Download - Broadband China? - What and Why
iBIT, Inc
BROADBAND CHINA?
WHAT & WHY?
November, 2004
Xiaolin Lu
What is this all about?What is this all about?
China cable and telecom industries are
migrating from state-owned to market-driven
industries….
But what to do and why….
Learn from US experience after the bubble,
with so different regulatory environment?
Maybe….
KEY ISSUESKEY ISSUES
Cost Structure ( technology platform)
Regulatory
Environment O
pera
tio
ns
Reali
ty
Business
Opportunities
Wall Street
Perception
AN INTERDEPENDENT WORLDAN INTERDEPENDENT WORLD
Technology Service &
Operation Regulation
HFC HBO, Cost-
reduction FCC Cable ruling
DWDM High-capacity,
lower-cost Broke up of Ma Bell
CM/DSL HSD Title 1
Micro Processor Excel
CHALLENGES TO THE CHALLENGES TO THE
TOP LINETOP LINE
THE RESIDENTIAL PIE: USTHE RESIDENTIAL PIE: US
Cable ILECs Other
Video Voice Data
Source: Paul Kagan Associates
Cable Dominates
Video Market
ILECs Dominates
Voice Market
Cable Leads
High-Speed Data
Market
TELEPHONY USAGE: CHINATELEPHONY USAGE: CHINA
0
100
200
300
400
500
600
700
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Fixed Line Mobile
mn
su
b
Local
32%
LD
19%
Mobile
43%
Data
6%
Sat
0%
Paging
0%
Telecom System Revenue: 1Q 2004
50.0
60.0
70.0
80.0
90.0
100.0
1Q/02 1Q/03 1Q/04
Fixed
Mobile Competition further
drives down the ARPU
OPPORTUNITIES: OPPORTUNITIES: TRIPLE PLAYTRIPLE PLAY
Create a customer destination Reduce churn
Create differentiation
Build a common platform for innovation and
gain economy of scale
Increase ARPU (Average Revenue Per Unit)
Offensively and defensively change the nature
of services and products
TOP THREE US CABLE COMPANIESTOP THREE US CABLE COMPANIES
54%
36%
15% 14%
0.9
58%
40%
17%
0
0.83
61%
34%
20% 20%
1.1
0%
20%
40%
60%
80%
100%
120%
Basic/HHP DTV % HSD % Voice % RGU/HHP
Comcast Time Warner Cox
Source: Company Data
THE IMPORTANCE OF THE IMPORTANCE OF
THE BOTTOM LINE:THE BOTTOM LINE:
After the bubble, it is not just After the bubble, it is not just
revenue…revenue…
HSD SERVICE REALITYHSD SERVICE REALITY
300
350
400
450
500
550
1Q02 2Q02 3Q02 4Q02 1Q03
56% network cost reduction
77% customer service call reduction
40% marketing cost reduction
70% cable modem cost reduction
58% growth
$M
Source: Comcast
US CABLE INDUSTRY EXPENDITUREUS CABLE INDUSTRY EXPENDITURE
0
2
4
6
8
10
12
14
16
18
1996 1997 1998 1999 2000 2001 2002 2003
In B
illi
on
s
• Total $84 Billion capital expenditure, equates to $1,200 per customer
• With $52/month ARPU that is increasing, the 10 year ROI is huge
Source: Kagan World Media
WALL STREET PERCEPTIONWALL STREET PERCEPTION
US
ARPU/month 72.00
EBITDA Margin 35%
EBITDA 25.2
Capex 10.0
FCF 15.2
Multiple 7
Value/Sub ($) 1,276.8
TECHNOLOGY OR TECHNOLOGY OR
SOMETHING ELSE IS SOMETHING ELSE IS
CHANGING THE USER CHANGING THE USER
BEHAVIORSBEHAVIORS
The cost for 128 kilobytes of memory will fall
below $100 in the near future.
- Creative Computing Magazine
December 1981
HOW TO PREDICT THE FUTURE…HOW TO PREDICT THE FUTURE…
At $100 for 128 KB, 256 MB
would cost $200K
Hard Disk Storage Moore’s Law
Cost per MB Smoore’s Law!
