The Operators of the Future - Alternatives when connectivity becomes - - PowerPoint PPT Presentation

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The Operators of the Future - Alternatives when connectivity becomes - - PowerPoint PPT Presentation

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Presentation prepared for the Brussels Internet & Telecom Seminars (Bits) Wholesale-only operators, in Brussels 12 December 2018 The Operators of the Future - Alternatives when connectivity becomes a commodity Bengt G Mlleryd Swedish

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SLIDE 1

Swedish Post and Telecom Authority

The Operators of the Future

  • Alternatives when connectivity becomes a

commodity Bengt G Mölleryd

Presentation prepared for the Brussels Internet & Telecom Seminars (Bits) – Wholesale-only operators, in Brussels 12 December 2018

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Changing operator landscape

  • Mature industry with

high capital intensity

  • Transition to all IP

networks, competition from OTTs

  • Customers requiring

more data at lower cost which drives network upgrades (capex)

  • Connectivity has

become a commodity European operators

Revenue weighted average: BT, DT, Orange, KPN, Swisscom, Telefonica and Telia Company

  • 10
  • 5

5 10 15 20 2 5 2 6 2 7 2 8 2 9 2 1 2 1 1 2 1 2 2 1 3 2 1 4 2 1 5 2 1 6 2 1 7 Percent Sales growth Capex-to-sales

Source: Bloomberg

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SLIDE 3

Which direction to chose

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SLIDE 4

Vertically integrated operators expanding to media, bank, health…

“This ability to bundle, whether it be TV Everywhere, whether it’s DTV Now, whether it’s the ability to get all your video on your phone is making a huge difference.” John J Stephens, CFO AT&T*

* AT&T Q2 2017 Earnings call, Bloomberg Transcripts 2017-07-25 ** Telefonica Q2 2017 Earnings call, Bloomberg Transcripts, 2017-07-27

“… services beyond connectivity offered where TV/Video is the main driver … cognitive intelligence will add more value to

  • ur customers bringing loyalty, improving

efficiency and opening new opportunity.” José Maria Álvarex-Pallete López, Chairman and CEO Telefonica**

4

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SLIDE 5

OTTs spend significantly more on R&D

5 10 15 20 25 30 A T & T N T T N T T D

  • C
  • M

O D e u t s c h e T e l e k

  • m

V

  • d

a f

  • n

e S K T e l e c

  • m

T e l e n

  • r

B T A m a z

  • n

G

  • g

l e F a c e b

  • k

A p p l e M i c r

  • s
  • f

t

Percent

R&D to sales

2015 2016 2017

Source: Bloomberg

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SLIDE 6

Percentage of fibre connections of total broadband subscriptions, Dec 2017

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Belgium United Kingdom Austria Germany Ireland Italy Poland Canada France United States Netherlands Switzerland Czech Republic Mexico Hungary OECD Luxembourg Denmark Slovak Republic New Zealand Slovenia Australia Estonia Portugal Spain Finland Sweden Latvia Lithuania Japan Korea

Source: OECD, broadband portal, http://www.oecd.org/sti/broadband/broadband-statistics/

W h

  • l

e s a l e

  • p

p

  • r

t u n i t y – i f n

  • t

c a b l e d

  • m

i n a t e s

Dec 2017

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SLIDE 7

Annual growth of fibre subscriptions 2017

20 40 60 80 100 120 140 Ireland Australia France United Kingdom New Zealand Switzerland Luxembourg Belgium Spain Germany Poland Italy Canada Austria Portugal Hungary Sweden Slovenia Norway United States OECD Netherlands Finland Denmark Czech Republic Estonia Slovak Republic Korea Latvia Japan Lithuania Percent

Ireland outcompetes with 420% growth

Source: OECD, broadband portal, http://www.oecd.org/sti/broadband/broadband-statistics/

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SLIDE 8

A wide range of Wholesale-only entities

Network sharing Tower companies Wireless Utilities Functional separation Structural separation National Broadband Networks Municipals networks

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SLIDE 9

Wholesale-only mobile operator

The Red Compartida in Mexico: “A wholesale, neutral …telecommunications infrastructure sharing network to offer the largest coverage, capacity and quality in wireless services. Red Compartida is not the “4th mobile carrier” but a network in service to all carriers.”

