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DSL Deployment and Economics ITU/BDT Arab Regional Workshop on “DSL Technologies and Services” Cairo - Egypt, 4-6 March 2003 ITU/BDT Arab Regional Workshop on “DSL Technologies and Services” Cairo - Egypt, 4-6 March 2003
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Maximise your revenue – Control your cost
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All rights reserved © 2002, Alcatel Build Profitable DSL Networks Cash Flow Ensure a sound business model Sell the infrastructure over and over Revenues Differentiate services/margins Keep focus: one step at a time Cost Leverage investments: Universal DSLAM Get provisioning/operations right Residential Get the volume Speed the activation Helpdesk process Make sure you will upsell CapEx Stable footprint “Blade” upgrades Network convergence OpEx Simple for volume User provisioning Targeted experts Business Start with new services Let others help you sell Move legacy and bundle
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All rights reserved © 2002, Alcatel DSL Revenue Streams > Three revenue streams in DSL deployment High speed Internet access (limited by # of on-line households) Business access (SOHO/SME) Residential multimedia (gaming/video/entertainment) TIME Business Access High Speed Internet access $ Residential Multimedia today Infrastructure Investment Leveraging Existing Infrastructure
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All rights reserved © 2002, Alcatel Benchmarks of Prices for Low-end Residential ADSL and Broadband Penetration > Very different level of low-end ADSL prices Korea : USD 25 /month US : USD 39 /month France : USD 42 /month > Broadband Penetration rate appears to be correlated to initial pricing level low ARPU drives BB penetration the BB access consumer is price sensitive Source : France Telecom, Hanaro, Verizon, SBC 0 5 10 15 20 25 30 35 40 45 FranceUSKorea ARPU (USD/mth) 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Correlation between ARPU & BB Penetration ARPU BB Penetration
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All rights reserved © 2002, Alcatel Price sensitivity wrt. Penetration rates and margin on basic access package > Calculations for Access Charges per month and DSL penetration are based on the historical data of different European countries i.e applied access charge and achieved penetration > Calculations for gross margin are based on average European business case > This scenario is also sensitive to GDP per captia, >15,000€
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All rights reserved © 2002, Alcatel NPV calculation based on 40 € monthly access fee > Access revenue charge of 40 € per month has a gross margin of more than 35% A penetration rates of more than 20% is achievable with 40 € services packages
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All rights reserved © 2002, Alcatel Specifics for successful DSL deployment Go for Market Leadership Market : leader and follower, usually 65/35% (f.i. Korea) Once leader, always leader (cfr Mobile) Be commercially aggressive More Revenues Higher cash flow within 3 years Avoid loss of voice revenues (customer churn ~ 70 %) Utilisation Rate should be around >60 % < 40 % u.r. reflects in higher Capital Expenditure (CAPEX) > 80 % u.r. reflects in higher Operational Expenditure (OPEX) and reflects in higher Activation Time (Loss of Mkt Share) Order Success Rate should be higher than 70 % Activation time should be around 3 days Example Korea Telecom, Bell Canada, Belgacom Self Installation >80%
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All rights reserved © 2002, Alcatel Commercial and Operational Learning Curve 100 prospects 12 12 customers - 45% NO COVERAGE - 15% SALES INEFFICIENCY - 28 % OPERATIONAL ISSUES
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Business Models
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All rights reserved © 2002, Alcatel High Speed Internet Access Wholesale versus Retail Service providers Access providers End users ASAM Mini-RAM... ADSL-NT... Service management Service Gateway ATM or FR pipes IP-tunnels Wholesale (Revenue Split) Retail (Revenue Split) Global package fee to ISP Access fee to AP Global package fee to AP (incl. Internet Access)
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All rights reserved © 2002, Alcatel Wholesale Residential DSL to other ISPs ? > Potential benefits Linear growth continues Reduced sales and marketing costs Reduced helpdesk and truck roll-out costs > Different models possible > Role of ISP ISP sells service to end user Marketing First line helpdesk, portal services, email hosting, National and International bandwidth ?
