Vodafone Group Public Limited Company · LSE:VOD

Vodafone Group Public — Vodafone Group — Technical Presentation (February 2011)

29 slides from Vodafone Group Public's technical presentation, Feb 16, 2011

1. Slide 1: Architectures and competitive models in fibre networks

   Architectures and competitive models in fibre networks Study for Vodafone Group Dr. Karl-Heinz Neumann Brussels, 16.02.2011 0

2. Slide 2: Project team

   Project team Dr. Thomas Plückebaum WIK-Consult cost modelling team Stephan Jay WIK-Consult Dr. Karl Heinz Neumann Prof. Dr. Steffen Hoernig WIK-Consult Universidade Nova de Lisboa competition Prof. Dr. Martin Peitz modelling team Universität Mannheim Prof. Dr. Ingo Vogelsang 1 Boston University

3. Slide 3: Motivation

   Motivation ƒ Ongoing debate about how to best deliver NGA in terms of technology and access concept ƒ High capital cost and long asset life of fibre mean today’s technology choices will determine intensity and business models of future competition and regulation ƒ We model a steady state of the mark

4. Slide 4: Goal: Examine cost differences and competitive outcomes of different FTTH technologies

   Goal: Examine cost differences and competitive outcomes of different FTTH technologies and determine impact on… Viable coverage Prices Market entry and number of viable competitors Penetration Profits, consumer surplus & welfare Market shares 3

5. Slide 5: Two cost models and a 4-stage competition model developed for Euroland

   Two cost models and a 4-stage competition model developed to model cost and competition in “Euroland” Steady State Cost Model Investment Cost Profitability Coverage Cost functions Cost functions Dynamic ramp‐up analyis Present Values Cash Flow Competition Model Number of entrants Prices Market share

6. Slide 6: The country considered is Euroland

   The country considered is „Euroland“ Average trench Potential Total potential Potential Cluster Share of total Potential customers Number of length per Geotype customers customers per customers ID customers (cumulated) MDF potential per km² cluster per MDF customer (m) Dense urban 1 4000 1.763.916,0

7. Slide 7: We analyse four different NGA architectures

   We analyse four different NGA architectures IP core network Concentration network Next Generation Access Network 1. FTTH Ethernet P2P • FTTH Ethernet P2P 2. FTTH GPON • FTTH GPON 3. FTTH GPON over P2P • FTTH GPN over P2P 4. FTTH WDM PON • FTTH WDM PON • … Label Metropolitan Point of Edge Router Pres

8. Slide 8: Comparison of architectures reveals highest degree of future proof with P2P topologies

   Comparison of architectures reveals highest degree of future proof with P2P topologies Point-to-Point Point-to-Multipoint GPON over P2P GPON WDM PON P2P Fibre count drop / feeder / / / / Bandwidth per customer / / / / / capability for symmetry Max distance from MPoP 10-40km 20km 20km 100km to custom

9. Slide 9: 4 access technologies with 5 wholesale scenarios were considered

   4 access technologies with 5 wholesale scenarios were considered Suitable for Bitstream-only Unbundling Incumbent Incumbent Competitor (Entrant) Competitor (Entrant) technology technology Ethernet P2P Fibre LLU at MPoP Bitstream Access at Core GPON over Fibre LLU at MPoP GPON Nodes P2P Bitstream Acc

10. Slide 10: GPON over Point-to-Point fibre

    GPON over Point-to-Point fibre, Combines advantages of P2P with optimized GPON components Fiber 1:1 MPoP ODF Ethernet OLT Switch * Handhole/Sleeve Ethernet Ethernet Switch modem /router ODF Access Seeker * Only active customers patched through Incumbent cost (relevant for LLU price) Competitor Cost*

11. Slide 11: Strategic competition model

    Strategic competition model ƒ Strategic interaction of market players ƒ Pyramid Model similar to Hotelling model used to define the customers‘ preference space ƒ Incumbent as investor ƒ Access-based competitors and cable ƒ QoS, Willingness to Pay, linear demand functions ƒ Cost functions (fixed and

12. Slide 12: Modelling competition in an FTTH oligopoly

    Modelling competition in an FTTH oligopoly 4 stages of the game ƒ Stage 1: A planner decides on the scenario, consisting of the FTTH architecture and the mode of regulation (including aspects of access prices and QoS). ƒ Stage 2: The incumbent firm invests in FTTH infrastructure, based on the restri

13. Slide 13: QoS and willingness to pay (WtP) in the basic model

    QoS and willingness to pay (WtP) in the basic model Incumbent Cable Entrant Entrant QoS =WtP QoS = WtP QoS WtP P2P unbundling 100 82 99 97 GPON over P2P unbundling 99 82 99 97 WDM PON unbundling 95 82 91 89 GPON Bitstream Core 90 82 85 83 GPON Bitstream MPoP 90 82 87.5 85.5 12

