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Broadband Bulls, Digital Dilemmas: KOREAN CABLE’S FUTURE. KCTA Cable Convention & Exhibition Jeju June 13, 2006. KOREAN CABLE: AN ANALOG + BB INTERNET STORY TODAY. Subscriber Composition (CYE Dec. 06 forecast). Cable SO Industry Revenue (CYE Dec. 06 forecast). - PowerPoint PPT Presentation
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Broadband Bulls, Digital Dilemmas: KOREAN CABLE’S FUTURE
KCTA Cable Convention & ExhibitionJeju
June 13, 2006
Subscriber Composition(CYE Dec. 06 forecast)
Analog SubsDigital Subs
Other
SO Indirectly Owned
SO Directly Owned
0
2
4
6
8
10
12
14(mil.)
TOTAL CATV SUBS TOTAL BB CABLE SUBS
0.00
0.200.40
0.600.80
1.001.20
1.40
1.601.80
2.00(US$ bil.)
Digital CATVAdvertising & otherBroadbandAnalog CATV
Cable SO Industry Revenue(CYE Dec. 06 forecast)
KOREAN CABLE: AN ANALOG + BB INTERNET STORY TODAY
Source: MPA research estimates; KCTA; MIC; KBC
CABLE’S SHARE OF DIRECT BB SUBS GROWING RAPIDLY AT THE EXPENSE OF KT, HANARO
0
2
4
6
8
10
12
14(%)
2002 2003 2004 2005 2006e
Source: MPA research estimates; KCTA; MIC; KBC
3.3%
5.4%
7.9%
10.3%
12.4%
Cable SO’s Share of Direct BB Subs
CABLE’S BROADBAND ADVANTAGE… vs RIVAL TECHNOLOGIES• Broadband HFC Cable Two-way distribution pipe
Broadband capacity ~ HFC 750 Mhz+
Upgrade costs low with scale
Ability to offer TRIPLE PLAY, VOD, DVR
Strong HD capability
Superior local sales strength to telcos – key driver of triple play, broadband + digital [key in Japan, Korea, Taiwan, U.S.]
Ability to offer quad play (NTL acquisition of Virgin Mobile, UK; JCOM’s tie up with Willcom in Japan)
• DTH Satellite Offers national reach but lacks two-way return path capability Sky (UK) acquisition of EasyNet BB in the UK; DBS in the U.S. may make
similar moves
• ADSL/VDSL Can offer national reach but dominated by incumbent carriers with conservative mindsets
Lacks infrastructure to offer video without significant investment in technology + content
LLU deregulation often proves futile and unrealistic
• FTTH Highly prohibitive costs and very long payback period Long gestation period
• Mobile/ Wireless Standards for satellite mobile TV and 3G video remain early stage and business models yet to be established
WiBro remains out of reach in the near term
CABLE’S BROADBAND ADVANTAGE… BUSINESS IMPACT
BROADBAND CABLE HELPS DELIVER THE DIGITAL HOME
FACTInternet + IP-based telephony have helped boost digital cable rollouts in U.S., Canada, Japan, Latin America [Brazil, Chile, Puerto Rico] and Europe [Netherlands, U.K., Hungary]
WHY?Apart from a few niche and premium channels, cable companies have found the largest driver of digital adoption to be bundled high speed Internet, VOIP telephony and VOD/DVR services plus retransmission of HD terrestrial
BROADBAND IS GOOD FOR AN OPERATOR'S HEALTHFACTProfit margins for broadband Internet services are 55% on average globally while digital TPS service margins are 40%+ in some markets
Broadband also contributes on avg 40%-50% to top line growth and approx. 30% to overall turnover
WHY?Cable modem and related BB equipments costs are falling rapidly and helped by tax efficient/low duty frameworks, operators can deploy services at low incremental cost once investment and upgrade to 750 Mhz+ HFC cable is achieved
Cable TV Market Share(CYE Dec. 06 forecast)
Cable Broadband Market Share(CYE Dec. 06 forecast)
KOREAN CABLE IS CONSOLIDATING RAPIDLY AND WILL CONTINUE TO DO SO WITH MORE DEREGULATION
Source: MPA estimates
Other 17%On Media
4%Qrix4%
CMB8%
HcN9% C&M
15%
CJ CableNet19%
Tbroad24% Tbroad
31%
C&M 22%CJ CableNet
16%
On Media6%
Qrix5%
CMB3%
HcN3%
Other14%
DIGITAL DILEMMAS
CapEx vs ARPU