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All rights reserved © 2002, Alcatel Wholesale options applied by different service providers > Where is the handover point in the network ? ISP controls BRAS, and IP network behind it + internat.BW Access Provider controls BRAS, ISP IP network behind it + internat. BW Complete network controlled by Access Provider > Who does Billing and Customer Support ? ISP first line helpdesk and Billing ISP first line helpdesk, Access Provider Billing > Who does Marketing ? Only ISP does Marketing Both ISP and Access Provider do Marketing > Revenue sharing ? ISP gets 15% - 25% of total Revenue
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Country Case – Alternative Strategy
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All rights reserved © 2002, Alcatel Europe - Some facts > 2002 Population 3,931,000 No. of Households 1,201,000 GDP per capita €19,210 Country Telephone lines 1,717,000 – Residential lines 1,156,000 – Business lines 560,000 PC households 392,000 – PC penetration with respect to households 32.6% Source: Morgan Stanley Dean Witter
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All rights reserved © 2002, Alcatel Current DSL target market > Current DSL subscribers (Business users): 30,000 Plan for end 2003: 70,000 > SMEs and LSEs addressable market Very small (0-9) 79,000 Small (10-49) 7,000 Medium (50-249) 1,000 LSEs (250+) 1,000 > DSL business value Average European example: business model for introducing business DSL in a medium-size country (+/-700,000 SMEs) – NPV of 106 M$; NPV including terminal value 424 M$ – ROI of 50% for retail; 30% for wholesale – Positive Cash flow after 1 year and Payback period of 1.3 years
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All rights reserved © 2002, Alcatel Service Provider Strategy > Capture market share with high margin services SME and SoHO market – Alternative strategy: due to low PC penetration wrt HHs – NPV of business subscriber is 3-5 times higher then residential subscribers – Best practices of mass market are available now Drivers Beyond PC Penetration BB entertainment High Margin services HSI Business Mass Market Today By 2004 More than 20% penetration wrt HH
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All rights reserved © 2002, Alcatel A simple marketing rule for new technologies closing the gap with VAS Early adopters SMEs Price >500 € Penetration Low end of MEs and SE Price >200 € SOHOs Price >100 € Price 40 € Residential HSI Increasing ARPU Multiple session Security Gaming… Increasing ARPU Fixed IP address Web hosting SLAs Security Multi-site connectivity Intranet/Extranet… Time Alternative Strategy Time Regular Strategy
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All rights reserved © 2002, Alcatel High Speed Internet access market (Residential) Business Case Analysis > Three scenarios based on the DSL penetration rates with respect to number of households in Ireland are considered Total number of HH : 1,201,000 Year 1Year 2Year 3 High Case120,100 (10% HH)240,200 (20% HH)360,300 (30% HH) Base Case 80,067 (6.7% HH)160,166 (13% HH)240,200 (20% HH) Low Case 60,050 (5% HH)120,100 (10% HH)180,150 (15% HH)
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All rights reserved © 2002, Alcatel Residential business case > Assumption Monthly access charge kept constant to 35 € Self Installation rate 60% Initial DSLAM utilization rate 40% Depreciation 3 years Recurring and Non Recurring OPEX (Average European) 2002-2004 (15% HH Penetration) 2002-2004 20% HH Penetration 2002-2004 30% (HH Penetration) NPV per subscriber: 7,48 Payback Period: 2,48 years NPV per subscriber: 42,77 Payback Period: 2,47 years NPV per subscriber: 44,01 Payback Period: 2,45 years Low CaseBase CaseHigh Case
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All rights reserved © 2002, Alcatel Net Cash Flow and NPV based of high, base and low case scenarios
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All rights reserved © 2002, Alcatel Payback period based on high, base and low case scenarios > Payback periods are in the same range but with more returns for base and high case (respectively)
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