewer people in emerging markets who are economically capable (or willing) to invest in high-end triple services


Lower ARPU

• Partly because of lower income

• Partly because of lower prices• Operators lower prices to broaden appeal• “Unfair competition” with pirate master antenna systems keep prices

down

• Households in emerging markets spend less on triple-play services


Where Is There Enough Purchasing Power for FTTH?

• We assume that households will willingly spend up to 60% of their ICT budget (reserving the rest for PCs, mobile, etc.)

• Few emerging markets can support a broad FTTH deployment (blue bar)

• Most can support a limited deployment (red bar, focused at the top 10% of households)

• Some particularly disadvantaged countries can only have very limited deployment

- 0.50 1.00 1.50 2.00

Africa*

Argentina

Brazil

China

Colombia

Croatia

Greece

Hungary

India

Indonesia

Latvia

Lithuania

Malaysia

Mexico

Pakistan

Peru

Philippines

Rest of Asia-Pacific

Rest of Latin America

Romania

Russia

Saudi Arabia

Thailand

Turkey

Ukraine

Venezuela

Vietnam

Unlikely for BP to Work

Broad Deployment

Narrow Deployment

The ratio of estimated triple-play ARPU to estimated household ICT monthly spending (ICT spending is generally 4-8% of GDP)

Unlikely for business plan to work


Deployment Scenarios

Broad Deployment

A significant proportion of the population can afford triple play, which makes a broad, developed-market-style deployment feasible.

• Venezuela• Turkey• Saudi Arabia• Malaysia• Greece

Dense Deployment

Only the wealthiest part of the population can afford triple-play services, which limits deployment to dense

urban areas where they dwell.

Cherry-Picked Deployment

Only the richest of the rich can afford triple play, which means deployment will be

cherry-picking gated communities and super-rich

land developments.

•Vietnam•Thailand•Russia•Romania•Philippines•Peru•Mexico•Lithuania•Latvia•Indonesia•Hungary•Brazil•Argentina

• Ukraine• Pakistan• India• China• Africa


Comments on the Model

• The model seems aligned with existing developments, except for India and China

• It suggests that huge populations may be able to sustain FTTH deployment in some areas, even if a vast majority of the overall population doesn’t have the purchasing power.

• Venezuela is perhaps less likely to see FTTx deployment soon than suggested because of local specifics.

• The model should be considered a good overall tool for quick determination of likely markets for FTTH to emerge


Disruptive Factors

• The general trends the model suggests can be disrupted by a number of things:

• Local government interventions can accelerate deployment in their territory, either through financial subsidies or partnership.

• Limited regulatory barriers may allow new entrants to move at a grass-roots level, as showcased in Eastern Europe.

• National-level interventions can have a longer and more widespread impact. The likelihood of such interventions, however, is very much tied to the amount of resources available in national coffers.


Which Force Is Greater In Your Market?

Lower labor costs

Favorable public policy

Much smaller addressable

market

Lower ARPU

Slower takeup


Q&A

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Benoît Felten, Principal [email protected]

Wally Swain, Senior [email protected]

Upcoming Yankee Group webinar:4G Mobile Backhaul EvolutionTuesday, April 27, 2010 | 11am ETRegister at www.yankeegroup.com