Presentation of study results Broadband acceleration study ...

2004830-55 | Commercial in confidence

Funded by the EBRD

Shareholder Special Fund

Broadband acceleration study part 2:

methodology and supporting findings

Presentation of study results

2 February 2016 • Matt Yardley, Ian Adkins, Andrew Daly

Funded by the EBRD Shareholder Special Fund


Funded by the EBRD


Contents

2

Our approach

Forecasting demand

Network scenario modelling

Socio-economic benefit

Results to conclusions


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3 Contents

Our approach

Forecasting demand





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We would like to thank the wide range of stakeholders who provided input to the study

Chamber of Commerce (CoC)

Commission for the Protection of

Competition (CPC)

Cyprus Consumers Association

(CCA)

Department for Electronic

Communications (DEC)

Department of Information

Technology Services (DITS)

Electricity Authority of Cyprus

(EAC)

European Commission (EC)

4

Operators:

Cablenet

Cyta

Hellas-Sat

MTN

Primetel

Municipalities:

Idalion

Limassol

Strovolos

Union of Cyprus Communities

Our approach


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We undertook a structured approach

5 Our approach

Current situation Possible future

evolutions

Demand Supply Policy

Stakeholder

consultation Desktop research Analysis and modelling

We were supported by Shepherd and Wedderburn and Dr. K. Chrysostomides & Co LLC


Funded by the EBRD


Our modelling work was designed to explore the wide range of options available to Cyprus

6 Our approach

Demand

forecast

Network

scenarios

Socio-

economic

benefit

Bound a range of sensible outcomes to manage uncertainty

Create a “do nothing” forecast based on demand drivers

Analyse different technologies and forms of competition

Consider the commercial viability of nationwide coverage

Consider the socio-economic benefit of NGA for Cyprus

Create comparisons between scenarios

Modelling aspect Aims of our approach


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7 Contents

Our approach

Forecasting demand





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We considered the historical take-up of current- and next-generation broadband across Europe

8

Next-generation broadband First-generation broadband

Forecasting demand

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Ta

ke

-up

in c

ove

red

are

as

Years since launch

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Ta

ke

-up

in c

ove

red

are

as

Years since launch


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We ranked Cyprus against other countries for drivers showing some correlation with demand

9 Forecasting demand

Affordability Employment rate

0%

2%

4%

6%

8%

10%

12%

LT FI

IS FR

AT

SE

DE

PL

NL

UK

LU

CZ

SK

DK

EE

LV

EU

BE

NO SI

HU

EL IT

BG

MT IE PT

HR

ES

RO

CY

DESI human capital (digital skills)

-%

5%

10%

15%

20%

25%

FI

SE

DK

UK IS

NO

NL

LU IE BE

DE

EE

FR

AT

CZ

EU

SK SI

ES

LT

MT

HU

LV

PL

PT

HR IT

CY

EL

BG

RO

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

ISN

OS

ED

EN

LD

KU

KA

TE

EC

Z FI

LU

LV

LT

EU SI

FR

PT

MT

CY

BE

HU IE PL

BG

RO

SK

ES IT

HR

EL

Cyprus lies 39% of the

way between the bottom

and top values

Cyprus is at the bottom of

the range for affordability

Cyprus lies 24% of the

way between the bottom

and top values


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We used the demand driver analysis to guide where Cyprus could end up in the forecast range

10

Forecast of NGA take-up in covered areas

Forecasting demand

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Ta

ke

-up

of b

roa

db

an

d in

co

ve

red

are

as

Current generation trend, low Current generation trend, high

Next generation trend, low Next generation trend, high

Cyprus actual, next generation Cyprus forecast, pessimistic

Cyprus forecast, optimistic Cyprus forecast, steady


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11 Contents

Our approach

Forecasting demand





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12

Scenario Technology for

national network Wholesale method

Long-term wholesale

market share

R1 FTTP-GPON Active only 65%

R2 FTTP-PTP Passive and active 76%

R3 FTTP-GPON,

FTTC-VDSL, LTE Active only 65%

R4 FTTP-GPON Active only 16%

R5 FTTP-PTP Passive and active 33%

R6 FTTP-GPON, LTE Active only 16%

Summary of “revised” scenarios used for detailed study


We defined a list of six scenarios for detailed study, chosen from a longer list


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13

Comparison of viability of national network and 100Mbit/s coverage


Our demand forecast and cost models combine to show viability against 100Mbit/s coverage

