BROADBAND, TV and BUNDLING - Cable's 2020 Vision

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BROADBAND, TV and BUNDLING - Cable's 2020 Vision
BROADBAND, TV and
BUNDLING
Cable‘s 2020 Vision
BROADBAND, TV and BUNDLING - Cable's 2020 Vision
BROADBAND, TV and BUNDLING - Cable's 2020 Vision
European Telecoms
                     A EUR
          European telecoms - a 250 Bnmarket
                                €275bn marketwith many competitors

   Western European Telco Revenues 2009                                                                                                                Total = 275
   (in Bn €)
                                                 127                                                                    74               49                25
100%
                                                  other
                                              Telia Sonera                                                             other
                                              Bouygues Telecom
                                               Hutchison                                                                                                   other
80%                                              KPN                                                                   Belgacom           other
                                                                                                                       Swisscom
                                             Vivendi / SFR                                                               OTE
                                                                                                                          BT                                ono
                                            Telecom Italia
                                                                                                                     Telia Sonera                         Ziggo
60%                                      Deutsche Telekom
                                                                                                                          KPN           Telenor         Numericable
                                                                                                                                          Neuf             KDG
                                                                                                                  Telecom Italia
                                                                                                                                      Liberty Global
                                               Telefonica                                                                              Virgin Media       Canal+
                                                                                                                                        Belgacom
40%                                                                                                                                          BT
                                                                                                                                      Telia Sonera
                                                                                                                 Deutsche Telekom         KPN
                                                FT/Orange                                                                             Telecom Italia        Sky
                                                                                                                                    Deutsche Telekom
20%                                                                                                                  Telefonica
                                                                                                                                       Telefonica      Liberty Global
                                               Vodafone
                                                                                                                       FT/Orange
                                                                                                                                        FT/Orange       Virgin Media
 0%
                                               Mobile                                                                Fixed          Broadband              TV
       Note:      TV includes cable TV, satellite TV, terrestrial TV, and IPTV
                  Countries included        AT, BE, DK, FI, FR, DE, GR, IE, IT, NL, NO, PT, ES, SE, CH, UK (mobile, fixed and bb)
                                            AT, BE, DK, FI, FR, DE, IE, IT, NL, NO, PT, ES, SE, CH, UK (TV)
       Sources: IDC, Informa, Booz & Company analysis
BROADBAND, TV and BUNDLING - Cable's 2020 Vision
DAVID AND GOLIATH
                        Even After Consolidation
                                   Telco Incumbents                                                                                          Total Cable Industry
                                       € Bn 20101)                                                                                                € Bn 2010

D                                                                                               27.3                    8:1          3.5

F                                                                                        23.3                       14:1       1.6

E                                                                                 19.7                              10:1        1.9

UK                                                                              18.0 2,3)                               7:1         2.5 3)

NL                                                                 9.3                                                  4:1     2.4

B                                                                                                                       4:1
                                                             5.0                                                               1.3

AT                                                                                                                      4:1
                                                       2.4                                                                    0.6

IR                                                                                                                      7:1
                                                      1.8                                                                     0.3

    2000                                                                    2010
    27 telcos
      Note:
                                                                            22 telcos
                  Revenues include fixed telephony, mobile, telephony, internet access, and TV distribution
         1) Figures not fully consistent due to different revenue categories and reporting periods; 2) Exchange rates
                                          yearly average accounting period

    10000 cable                                                             7000 cable
     Sources: Screen Digest, Annual Reports 2010 (where available), oanda.com, Booz & Company analysis
BROADBAND, TV and BUNDLING - Cable's 2020 Vision
ARE WE RELEVANT?
Getting There
BROADBAND, TV and BUNDLING - Cable's 2020 Vision
Investments Drive Competitive Advantage

                                     Cable operators have invested
                                      over €22bn into the network
                                         over the past 6 years

                                     In 2009, the Capex amounts to
                                            23% of revenues

                                      With these investments Cable
                                     realizes the first encompassing
                                           fibre-powered NGA
                                               infrastructure

        Source: Solon
BROADBAND, TV and BUNDLING - Cable's 2020 Vision
THE DIGITAL AGENDA –
                 Realizing the targets

 The European Cable industry …

… already today covers 50% of EU households with 10 Mbps plus

… by 2013 will cover 51% of EU households with speeds of 100 Mbps and more

… will provide 100 Mbps services to a minimum of 27m, best case 51m subscribers by 2020*

