Market Perspectives Diffraction Analysis – Successful Strategies for FTTH Operators

Overview Diffraction Analysis conducted primary research on a range of competitive and incumbent companies in Europe to benchmark FTTH/B services so as to analyse trends and best practices with a goal to: highlight successful FTTH/B services and pricing strategies; compare fibre offerings to legacy broadband; understand the end-user proposed and perceived value.

Three different strategies at play ARPU • Acquisition – focuses on maximising penetration. Offerings are generally no frills and priced competitively to existing alternatives: Networx; Superonline; Teo; HKBN TAKE •

Constrained – mix of premium and acquisition, often dictated by market condition: Rostelecom; Orange; KPN; Izzi; M-Net; Portugal Telecom -

UP

• Premium – aims for sexy FTTH/B services at premium prices, to address a smaller customer base without cannibalising existing revenues: Verizon; Altibox; Bredbands Bolaget There is no FTTH/B “demand issue” ARPU by strategy

• Take-up is generally a • Comparing FTTH/B to DSL ARPU for the factor of time same player (or in the case of FTTH/B only • Acquisition strategies players compared to the incumbent in the aim to accelerate same market), on average has FTTH/B take-up while ARPU 46% higher (US$55 versus US$38) Premium strategies • Strategies of Acquisition have ARPUs that tend to slow it down are on average lower than DSL ARPUs • Larger projects and • Constrained and Premium strategies have incumbents generally ARPUs significantly higher than DSL have lower take-up

Conclusions • On average 2.5 VOD / mth on DSL; 7 on FTTH/B • FTTH/B take-up is essentially a factor of time with strategy affecting how fast • 90% of FTTH/B customers have triple play vs 15% on DSL profitable penetration is achieved • FTTH/B ARPUs are significantly higher than DSL ARPUs, 46% on average • Overall, service providers remain stuck between unwillingness to invest in innovative services and distaste for OTT partnerships • Incumbents tend to be more cautious in • Most service portfolios are still largely comparable with DSL / cable grade FTTH/B pricing strategies and need to “manage portfolios, with differentiation coming only from broadband speeds the transition” from copper • Differentiation where it happens is centered mostly around content delivery and • Competitive operators have to reduce the gap consumption, although other home offerings are starting to appear with DSL ARPU to develop the customer base • The potential lucrative small business market remains largely untapped with lackluster offers unlikely to encourage migration to fibre

Source: Diffraction Analysis – Successful Strategies for FTTH Operators; http://www.diffractionanalysis.com/blog/2012/05/09/free-webinar-successful-ftth-service-strategies.html NBN Market Intelligence