BuSINESS aNalySIS for tElEcomS ProfESSIoNalS July/augusT ...deploy Lte networkssome big...

SPENDING TIMECommitment to spending on new network technologies, while maintaining healthy balance sheets, is a challenge for operators

news in brief

4 Timeline A roundup of some of the major stories reported in our daily news service, www.totaltele.com

network strAtegies

6 LTE network sharing High capex costs to deploy Lte networks could lead more telcos to consider sharing the build and operating burden.

business And finAnce

10 Fibre funding How governments and telcos are working out the dynamics of funding new fibre networks. Plus stats on current fttx rollouts.

tecnoLogy trends

14 Agile optical networks the holy grail of dynamic optical networks that can reconfigure themselves to provision capacity and restore faults.

content strAtegies

16 Quadruple-play bundling models Mobile is proving a tricky sell for operators turning to quad-play to improve ArPu and keep end users.

stAtistics

20 Prime Numbers striking statistics from key telecoms reports, including the latest global mobile, iPtV and mobile tV subscriber numbers.

lEaDEr coNtENtS

Ian Kemp Editor

ian.kemp@ totaltele.com

BuSINESS aNalySIS for tElEcomS ProfESSIoNalS July/augusT 2010

over the next 18 months fixed and mobile operators will be taking crucial deci-

sions on capex commitments for some big infrastructure projects. in this issue we look at two of the key technologies in which carriers are investing: Lte and fibre networks.

Many operators are carrying out trials of Lte, but most are choosing the circumspect path of moving to HsPA upgrades before fully committing to deployment. the gsM Association says there were 296 commercial HsPA networks and 40 HsPA+ networks worldwide by June. it cites figures from deutsche bank that operators will invest up to us$72 billion globally in non-Lte

mobile broadband technologies over the next 12 months.

However, there are some early Lte movers with clear rollout time-tables, and analysts are forecasting accelerated spend to 2015 (see p.6). nevertheless, the cost of deploying Lte is high, not least in terms of spectrum and backhaul costs. one way operators could reduce some of the burden is to share Lte infra-structure: one analyst company in our article calculates that could lead to capex savings of up to 30%.

infonetics research in a recent report says telcos reduced capex by 5.9% worldwide in 2009 (see chart p.3). it forecasts global carrier capex will decline again in 2010, followed by a new investment cycle starting in 2011 driven by a wave of mobile upgrades, including Lte rollouts, and fibre broadband networks.

governments and operators are still grappling with the business models for those fibre networks and how to avoid new ngn service divides. on p.10 we outline some of the latest plans and figures for fibre deployments globally.

but while subscriber growth in mobile and broadband continues apace, revenues remain flat at best. telegeography says service provid-ers added 161 million wireless and 14 million broadband subscribers in the first quarter, but revenue for the top 30 service providers ($300 billion) was down 2.1% on Q4 2009. growth is largely coming from developing countries where ArPus are low.

in europe some carriers are turning to quadruple-play strate-gies in order to raise ArPus, as well as retain subscribers (p.14). yet provisioning all these new services will be an added burden for opera-tors, which are holding out for the holy grail of agile optical networks (p.16). i hope you enjoy this issue, and in the next Total Telecom Plus (september) we will continue to bring you analysis on telco business models and technologies. n

‘Global carrier capex will decline again this year’

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Motorola reveals new identityMotorola announced its new identity ahead of its split into two businesses in the first quarter of 2011. the company’s Mobile devices and Home businesses will be known as Motorola Mobility, and will be headed up by co-ceo sanjay Jha. the other co-ceo, greg brown, will be in charge of the enterprise Mobility and networks divisions, which will be renamed Motorola solutions.

TeliaSonera sells in Denmarkteliasonera sold its danish unit stofa to private equity firm ratos for 1.1 billion krone (E145 million). the unit provides voice broadband and tV services.

China dents IPTV hopesreports suggest china could halt iPtV services as it prepares to allow cable operators to provide voice and data services. china telecom’s iPtV service was shut down in february because it did not have a broadcast licence.

Nokia sells wireless assetsJapan’s renesas electronics corp. reached an agreement to buy the wireless modem operations of nokia for around E160 million. renesas electronics was formed in April following a merger between nec electronics and renesas technology, creating the world’s third-largest semiconductor company.

Telekom Austria restructurestelekom Austria completed a restructuring of its operations, combining its fixed and mobile divisions into A1 telekom Austria and creating a management holding company, telekom

tImElINE

to assess how services can be deployed using shared network infrastructure.

Unlimited data plans scrapped At&t, o2 uk and 3 uk over the summer period scrapped unlimited mobile data packages, instead setting monthly caps and tiered tariffs.

EC roaming caps upheld the european court of Justice ruled that roaming caps brought in by the eu are legal and justified, dismissing actions brought by Vodafone, telefonica o2, orange and t-Mobile.

Handset merger in Japan fujitsu and toshiba agreed to merge their mobile operations, creating Japan’s second largest handset maker behind sharp.

Microsoft kills Kin in Europe Microsoft said it would cancel plans to sell its kin phones in europe only two months after they were launched in the us.

BUSINESS

Battle for Vivo stake in Brazil spain’s telefonica was locked in a battle to gain full ownership of brazilian mobile operator Vivo, which it jointly controls with Portugal telecom (Pt). the Portuguese government moved to block telefonica’s attempted E7.15 billion purchase of Pt’s 50% share in Vivo, a move subsequently ruled illegal by the european court of Justice. telefonica earlier sold 8% of its 10% stake in Pt in an attempt to clear the way for the deal.

Reliance buys TV fi rm reliance communications agreed to buy india’s largest cable tV company digicable network . the move will bolster the iPtV plans of reliance, which will merge its internet tV and broadband operations into a single company called reliance digicom.

Broadband rights in Finlandfinland made broadband services of at least 1 Megabit per second a basic right for its citizens in its new universal service obligations. it is the first country wordwide to mandate high-speed internet access as a basic right. According to the regulator, 68% of households in finland had an internet connection at the end of last year, 95% of which were broadband services.

New mobile TV trials o2, orange and Vodafone will carry out joint trials of broadcast mobile tV technology integrated Mobile broadcast in the uk from october. iMb, a 3g Partnership Project standard, will be used

Microsoft also announced a new mobile operating system for enterprise users called windows embedded Handheld.

Tyco buys into networks tyco electronics agreed to buy Adc telecommunications for about $1.24 billion. the company said the acquisition will double the size of its networks business, including fibre optic technology, which currently contributes about 8% of its total revenues.

Versatel sells cable businessgerman operator Versatel sold its retail cable business Versatel kabel to Paris-based financial investors chequers capital for E66 million, leaving it to focus on its wholesale network operations.

News Corp pursues BSkyBnews corp made a 700 pence a share, or approximately £7.8 billion, cash offer for the 61% stake it doesn’t own in bskyb group. bskyb rejected the offer, holding out for a higher price.

a roundup of the major stories in telecoms in the past month, as reported in our daily news service, www.totaltele.com

source: Infonetics Research

Service provider capex worldwide

325

0

20%

15%

10%

5%

0%

ave

rage

cap

ex in

$u

s b

illion

s

ave

rage

cap

ex-t

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e ra

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service providers spent us$295 billion on telecoms and non-telecoms capital expenditure projects worldwide in 2009, 5.9% less than they spent in 2008, says Infonetics. Carriers reduced investment in network infrastructure by 8% in 2009, with the deepest cuts in IP voice infrastructure, optical network equipment, video infrastructure and IP routers. service provider revenues in 2009 were us$1.65 trillion, a decrease of 4.2% from 2008 says Infonetics.

2009 2010 2011 2012 2013 2014

n Capex — Capex: Revenue

4 www.totaltele.com July/august 2010

Austria Ag, to manage the group’s operations in eight cee countries. the company says it has a total of 16,000 employees and roughly 21 million customers.

NETWORKS

US boost for broadband netsus president barack obama signed a memorandum to make 500 MHz of spectrum available over the next 10 years for broadband wireless services. obama also announced $795 million in grants and loans to expand broadband in rural and hard-hit communities, part of the $7.2 billion recovery Act.

