cd melbourne congress: chorus' rosalie nelson
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/ PAGE 1/ PAGE 1/ PAGE 1
New Zealand’s Ultra-Fast Broadband Initiative
Our journey to delivering a national FTTP network
July 2014
/ PAGE 2
Who is Chorus?
> New Zealand’s largest telecommunications infrastructure company with 1.8 million lines connecting homes and businesses
> Standalone, publicly-listed company
> We build and operate a wholesale-only, open access network, supporting ~90 retail providers nationwide
> Can deliver VDSL to 60% of broadband lines – higher in urban areas
> Forefront of building a new fibre network to more than 830,000 homes and businesses in partnership with Government
/ PAGE 3
UFB Vision: Fibre to the premises to 75% of New Zealand
Approach:
> Open access to all
> Layer 1 & 2 fibre
> 33 Regional Tenders
> Low wholesale pricing
> Access only
> Wholesale only
/ PAGE 4
On December 1, 2011, Chorus was separated from Telecom NZ via demerger
The total separation between the network and the services is transforming the
industry
/ PAGE 5
LAYER 0 Ducts, poles, civil works
LAYER 1Dark fibre, unbundled local loop, co-location
LAYER 2Fibre, xDSL copper broadband
VALUE ADDED SERVICES Field services, SLA’s
Transparent, open access, equivalent
Retail Services
New Telecoms Industry Structure
Wholesale services
/ PAGE 6
UFB: slow start but gaining ground
Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-190
200,000
400,000
600,000
800,000
1,000,000
1,200,000
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
76,311
229,633
413,450
550,000
711,000
847,000
973,000
1,170,000
10%
UFB build and uptake 2012-2019
UFB Premises passed % uptake
Source: MBIE UFB Quarterly Progress Update
Industry launched retail fibre plans in 2013
Initial deployment is in CBD & priority sectors
/ PAGE 7
July-11 July-12 July-13 July-14 July-15 July-16 July-17 July-18 July-19$30.00
$35.00
$40.00
$45.00
$50.00
$55.00
$60.00
$55.00
$49.90
$37.50
$42.50
Fibre: 100/50Mbps
Fibre: 30/10Mbps
$34.44 copper price based on Commerce Commission benchmarking
$44.98 copper price today
We face significant regulatory uncertainty
> Our revenues are mostly regulated – the commission decides what we charge> A review of regulated copper pricing led to a significant reduction in
Chorus’ core copper broadband product to $34.44> Leads to a $142 million EBITDA impact per annum for Chorus
> Equals a $1 billion funding gap over the life of the UFB rollout.
/ PAGE 8
Journey so far …
> Cost to build/ connect
> Regulatory uncertainty
> Funding uncertainty
> Industry disruption
> Poorly aligned industry
incentives
> Ahead on build targets
> Emerging fibre demand
> Increasing service innovation
> Cost and build efficiencies
> Increasing competition
Opportunities Challenges
• Seek a cost-based regulatory review • Reshape the business• Commercial focus • Earn right to the customer’s business• Help New Zealand understand UFB opportunities
/ PAGE 9DOCUMENT TITLE / V 1.0 / XX DAY 2011
Drivers for fibre demand
/ PAGE 10
NZ has been one of the highest-growth broadband marketsWe are extending our lead on the OECD average for uptake
Dec-03
Jun-04
Dec-04
Jun-05
Dec-05
Jun-06
Dec-06
Jun-07
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
Dec-10
Jun-11
Dec-11
Jun-12
Dec-12
Jun-13
Dec-13
0
5
10
15
20
25
30
35
Wired Broadband Penetration Rates
Bro
ad
ban
d C
on
necti
on
s p
er
10
0 p
op
ula
tion
May 2006:Governmentannounces
separation ofTelecom and
regulatory change
March 2008:first launchof local loopunbundling
December2010:
UFB officially launched
September2007:
Broadbandovertakes
dial-up
NZ Dec 201330.2
broadband penetration
OECD average
27.0 broadband
penetration
Estimated1 77% of NZ households have broadband today
15th in OECD – ahead of US, Australia and
Japan
Source: OECD Broadband Portal (http://www.oecd.org/sti/broadband/oecdbroadbandportal.htm)1: Chorus estimate based on growth. Statistics NZ estimated household broadband uptake to be 75% at June 2013 (Household Use of ICT survey).