… reaches out to small and medium enterprises with ultra high speed offers

… forces telecom incumbents to start investing again

*Source: Solon
BROADBAND, TV and BUNDLING - Cable's 2020 Vision
Cable operators are leapfrogging DSL with DOCSIS 3.0 –
 Already now Cable 2-6 times faster than best Incumbent offering
 CABLE’S LEAD ON SPEED WILL FORCE TELECOM INCUMBENTS TO INVEST IN NGA

 Bandwidth of Broadband Infrastructures
 vs. Requirements of Applications
 Illustrative, Mbps                                                           NGA Networks

                                                                             400           >400

           Cable technology
           Fixed-line / Fibre technology

                                                                                           HDTV
                                           50                    50                   Multiple Stream

                                                     25            Photoproc./
                                                                UGC Gaming     HDTV
                              6 Music/ VOD IPTV Single Stream
            0.064               Video                                      Single Stream
                    E-mail

      ISDN/ Modem         ADSL        EuroDOCSIS   ADSL2+       VDSL     EuroDOCSIS        FTTH
                                          2.0                                3.0
 Indi-
cative    2002            2004             2006      2007        2008        2009           2010+

 Source: Solon
BROADBAND, TV and BUNDLING - Cable's 2020 Vision
Infrastructure competition is needed
                           Infrastructure competition drives penetration

Broadband Uptake in Cable and Non-Cable Countries
% of households
Western Europe                                           Central and Eastern Europe
                                                 65%
                                         59%                                                   51%
                           54%
                                                                                  39%
                                  ~2 years       55%
           43%                                                        31%
                                         48%                                     ~ 2.5 years
                                                          22%
                                                                                               27%
                           39%
                                                                                  18%
                                                                      12%
           27%
                                                          7%
           2006           2007           2008    2009     2006       2007        2008          2009

             Markets with infrastructure competition    Markets with service competition

Source: Eurostat, Screen Digest, Solon
BROADBAND, TV and BUNDLING - Cable's 2020 Vision
Our Digital Agenda

                            Cable Europa (ONO)             Spain         100 Mb/s
                            Cabovisao                     Portugal       120 Mb/s
                            Canal Digital                 Norway         100 Mb/s
                                                                                    1.2 and 1.4 Gb trials
                            Com Hem                      Sweden          200 Mb/s
                            Get                          Norway          200 Mb/s
                                                                                      in Hamburg and
                            Kabel Baden Würtemberg       Germany         100 Mb/s
                            Kabel Deutschland            Germany         100 Mb/s
                                                                                           Zurich
                            Numericable                    France        100 Mb/s
                            Sanoma Television Welho       Finland        200 Mb/s
                            Tele Columbus                Germany         100 Mb/s
                            Telenet                       Belgium        100 Mb/s
                            Liberty Global                               120 Mb/s
                            UPC Austria                     Austria      100 Mb/s
                            UPC Czech Republic         Czech Republic    100 Mb/s
                            Unitymedia                    Germany        128 Mb/s
                            UPC Hungary                    Hungary       120 Mb/s
                            UPC Ireland                     Ireland      100 Mb/s
                            UPC Netherlands              Netherlands     120 Mb/s
                            UPC Poland                      Poland       120 Mb/s
                            UPC Romania                   *Romania       100 Mb/s
                            UPC Slovak Republic        Slovak Republic   120 Mb/s
                            UPC Cablecom Switzerland     Switzerland     100 Mb/s
                            Virgin Media                      UK         100 Mb/s
                            YouSee                        Denmark         50 Mb/s
                            Ziggo                        Netherlands     120 Mb/s
                            Zon Multimedia                 Portugal      200 Mb/s

*100 Mbps service launched in Cluj, Romania
The Competition Intensifies, Disruptive technologies

 Infrastructures

   Platforms

    Content

      TV’s
Over the Top is real, and here to stay
And not just in the US
Next Battlefield: Video Driven and Hungry
for Bandwidth
Most New TV platforms do innovative services

                                                                Tele2
       Functionality        UPC   KPN Digit.   Canal Digitaal           KPN IPTV   XS4ALL   Online
                                                                IPTV

Digitaal beeld- & geluid-
kwaliteit                                                                      *       
Opnemen van
programma's                                                                    *       
Pauzeren van
programma's                                                                    *       
Uitzending Gemist                    -              -                            *        -
Video on Demand                      -              -                            *        -
HD                                   -                                          *       
Cable Evolution – Competition
Intensity of
Competition
                 1995             2000   2005                  2009/2010