Telstra agreement on NGNAustralian incumbent telstra struck an agreement to allow state-owned broadband company nbn to use its copper and cable network infrastructure for the proposed nationwide fibre-to-the-home network. telstra also agreed to migrate its traffic onto the national broadband network, and is now in the running to construct the network (see p.10).

New submarine networkAlcatel-Lucent signed a us$500 million (E400 million) contract with a consortium of 20 operators to build a submarine network between south Africa and france. the 17,000-kilometre network will link 23 countries and is expected to go into operation in the first half of 2012.

Indian broadband auctionindia’s broadband wireless auction saw six companies winning licences for a total of us$8.23 billion (E6.5 billion). infotel won the right to offer services in all of the country’s 22 areas at a cost of inr128.48 billion (E2.3 billion), and was promptly bought by reliance industries for inr48.00 billion

(E850 million). Among the other winners were bharti, Qualcomm and Aircel.

UK spectrum auction timetablethe uk is expected to outline plans by the end of July to auction 800-MHz and 2.6-gHz spectrum next year. the auctions are expected after mid-2011.

Sprint extends WiMAXsprint nextel extended wiMAX coverage and services to seven new metropolitan markets, but said it did not rule out a move to Lte technology. that opened up renewed speculation that sprint, the third biggest mobile operator in the us, could merge with the fourth largest t-Mobile usA, which is adopting Lte.

PEoPLE

New head for Tele2Mats granryd will become the new chief executive of swedish operator tele2 from the start of september, replacing Harri koponen who left in february. granryd is currently head of ericsson’s northern europe and central Asia operations.

Vimpelcom chiefs oustedVimpelcom’s joint chief executives boris nemsic and Alexander torbakhov left the company and were replaced by former chief Alexander izsoimov. Vimpelcom will now be managed as four business units: russia, ukraine, the cis and international. russia’s second largest operator with 89 million subscribers, Vimpelcom in April merged with ukraine’s kyivstar where izsoimov was latterly ceo.

New Rostelecom CEorussian state-owned operator rostelecom appointed Alexander Provotorov as chief executive, moving from his position as

tImElINE

oraNGE rEcruItSThe recently appointed CEO of France Telecom, stéphane Richard (pictured), announced plans for a widespread re-structuring of the company, pledging to recruit 10,000 em-ployees in France by 2012 and increase the company’s glob-al subscriber base to 300 mil-lion by 2015. France Telecom had 183.3 million subscribers at the end of the first quarter. The five-year plan, called Con-quests 2015, focuses on four key areas: employee well-be-ing, networks, customers and international development. Part of its aim is to restore a sense of recognition and responsi-bility among middle manage-ment, as well as to define ca-reer paths more clearly “to help employees build bridges from very strenuous jobs to less strenuous jobs”, said Richard. The company has been under scrutiny following the suicides of 32 workers over the past two years. France Telecom plans to invest €2 billion in fi-bre access in France between now and 2015, providing cov-erage to 40% of households by 2012. as a result it is review-ing its strategy of buying or de-veloping exclusive content, and could sell its TV channels. since 2008 it has spent €400 million a year on content such as exclusive rights to French football matches. But it will continue to invest in its mobile networks in africa, and look to launch lTE “by 2012 to 2013”. as part of the strategy, Richard reiterated aggressive plans to drive growth in emerging mar-kets, particularly in africa and the Middle East.

first deputy general director at national telecoms holding oAo svyazinvest.

Zain restructures managersZain has restructured its management team. Among the key appointments, barrak Al sabeeh becomes chief operating officer, Haitham Al khaled chief technology officer and ossama Matta chief financial officer.

Sarin in line to head BSNL?former Vodafone chief executive Arun sarin could be in line to head indian state-owned operator bsnL according to reports. the current bsnL head, kuldeep goyal, retires in July.

Skype appoints Yahoo manskype recruited yahoo’s VP of engineering for integrated customer experience, Madhu yarlagadda, to be its new chief development officer.

Eircom prepares for cutsrepublic of ireland incumbent eircom is preparing a company restructuring that could see up to 2,000 redundancies, on top of the 1,200 cuts it is already planning to make through voluntary redundancies.

Telkom SA gets new chiefJeffrey Hedberg has been appointed acting ceo of south Africa’s telkom sA, in place of reuben september who retires in november. then in July Peter nelson announced that he will resign from his position as chief financial officer in october.

orange/T-Mobile merge stafforange uk and t-Mobile uk completed the integration of their employees into new company everything everywhere (ee), creating what they claim is the uk’s biggest communications company, with 16,500 staff.

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High expenditure levels to deploy lTE networks, including spectrum and backhaul costs, could force more operators to consider network sharing. By Ken Wieland

LT E B U S I N E S S M o D E L S

ltE: sHaRINg THE BuRDEN

NEtWorK StratEGIES

Mobile operators could make considerable savings by sharing the Lte network burden,

following the example of 3g agreements last year between t-Mobile and 3 in the uk and telefonica and Vodafone throughout europe. but they will need to choose their partners carefully if they are to balance those savings with commercial success in the long term.

Already there are signs some operators are looking to cut Lte costs through network-sharing arrangements. in April 2009 telenor formed a joint venture with tele2—net4mobility—to roll out Lte infrastructure together in sweden; commercial services are scheduled to start this year (see box p.9). then in June this year Polish mobile operators orange and P4 (Play) confirmed they are plan-ning to form a joint-venture company to bid for Lte spectrum in the country’s upcoming 2.6-gHz auctions. the Polish regulator is selling just two frequency blocks, each too large to be used by a single operator, indicating that some form of network sharing is likely.

the attraction of partnerships is clear: the cost of rolling out networks while at the same time maintaining 3g and gsM assets can make business models tricky. According to us research company Maravedis, Lte infrastructure capex alone will reach us$14 billion globally in 2015, while infonetics research forecasts the Lte infrastructure market will reach $11.4 billion worldwide by 2014 (see chart right).

the amount that operators could save through network agreements depends on the level of sharing. but one analyst company, Analysys Mason, calculates that operators jointly rolling out a new-build Lte network of 2,500 sites, in a developed economy, will typically realise 30% in capex savings over a five-year period if they enter an arrangement to share radio access networks (rAns). in addition, they will achieve an annual 15% opex reduc-

tion by year five, it estimates.yet despite the lure of significant cost

savings, some operators are wary about the idea of Lte network sharing. tommy Ljunggren, VP for mobility services at teliasonera, which launched the world’s first commercial Lte services in stockholm and oslo last december, emphasises there is much more to consider than cost savings before putting pen to paper on a network-sharing deal.

“you have to have a shared goal and a shared vision of network development with your partner, as well as the same ambition levels,” he says. “we looked at doing an Lte network-sharing deal with tele2 [sweden], but they didn’t meet our prerequisites.”

nevertheless, Ljunggren doesn’t rule out future Lte network-sharing deals in any of the other markets in which the operator has a presence, including denmark, finland and norway.

“finding the right partner is key to making a network-sharing agreement work,” says frédéric Pujol, a wireless expert at research and consulting firm idate. “ideally, they need to have the same size and the same strategy in terms of deploying the technology, as well as have agreement on suppliers. it has to be a long-term commitment.”

operators most suited to partnering with each other in a particular

geographical market may well turn out to be close competitors. both will need to have similar ideas about network coverage and site density if, as Pujol suggests, they are to have any chance of coming up with a common Lte network rollout plan and strategy they can stick to in the long term.

in fact, it is the potential for longer-term cost savings that could prove to be most attractive to operators. “capped capex and operational efficiency are the key drivers for network sharing,” says stéphane téral, a principal analyst at infonetics research. “Lte operators don’t want to replicate the 2g and 3g story in today’s environment, which is character-ized by increasing [traffic] usage but diminishing returns.”

the design of Lte lends itself more easily to network sharing at the active level—including base stations and anten-nas, for example—than 3g networks. that’s good news for operators, because the potential cost savings from active sharing are much greater than passive sharing of sites and tower masts. According to Abi research, operators that carry out sharing of active network elements could enjoy at least 40% additional savings in capex and opex over a five-year period compared to their counterparts striking only passive site-sharing deals. that could equate to as much as us$60 billion in extra savings for operators globally, says Abi research.

