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The German Broadband Market
Overview, FttX-Approaches
& Best Practice from a Project Owner
Presented byPresented by
and
London, 02/19/2013
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
1. Germany – an attractive market!
• 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
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,
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
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
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
bandwith?
2. The FttH-Dilemma
• 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
Service-
Providers &
Operators
Government / Regulator
barely invest in FttB
• Players with the wish to invest do not
have a sufficient subscriber base
Vodafone / UI Telefonica
Capital:
Banks & Funds
Vendors
Cities &
Munici-palities
FttX-Concerns: The Bige Five
• Demands regulator holidays (vectoring?) as otherwise not
profitable
• 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
• 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 ….
• 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
Telefonica
• 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
Capital:
Banks & Funds
• 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
• Even within the EU Germany lags by far in terms of the 2020 broadband
goal of 100 Mbps
Result II
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
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
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
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
Ruslan Dubinski
Andreas R. Weiss
Contact us
Your Partner for Debt Advisory
& Integrated Financial Models
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