                                                                                          Cable Evolution

               1950 DSL Service
                         1990               Infrastructure
                                            2000                                  2010
                                                                           Over-The-Top
                  Competition/
                       1950    LLU
                                 1990      Competition
                                              2000      / IP               2010
                                                                           Competition
                                            Convergence
Cable Evolution – Consumer Demand
Intensity of
Competition
               1995          2000      2005                 2010

                                                                                 Cable Evolution
               Technology defined   Convergence and customer Brand, lifestyle, convenience
                                     care consumer decisions
               consumer decisions                                consumer decisions
So, where does that leave bundling?
Bundling is a marketing concept, not a
             market definition

• How on earth do you define it?
• More than 80 product combinations possible and everyone keeps offering single
play products as well
• Certain bundles are technically implied:
     •For telcos it is difficult to offer IPTV without DSL
    •For cable operators it is generally difficult to offer broadband, voice of DTV
         without analogue
• Hence, bundling is also a tool to intensify infrastructure competition, to convince
customers to switch infrastructure
• Many cable operators achieve a 35% bundle ratio, but half of those are two-play
• Those ratios are changing, but slowly
•
Triple Play Bundles
            Germany                                 Netherlands

                              32 Mbps                                    25 Mbps

                              64 Mbps                                    60 Mbps

Bundles built on broadband speed         New “All-in” Fiber Power bundles

           Switzerland                                Ireland

                              50 Mbps                                    20 Mbps

                                  100                                    30 Mbps
                                  Mbps

 Three new 3P offers introduced           Expanding 100 Mbps footprint
Is Analogue Television Indispensable to
           offer a bundle?

• Plenty
       of new entrants have entered the television market with bundles using
IPTV, DTT and satellite
• DTT in the Netherlands achieved spectacular growth, totally outside a bundle
• Both in NL and Belgium over 1,2 million DTV customers were signed up in
previous years, telco incumbents achieving a 42% yoy growth in tv
• Analogue penetration in Belgium is down to 38% in 2011, expected to be at 17%
in 2013
•
Digital TV is swiftly replacing analogue TV

4.534k        4.554k                        4.575k                       4.591k   4.607k

 47%
                54%
                                              62%
                                                                           72%
                                                                                   83%     Digital

 54%
                46%
                                              38%
                                                                           28%
                                                                                   17%     Analogue

2009           2010e                         2011f                        2012f   2013f
           Belgian TV households with digital or analogue TV

             Sources: e-Media Institute; MAVISE; Capgemini Consulting analysis                       22
Digital Surpasses Analog
Is there a competition problem?

• TV prices in Europe are very low, even for very innovative services
• Cable’s market position in typical historic CATV countries is fast eroding from 85% in
2006 to 70% in 2010 and 60% in 2013
• Competition is intense, leading to downward price pressure and a constant
development of new features
• Unlikely that bundles will ever be more expensive than the sum of the individual
services
•Even if a choice can be made which of the bundle options would be submitted to a
SSNIPP test, it will not work, because customers could simply move back to 2- or 1- play
services
•
The Openness Debate
                                  Distribution-                      Aggregation-                           Search-                 Community-           Device-
                                    centred                            centred                              centred                   centred            centred

   "Consumer-
     perceived
                                     "Closed"                              "Open"                           "Open"                    "Open"             "Closed"
    openness"

            Open

                                     IP capacity                                                          Search services           Community platform

                                                                                                         Auxiliary products2

 Actual                        Managed transport1                          TV channel                                                    Content         Content platform3
Degree of                                                                    Ad sales                       Ad platform                Ad platform          Ad platform
                                    Platform/STB
openness

                                   Sales channel                      Content/distr. rights                                             User data
                                                                         Sales   channel4                Search algorithm                                 Sales channel
                                  Customer data                          Customer data                       User data                                      Device/OS

          Closed

   1. E.g. in cable DVB-C, satellite DVB-S 2. OS, Mail, Maps, etc. 3. E.g. iTunes, App Store 4. Pay TV                         = Key assets
   Source: BCG Analysis
Conclusions

Cable’s investments in technology are paying off throughout Europe
Cable’s broadband competition is forcing incumbent telcos to invest again
Infrastructure competition is what Europe needs, regulated wholesale access is marginalising

Regulated access for telecom incumbents to analogue TV, DTV or broadband of cable operators,
   would harm a very effective wireline competition just starting and would take a way an essential
   incentive to invest by these incumbents themselves

Bundling is a marketing concept, not a market definition
Analogue TV is not an indispensable element of any bundle
TV distribution markets in Europe are extremely competitive

If anything, bundling makes these markets more competitive, certainly when the mobile component is
     added to the bundle
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