one reason why Lte is more suited to active sharing is that it is a flat all-iP network architecture, which means there are fewer network elements to deal with than 3g. Lte rAn interfaces also allow interoperability with multiple cores simultaneously. “3g suppliers retro-fitted infrastructure and standards to allow active sharing,” says ricky watts, cto at Aircom, a mobile equipment and services provider and network consultancy. “with Lte, active sharing is built-in from the

Worldwide LTE infrastructure market

12

6

02010 2012 2014

• E-UTRAN (FDD/TDD macrocell eNodeBs)

• Evolved Packet Core

source: Infonetics Research

Rev

enue

in $

us

billi

ons


NEtWorK StratEGIES

ground up, so mobile operators can be more aggressive on it if they want to.”

the extent that operators can share their backhaul costs and re-use existing sites for Lte will also have a significant bearing on the cost-saving calculation. According to idate figures from 2009, backhaul expenditure can account for as much as half of the capex needed to deploy Lte rAn equipment in urban and metro-politan areas (see table p.8). Any far-reaching agreement between opera-tors to share backhaul costs would therefore slash the Lte capex bill.

idate estimates average Lte invest-ment per inhabitant to cover 75% of a population would be €55.3. its model assumes an operator using 2x 20-MHz bandwidth in the 2.6-gHz band over a seven-year period (2012-2018).

idate also assumes in its Lte rAn investment calculations that out of every ten existing sites that mobile network operators have in urban areas they will be able to place their Lte equipment in nine of them and take advantage of the antennas already installed there. “our assumption [made in 2009] of 90% re-use seems to be [still] in line with current developments,” says idate’s Pujol. “we took into account the construction costs for new sites [includ-ing antennas and power], in our Lte rAn investment figures.”

but terry norman, a principal analyst at Analysys Mason, believes the 90% re-use figure is overly optimistic: “Around 20%-30% of Lte sites will need to be new, as there can be loading issues with some existing sites, as well as problems with landlords [to install new equipment].”

in fact the greater number of new sites required for Lte rollout makes network-sharing even more attractive because the

Prices paid for 2.6 GHz mobile spectrum

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0.250

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potential cost savings are much higher. Analysys Mason calculates that site land rental, in developed markets, can account for as much as 40% of the overall opex for a mobile network, so to share that expense is clearly attractive. Add in the 50% capex saving of dividing site-build costs by two and the savings really start to mount up, particularly if operators choose to go down the active sharing route. Analysys Mason calculates that Lte equipment accounts for around 15% of total site costs.

but norman does not believe network-sharing is a prerequisite for a successful Lte business case. Lte equipment, while more advanced, is no more expensive than previous generations of mobile technol-ogy, for example, he says. “the merits of network sharing will have to be analysed on a case-by-case basis,” says norman. “if

there was enough demand, in densely-populated areas, an operator could be very well justified in going it alone.”

How keen operators are on Lte network sharing might also be influenced by the cost of spectrum. since idate made its Lte capex estimates last year there are signs that the cost of 2.6-gHz spectrum in europe is coming down in some markets.

while idate calculated that an operator would pay, on average, €400 million for 2x 20-MHz of spectrum to cover 50 million inhabitants in a developed economy—working out at €0.20 per megahertz per head of the population (MHz/PoP)—operators in germany ended up paying much less for their paired 2.6-gHz frequencies when the country’s spectrum auctions drew to a close in May (see chart above). deutsche telekom, which forked out the most for its four lots of paired

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Worldwide LTE subscriber forecast (thousands) Subscribers 2012 2015Asia-Pacifi c 11,324 132,379Western Europe 3,454 79,453Eastern Europe 114 15,298North america 10,485 91,079latin america 143 9,673total 25,519 327,883 source: IDaTE (lTE Watch service 2010)

us

$/M

Hz

Pop

0.330

0.224

0.165

0.040 0.028 0.0260.003 0.002


NEtWorK StratEGIES

5-MHz spectrum in the 2.6-gHz band, paid just €0.02/MHz/PoP.

yet teliasonera’s Ljunggren is not convinced that spectrum prices will be a major factor in deciding whether or not to enter into a network-sharing deal. “what really determines the urgency for network-sharing is how much new infra-structure you really need to build,” he says. “with 3g licences we had coverage requirements of 99% of [the] population, which was challenging, and that really pushed us into network sharing.”

nevertheless, pooling of spectrum could be attractive in some markets in order to ensure extensive coverage. in March, private equity company Harbinger announced it will build a nationwide wholesale Lte network in the us, at the same time buying satellite network oper-ator skyterra. Harbinger has said it is willing to pool its spectrum with other licensees to expand network capacity, and analysts expect it to consolidate satellite spectrum owned by terrestar networks, in which it holds a stake. the company may also look to partner with a tier-two

operator, and reportedly has already been in talks with t-Mobile usA.

regulators that don’t attach onerous coverage conditions to Lte frequency bands can take some of the financial pres-sure from operators, as can allowing them to re-farm existing 900-MHz assets for Lte. but because such measures make the Lte business case more attractive, network sharing could persuade opera-tors that would otherwise have been more cautious to bring Lte to market sooner.

tele2 and telenor declared they would pool their respective spectrum resources in 1800 MHz and 2.6 gHz (as well as 900 MHz) to roll out Lte via the net4mobility joint venture shortly after the swedish regulator announced it would extend existing 900-MHz mobile operator licences for ten years until 2015, as well as open the door to Lte in that band. for the time being, though, net4mobility is keeping tight-lipped about the scale of the capex and opex savings it expects to achieve on behalf of its parent companies.

yet if the german auctions are anything to go by, digital dividend spectrum will

be a lot more expensive than 2.6-gHz spectrum, providing as it does a cheaper way to provide nationwide Lte coverage to rural areas. that is because fewer sites are required for signal-boosting equip-ment compared with higher frequencies.

deutsche telekom, telefonica o2 and Vodafone each paid in excess of €0.70/MHz/PoP for their respective two lots of 5-MHz paired spectrum in the 800-MHz frequency band. telefonica, which paid the most for its 20-MHz slice of the digital dividend in germany, ended up having to splash out a hefty €1.21 billion for its 800-MHz allocation (which accounted for nearly 90% of its entire spectrum spend-ing in the german auction).

At these prices, even operators that are cautious about network-sharing might be forced to rethink their position to offset the higher costs of digital dividend spec-trum. Ljunggren says teliasonera is already looking into the possibility of network-sharing agreements in sweden at both 1800 MHz and 800 MHz, with spectrum scheduled to be auctioned off in these frequency bands in Q4 2010 and Q1 2011 respectively.

equally, while passive network sharing has become accepted globally for 3g roll-outs, operators have been far more reluctant to enter active sharing deals. the difficulty of aligning network rollout strategies has been a major reason for that, yet the cost-saving benefits might be too big for operators to ignore as they move into Lte.

Active network sharing isn’t the only way operators can cut costs, says téral at infonetics. “Lte rAn sharing is just one cost-cutting option available to mobile operators,” he says. “in fact, [better] 2g and 3g asset utilization and re-use, along with re-farming, are greater priorities than Lte rAn sharing.”

yet to compete effectively in the mobile broadband market there will be growing pressures to offset the cost of spectrum and equipment, as well as to reduce the cost of installing fatter backhaul pipes to support the higher volumes of traffic that Lte-based applications should bring. And that seems certain to drive Lte network sharing up the agenda. n

LTE growth projections in selected regions20%

16%

12%

8%

4%

0%

source: Pyramid Research

saudi arabia, Bahrain and uaE Middle East Western Europe

n lTE % of mobile subscriptions in 2014 n Data revenue CagR 2009-2014

‘The cost of digital dividend spectrum might force some operators to reconsider sharing’

LTE capex for base case scenario Population of 10 million inhabitants Population of 50 million inhabitantslTE RaN E223m E1,16mBackhaul investment E112m E558mRadio licence investment E80m E400mTotal investment E415m E2,074maverage investment per inhabitant covered: E55.3 source: IDaTE

NEtWorK StratEGIES

French research company Idate forecasts 25.5 million lTE subscribers worldwide in 2012, rising to 327.9 million in 2015. It cites Global mobile Suppliers Association (GSA) fi gures that there were 110 lTE network commitments in 48 countries at the end of May, and that up to 22 lTE networks are planned to be in service by the end of this year and up to 37 by the end of 2012.