$0
$2,000
$4,000
$6,000
$8,000
$10,000
1956 to 1985
$10,000……….…...………………………………1/10 Cent
$0
$10
$20
$30
$40
$50
$60
1986 to 1993
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
1994 to 2004
Source: Seagate
VIDEO COMPRESSIONVIDEO COMPRESSION
MPEG and ITU are working
jointly on a new standard:
MPEG AVC (Advanced
Video Coding).
AVC is also known as:
H.264, H.26L, JVT, and
MPEG-4 Part 10
Best of breed compression
– very good for HD and SD;
interlaced and film content;
variety of content;
wide range of bit rates.
Commercial
Availability
MPEG-2
MPEG-4
H.264
Media Player
etc.
wavelets
1X 1.66X 3.00X 4.00+X
Now
2004
2005
2006
2007
2008
Encoding Gain Factor
0.001
0.010
0.100
1.000
10.000
100.000
1000.000
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
year
do
wn
str
eam
ra
te [
Mb
/s]
V.26 V.27
V.29 V.33 V.34 V.34
V.90
ADSL2+/DOCSIS
VDSL/DOCSIS 2.0
VDSL2/DOCSIS 3.0
ISDN
voicevoice--band modemsband modems
EVOLUTION OF BROADBAND ACCESSEVOLUTION OF BROADBAND ACCESS
PROLIFIC VIDEOPROLIFIC VIDEO
IP+Storage+Portability+….IP+Storage+Portability+….
REAL-TIME VIEWERSHIP IS ERODING
2003/2004 2005 and beyond
Real-time viewing 94.3%
Real-time viewing 81.5%
Real-time viewing 59.9%
VCR/DVD
MSO’s DVR and SVOD
VOD movies
Viewer’s DVR
2.9%
0.6%
0.2%
1.9%
2.3%
6.5%
0.8%
8.9%
VCR/DVD
MSO’s DVR and SVOD
VOD movies
Viewer’s DVR
1.7%
29.4%
1.1%
7.8%
VCR/DVD
MSO’s DVR and SVOD
VOD movies
Viewer’s DVR
2001/2002
Source: Forrester
SOMEHOW, THE SOMEHOW, THE
POLICEMAN DOES HAVE POLICEMAN DOES HAVE
SOME POWERS…..SOME POWERS…..
REGULATION AND BUSINESS: USREGULATION AND BUSINESS: US
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
All you can
eat buffet
THE “DRIVERS” FOR FTTHTHE “DRIVERS” FOR FTTH
Competition to Cable MSOs has 63% share of HSD vs 37% for the carriers
Favorable regulatory climate No unbundle requirement on FTTH
Reduced churn on voice Bell have lost 10% of their residential line to UNE-P competition
But…..
DBS earned 18% market share of total TV HH in 5-6 years
At $1,200/HHP cost for aerial construction, and heavy underground buildup mix, can the RBOC afford it, in time?
Verizon SBC BellSouth Qwest
Aerial 45% 28% 32% 13%
Underground 55% 72% 68% 87%
OPTIONSOPTIONS
LEC
Narrowband
Switched DLC
Rebuild
Network Upgrade
Cable modem
Deep Fiber Deep Fiber
PenetrationPenetration
Wireless
Mobility
Broadband
Cable
Broadband
Broadcast
FTTH
CHALLENGESCHALLENGES
Cable ILEC OverBuilder
Embedded
Base HFC Twist Pair None
Upgrade Fiber deep
DOCSIS
xDSL
FTTH
Fiber/metallic
Overlay
Business Triple Play Triple Play Niche market
Challenge BALANCE
• Migrate from one service monopoly to multi-service duopoly • Or perhaps migrate from facility-based monopoly to
facility-independent multi-service duopoly
Source : RHK Inc. (www.rhk.com)
( Thousands )
WORLDWIDE PENETRATIONWORLDWIDE PENETRATION
0
50
100
150
200
250
300
350
400
450
500
Mil
lio
ns
of
Pa
yin
g C
ust
om
ers
2004 2007 2010
DSL
Cable
WiMax
Fiber
LOOKING FORWARD….LOOKING FORWARD….
Source : John Cioffi
CITYCITY--WIDE WIWIDE WI--FI IN CHASKA, MNFI IN CHASKA, MN
City operated, 16 square mile coverage area
Public safety, low-cost residential broadband service
7500 homes passed, 1100 pre-registered
200 cells, <$500,000 CapEx
KEY ISSUESKEY ISSUES
User Behavior
Wall Street Regulation
Bottom Line
Technology