Open cable-standard STBs @ US$200-US$250 with scalable rollout (i.e. 1 mil. +) bring cost down to US$150
ARPU for cable TV however only @ US$5-6/mo.; analog pricing capped at US$15/mo; digital @ US$18-US$25
Solutions
Bolster analog pricing ahead of digital rollout with migration of US$3-US$7/mo. subs to US$10-US$15
MIC may bring relief to technology issues with easing of standards
Offer more flexible digital and analog pricing - cable TV is not a utility
•
•
•
••
DIGITAL DILEMMAS
Content differentiators
Limited differentiation between analog + digital
Ad supported basic channels do not want to migrate solely to digital
Lack of HD content
Continued restrictions on foreign retransmission channels and ownership of local PPs (49%)
Solutions
Ramp up HD terrestrial content output and leverage cable retransmission to boost digital [i.e. Japan scenario]
Differentiate digital product with bundled IP telephony
Accelerate investment in local PPs exclusive to cable
Lift restrictions on foreign retransmission channels and FDI in local PPs
•
•
•
•
•
••
TODAY’S DIGTAL & BROADBAND REALITIES
Analog cable + BB is a high margin biz.
Why go digital when upgrade costs are high
Content is lacking and pricing flexibility is restricted
Facilities-based regulation on cable SOs may limit ability to compete on price
Impact margins/costs with mandatory QoS, interconnection, backbone fees
••••
•
THE POTENTIAL REGULATORY FRAMEWORK?
Timing
PM Task Force recommendations ready by Q4 06
IPTV licensing by March 07
Convergence framework (Ofcom or FCC Model) is uncertain
IPTV Licenses
KT
Hanaro
Powercomm/Dacom
Will nationwide transmission be allowed?
Yes, as this will be KT’s key differentiator and the cap for Sos will re revised to 1/3 of all subs - 33% approx. as in Taiwan currently
•••
•••
THE POTENTIAL REGULATORY FRAMEWORK?
Bundling
Regulation may limit the ability of KT, in particular, in its provisioning of IPTV video packaged with Internet, phone and other services
Price restrictions on IPTV
W18K - W24K as in digital CATV; will not pressure or distort the market again by competing with analog cable pricing
Terrestrial retransmission
KBC/MIC taking the view that retransmission of digital terrestrial and HD terrestrial must be allowed over all networks - cable, satellite and IP - in order to achieve the digital goal (as in Japan) and accelerate HD broadcasting after 2008
Programming and Program Access
Potential regulation of vertically integrated cable media (CJ, On Media, T broad, C&M)
Potential enforcement of program access rules (a la FCC in the U.S. - vertically
integrated cable media groups have to make their content available to cable’s competitors with non-discriminatory terms)
•
•
KT’S IPTV PLANS
FY 06: W300 bil. invested with FTTH @ W250 bil. and IPTV @ W50 bil.
FY 06: Digital content fund ~ W95 bil.
FTTH will be avail. only to only 200K sub HH with 06, implying inflated capEX costs of approx. US$ 1,250/sub for FTTH with all B&W
Nationwide expansion is expected to take 5 years and will prove problematic in terms of capEx burden
KT hoping to leverage full fibre optic network to offer high quality BB, WiBro, IPTV and BcN
•
••
•
•
Infrastructure CapEx
KT’S IPTV PLANS
VDSL/LAN ready for IPTV ~ 25% of KT’s BB sub base (base case ~ 900K subs)
FYE Dec. 2006 – 40% of its BB sub base at 4 Mbps
MPA: KT will launch in 2007 to 40% at 2 – 4 Mbps: SDTV channels + VOD in Seoul
Gradual migration to 8-10 Mbps, more capEx [By way of comparison, 95% of PCCW’s network in HK is upgraded to 6 Mbps and 60% to 8 Mbps – upgrade to 25 Mbps is planned in the next 2 yrs]
IPTV equipment at US$180 – US$200 with STBs at US$150 – US$170; CA+M/W+EPG+ SMART CARD = US$25 ~US$28
350K – 400K STBs order for Q1 07 with capEx at approx. US$50-US$60 mil.
