When and why PPPs are an option for NGA? Caisse des Dépôts Hélidéo COSTA ELIAS Feb 15th. 2011, Rome - PDF

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When and why PPPs are an option for NGA? Caisse des Dépôts Hélidéo COSTA ELIAS Feb 15th. 2011, Rome What are the concerns to be addressed in NGA? NGA are capex intensive : From 200 to 400 in dense urban

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When and why PPPs are an option for NGA? Caisse des Dépôts Hélidéo COSTA ELIAS Feb 15th. 2011, Rome What are the concerns to be addressed in NGA? NGA are capex intensive : From 200 to 400 in dense urban zone (erg : 5 mil acc) To to in standard French non urban zone (15 mil acc) NGA are at very high commercial risk : No killing application to swap from copper access to optical access ADSL networks : CAPEX 150 /subscriber, ARPU : 30 /subs Optical networks : CAPEX /subscriber, add ARPU : 5 /subs Ramp up will be slow if not accompanied NGA is not a market at the infrastructure level : One Telco will have 80% of the market share outside urban areas, an other one will have 15%. There is no market price, nor regulated price (copper has a regulated price) 2 But NGA are a key for tomorrow s economic development Local authorities will make the effort to build the telecom infrastructure as they builded the roads or the energy network in the past. Are PPPs on option to finance NGA? With PPP, public authorities assume the risk : Outside dense urban area, no operator will take the risk PPP optimize the CAPEX and bring in debt : 10% to 15% of the costs are financed with CAPEX Optical access pricing must be secured : PA will have to support excessive financial charges State aid risks The size of the projects must be attractive for telcos To many projects will generate integration costs that telcos will not accept to afford. 3 A nationwide case (France) State level PPP : 15 mil NGA (outside dense urban area) Regional lots Total investment : 19 b CAPEX : 2 b, Debt : 19 b Pricing of NGA : 15 /month Debt term : 20 y, rate : 5.0% ROI : 19 y, IRR (investors) : 11% 4 5 Thank you From Broadband to Ultrabroadband The cost per household thus increase quickly when one plans to cover the least dense area A new challenge because the economic model is Heterogeneous Profitable on very limited areas, and digital divide could happen between two neighboring zones or even buildings. Territories are not equal in regards of prospects from operator deployment Public intervention of local authorities will be needed 6 Source : Analyses PMP Caisse des dépôts 100 k Cost per household sorted by the size of the urban entity : urban entity IRIS (INSEE) 550 100 k 630 50 k 860 hts hts hts hts Rural entity Millions of households 2,5 4,2 5,5 9,0 11,6 13,9 18,3 23,8 Public broadband infrastructure projects Typical project structure Public Contract Local authority Subsidies Other local authorities / subsidies Telco Client Special Purpose Vehicle Equity Shareholders Caisse des Depots 30% Project sponsors 70% Design & Build Operation & Maintenance Sponsor 1 Sponsor 2 7 From Broadband to Ultrabroadband Four operators in competition Technology, Broadband market share Ultrabroadband investment Home passed Objectives Focus Commentaries Numéricâble Câble, 10% 800 M 2005 et 2010 Renovation End 2008: 5 M End 2009: 7 M? End 2010 : 8,5M 80 cities Numéricable uses HFC technology on the final drop. Orange DSL, 50 % 270 M in à 4,5 Md over ? End 2009 : 1 M List in Orange SFR With its existing infrastructures, Orange has a large capacity of deployment Free DSL, 20 % 300 à 400 M in ; 1 Md until 2012 End 2008: 70% Paris, + 400k End 2012 : 4 M Paris, cg 92 Montpellier, Valenciennes Free doesn t own any access infrastructure. 8 SFR DSL, 20 % 450 M until 2009 End 2009: 1 M 100% Paris, Pau End 2012: 5 M? Orange SFR SFR doesn t own any access infrastructure. Some wholesale operators without retail offer have started some deployment in Paris. The deployments are not significant yet From Broadband to Ultrabroadband The cost per household thus increase quickly when one plans to cover the least dense area A new challenge because the economic model is Heterogeneous Profitable on very limited areas, and digital divide could happen between two neighboring zones or even buildings. Territories are not equal in regards of prospects from operator deployment Public intervention of local authorities will be needed 100 k Cost per household sorted by the size of the urban entity : urban entity IRIS (INSEE) 550 100 k 630 50 k 860 hts hts hts Source : PMP, Caisse des dépôts hts Rural entity Millions of households 2,5 4,2 5,5 9,0 11,6 13,9 18,3 23,8 From Broadband to Ultrabroadband Cost per household Homogenous deployment at stake across less dense area Financing [4 to 6 B ], Fostering competition, Territorial planning, Sustainable development (network resource optimization) Equalization between territories 10 Operator aggregation From Broadband to Ultrabroadband Among the various profiles of investors, the public investor of very long term is most capable to ensure a broad reach wholesale ARPU % Target Cost of capital Investment Timeline Home passed cost with positive ROI Commentaries Alternative Telco 10 35% 14% 15 years ~ 250 Legacy operator with competition Private monopole 10 35% 12% 20 years ~ % 7% 30 years ~ 1100 To be compared with 450 for an alternative operator Public Investor 10 80% 5% 40 years ~ 1500 Financing cost reaches up to 2000 Source : Analyses PMP 11 From Broadband to Ultrabroadband In the assumption of a public initiative FTTH, the community has four scenarios of intervention s perimeter Cost per household B. Subsidized areas Possible competition M. areas of natural monopoly E. Comprehensive - Equalization P. Pre-emptive ~1 Md subsidies per year 12 Positive ROI for several alternative operators Positive ROI for one or two operators 9M Positive ROI for one operator only No ROI without subsidies 24M households
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