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The German Broadband Market Overview, FttX-Approaches & Best Practice from a Project Owner Presented by Presented by and London, 02/19/2013
Page 1: Andreas weiss

The German Broadband Market

Overview, FttX-Approaches

& Best Practice from a Project Owner

Presented byPresented by


London, 02/19/2013

Page 2: Andreas weiss

Accantus Corporate Finance

• Based in Düsseldorf, Northrhine Westphalia / Germany

• Independent Advisor „for the right side of the balance sheet“

• Focus on Debt Advisory, Rating Advisory & Financial Modelling

• Vaste experience in the corporate & structured environment

• FttX I: We deem to be well connected with all relevant players

• FttX II: We focus on our corporate, municipal and especially our local utility network

Page 3: Andreas weiss

1. Germany – an attractive market!

Page 4: Andreas weiss

• The relevant market for

pure infrastructure players

with wholesale product

Market Size: HUGE

Telco-Market 2011 total: € 58,5 bln

Out of which retail:

• Fixed € 24,3 bln

• Cable € 3,9 bln

• Mobile € 26,3 bln

• Fixed €18,5 bln

• Cable € 3,7 blnwith wholesale product

offerings could reach a

total of € 8,8 bln / Year

Out of which retail:

€ 40,8 bln

Out of which wholesale:€ 8,8 bln

• Cable € 3,7 bln

• Mobile € 18,5 bln

• Fixed € 5,1 bln

• Cable € 0,2 bln

• Mobile € 3,5 bln

Source: BNetzA, Jahresbericht 2011

Page 5: Andreas weiss

Market Size: Capex & Motivation

• Around half of all investments

are driven by alternative players

(2010: 53%)

• Cables invest successfully in

Docsis3 & Ftt-Node, gain RGUs

but still lose customersbut still lose customers

• All players generally invest in the

roll-out of fiber – but do not

reach buildings & homes

• DTAG already passed 11,6 m

households with VDSL2/FttC, but

only contracted 0,6 m subscribers

• No open access player with

critical size

Source: BNetzA, Jahresbericht 2011,

Page 6: Andreas weiss

Market Potential: Pub Conversation

• A sustainible and future-proof broadband

infrastructure for Germany means an

upgrade of all not yet fibred households

with FttH, equaling a total capex in the

amount of € 39,5 bln(depending on urban density we experienced capex per home

in the range of € 700 – € 2.800)

• The revenue potential for FttX newcos

only from rendering wholesale services

could reach up to € 6,8 bln / year (revenue/month = average of regulated prices TAL € 10,08

and BSA € 18,32, not considered here are revenues in the B2B-

segment /P2P and e.g. backhauling for mobile operators)

Source: Altstadt Düsseldorf,2012

Page 7: Andreas weiss

Broadband Subs 2012e: Oligopoly

• 12,4 m / + 150.000 y-o-y / DSL

• 4,0 m / + 800.000 y-o-y / HFC

• 3,8 m / - 50.000 y-o-y / DSL

• 2,5 m / - 150.000 y-o-y / DSL

• 3,4 m / + 100.000 y-o-y / DSL

Source: Company Data, Accantus Estimates

Page 8: Andreas weiss

Broadband Subs (m): 2007 – 2012e

• Overall sound improvement

• The incumbent stabilizes on a high level

with huge lead

• DSL-competitors lose slightly ground

Source: Company Data, Accantus Estimates

• Excluding the incumbent, the picture

changes significantly

• Very strong growth momentum for the

two HFC-cable operators

• Is it just the price – or is it the superior


Page 9: Andreas weiss

2. The FttH-Dilemma

Page 10: Andreas weiss

• The interests of the Players in the

German market are not alligned

• Players with substantial subscriber base

barely invest in FttB

Market Participants

Established Broadband Players

KDG / UPC / DTAG Vodafone / UI


Providers &


Government / Regulator

barely invest in FttB

• Players with the wish to invest do not

have a sufficient subscriber base

Vodafone / UI Telefonica


Banks & Funds


Cities &


Page 11: Andreas weiss

FttX-Concerns: The Bige Five

• Demands regulator holidays (vectoring?) as otherwise not


• Establishes sell-first, build later rule for FttH cities

• Roll-out of Docsis3.0: currently superior

HFC-Networks Established broadband players

KDG / UPC / DTAG Vodafone / UI

• Invests heavily in mobile standard LTE

• BUT (?): M&A Kabel Deutschland

• Focus on mobile

• In economy modus saving for dividend payouts (?)