Red Compartida is a PPP between ALTÁN Redes and the Organismo Promotor de Inversiones en Telecomunicaciones (Promtel – telecommunications investment promotion agency.)

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The network currently covers 32% of the population, 5.8 million

  • f the rural population

Source: https://www.altanredes.com/en/why-choose-red-compartida/

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SLIDE 10

“We sell dumb pipes. We don’t sell value added services” “The service we sell is a commodity and as such we strive to have the lowest cost of production in

  • rder to be profitable in a commodity business.”

Dave Schaeffer, CEO Cogent Communications*

* Goldman Sachs Communacopia Conference, Bloomberg transcript, 2017-09-12

”Smart people buy dumb pipes”

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SLIDE 11

KOSC Telecom a new player in France

  • Provide wholesale DSL and fibre services to B2B
  • perators, thanks to a dedicated wholesale-only

network connecting 180 town and cities in France.

  • Offers Connectivity as a Service to BtoB carries which

can get access to a complete wholesale offer in France.

  • Kosc has signed a long-term agreement with Orange to

co-invest on a nationwide fibre infrastructure, and is aiming to strike partnerships agreements with all major French infrastructure operators and Public Initiative Networks.

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Utilise the balance sheet by increasing gearing

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Net debt/EBITDA European operators American Tower CELLNEX TELECOM SAU Chorus Netlink

Source: Bloomberg European operators is a revenue weighted average of BT, DT, Orange, KPN, Swisscom, Telefonica and Telia Company

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SLIDE 13

Declining Return on Invested Capital (ROIC)

2 4 6 8 10 12 14 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Percent European operators American Tower CELLNEX TELECOM SAU Chorus Netlink

Source: Bloomberg European operators is a revenue weighted average of BT, DT, Orange, KPN, Swisscom, Telefonica and Telia Company

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SLIDE 14

Risks with wholesale-only business

  • If there are limited number of service providers and

vertically integrated operators control the market

  • Depending on the timing of the launch, existing

platforms and customer base

  • Level of competition from other infrastructure

providers

  • Increased fixed mobile substitution is a challenge for

wholesale-only fibre networks

  • Risk for policy makers: long term investment

incentives

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SLIDE 15

Advantages with wholesale-only

  • Utilise the balance sheet by attracting long term

investments

  • Long term customer relationships and lower risks
  • Improved broadband coverage through cost effective

rollout

  • Increased utilisation of networks, reduced costs
  • Facilitate intense downstream competition with third

party service providers and operators

  • Favourable treatment by regulators
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Concluding

  • Open networks that provide wholesale access at

efficient prices could contribute to improved competition for the benefit of users.

  • Competition on the wholesale market is vital in
  • rder to maintain investment incentives.
  • Wholesale-only operators could be consolidator

and attract long term investments.

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Q&A Thanks!

Contact: bengt.molleryd@pts.se

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SLIDE 18

Concept Definition Capital Expenditures (Capex) Funds used to acquire intangible or physical assets EBITDA Earnings before interest, taxes, depreciation and amortization Free cash flow Operating cash flow minus capex Net debt Netting the value of a company’s liabilities and debts with its cash and other liquid assets Revenues/Sales The amount of money that a company actually receives during a specific period ROIC Return on Invested Capital, indicates how effectively a company uses the sources of capital (debt and equity) invested in its

  • peration

Source: Bloomberg

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SLIDE 19

www.oecd-ilibrary.org/science-and-technology/development-of-high-speed-networks-and-the-role-of-municipal-networks_5jrqdl7rvns3-en