Infonetics Research, meanwhile, says Asia Pacifi c and North America will drive the fi rst major wave of LTE rollouts through to 2012. The second wave will begin in 2012-2013 when Chinese operators start their rollouts along with the majority of Western European operators. Infonetics forecasts users could exceed 153 million by 2014, with most of them split between Asia Pacifi c and the EMEA region.

sweden leads the way when it comes to commercial deployments and network-sharing agreements, but analysts think other markets are likely to follow the cost-saving model. “The network–sharing model—already widely deployed in WCDMa in sweden—is …expected to be replicated elsewhere in the world,” says Joss gillet, a senior analyst at Wireless Intelligence, in a recent report . “In sweden, average capex declined to around 5-6% of total revenues in 2009, compared to the 10-11% range recorded in previous years,” says gillet. “Investments in LTE in 2010 are likely to be visible in Q2 and Q3 capex fi gures as several operators in the Nordics prepare for year-end launch.”Selected early commercial launch commitments:n TeliaSonera, the fi rst operator to launch commercial LTE services, in stockholm and Oslo at the end of last year, says it will expand the network to 25 of sweden’s largest municipalities by the end of this year as well as Norway’s four largest municipalities.

n Denmark’s TDC said in april that it hopes to be the second operator to roll out commercial lTE services, initially in the cities of Copenhagen and aarhus this summer.n Net4Mobility, the joint venture between sweden’s second- and third-largest operators Tele2 and Telenor, plans to deploy lTE in 100 swedish cities by the end of 2011, following launches before the end of this year in stockholm, gothenburg, Malmo, Karlskrona and lund . longer term the aim is to cover 99% of the swedish population by 2013. n Verizon has said it will start providing lTE services to 25-30 markets, covering about 100 million people in the us, in the fourth quarter. The operator has committed to its lTE network covering 200 million people by 2012 and its entire 3g footprint the following year. Trials are already being carried out in fi ve cities. Both Verizon and AT&T are deploying LTE in the 700-MHz band, with AT&T planning to launch next year.n Japan’s NTT DoCoMo has said it will to go live with lTE by the end of this year, offering wholesale capacity from the outset. Pre-commercial tests are being carried out in Tokyo, and the operator hopes to cover 50% of the country’s population with commercial services by 2014.n Zain Bahrain aims to complete its lTE network by the end of this year for commercial launch. The operator has already carried out tests in conjunction with Nokia siemens Networks.n Hong Kong operator Csl says it will offer commercial lTE services by October, having carried out pre-commercial trials a year earlier, initially in the 2.6-gHz band.n us operator MetroPCs has said it will launch commercial lTE services in the second half of this year.

Early to rise: front-runners deploying LTE networks

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SEctIoN HEaDEr

Governments and incumbents are still working out the dynamics of funding new fi bre networks in regions where fi nancial models do not always stack up. By Ian Kemp

N E X T - G E N E R A T I o N N E T W o R K S

fIBrE FuNDINg

BuSINESS & fINaNcE

the end of June marked two signif-icant developments in Australia: Julia gillard became the first

female prime minister in the country’s history, taking over from kevin rudd as leader of the ruling Labor Party; and tele-coms incumbent telstra struck an agreement in principle for the govern-ment to use its infrastructure in the construction of the planned nationwide next-generation wholesale fibre network.

the two developments may not be linked, but political vicissitudes are one indication of how easily the rate of growth of fibre services could be impacted, as well as the extent of the funding burden on operators. the next-generation broadband network (nbn) was one of rudd’s key 2007 campaign pledges in Australia, but the main opposition conservative Liberal-national coalition has said it will scrap the project if it wins office in the next federal election—due by April 2011, but which could be called as early as August.

in the uk, meanwhile, the new conservative-Liberal democrat coalition in June confirmed that it will not imple-ment the 50-pence-per-month landline tax proposed by the former Labour government. the tax was intended to raise up to £175 million per year to help fund next-generation network build, particu-larly in rural areas, and ensure minimum 2-Megabits-per-second broadband to all homes by 2012. “instead, we will support private broadband investment, including to rural areas, in part with funding from the digital switchover under-spend within the tV licence fee,” said chancellor george osborne in his first budget speech. then on 15 July the government said it would delay the 2-Mbps commit-ment to 2015, blaming a lack of funding by the former government.

the burden on incumbents could become greater as regulators look to encourage fibre competition. in June the european commission upheld ofcom’s

decision to allow bt to provide only virtual unbundling of its next-generation network for four years, provided physical unbun-dling follows; a similar ruling was made in respect to telekom Austria in July.

Meanwhile the telstra agreement—which comes with an A$11 billion payment to help it decommission its copper network and migrate traffic to the govern-ment-owned ngn—in effect puts an end to the incumbent’s resistance to undergo-ing structural separation just as bt was mandated to do; it also opens the door to telstra putting in a bid to construct some of the new network.

keeping the Australian ngn in the hands of the government should mean more widespread coverage in a country with a dispersed population over a huge land area. but governments elsewhere are still grappling with how to fund fibre rollout in rural areas not likely to be commercially viable for operators.

in June the french government said it will provide €30 million in funding for several dozen fibre network projects in rural regions . And in italy the regulator in July called for telecom italia to work together with a rival consortium to build a common fibre infrastructure. currently, the incumbent plans to offer 100-Mbps broadband to 50% of the population by 2018, and to invest €7 billion in its fixed-line network upgrade in the next three years. in the rival plan, fastweb, Vodafone,

wind and tiscali aim to invest a combined €2.5 billion to bring broadband to italy’s 15 largest cities in the next five years.

As for the uk, spending commitments already made by operators have for some time looked like eclipsing the promise of public funding accrued yearly through taxes—not to mention the deeply unam-bitious government broadband target of 2-Mbps speeds. now operators are accel-erating their spending and rollout timescales. bt in May said it will invest an extra £1 billion in its access network to bring fibre broadband at speeds of 40–100 Mbps to two-thirds of the uk by 2015; it had already set aside £1.5 billion in July 2008 for fibre rollout. Virgin Media has said it will begin providing 100-Mbps broadband services by the end of this year; the cable operator’s 50-Mbps service already passes half of uk households. And among altnets, fibrecity is building an open access fibre network and has set a goal to bring 1-gigabit-per-second serv-ices to 1 million homes in four years.

yet the fibre to the Home council, citing research it commissioned by analysts at Heavy reading, says the uk is in danger of falling behind other western european countries and creating a new digital divide for ngn services. it predicts the uk will be the last nation in europe among 38 countries surveyed to reach “fibre maturity”, defined as 20% of house-holds having a broadband subscription over an fttH network. the new study forecasts the uk will reach this milestone in 2020, between two and four years later than the other major g20 european econ-omies of france, germany and italy. sweden is expected to reach that level in 2011 and the netherlands in 2014.

“the council is also concerned that the uk government’s emphasis on reducing the budget deficit will push fttH infra-structure investments even further onto the sidelines,” said the fttH council in a statement. “furthermore, at present

FTTH/B subscribers, end 2009rank country fttH/B subscribers1 Japan 17,140,0002 south Korea 9,228,3003 usa 5,700,0004 Russia 3,040,0005 Taiwan 1,675,0006 Hong Kong 770,0007 China (1) 710,0008 sweden 537,1009 Italy 325,00010 France 308,200 (1) Not included are the roughly 17 million FTTx + LAN subscribers in China source: IDaTE


BuSINESS & fINaNcE

European economies with highest FTTH/Building + LAN penetration

lithuania

sweden

Norway

slovenia

Estonia

Denmark

slovakia

Finland

Netherlands

Italy

lativa

France

Czech Republic

Portugal

Bulgaria

source: FTTH Council / IDaTE

n FTTH subscribers n FTTB + laN subscribers

there is no clear funding mechanism for local authorities to bring fibre to rural areas that are not likely to attract commer-cial operators.”

the majority of bt’s investment will be in fibre-to-the-cabinet (fttc) technol-ogy, with only 25% to be spent on fibre-to-the-home (fttH) says the fttH council. in particular, rural areas could be neglected, although another analyst company, Point topic, points to altnets including rutland telecom and fibrestream which are aiming to plug the gap.

indeed, Point topic predicts fibre serv-ices will rise sharply in the uk. the number of dsL lines in the uk grew from 550,000 to 12.3 million between 2003 and 2007 says Point topic, and the company expects next-generation fttx broadband to mirror that growth, with 12 million lines by the end of 2016.