• Pure-play serviceprovider

• Wholesalbuyer: invests generally not in networks

• BUT (?): owns 25.1% of Versatel (remainder KKR)

Vodafone / UI Telefonica

Page 12: Andreas weiss

• Being the only market player with SMP means for DTAG that every new broadband offering has to be sold to competitors

with a regulated wholesale price-tag

• With its wholesale product offering to competitors DTAG achieves (regulated) annual revenues of approx. € 1,5 bln, most

of it with the last-mile offering „TAL“ – technically based on its copper legacy network

• The incentive for DTAG to invest in new „must-wholesale“ FttB/H networks therefore is low

• DTAG therefore follows three distinctive FttB/H strategies:

In the spotlight:

1. White Areas – „build on others support“ : A broadband incentive - mostly driven by local municpalities / utilities -

will be rolled-out with financial support by structural funds (state aid) and / or municipal support. In many cases

DTAG then becomes the network operator of such infrastructure and negotiates a call-option to acquire the networks

after a certain period – recently seen as a concern by the original municipal / utility sponsors

2. Grey Areas - 80/10 rule: With the goal of connecting up to 200.000 households / year DTAG implemented ist „sell-

first, build later“ initiative in 2012, naming 12 cities for its possible FttB roll-out – precondition is that 80% of house

owners grant access and 10% of households sign pre-contracts

3. Black Areas – Vectoring: DTAG links its envisaged FttX investment program of up to € 6 bln within the next 3 years

strictly to the demand for their own vectoring roll-out. A charming solution – but the first public hearing at the

national regulator in January 2013 confirmed the expected harsh rejection by competitors …. to be continued ….

Page 13: Andreas weiss

• Equity investors aim for high short- & midterm fcf-

& dividend yield as well as share-price upside

• Bond investors look at stable returns with low

downside, i.e. mid- to long term predictable cash

coupons with low volatility

• Pension funds are generally invested in the telco

Concerns: Investors

Established broadband players

KDG / UPC / DTAG Vodafone / UI


• Pension funds are generally invested in the telco

segment (<7y) - but not yet with their

infrastructure arms (>7J)

• Banks concentrate on predictable cash-flows

(project finance) and / or good credit quality

(corporate lending)

• There is no (not yet?) investment platform for

long term oriented fiber infrastructure investors

in Germany

Vodafone / UI Telefonica


Banks & Funds

Page 14: Andreas weiss

• Growth of alternative players:

– E.g. „Breko Verband“ (71 networks)

– E.g. „Buglas“ (42 networks, by end 2012

approx 1.0m homes passed)

• Fragmented local players act very regional

and hardly lift economies of scale

Result I

• Max. 5 significant networks

• Two players currently try to establish

strategic open access models - in Heinsberg

(NRW) and Gropiusstadt (Berlin)

• White areas with < 1 Mb/s are still existing

Source: Breko

Page 15: Andreas weiss

• Even within the EU Germany lags by far in terms of the 2020 broadband

goal of 100 Mbps

Result II

Page 16: Andreas weiss

3. Four clear options for infrastructure investors

� Acquisition of a running system (brownfield)

vs. Best Practice Greenfieldvs. Best Practice Greenfield

� Open Access Platform with critical penetration

� Open Access Platform with critical size

� Black Areas with experienced partner

Page 17: Andreas weiss

Open Access Platform with critical Penetration

• Based upon existing experience in neighbouring

countries and financial modelling, roll-out of FttB

is started only after pre-contracting a critical

amount of potential subscribers

• Best-of-breed of this scheme seems the Kansas

City deployment by Google-Fiber

• Most important are future churn assumptions

which are low due to competitive pricing (must!)

Greenfield I

which are low due to competitive pricing (must!)

• Samples are widespread throughout Germany,

with minimum sign-up rates varying from 40% to

70%, depending on densitiy of population

• Largest & quickest German deployment in this

context is Deutsche Glasfaser, an affiliate of the

successful Netherlands based Reggeborgh scheme

- focus are underserved white/grey areas

• Operational Focus lies in teaming up with local

players for marketing and a quick delivery of the

network & related services

Source: www.deutsche –glasfaser-hs.de

Page 18: Andreas weiss

Open Access Platform with critical size

• Reduce up-take risk by choice of rigth size!

• Business modell development ruled by strict splitof core competencies amongst partners withinthe vertical layer model

• Selection of „right“ areas with focus on existingcable footprint, existing penetration rates &social economic factors

• Introduction of an investment platform for both,equity and debt investors

Greenfield II

equity and debt investors

Reach critical size with regard to

� Wholesale: Become eligible partner for serviceprovidors („Big Five“) in order to justify costs forswitchover („S/PRI“?), i.e. >> 100.000 hh´s

� Equity Investors: > € 100m

� Debt Investors: > € 250m+ – here „size matters“the most, due to high production / dd-costs Source: Accantus

Page 19: Andreas weiss

Black areas with experienced partner

• Slide intentionally left blank, please refer to the slides from the CEO of wilhelm.tel, Mr. Theo Weirich

Greenfield III

Page 20: Andreas weiss

Ruslan Dubinski

[email protected]

Andreas R. Weiss

[email protected]

Contact us

Your Partner for Debt Advisory

& Integrated Financial Models

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