/ PAGE 11
Demand is being driven by connected devices
Source: IDC New Zealand Consumerscape 2014
OTT video1-2 Mbps
Browsing 3-5 Mbps
SD TV2 Mbps
HD TV6-8 Mbps
Smartphone1-2 Mbps
Online gaming1-2 Mbps
HD gaming6-8 Mbps
VoIP0.1 Mbps
Streaming music0.3 Mbps
Video sharing2 Mbps
Photo sharing1 Mbps
HQ Video Calling1-2 Mbps
Average # of smart devices in NZ homes increased from 2.9 to 5.2 in 3 years
Smartphones have grown from 13% penetration in 2011 to 68% in 2014
Tablets have grown from 4% penetration in 2011 to 39% in 2014
/ PAGE 12
… and use of videoChorus Network Analysis• Location = Auckland; Connection = 70Mbps VDSL• Netflix on Apple TV with wifi to standard router, Light Box on IPAD (Gen 2)• Experience – no perceived quality issues
7:00 7:08 7:16 7:24 7:32 7:40 7:48 7:56 8:04 8:12 8:20 8:28 8:36 8:44 8:52 9:00 9:08 9:16 9:24 9:32 9:40 9:48 9:56 10:0410:1210:2010:2810:3610:4410:520
2
4
6
8
10
12
14
16
18
Time (h:mm) on the evening of Thursday 12th September
Thro
ughp
ut a
t Lay
er 2
(Mbp
s)
Web browsing (2 people)
Netflix
Lightbox
Average = 290kbps 6.26Mbps 8.42Mbps 6.32Mbps 230kbps
Lightbox using 2Mbps on IPAD2
Netflix using 6Mbps on AppleTV
/ PAGE 13
Chorus data: high speed broadband demand is growingAveraging 5,000 VDSL and 2,200 fibre net additions each month
Source: Chorus quarterly volume reporting, Sept 2014 (http://www.chorus.co.nz/investor-news)
Unbundled copper Standard broadband (basic & enhanced)
High speed copper (VDSL) Fibre (GPON)-15,000
-10,000
-5,000
0
5,000
10,000
15,000
20,000
25,000
03,000
1,000
-11,000
16,000
10,000
Chorus Broadband Lines: Quarterly Net Additions
Sep-13 Dec-13 Mar-14 Jun-14 Sept-14
Broadband growth remains strong
Standard mass market broadband is in decline
Growth is in high speed broadband
/ PAGE 14/ PAGE 14
Chorus response
/ PAGE 15
1. Innovate to get deployment/connection costs down
New underground fibre closure used for all connection types
>Focus on simple, consistent methodology for connection
New air blown fibre cable more reliable greater blowing distance
New air blown connection tube Cheaper, stronger, smaller
New practices where existing duct or aerial is not available: Use new hardened tube for SDU in
line with other utility practices multi-storey building cabling to
support simple installation practices
/ PAGE 16
2. Meet market demand via commercial products
Emails and browsing
Social networking
TV and movies on demand
Video calling
Real time gaming
Cloud services
3+ simultaneous users
Regulated UBA
Boost VDSL
Fibre 100
Fibre 200
Pragmatists = Value and Info Seekers
Connected Matriarchs = Seek Connectedness (video calling)
Digital Natives = Entertainment Seekers, Gamers
Affluent Families = Entertainment, Efficiency
More UsersFewer UsersMainstreamUsage
Heavy Usage
Home Business = Certainty, Cloud
> Boost VDSL: with a 10Mbps service commitment to deliver HD video
> New fibre plans – 100Mbps at $40 ($5 less than copper)
/ PAGE 17
- - -UFB Year 1-3
- - -UFB Year 4-5
3. Share more information about our network
/ PAGE 18
Gigatown: Competition for a town to connect to the fastest internet in the Southern Hemisphere
>Eligible posts to date: 2.3 m.>Facebook community pages likes:
41,500>Gigatown Supporters network:
46,200
/ PAGE 19
We are on a transformative journey
>New Zealand will get FTTP to 80% of its population It will drive social, economic and productivity gains
>Fibre represents a unique opportunity for RSPs to reinvent their portfolio New value proposition to meet changing market demands
>However transition may lead to more consolidation and disruption Structural separation of the industry plus technology shifts is
changing business models
>We believe we can create global broadband envy!!
/ PAGE 20/ PAGE 20/ PAGE 20
Thank you
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