“while it took dsL three years to get from almost nothing to half a million, we expect that fttx will cover similar ground in only two years,” says tim Johnson, chief analyst at Point topic. the difference reflects a combination of factors including greater commitment by bt and a much more competitive market, says Johnson .

the global picturewhen it comes to the global picture, new reports show analysts once again releas-ing bullish figures on the growth of fibre deployments. french research company idate says global fibre-to-the-home/building (fttH/b) subscribers reached nearly 41 million worldwide by the end of last year—a greater than 16% increase in six months—and projects that will reach 52 million this year.

“over the next five years this momen-tum is likely to translate into a significant increase in the number of homes passed: by the end of 2014, there will be close to 306 million homes passed for fttH/b around the globe, of which more than half will be located in Asia and 18% in western europe,” says idate senior consultant, Valérie chaillou in the report. in 2014, 18 countries will have deployed optical fibre networks to more than 50% of homes, compared to just eight at the end of 2009.

Meanwhile Point topic in its quarterly

broadband statistics report says fttx accounted for 12.88% of total broadband lines globally, or 62.5 million, compared to 64.33% for dsL (312 million lines) and 20.20% for cable modems in the first quarter to the end of March. Asia Pacific and south and east Asia have 82.76% of the worldwide fttx market, or 51.69 million lines, says Point topic. china is the largest fttx market with 23.2 million subscribers or 37% of the global total; Japan is the second largest country with 17.69 million fttx subscribers or 28.3% of the total market; south korea is third

with 8.32 million subscribers (13.3%).the Australian government is deter-

mined not to be left behind by its Asian neighbours. the national broadband network co. has already started construc-tion of the network and in June announced early trials in new south wales, with serv-ices to include smart metering, virtual learning and high-definition internet tele-vision. in the same month, Alcatel Lucent was named as a key supplier for network equipment, agreeing an initial A$70 million contract. nbn co. said it plans to spend up to A$1.5 billion on network equipment

Top 10 FTTx operators (by subscribers), end 2009rank operator country main technology fttx & architecture subscribers1 NTT Japan FTTH/B gEPON 12,779,0002 China Telecom (1) China FTTH + FTTx +laN 11,160,000 EPON laN/Dsl3 China Netcom (2) China FTTH+FTTx +laN 5,590,000 EPON laN,Dsl4 KT south Korea FTTB EPON/gEPON 4,630,0005 Verizon us FTTH BPON/gPON 3,430,0006 sK Broadband south Korea FTTB/laN gEPON 3,032,0997 ER Telecom Russia FTTB 2,140,0008 AT&T US FTTN VDSL2 2,100,0009 Chunghwa Taiwan FTTB gEPON 1,639,82410 lg Powercom south Korea FTTH/B EPON/gEPON 1,566,206

(1) of which 560,000 FTTH subscribers and 10.6 million FTTx/LAN subscribers.(2) of which 90,000 FTTH subscribers and 5.6 million FTTx/LAN subscribers. source: IDaTE

0% 5% 10% 15%

‘There is no clear funding method to bring fi bre to rural areas not likely to attract operators’


BuSINESS & fINaNcE

during the planned eight-year project. Alcatel-Lucent also won an additional A$15 million contract to provide engi-neering and testing services over the next 12 months during the initial deployment.

European connectionsLooking ahead, the fttH council says just over 23 million european households will be connected to fttH/fttb at the end of 2014—about 8% of all homes in the region—in the 38 countries covered by its forecast (see bottom chart). in the eu, the total will reach 16 million, or 8.3% of all homes.

six of the 21 nations individually analysed by the the fttH council are forecast to achieve 20% penetration by 2014: slovenia, sweden, denmark, norway, the netherlands and slovakia (middle chart). but on current trends, seven of those 21 countries will still be under 10% penetration at the end of 2014: the uk, belgium, Poland, spain, greece, italy and germany.

the uk had 86,000 fttH/b homes passed at the end of last year (3,650 subscribers). that compares with 5.73 million in france (308,000 subscribers), 2.19 million in italy (325,000 subscribers), 1.30 million in sweden (537,000 subscrib-ers), 576,000 in the netherlands (195,000) and 538,000 in germany (87,000).

unlike in many other regions, incum-bents are not currently the major providers of fttH in europe, and the council says this will likely remain the case through the next five years: altnets and broadband providers accounting for 41% of fttH connections; (former) incumbents 33%; and municipal local authorities and utilities companies 26%.

idate in its research says eastern europe currently has 3.5 million fttH/b customers compared to around 2 million in western europe: “some countries in that part of the world, such as Lithuania, have a particularly dynamic market and, in addition to swift and vast rollouts, are managing to persuade the eligible house-holds to subscribe to ultra high-speed access offers.” the fttH council records 726,000 fttH/b homes passed in Lithuania at the end of last year (240,000 subscribers), 1 million in bulgaria (29,000 subscribers), 615,000 in slovakia (63,000) and 415,000 in slovenia (71,000). n

‘Some countries in Eastern Europe such as Lithuania have a particularly dynamic market’

Leading FTTH countries in Europe by connected households (000s, 2014)russia 4650

france 2900

Germany 2550

Netherlands 1440

Italy 1350

Sweden 1300

Spain 800

uK 770

Denmark 680

Norway 550

Portugal 480

Switzerland 420

source: FTTH Council

0 1000 2000 3000 4000 5000

connected households (thousands), December 2014

Leading FTTH countries in Europe by household penetration (2014)Slovenia 35.8%

Sweden 29.2%

Denmark 27.2%

Norway 26.2%

Netherlands 20.4%

Slovak republic 20.0%

finland 17.0%

Portugal 13.7%

france 12.9%

Switzerland 12.5%


0% 5% 10% 15% 20% 25% 30% 35% 40%

Household penetration, December 2014

European region FTTH forecast by connected households (000s)

30,000

25,000

20,000

15,000

10,000

5,000

0


2007

1,584

2008

2,399

2009

3,333

2010

4,872

2011

7,200

2012

10,665

2013

16,420

2014

23,319

Con

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ed h

ouse

hold

s, 0

00s

Sponsors:

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carriers are assessing the trade-offs over how best to architect their networks, from the router to the

optical layer, to boost efficiencies and reduce costs. it is the photonic layer, the ‘plumbing’ that props up the network, where flexible optical wavelength switch-ing will make a telling contribution.

“the challenge of most service provid-ers largely hasn’t changed for some time: dealing with growth in demand economi-cally,” says drew Perkins, cto of optical equipment company infinera. “How can operators grow the capacity on each route and switch it, largely on a packet-by-packet basis, without increasing the numbers of dollars going into the network.”

improving switching at the optical layer has been an ongoing challenge, but new more-capable photonic switch elements—dubbed reconfigurable optical add/drop multiplexers (roAdMs)—coupled with control plane and management software (see box) promise finally to deliver config-urable optical meshed networks.

ron kline, principal analyst for network infrastructure at ovum, says a reconfigura-ble optical network is a holy grail: “it refers to a network that is smart enough to recon-figure itself in response to provisioning requirements and restoration events.”

dynamic optical networking has been an industry goal for over a decade. during the dotcom boom of the late 1990s, projected bandwidth requirements led operators to believe that customers would dial up lightpaths on demand. this spurred optical system vendors to develop large optical cross-connect switches. but the business case never materialised.

“the industry has been transitioning towards this vision slower than anyone would have thought 10 years ago,” says bill kautz, staff portfolio planning manager at tellabs. instead, dynamic optical network-ing enabled at the electrical layer has taken hold. using electrical switches, operators can set up connections quickly but at sub-wavelength capacities. “this has delivered

tremendous flexibility,” says Joe berthold, VP of network architecture at ciena.

operators have deployed roAdMs, but currently they offer limited wavelength agility such that network restoration and wavelength provisioning are still largely manual processes. electrical switches can set up connections within a second, support shared mesh restoration in under 100 milliseconds, and they have a proven control plane that can oversee networks of 1,000 nodes. “this is the baseline chal-lenge for dynamic optical networking, and the alternative [to electrical switching] that carriers look for,” says berthold.