14. Slide 14: Networks that can be unbundled are superior to bitstream-only GPON

    Networks that can be unbundled are superior to bitstream-only GPON in terms of consumer surplus and welfare ƒ Ethernet P2P, GPON over P2P and WDM PON generate greater monthly consumer surplus and total welfare than GPON-based bitstream Hinterland (“no-cable”) No-Hinterland (“cable”) Consumer Total W

15. Slide 15: Marginal costs and prices in Euroland

    Marginal costs and prices in Euroland (in Euro per month) # Fibre total cost per customer price entrants Scenario MCI MCE MCC n-2 pI pE pC perceived P2P unbundling 34.36 36.22 12 4 42.07 42.37 23.76 GPON over P2P 32.22 36.22 12 3 43.58 45.54 27.92 unbundling WDM PON 33.37 34.00 12 4 41.24 39.32 26.1

16. Slide 16: Prices and number of firms: GPON bitstream access at core

    Prices and number of firms GPON bitstream access at core 15 No-hinterland case

17. Slide 17: Market shares and number of competitors: GPON bitstream access at core

    Market shares and number of competitors GPON bitstream access at core 16 No-hinterland case

18. Slide 18: Profits and number of competitors: GPON bitstream access at core

    Profits and number of competitors GPON bitstream access at core 17 No-hinterland case

19. Slide 19: The total cost of P2P is only ~10% higher than GPON

    The total cost of P2P is only ~10% higher than GPON Cost ranking Cost comparison ƒ High variation for some items 1. GPON (energy or central office floorspace)… that make up a few 2. GPON over P2P ~10% cost % of total monthly cost difference 3. WDM PON ƒ No variation for high cost share positions suc

20. Slide 20: The profitable coverage is nearly the same

    The profitable coverage is nearly the same ƒ FTTH P2P and WDM PON can operate profitably in about 50% of Euroland’s customers under our assumptions regarding ARPU and addressable market ƒ GPON over P2P and the standard GPON could reach about 64% of all customers ƒ Infrastructure competition generall

21. Slide 21: Proper pricing for access is essential

    Proper pricing for access is essential ƒ Wholesale charges were determined as Greenfield LRIC separately for each cluster ƒ Entrants may have to pay a mark-up on the LRIC cost (information asymmetries, deviations from LRIC to incentivize NGA investment) ƒ The critical market share of entrants requir

22. Slide 22: Under other assumptions WDM PON could be the best choice

    Under other assumptions WDM PON could be the best choice if the technology becomes commercially available for the access network ƒ We modeled a very forward looking WDM PON technology (1000 λ, high splitting factor, long distances allowing MDF dismantling = no concentration network needed) ƒ MDF con

23. Slide 23: Conclusions

    Conclusions Unbundling scenarios (P2P & WDM PON) generate greater consumer surplus and total welfare than GPON and bitstream access. GPON is only ~10% cheaper than Ethernet P2P. Coverage is nearly the same. Benefits of Ethernet P2P deliver higher consumer surplus and total welfare than bitstream onl

24. Slide 24: WIK-Consult GmbH contact details

    WIK-Consult GmbH Postfach 2000 53588 Bad Honnef Deutschland Tel.:+49 2224-9225-0 Fax: +49 2224-9225-68 eMail: info@wik-consult.com www.wik-consult.com

25. Slide 25: Unbundling of FTTH/P2P

    Unbundling of FTTH/P2P Fiber 1:1 MPoP Ethernet ODF Switch * Handhole/Sleeve Ethernet Ethernet Switch modem /router ODF Access Seeker * Only active customers patched through to Ethernet Switch Incumbent cost (relevant for LLU price) Competitor cost** •CPE •CPE •Access Network incl. Inhouse cabling •L

26. Slide 26: WDM PON with bitstream access at core level

    WDM PON with bitstream access at core level Former MDF MPoP Fibre 1:64 Backhaul Cable ODF OLT Ethernet Switch Splitter Splitter ONT Incumbent cost (relevant for wholesale price) Competitor Cost •CPE •CPE •Access Network incl. inhouse cabling and •WDM PON wholesale charge backhaul from MDF to MPOP •N

27. Slide 27: GPON bitstream access at MPoP level

    GPON bitstream access at MPoP level MPoP Fibre 1:64 ODF OLT Ethernet Switch Splitter ONT Incumbent cost (relevant for bitstream price) Competitor Cost •CPE •CPE •Access Network incl. inhouse cabling •Bitstream wholesale charge •ODF + Patch cabling + floorspace •Network sided Ethernet port (1 per MPo

28. Slide 28: GPON bitstream access at core level

    GPON bitstream access at core level MPoP Fibre 1:64 Concentration ODF OLT Ethernet Switch Network ONT Splitter Incumbent cost (relevant for bitstream price) Competitor cost •CPE •CPE •Access Network incl. inhouse cabling •Bitstream wholesale charge •ODF + Patch cabling + floorspace •Network sided Et

29. Slide 29: Future technology option: WDM PON based on Point-to-Multipoint fibres

    Future technology option: WDM PON based on Point-to-Multipoint fibres Concentration network replaced MDF remains as passive network node Curt Badstieber 28

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