-20

-18

-16

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

14

16

0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 100

R6, FTTP+LTE, Active, Small market share

R5, FTTP, Passive, Small market share

R4, FTTP, Active, Small market share

R3, FTTP+FTTC+LTE, Active, Large market share

R2, FTTP, Passive, Large market share

R1, FTTP, Active, Large market share

Premises coverage of 100Mbit/s-capable networks (%) from all networks in Cyprus

IRR

of m

od

elle

d n

etw

ork

at

na

tio

nw

ide

co

ve

rage

WACC


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14 Contents

Our approach

Forecasting demand





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We used a framework agreed with the EIB which considers four areas of socio-economic benefit

15

Overview of approach to estimating socio-economic benefit


Financial analysis outputs

% of health budget savings

Health spending

Extension of e-gov savings

e-Government savings target

Consumer surplus

No. of households

Assumed broadband take-up profile

Net benefit per employee

Socio-economic

outputs

No. of SME employees

SME impact

Consumer

surplus

Government

Health

Input from project (country-specific value)

Socio-economic assumptions

Generic CBA model

Module within generic CBA model

Outputs of model (e.g. for ENPV, ERR, B/C ratio)


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Where possible we used Cyprus-specific inputs, including the outputs from our other models

16

Summary of socio-economic benefits model flow


Network

costing model

Demand

model

Other socio-

economic

inputs

Parameters

for four

benefit areas

Socio-

economic

calculations

Results


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Most of the benefit is derived from SMEs, with the mixed-technology option offering good value

17

Proportion of benefits,

scenario R3


81.8%

5.9%

3.1% 9.2%

Business employee benefits

Household consumer surplus

e-Government savings

Tele-health care benefits

Benefit–cost ratio by scenario

Scenario Benefit–cost

ratio

R1 2.58

R2 2.74

R3 3.89

R4 1.07

R5 1.59

R6 2.15


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18 Contents

Our approach

Forecasting demand





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In making our recommendation, we considered the detailed aims of the project

19

The right

choice for

Cyprus

Deliver

social and

economic

benefit

Attract

investment

Promote

competition

Reflect

European

best

practice

Support

DAE

targets

Ensure the

approach is

feasible


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Our quantitative modelling was combined with qualitative assessments to compare scenarios

20 Scenario results

Key:

Green = good

Amber = fair

Red = poor

Scenario Attracting

investment Encouraging competition

100Mbit/s availability

Socio-economic

benefit–cost ratio

State-aid implications

R1 (FTTP,

active, large

market share)

-0.4% IRR Active only Full coverage

by 2020 2.58

Moderate

implications

R2 (FTTP,

passive, large

market share)

1.2% IRR Passive and

active options

Full coverage

by 2020 2.74

Moderate

implications

R3 (FTTP,

FTTC, LTE,

active, large

market share)

15.8% IRR Active only

Partial

coverage by

2020

3.89 Minimal

implications

R4 (FTTP,

active, small

market share)

-19.2% IRR Active only Full coverage

by 2020 1.07

Significant

implications

R5 (FTTP,

passive, small

market share)

-10.9% IRR Passive and

active options

Full coverage

by 2020 1.59

Significant

implications'

R6 (FTTP,

LTE, active,

small market

share)

-3.2% IRR Active only

Partial

coverage by

2020

2.15 Significant

implications

Ne

two

rk a

nd

co

mp

etitio

n s

ce

na

rio

s

Decision criteria

This scenario

involves a cost-

effective mix of

technologies

offering good

broadband

speeds, but falls

short of the 2020

targets (though

they would likely

be met in future

years)


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We aim to secure the benefits of market-led mixed technology networks, with a review by end-2017

21 Scenario results

2016 2017 2018 2019 2020

Market-led approach to

deploy infrastructure

Implement regulatory/

policy changes as

soon as practicable

Develop schemes to

increase take-up

immediately

Ongoing monitoring Ongoing monitoring

Continue with market-led approach

to deploy infrastructure

Consider value of public intervention to

deploy infrastructure against defined

criteria

YES

NO

Critical decision point at end of 2017:

are operators investing as expected?


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Thank you for your attention

22

Ian Adkins

Andrew Daly

Analysys Mason Limited

Bush House, North West Wing

Aldwych, London WC2B 4PJ, UK

Tel: +44 (0)20 7395 9000

www.analysysmason.com

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