At&t’s optical Mesh service, enabled using ciena’s coredirector electrical switches, allows customers to change their access circuits in sonet sts-1 (50 Megabits-per-second) increments via a web interface. “we want to take that low speed service to a higher level—1 gigabit and above,” says Jim king, executive director of new tech-nology product development and engineering, At&t Labs.

but switching at the electrical layer is costlier than at the photonic layer, while only the photonic layer switches full wave-lengths. A dynamic photonic layer is also a prerequisite for more advanced customer services: “if you want to do cloud comput-ing but the infrastructure is fixed,

‘hard-wired’ connections, that is basically incompatible,” says king. “the Layer 1 cloud should be flexible and dynamic in order to enable a much richer set of customer applications.”

According to infonetics research, the optical networking equipment market has been growing at an annual compound rate of 8% since 2002 while roAdMs have grown at 46% annually between 2005 and 2009. ovum, meanwhile, forecasts that the global roAdM market will reach us$7 billion in 2014 (see chart).

Verizon business has deployed over 2,000 roAdMs in its medium-haul metro-politan networks: “everywhere we deploy fios [Verizon’s optical access broadband service] we put a roAdM node,” says glenn wellbrock, director of backbone network design at Verizon business.

A roAdM is typically a telecoms rack comprising optical switching blocks—wavelength-selective switches (wss) that connect lightpaths to fibres—as well as optical amplifiers, optical channel moni-tors, and control plane and management software. some vendors also include optical transponders as part of the roAdM definition. “roAdMs are at the core of the network and define its characteristics,” says simon Poole, director, new business ventures at finisar, a wss specialist. the wss can bundle and route wavelengths in several fibre directions, typically ranging from two or nine directions, known as 1x2 and 1x9 degree switches.

operators such as At&t and Verizon have long adopted tunable transponders, another key optical component needed for agile optical networking. such a trans-ponder can be tuned to any dwdM wavelength, yet when plugged into a roAdM it becomes restricted in operating wavelength and direction. “if you take a tunable transponder that can go anywhere and plug it into Port 2 facing west, say, that is the only place it can go at that [network] ingress point,” says wellbrock.

once passed through intermediate

o P T I C A L N E T W o R K S

aGIlE NEtWorKS: sElF sERVICEOperators are looking foward to the holy grail of dynamic optical neworks that can reconfigure themselves to provision capacity and restore faults . By roy rubenstein

tEcHNoloGy trENDS

Backbone/metro RoADM market7,000

6,000

5,000

4,000

3,000

2,000

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n Backbone ROaDM n Metro ROaDM

source: Ovum

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$3,2

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,733


roAdM stages, however—in the metro, 10-20 roAdM stages are common—the lightpath’s direction can at least be switched, but its wavelength remains fixed. As a result, changing the signal’s start and end points and hence network configura-tion occurs infrequently because manual intervention is needed, says wellbrock. An engineer is thus required to visit both ends of the link to change the lightpath’s direction and wavelength during a network restoration event, for example, or when modifying traffic as the network evolves.

despite the limited flexibility, roAdMs benefit operators’ networks. wavelengths can remain in the optical domain, passing through intermediate locations without using transponders and saving on costly optical/electrical conversions. roAdMs also replace the previous arrangement of fixed optical add/drop multiplexers, exter-nal optical patch panels and cabling.

but operators want more from their roAdMs. “in today’s networks, wave-lengths are established and are rarely changed,” says brandon collins, cto of the consumer and commercial optical products division at Jds uniphase, a wss maker. “but the reality is that the network is always changing, always growing, always being maintained and there are always failures [like fibre cuts].”

when provisioning a wavelength, the most efficient route is sought, says At&t’s king. but six months later this can change, given traffic growth, such that an opera-tor will want to move the wavelength to another route. “should you not be able to move a wavelength deployed on one route onto another more efficiently? Heck, yes,” says king. “we want to move around those wavelengths just like we move around channels or customer VPn circuits in today’s world.”

wss makers are thus developing new roAdMs that allow signals’ direction and wavelengths to be changed. known as colourless and directionless, they will help enable automatic wavelength provisioning and circumvent manual servicing.

Automatic network restoration will also benefit from such roAdMs. currently, an operator must decide when it can send engineers to fix a fault. if the fault can be

fixed in two hours and meets the service level agreement, engineers will be sent. but if it is a remote site and will take days to rectify, a restoration activity will be initiated. “this would try and reroute at the physical layer and colourless, direc-tionless roAdMs would allow you to do that automatically [in conjunction with a control plane],” says wellbrock.

“the ability to deploy an all-roAdM mesh network and remotely control it, to build what we need as we need it, and reconfigure it when needed, is a tremen-dously powerful vision,” says king.

by combining electrical and optical switching, operators will be able to contin-ually optimise their networks, claims berthold at ciena: “they can devolve their networks to the lowest cost and most power-efficient solution.”

ciena is adding colourless/directionless roAdMs to its 3.6 terabit-per-second 5430 electrical switch. “when you start growing traffic from a low level you need electrical switches in many places in order to effi-ciently fill wavelengths,” says berthold. “but as traffic grows there is more oppor-tunity to bypass intermediate nodes with an optical path.” by tying the roAdM

with the electric switch, traffic can be regroomed and electrical paths set up on-demand to continually optimise the network. to achieve this ciena will need to tie two control planes together, at the electrical and optical level. “we also need to develop a total network optimisation suite,” says berthold.

other challenges remain, such as handling customer application rates at 1-, 10- and 40-gigabits-per-seconds (gbps) on 100 gbps-based infrastructure. this will use the optical transport network (otn) protocol, which will require electrical switch and control plane support. interoperability between vendors’ equip-ment will also need to be demonstrated.

Verizon expects colourless, direction-less roAdMs to be available in 2012, but the vision of a dynamic optical network will take longer as these challenges are addressed and the control plane work progresses. there are also business case challenges. “we really are at the cusp of dramatic changes in the way transport is built and architected,” says king at At&t. “Making [agile optical mesh networking] happen: big challenge; but big challenge, big reward.” n

tEcHNoloGy trENDS

another key component for agile optical networks is the control plane software. “Many of the networks today have some of the hardware components to make them agile but lack the software,” says andrew schmitt, directing analyst, optical, at Infonetics Research. The network can be segmented into the data plane, used to transport traffic, the control plane that uses routing and signalling protocols to set up connections between nodes, and the management plane that oversees the control plane. “What is deployed mostly today is a sonet/sDH control plane,” says Tom Rarick, principal engineer, transport, at Tellabs. “This is to manage sonet/sDH ring or mesh networks, using standalone cross-connects or partnered with ROaDMs, with the switching primarily done electrically.”

Three industry bodies are involved in advancing control plane technology. The Internet Engineering Task Force (IETF) is standardising generalized Multiprotocol label switching (gMPls) while the ITu is developing control plane requirements and architecture dubbed automatically switched Optical Networks (asON). The third body, the Optical Internetworking Forum (OIF), oversees the implementation efforts. “using a control plane with all-optical is a challenge,” says Hans-Martin Foisel, OIF president. “The control plane has to have a very simplified knowledge of the optical parameters.” The photonic layer is highly analogue and there are numerous optical parameters that can be taken into account. any protocol needs to streamline the process such that simple rules can be used for operators to decide whether a route can be completed or whether signal regeneration is needed.

The IETF is working on wavelength switched optical networks (WsON), the all-optical component of GMPLS, to enable such simplified rules within a single network domain. “What is completely out of scope is routing transparently between vendors,” says Foisel. There is still much work to be done before management and control planes exploit the IP, electrical and optical network layers. “gMPls/asON are still years out and some operators may never deploy them,” says schmitt at Infonetics. But Kline at Ovum highlights Huawei and alcatel-lucent as keen promoters of control-plane-enabled networking technologies: “Huawei has 250 asON applications with over 80 carriers, and 30-plus OTN WDM asON applications.”

Standards bearing: advancing control plane technology


coNtENt StratEGIES

operators are starting to turn to quadruple-play bundles to attract and keep customers, as well as

drive up average revenues per user. but they will need to find greater synergy from their bundles if they are going to compete on more than just price in the longer term.

