Transcript Lecture 13: SBC FTTU Analysis

Project Lightspeed
SBC Presentation
Jeff Weber
VP-Product & Strategy
February 1, 2005
SBC Project Lightspeed
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Company assets
No other communications company has our combination of assets
 53 million direct connections to homes and businesses covering 1/3 of
the United States
 5.1 million high-speed Internet lines
 47 million wireless customers with the acquisition of AT&T Wireless and
a wireless footprint with the industry’s largest overlap of wireline assets
 20,000 Wi-Fi hotspots in 6,000 venues throughout the 13-state SBC
territory by 2006
 A nationwide IP backbone covering the nation’s largest cities
 A co-branded satellite video service
 One of the world’s largest directory advertising companies
 A strong financial position
SBC Project Lightspeed
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Mission
Our strategy is clear:
 Grow by offering the most complete, flexible bundle of high
quality communications solutions in the market, at a great value
Needed a stronger video play
 Continually introduce new opportunities to meet and exceed the
service and experience our customers demand
 Know our customers and offer a personalized service tailored to
their needs
 Maintain a strong financial position and always be on the lookout
for ways to be more efficient and cost effective
SBC Project Lightspeed
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Project Lightspeed Overview
Capital
Efficient
• FTTN requires approximately one-fifth the
investment and one-fourth the
deployment time of FTTP-only overbuild
• Expected deployment cap ex of
approximately $4 billion
• Expect 2005 cap ex will be at the high
end of our 2004 guidance range $5 billion to $5.5 billion
• Scale expected to drive cost curve
down rapidly
Significant Cost
Savings
• FTTN expected to generate approximately
70% of installation and maintenance
savings available from FTTP
SBC Project Lightspeed
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Project Lightspeed Overview
Market-Changing
Services
• Integrated IP voice, high-speed Internet
access and video
• IPTV – choice and control over substantial
content alternatives
Powerful
Network
• Both FTTP and FTTN
• Natural extension of current fiber
deployment and broadband network
Speed
To Market
• Targeted deployment to 18 million
households in 3 years
• To cover nearly 90% of high-value
residential customers
SBC Project Lightspeed
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What it isn’t…
What it is
What it isn’t
TV
PC
Closed system fully managed
within the SBC environment
and delivered using IP
Open system delivered over
the Internet
More secure than traditional
broadcast platforms, customer
specific content delivery
Less secure than current
platforms, prone to PC-like
viruses
Creative content packaging to
offer consumers more choice
Disruptive a la carte offering
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Digital Lifestyle (U-verse branding)
Fiber
VDSL
Wireless
Enhancing communications and
entertainment at home,
at work, on the go …
IPTV
Home
Networking
SBC Project Lightspeed
WiFi
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Integrated Communications
and Entertainment Services
IPTV
• 20-25 Mbps
• Everything
IP
4 high-quality TV streams,
including high-definition TV,
and video-on-demand
High-Speed
Internet Access
IP Voice
Full-featured offering –
growing wireless integration
SBC Project Lightspeed
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The Forces are Right
Bandwidth
Requirements
New
compression
technologies
reduce
bandwidth
required
Global
demand
speeds
innovation
and drives
down the
cost curve
Global
Development
SBC Project Lightspeed
Deployment
Costs
New
distribution
architectures
allow delivery
of higher
bandwidth
at a lower
cost
These
developments
create video
and
consumer
data growth
opportunities
Growth
Potential
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Significant Market Opportunity
Industry Revenues
U.S. Video Market
Industry Revenues
U.S. Broadband Market
$63B
$29B
$54B
Video market
to grow to
$63 billion
over next four
years, with
fastest growth
from new
services
2004
2008
Source: PWC Global Entertainment
and Media Outlook, 2004 - 2008
SBC Project Lightspeed
Broadband
market
subscriptions
expected to
grow at a
16% CAGR
over the next
four years
$16B
2004
2008
Source: IDC Worldwide Broadband Access
Services 2004 – 2008
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High-Value Customers
Total Customer
Household Segmentation
Low
Value
