Reflections about the ongoing Transformation of the Telecommunications Market

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Reflections about the ongoing Transformation of
the Telecommunications Market

• Open Access Conference
• Accra 2-3 Nov 2009
• Anders Comstedt

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The telecom business is about network scale
effects Size matters

• Relative size to your competitors
• High Density footprint for
• low cost per user

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Intercontinental connectivity From scarcity to
abundance

• Q Will all new African submarine cables really
  be built?
• A Yes, these projects have such inertia that the
  only thing to watch out for is if they have
  passed the tipping point Is the financing and
  the vendor supply contract in place?

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Avoid being stuck in the middle

Profit
Price reduction
Low volume
High volume
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Business realities asscarcity change to
abundance

• Will submarine cables be filled up or are we
  seeing a repetition of the overshoot of
  transatlantic capacity a decade ago?
• Scare tactics Private, non-carrier controlled
  cables will go down the drain like Global
  Crossing, be sold for 5 of CAPEX
• First mover advantages How much will the success
  of SEACOM depend on EASSy being a year late?

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From scarcity to abundance

• How do sub-marine cable projects look upon
  themselves in the coming environment?
• Will they reinforce market dominance or increase
  competition in connected countries? Sell to who?
• Ultimately, will they partly be redundant as
  lots of cross boarder terrestrial fiber backbones
  will be rolled out?
• Why is SEACOM the only new cable with a clear
  communication of its strategy vs NRENs?

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Others about African int. cable numbers
Ongoing, Estimated -Projected
Western Seaboard MainOne Phase 1 US 200
m MainOne Phase 2 US 200 m WACs US
450m Around Africa UhuruNet US 1,200
m Investment Recovery Total, Ongoing
Projected basic Investments US 3.163 billion,
excluding Cost of Funds Return on Investments,
estimated at an additional 30 40 Regional
Population c. 750 M Investment Recovery
Essentially, off 20 of the Regional
Population A daunting Task Capacity glut -Not
all envisaged / planned initiatives will
materialise
Eastern Seaboard EASSy US 263 m Seacom US 650
m Lion US 200 m
USD 25/user
John Shira _at_ OECD meeting 2009
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Plans for New Sub-SaharanUndersea Cables to
Europe and India by 2011

• Ambitious plans are once again underway to
  better-connect the African continent
• The potential increase in capacity compared to
  now is 1000X
• The issue is whether there is a sustainable
  market
• Before the recession hit, outlook was at least
  one of these new cable projects would succeed
  this time

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General global trends and debated issues

• Shared infrastructure vs infrastructure
  competition, is the latter just a dream?
• State interventions to get expansion of broadband
  services Australia, EU, US,...
• Network neutrality, more a US than EU issue right
  now
• From legal monopolies to dealing with abuse of
  dominant positions

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From monopoly to competition

• Privatize
• Liberalize
• Abuse from the dominant operator
• Functional separation of services from the
  infrastructure inside the dominant operator
• Structural separation, split ownership of
  services from infrastructure

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Layered networks
Services
Infrastructure
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Relative size of US Tower Companies vs.
carriers/mobile operatorsmarket capitalization
in USD

• Tower CompaniesAmerican Tower, 14.5
  billionCrown Castle, 8.8 billionSBA
  Communications Corporation, 3.3 billion
• Carriers/Mobile Operators Qwest Communications
  International Inc 6.20 billionSprint/Nexel,
  8.33 billionDeutsche Telekom AG, 59.0
  billionVerizon Communications Inc, 84.1
  billionATT Inc. 151.5 billion

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Number of operators on every level
MANY
FEW
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Relative costs in different parts of the total
network
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Network neutrality, getting to "greater
transparency"

• "Greater transparency will give consumers the
  confidence of knowing that they're getting the
  service they've paid for, enable innovators to
  make their offerings work effectively over the
  Internet, and allow policymakers to ensure that
  broadband providers are preserving the Internet
  as a level playing field.
• Genachowski, FCC , Oct 2009

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The deregulation experiment

• Lack of antitrust enforcement together with
  premature elimination of TA96 market-opening
  measures and competitive safeguards resulted in a
  perfect storm, assuring the demise of telecom
  competition
• Mergers of incumbent carriers
• Retail and wholesale price deregulation
• Horizontal integration of intermodal
  competitors
• Use of regulation to block and frustrate entry

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Economics and Technology, Inc. / June 2009
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Economics and Technology, Inc. / June 2009
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African NRENs in all of this?

• Make visible the need for orders of magnitude of
  more capacity
• Enabling a path for operators to selectively and
  reasonably grow the transformation. Discriminate
  by referring to the non-commercial nature of
  NRENs