“As i look across europe, most opera-tors are in saturated markets and are looking for two things: ArPu and churn reduction,” says stuart orr, Md for Accenture’s communications Practice in europe. “Although quad-play is just start-ing to take off, where it’s proven to be successful it can have a dramatic reduc-tion on churn.”

what’s more, even a small penetration in quad-play can be a major contributor to revenues. Pricewaterhousecoopers (Pwc) analysts in the outlook 2010 report estimate that a quad-play penetration of just 5% can represent some 20% of reve-nues in terms of ArPu.

Pyramid estimates multi-play revenues across the czech republic, france, germany, italy, the netherlands, romania, russia, spain and the uk totalled €37 billion last year, up from €31 billion in 2008 (see chart), but says multi-play cAgr will slow from 18% last year to an average 7% between 2010 and 2014.

france, a leader in iPtV and broad-band services in europe, is also showing the way when it comes to quad-play offer-ings. the leading telcos are already competing with cable and satellite provid-ers by offering iPtV-based services that they bundle with fixed telephony and broadband, and now they are including mobile in the mix. in June, orange was finally given the go-ahead by the french regulator to provide quad-play services. the incumbent will be joining bouygues, which started to offer quad-play bundles for 100 euros under the ideo 24/24 brand at the end of May; and sfr, which in June launched its own four-service bundle, illimythics Absolu, for €110.

in May reports suggested that orange’s long-held tV ambitions in the uk were firmly back on the agenda after the mobile operator struck a deal to outsource its fixed network to bt. orange will not comment, but a quad-play move would certainly fit with its wider strategy in other markets such as france and Poland.

the only company providing true quad-play services in the uk up to now has been Virgin Media. but a new digital tV service may see the quad-play space get a lot more crowded, potentially opening the door even for mobile opera-tors—which have already moved into fixed telephony and broadband with success—to sell tV services. Project canvas, the proposed bbc-led internet-based tV and video-on-demand service, was given clearance by the bbc trust in June and is due to be launched next year. canvas counts bt, talktalk and Arqiva among its founding partners.

“i’ve met with strategy directors [for uk mobile operators] and they are looking at canvas as an option,” says orr at Accenture. “As a route to market, canvas is definitely something they are considering…the way canvas has been designed does lend itself to wider use than just those in the consortia. it will become a big component for one or two of the other operators.”

that would be a step-change for uk

mobile operators, which until now would have had to negotiate separate deals to offer the same level of television and video content as multi-play service providers bt, bskyb and Virgin Media.

Meanwhile spain’s incumbent operator telefonica has set out its plans to launch quad-play services in all 25 markets in which it operates by 2012, as part of its bravo initiative. but its uk mobile opera-tor, o2, which also provides fixed-line services, says it has “no current plans to launch our own tV service”. instead it is focused on how to enable broadband customers to get the most from internet-based tV services.

“we are committed to giving our customers a great quality experience when it comes to their home communica-tions needs,” says felix geyr, head of broadband at o2 uk. “At the moment this is focused on home broadband and home phone where we are committed to overturning poor customer experiences we see in the marketplace.”

geyr sees o2 as adding value to a tV offering in the uk. “As more and more tV services are delivered over the internet we again believe we can have an important role in helping customers get the most from these, whether that means having the right internet connection in place through to taking them through the steps necessary to set up connected

B U N D L E D S E R V I C E S

QuaD-Play QuaNDaRIEssome service providers are starting to turn to quad-play bundles to keep customers and increase aRPu, but mobile is proving a particularly hard sell. By Ingrid lunden

Multiplay subscribers and revenues per household (Europe, selected)

160

120

80

40

0

E37

E36

E35

E34

E33

E32

E31

E302008 2009 2010 2011 2012 2013 2014

n Dual-play n Triple-play n Quadruple-play — average monthly household spending on multiplay services


Multiplay household a

RP

s

Mul

tipla

y ho

useh

olds

(milli

ons)


coNtENt StratEGIES

entertainment devices in their home.” geyr is counting on mobile and broad-band subscribers opting to take additional services from o2 in the longer term.

o2 uk’s retail wireline broadband internet access lines reached 0.6 million in the quarter to the end of March, up 56.3% year-on-year. the company’s total mobile base in the uk—excluding the tesco Mobile MVno for which it provides network services—increased 4.6% year-on-year to reach 21.4 million customers at the end of the first quarter. but total ArPu in the first quarter showed a 3.1% decline year-on-year in local currency to €24.0.

o2 is already offering four different services in the czech republic, but the number of customers taking a quad-play service is minimal. o2 says it had 138,000 tV subscribers at the end of the first quarter, up by 7.8% year on year, while retail AdsL customers reached 691,000, up 12.9% from a year earlier. but its mobile subscribers in that country currently number nearly 5 million.

by comparison, At&t says more than three-quarters of its u-Verse tV custom-ers took a triple- or quad-play option by the end of the first quarter. indeed, At&t, Virgin Media and others are using the fact that they offer four services to help ramp up overall bundle take-up, allowing customers to take different permutations of services.

At&t in May began offering a new version of its choice bundled offering, with consumers able to bundle any of four services: u-Verse tV, broadband, fixed voice and mobile. At&t claims customers that opt for a u-Verse choice triple-play bundle could save $30-$45 a month compared to taking them as indi-vidual services, while quad-play customers could save up to $60 per month.

that is a reflection of the fact that bundles currently revolve largely around pricing rather than multi-platform serv-ices, something analysts say must change. “if you’re to get that real benefit of customer stickiness you need to move from just a converged bill to an actual converged offering, not just a converged price and contact for customer service,”

says david russell, uk telecoms leader at Pricewaterhousecoopers.

some providers are starting to develop multi-platform services that exploit the different delivery modes. orange, for example, has a catch-up service that lets a user start watching a tV programme at home and then continue viewing it on another device such as a mobile phone.

but more often than not, most of the quad-play offerings are about marketing and single bills rather than service inno-vation. while At&t boasts of cost savings of “hundreds of dollars” when a customer buys a four-service bundle, there is precious little value add in terms of services that exploit a customer having all four platforms.

Virgin Media has been offering bundles comprising mobile, fixed telephony, internet and tV since 2007 in the uk. take-up of three services was 61.9% according to the company’s first-quarter results (up from 57.6% in Q109), while 11% of Virgin Media’s subscribers take all four. overall, the growth of quad-play penetration at Virgin Media has been slower than that of triple-play since launching the offers.

“Virgin Mobile has a reputation for having a customer base dominated by lower-end prepay users,” says brian Potterill, director of Pwc’s telecoms

strategy group. “this doesn’t fit with its [trailblazer] image in the fixed market,” which has seen Virgin launching super-fast broadband at speeds up to 50 Megabits-per-second and being the first to offer a digital video-on-demand service in the uk market. “they didn’t really have the customer alignment, between fixed and mobile, which may explain why [quad-play hasn’t] been a rip roaring success,” says Potterill.

Virgin Mobile, which operates as an MVno, established its business on prepay services. but now the company is taking steps to redress the balance: in the first quarter Virgin Mobile reported 1 million

contract subscribers—including custom-ers taking a mobile broadband contract—a growth of 45% over Q1 2009; but at the same time it recorded a deactivation of 196,000 prepay subscribers, giving it 2.029 million down from 2.225 million at the end of last year.

Pwc says another issue, which may prove to be a problem for all quad-play providers, is that mobile is fundamentally a different sell compared to products focused around the home. “the challenge is how to glue mobile into a quad-play offer,” says Potterill. “Mobile is sold to the individual rather than to the household as the others are. And with mobile, handsets are a big driver. the other products are not really in that mould.”

Added to that, many consumers are opting for mobile voice services instead of fixed voice services. infonetics in new research says 70% of all north American voice subscribers were mobile in 2009, and says that will continue to grow as an increasing number of consumers go mobile-only.

what’s more, fixed operators could be better placed currently to drive quad-play services if it comes down to customer perceptions. consumers are not yet asso-ciating mobile operators with quad-play offerings, according to research from Pwc conducted last year with 3,000

people across Austria, france, germany, the netherlands, switzerland and the uk. “one of the things we observed is that mobile is the least effective anchor or starting point if you want to leverage a quad-play, while tV is the most power-ful,” says russell.

but that could change. “Mobile opera-tors have a stronger relationship with their customer, so would be more likely to lead the deal [in the long run],” says Potterill at Pwc. the rise of the smartphone, and the many multimedia apps available and better known by the wider public, is also giving mobile operators a stronger association with providing content.n

‘The challenge is how to glue mobile, which is sold to the individual, into the quad-play offer’

Providing Fast and High Capacity Network Connectivity for Billions of (New) Users

By John Finney, EVP Global Sales and Marketing, O3b Networks Ltd.