35%
High
Value
25%
Medium
Value
40%
SBC Project Lightspeed
% of Customer $ Spend
Attributed to Each Segment
Low
Value
25%
High
Value
34%
Medium
Value
41%
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High-Value Customer Coverage
Percent of Each Segment
Covered by Project Lightspeed
~90%
• FTTN is efficient in how
it can be deployed
• Lightspeed deployment
will cover approximately
90% of high-value and
70% of medium-value
customers
~70%
~5%
High
Value
Medium
Value
Low
Value
SBC Project Lightspeed
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What We Expect to Achieve
• The second largest video provider in our fiber
footprint within five years
• A lift in high-speed Internet penetration
• Differentiated product set with comparable
prices
• Increased share of overall spend for
customers’ communications and entertainment
services
SBC Project Lightspeed
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Strong Platform
for Revenue Growth
Video
Opportunity
• 500 bps of market
share generates
$550 to $600
million revenue
annually
2nd
• Goal is to be
largest video
provider within
five years
Data
Opportunity
Voice
Opportunity
• Market share in
FTTX markets
grows to nearly
50%
• FTTX product set
increases 2007
access line market
share by 300 bps
• FTTX revenues
increase by nearly
$300 million in
2007
• Estimated $300
million revenue lift
in 2007 from
improved market
share
SBC Project Lightspeed
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Superior Capabilities Versus Cable
Video
• Flexible content
choice and VOD
capabilities
• 100% digital IP
network, with the
latest technology in
compression and
DRM
Data
Voice
• Dedicated
connection
• Integration with
WiFi, wireless
• Bandwidth on
demand
• Upstream speeds
– 1 Mbps
• Functional
integration with
Cingular wireless
service – voice,
video and data
The power of integration drives customer value.
The key competitive differentiator
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Power of IPTV
Interactive Guides
Photo and Music Sharing
Order Print
^
Multiple Camera Angles
SBC Project Lightspeed
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Source: Microsoft
Video differentiation
Advantages of SBC Video Platform
Quantity of
content
Ability to offer many traditional channels as well as new content including
gaming, music, video on demand, and interactive applications
Customization
IP platform provides flexibility in developing the user interface and allows
for a highly customizable user experience
Tracking &
reporting
Ability to track and report detailed subscriber and usage metrics in near
real time for broadcast channels and interactive services
Targeting
Ability to deliver content tailored to the specific interest of the customer
over time
Security
More secure, customer specific content delivery, ensures content delivered
to specific end user only; security scheme can be easily updated without
replacing set top boxes; pair the network with the set top
Convergence
IP platform facilitates repurposing of video content delivery across the SBC
companies’ broad base of platforms (i.e. wireless, internet)
SBC Project Lightspeed
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Solid Growth Record
Growth Driven By Bundling,
LD and DSL…
Consumer Wireline Revenue
Year-over-Year Growth
Consumer Key-Product
Bundle Penetration
Consumer retail revenue per
retail access line year-over58%
year growth
2.8%
54%
50%
1.0%
44%
(1.8)%
31%
(6.9)%
2.1%
(8.2)%
2Q03
3Q03
4Q03 1Q04
8.1%
36%
(3.3)%
2Q04
3Q04
SBC Project Lightspeed
2Q03
9.2%
6.1%
5.9%
3.1%
3Q03
4Q03
1Q04
2Q04
3Q04
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SBC | DISH Network
SBC has demonstrated great success in integrating a video
offering through its relationship with SBC | DISH Network
 We began marketing our integrated SBC | DISH Network
satellite TV service in March, expanding from a soft launch
to full sales-channel coverage in April
 Growing to over 300K subs today
 DBS provides a feasible interim offering to retain voice
lines; however, it is not a long term solution for profitable
growth
 Owning a video distribution network has the greatest
potential to generate profitable growth in video
SBC Project Lightspeed
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Market Success Drivers
Individual Product
Capabilities
• Taken separately, each product offers
superior value to what’s currently
on the market
Integrated
Portfolio
• Cingular, wireline, high-speed Internet
access and IPTV – all IP and all
integrated
Customer
Relationships
• Leveraging relationships with our
existing customer base
