CHINA'S BROADBAND FUTURE: KEY ISSUES AND LESSONS FROM THE US
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This document discusses opportunities and challenges for broadband development in China. It summarizes the experiences of the US broadband industry, including: (1) how competition drove down prices and improved services; (2) the importance of reducing costs to improve profitability; and (3) how regulations shaped the development of different services. It also examines trends in user behavior and emerging technologies that could impact China's broadband development.
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CHINA'S BROADBAND FUTURE: KEY ISSUES AND LESSONS FROM THE US
- 1. BROADBAND CHINA? WHAT & WHY? Xiaolin Lu iBIT, Inc November, 2004
- 2. 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….
- 3. KEY ISSUES Business Opportunities Operations Regulatory Reality Wall Street Perception Environment Cost Structure ( technology platform)
- 4. AN INTERDEPENDENT WORLD Service & Technology Regulation Operation HBO, Cost- HFC FCC Cable ruling reduction High-capacity, DWDM Broke up of Ma Bell lower-cost CM/DSL HSD Title 1 Micro Processor Excel
- 5. CHALLENGES TO THE TOP LINE
- 6. THE RESIDENTIAL PIE: US Cable Dominates ILECs Dominates Cable Leads Video Market Voice Market High-Speed Data Market Video Voice Data Cable ILECs Other Source: Paul Kagan Associates
- 7. TELEPHONY USAGE: CHINA 700 Telecom System Revenue: 1Q 2004 600 Fixed Line Mobile Data Paging Sat 500 6% 0% mn sub Local 400 32% 300 200 Mobile 100 43% 0 LD 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 19% 100.0 90.0 80.0 Competition further Fixed drives down the ARPU 70.0 Mobile 60.0 50.0 1Q/02 1Q/03 1Q/04
- 8. OPPORTUNITIES: TRIPLE 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
- 9. TOP THREE US CABLE COMPANIES 120% 1.1 Comcast Time Warner Cox 100% 0.9 0.83 80% 61% 58% 60% 54% 40% 36% 40% 34% 20% 20% 20% 15%17% 14% 0 0% Basic/HHP DTV % HSD % Voice % RGU/HHP Source: Company Data
- 10. THE IMPORTANCE OF THE BOTTOM LINE: After the bubble, it is not just revenue…
- 11. HSD SERVICE REALITY 550 500 58% growth 450 $M 400 350 300 1Q02 2Q02 3Q02 4Q02 1Q03 56% network cost reduction 77% customer service call reduction 40% marketing cost reduction 70% cable modem cost reduction Source: Comcast
- 12. US CABLE INDUSTRY EXPENDITURE 18 16 14 12 In Billions 10 8 6 4 2 0 1996 1997 1998 1999 2000 2001 2002 2003 • Total $84 Billion capital expenditure, equates to $1,200 per customer • With $52/month ARPU that is increasing, the 10 year ROI is huge Source: Kagan World Media
- 13. WALL STREET PERCEPTION US ARPU/month 72.00 EBITDA Margin 35% EBITDA 25.2 Capex 10.0 FCF 15.2 Multiple 7 Value/Sub ($) 1,276.8
- 14. TECHNOLOGY OR SOMETHING ELSE IS CHANGING THE USER BEHAVIORS
- 15. HOW TO PREDICT THE FUTURE… The cost for 128 kilobytes of memory will fall below $100 in the near future. - Creative Computing Magazine December 1981 At $100 for 128 KB, 256 MB would cost $200K
- 16. Hard Disk Storage Moore’s Law Cost per MB Smoore’s Law! $10,000……….…...………………………………1/10 Cent $10,000 $60 $1.00 $0.90 $50 $0.80 $8,000 $0.70 $40 $6,000 $0.60 $30 $0.50 $4,000 $0.40 $20 $0.30 $2,000 $10 $0.20 $0.10 $0 $0 $0.00 1956 to 1985 1986 to 1993 1994 to 2004 Source: Seagate
- 17. VIDEO COMPRESSION Commercial Availability MPEG and ITU are working jointly on a new standard: 2008 wavelets MPEG AVC (Advanced 2007 Video Coding). AVC is also known as: Media Player 2006 etc. H.264, H.26L, JVT, and H.264 MPEG-4 Part 10 2005 MPEG-4 2004 Best of breed compression – very good for HD and SD; Now MPEG-2 interlaced and film content; variety of content; 1X 1.66X 3.00X 4.00+X wide range of bit rates. Encoding Gain Factor
- 18. EVOLUTION OF BROADBAND ACCESS 1000.000 VDSL2/DOCSIS 3.0 100.000 downstream rate [Mb/s] VDSL/DOCSIS 2.0 10.000 ADSL2+/DOCSIS 1.000 ISDN 0.100 V.90 voice- voice-band modems 0.010 V.34 V.34 V.29 V.33 V.27 0.001 V.26 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 year
- 20. REAL-TIME VIEWERSHIP IS ERODING 2001/2002 2003/2004 2005 and beyond VCR/DVD 2.9% VCR/DVD 2.3% VCR/DVD 1.7% MSO’s DVR and SVOD 0.6% MSO’s DVR and SVOD 6.5% MSO’s DVR and SVOD 29.4% VOD movies 0.2% VOD movies 0.8% VOD movies 1.1% Viewer’s DVR 1.9% Viewer’s DVR 8.9% Viewer’s DVR 7.8% Real-time Real-time Real-time viewing viewing viewing 94.3% 81.5% 59.9% Source: Forrester
- 21. SOMEHOW, THE POLICEMAN DOES HAVE SOME POWERS…..
- 22. REGULATION AND BUSINESS: US VOICE DATA VIDEO Communication Information Content Regulation Services Services Service Title 2 Title 1 Title 6 Requirement Open Pipe None Franchising Business Selling Minutes All you can Flat rate eat buffet + Usage
- 23. THE “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%
- 24. OPTIONS LEC Narrowband Switched DLC Rebuild Wireless Mobility FTTH Broadband Cable Network Upgrade Deep Fiber Broadband Broadcast Cable modem Penetration
- 25. CHALLENGES Cable ILEC OverBuilder Embedded HFC Twist Pair None Base Fiber deep xDSL Fiber/metallic Upgrade DOCSIS FTTH 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
- 26. WORLDWIDE PENETRATION ( Thousands ) Source : RHK Inc. (www.rhk.com)
- 27. LOOKING FORWARD…. 500 450 Millions of Paying Customers 400 350 300 DSL 250 Cable 200 WiMax 150 Fiber 100 50 0 2004 2007 2010 Source : John Cioffi
- 28. CITY- CITY-WIDE WI-FI IN CHASKA, MN WI- Cityoperated, 16 square mile coverage area Public safety, low-cost residential broadband service 7500 homes passed, 1100 pre-registered 200 cells, <$500,000 CapEx
- 29. KEY ISSUES User Behavior Regulation Technology Wall Street Bottom Line
Notas del editor
- Gordon Moore’s prediction was of course, that we would double the number of transistors every 18 months, and that has held up. That said, hard drives have actually double capacity every year. In the last few years, however, this has slowed to roughly 40%. Now, however, there is an obscure technology called Perpendicular magnetic recording or PMR. This technology allows bits to be stacked perpendicular on magnetic platters and raising the capacity by an order of magnitude while at the same time reducing power consumption. These drives are 18 months from initial production and will first show up in corporate storage systems. But after that, they will quickly find their way into other commercial and home applications. Predictions are that by the summer of 2010 Terabyte portable media devices will be available.