Everyone is talking about the ongoing and constant changes of broadband user behavior. As a matter of fact; once attractively priced broadband connectivity becomes available, the paradigm shift made by users looks pretty much the same everywhere. As the most important consequence significantly more data is pumped through the networks and times of usage grow exponentially. At O3b we have thoroughly analyzed these observations and came to the conclusion that there are only two real drivers for bandwidth growth: - Cost-for-access; and – Quality of service. Sub- consequently we have asked ourselves what would be required - bearing in mind our two essential findings - to additionally connect several billions of people and hundreds of thousands of businesses, institutions and organizations to these fast network infrastructures. We also concluded that if we wanted not only to serve the existing and future demand, but at the same time act in a sustainable, and socially responsible way, we should provide network coverage to the around 150 countries and their citizens, which are located in the 45° latitude north/south belt. As it happens, this is at the same time the belt of our planet where most of the countries of the developing world are to be found. It is in many of those countries, that the lack of readily available telecommunications infrastructures prevents the population from connecting to the modern and communicative world.

Infrastructure AdvantageAt the core of O3b Networks stands the idea to improve the communications services for the “other three billion” citizens and Internet users in the developing world. This is why; we are focusing exclusively on this very large part of the world. We are convinced that by increasing available bandwidth, lowering latency, and most importantly lowering connectivity costs, we will provide a much needed added value to all Tier 1 clients of our services and products, such as the ISPs, mobile backhaul- as well as backbone operators, government entities and bandwidth resellers. We will launch and exploit a new network of communications satellites operating in a medium earth orbit (MEO), positioned on the equatorial plane at an altitude of 8062 kilometers. As O3b’s satellites will operate significantly closer to Earth than those satellites in geosynchronous orbit, the latency

(travel time of any given signal between transmitter and receiver) will be significantly reduced (by factor 4.4.). O3b’s first set of eight satellites is build by Thales Alenia Space and will be launched by Arianspace on a Soyuz 2 rocket from French Guiana. Our company’s groundbreaking concept is endorsed by investments from SES, Google Inc., Liberty Global Inc., HSBC Principal Investments, Northbridge Venture Partners and Allen & Company.

Network ServicesThe innovative value as well as the technical feasibility of O3b Networks’ concept is convincing a constantly growing number of clients in all parts of the world. In a timeframe slightly short of two years, O3b Networks has evolved dramatically and we have become a very dynamic, highly professional and fully operational company; present throughout the world. Just recently we had the pleasure to announce that Cook Islands Telecom became a customer of our services. They have signed a long term agreement with us for the provision of fast Internet connectivity. Telecom Cook Islands has chosen the O3b carrier managed service, named Quick Start. This service simplifies the deployment of high speed internet services to end users. Quick Start is a full turn-key solution conceived by O3b that includes the associated ground equipment, space segment bandwidth, and the connectivity to the global fiber infrastructure at the location of the corresponding O3bNetworks approved gateway site. O3b has divided the Earth into seven regions based on longitude – each region anchored at a gateway that provides the interconnection to the fiber Internet and access to the major Internet exchange points in that region of the world. Additional gateways can be added over time.

The Ultimate Value PropositionIt is our vision to make the Internet accessible and affordable to those who today remain cut off from it. We will enable individuals, families, communities and organizations to enrich their quality of life through greater interactivity and closer connection with the modern world. To achieve this ambitious goal, we have a unique value proposition in the market. As pointed out above, there are still many parts of the world, which do not have infrastructure conducive to 21st century communications in place. O3b’s first ultra-low latency, fiber speed satellite network is a very attractive customer proposition that will open up a new and exciting world of state-of-the-art connectivity and communications to billions of people who, up to now, have not experienced the benefits of fast Internet connectivity. The O3b system will provide its clients – ISPs, telecommunications operators, etc. – with a low-cost, high-speed alternative to connect their 3G, WiMAX and fixed-line networks to the rest of the world. This will allow billions of consumers and businesses to benefit from high-speed Internet connectivity for educational, medical and commercial applications.

– 4.8 Ghz spectrum per satellite– Links up to 1.2 Gbps– Over 840 transponder equivalents of available capacity

O3b 8 Satellite Service Coverage – Regions

Hawaii

S.W. USA

SpainGreece

Peru

N.E. India

W. Australia

U.A.E.

Potential teleport locations

No service<62 Latitude

Standard service(s) 45 Latitude+–

Limited service(s) 45 – 62 Latitude+–


PrImE NumBErS coNtactS

400 millionmobile subscribers using their phones for mobile banking by 2013 (Juniper Research)

frENcH IPtV DomINatIoNThe latest IPTV update from Point Topic shows 2.6 million subscriber additions worldwide in the first quarter of this year, bringing the global total to 36.3 million. Point Topic says that is around 7.7% of total broadband lines, and says excluding cable around 9.7% of broadband subscribers also have an IPTV subscription. Over 13 million of all subscribers are in just two countries: France and China. Western Europe remains the most important IPTV region, with over 16 million subscribers and 44.2% of the total by the end of March, but over half of those subscribers are in France. South and East Asia is equal second reaching 17.8% of the total: in that region over 5 million of the roughly 6.5 million subscribers are in China, which added 630,000 customers in Q1. The US remains marginally ahead of China, with strong performances from both Verizon and AT&T in the first quarter.

mobile subs still soaringThe number of mobile connections passed 5 billion worldwide in July according to Wireless Intelligence, just 18 months after the 4 billion mark was reached at the end of 2008. Mobile penetration stands at 74%, compared to 60% at 4 billion connections. The highest penetrated region is Western Europe at 130%, and the lowest is africa at 52%, while Eastern Europe (123%) is the only other region to have passed 100% penetration. The asia-Pacific region accounted for 47% of global mobile connections at the end of the second quarter, while Europe and the us/Canada account for 21% and 6% of connections respectively. The global share of gsM connections declined 5% to 78% during the last billion connection additions as a result of growth in WCDMa, which now accounts for 12% of the global total.

66 millionexternal mobile broadband

devices shipped globally in 2009. (Berg Insight)

Mobile TV penetration of total mobile subs

two new reports forecast streamed mobile tV services will continue to outgrow broadcast equivalents by a considerable margin. A study from Juniper research suggests combined end-user revenues from streamed and broadcast tV services will reach nearly $7 billion by 2015, up from $3.2 billion in 2009. streamed tV services are expected to account for the overwhelming majority of such revenues, it says, with mobile tV traffic over wifi expected to increase 25-fold over the 2010-2015 period. but it says dedicated broadcast services such as dVb-H are widely perceived as financially unviable: “by the end of last year just 3.2 million users worldwide were paying for mobile tV services delivered via dedicated mobile broadcast tV networks—well under 0.1% of the global subscriber base.” A second report, from Pyramid research, says the fifA world cup this year will drive mobile tV service take-up, but says even in the region with the greatest uptake to 2014, western europe, penetration will reach only 4% of mobile subscrib-ers at best (see chart). in 2010, mobile video users (including mobile tV) will increase by 8.4 million in western europe, while in central and eastern europe there will be just 1.5 million additional mobile video users, says Pyramid.


5%

4%

3%

2%

1%

0%

% o

f sub

scrip

tions

source: Point Topic

10,000

5,000

0

n Western Europe n Asia Pacific

n Eastern Europen Middle East and africa

n latin american North america

n south and East asia

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2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

— W. Europe — Central & Eastern Europe — latin america

— North america — Africa & Middle East — Asia Pacific

44.2%14.6%

17.8% 17.8%

4.8%

0.4%0.3%

France us China southKorea

Japan germanyHongKong

Italy spain Belgium

n 2009 Q4 n 2010 Q1

IPTV subscribers by region, 1Q 2010

leading IPTV countries

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