Speed To Market
• We get to the right customers fast
SBC Project Lightspeed
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Unique Operational Approach
• Procurement
• Partner in new ways
• Choose based on what is available not what we want
• Critical to trust key partners
– Alcatel account team differentiated itself from competitors
– Alcatel project team is part of SBC
SBC Project Lightspeed
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Project Lightspeed Network Plan
All-digital, high-bandwidth IP network
to reach more than 18 million
households within three years
FTTN
• Fiber to the node in existing neighborhoods
• Flexible and cost-efficient
FTTP
• Fiber to the premise for new construction
and multi-dwelling units
• Will deploy FTTP in selected rehab situations
SBC Project Lightspeed
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Network Alternatives
Today
Fiber to the RT (Pronto)
Central
Hub
Fiber
Fiber to within 6,000 feet
of home on average;
12,000 feet maximum
Remote
Terminal
Copper
Node
Copper
1.5 - 6.0 Mbps
Overbuild
Fiber to the Node (FTTN)
Central
Hub
Fiber
Fiber to within 3,000 feet of home
on average; 5,000 feet maximum
20 - 25 Mbps
New Build
Fiber to the Premise (FTTP)
Central
Hub
Node
Copper
Fiber
Fiber from the central office to the home
SBC Project Lightspeed
Up to 39 Mbps
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Project Lightspeed Video
Network Architecture
National
Super
Head
Ends
• National
content
aggregation
• Redundant
infrastructure
• VOD encoding
• Number: 2
Regional
Local
Video Hub
Offices
Video
Serving
Offices
• Storage of
content/intelligence
– VOD library
– Time-shifted TV
– Interactive applications
to customers
• Distribution
of video
• Local aggregation
point
• Number: 140
• Local content
aggregation
• Number: 40
SBC Project Lightspeed
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IP Video Distribution Advantages
Broadcast Video
Video
Service
Provider
Channel Lineup:
23456789
3
5
4
SBC IP Video
Video
DSLAM
2
SBC Project Lightspeed
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9
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Expected Deployment Costs
Deployment Costs
Per Household Passed
New Build
Overbuild
$1,350
$1,100
• In overbuild situations,
comparable deployment costs for
FTTP are more than 5X costs
for FTTN
• FTTN deployed by 2007,
one-fourth the time vs. full FTTP
deployment
$1,100
• FTTN deployment costs
include all video infrastructure,
fiber and electronics, including
line cards
$250
RT
(current)
FTTP
FTTN
SBC Project Lightspeed
FTTP
• FTTP overbuild deployment
costs include all fiber,
electronics and video, plus the
service drop and ONT
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Project Lightspeed
Expected Subscriber Costs
Deployment Costs
Per Household Passed
Success Based
Subscriber Costs
$1,100
Nearly one-third
lower than DISH &
DSL
$250
FTTP
Greenfield
FTTN
Overbuild
Declines over 10%
annually during
next five years
SBC Project Lightspeed
• In greenfield
deployments, FTTP
costs the same as
copper
• In overbuilds, FTTN is
about one-fifth the
cost of FTTP
• Subscriber costs
decline rapidly driven
by scale and IP
technology curve
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Targeted Time To Market
2Q04
3Q04
4Q04
1Q05
2Q05
3Q05
4Q05
FTTP Field Trials
(scalability, provisioning, customer experience)
FTTP
Voice/
Data
Launch
IP Video Trials
(video quality, operational integration)
Begin Network Construction
FTTX Video Field Trials
(customer acceptance)
FTTX
Video
Launch
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Project Lightspeed Overview
Investment
Return
• Capital efficient, financially disciplined approach
• Creates a logical migration path with minimal
risk of stranded investment
• Significant revenue opportunities in video,
high-speed data and integrated services;
improves retention of highest-value customers
• Substantial opportunities for operating
expense savings
• Project returns are in excess of cost
of capital; flexibility for continued dividend
growth and share repurchase
• Growth in wireline operations should more
than offset up-front dilution from Project
Lightspeed
SBC Project Lightspeed
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Summary
 Video is important (both defense and offense)
 The time is now for switched video world wide
 Microsoft and Alcatel have a leadership position
 Opportunity is overwhelming for Alcatel
 Partner like Alcatel/SBC and there is no limit on your
success
SBC Project Lightspeed
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