In consideration: Sky Life STB (MDU, dev. By Thomson) with IP tuner (US$100…allows retransmission of SkyLife content)
•
••
•
•
•
•
Infrastructure Equipment
KT’S IPTV PLANS: CONTENT REMAINS THE KEY ISSUE
W30 bil. invested in Sidus FNH
W95 bil. for digital content investment
Terrestrial retransmission and HD terrestrial (will get, but HD terrestrial
production in Korea is really low at pres.)
Acquiring content from studios/ libraries to program its own channels but lacks expertise in programming plus is unwilling to sign output deals with studios or MG agreements
PPs – has been in talks with On Media and CJ Media but can’t get anything signed because of cable affiliation plus KT will not offer attractive MG agreements than could persuade it to share content
Foreign retransmission and foreign invested local PPs [Turner, Sony, News Corp./Fox] are just eyeing local ad-driven cable PP JVs or straight per sub agreements with cable
•••
•
•
•
Infrastructure Content Plans
HANARO’S IPTV PLANS
Hanaro is increasingly the subject of M&A talk (SKT, LG Gp. Etc)
Low cost strategy for IPTV and its decision to go ahead with a portal launch in 06 is all part of a sale strategy though, at the same time, it may help neutralize cable’s BB advantage.
Key focus is on a service it calls TV portal [Hanaro Media] – to launch in July 06 using a Celrun IP STB solution (in which Hanaro has invested W6 bil. in equity – total at W18 bil), dedicated to VOD services with content ranging from movies, dramas etc
2 Mbps speed (transmitted online via Celrun HDD STB)
Will also provide terrestrial channels (real time) by installing antenna into consumer STBs.
Negotiating with 30-40 media owners for content and says it has signed up CJ, SBS, EBS, BBC, YTN, MBN, NGC etc.
Service will cost W9K/mo. plus STB rental fees @ W3K with 30% discount to existing BB subs. Looking to lower BB churn through the service and recover BB mkt share plus boost overall BB ARPU.
Revenue targeted at W5 bil. in 06; W70-W80 bil. in 07 and W200 bil. in 2008 when it expects to launch a full IPTV service.
••
•
••
•
•
•
APPENDIX
CABLE COMPANIES, SUPPORTED BY STRONG REGULATORY AND COMMERCIAL DYNAMICS, HAVE TRANSFORMED INTO MAJOR BROADBAND TELECOM PROVIDERS
Selected Leading Broadband Cable Operators (Subscriber data in mil.)
Y/E Dec. 2005 - Q1 2006 (Source: Company Data, MPA research estimates)
Company Market Analog Video Digital Video Internet Telephony
Comcast USA 11.66 9.79 8.52 1.3
Time Warner Cable USA 8.90 4.64 4.15 0.9
Cox USA 3.60 2.70 3.14 1.6
NTL/Telewest UK 0.61 2.70 2.83 4.32
Charter USA 3.05 2.80 2.20 0.12
UnitedGlobalCom Europe 9.36 1.01 1.97 0.86
Adelphia USA 2.99 2.01 1.71 NM
Cablevision USA 1.07 1.96 1.69 0.74
Shaw Canada 1.37 0.80 1.40 0.12
Rodgers Canada 1.30 0.97 1.18 0.10
Tbroad Korea 3.20 NM 0.70 NM
J:COM Japan 1.01 0.70 0.95 1.01
CJ CableNet Korea 2.00 0.05 0.40 NM
C&M Korea 2.00 NM 0.54 NM
EMC Taiwan 1.03 0.05 0.17 0.10
TBC Taiwan 0.65 0.02 0.10 0.03
i-CABLE Hong Kong NM 0.74 0.32 0.12
StarHub Singapore 0.25 0.20 0.28 0.01
GLOBALLY, DSL IS A DRIVER OF BROADBAND BUT IN MARKETS WHERE CABLE TV HAS A CRITICAL MASS, CABLE IS A MAJOR BROADBAND CONTRIBUTOR
Y/E Dec. 2005 (Source: MPA research estimates)
Global Broadband Breakdown by Technology
DSL, 65%
Cable Modem, 25%
Other, 1%FTTx, 9%
0%
10%20%
30%40%
50%60%
70%80%
90%
Korea
U.S.A
.
Canada
Singap
oreChina U.K
.
Japa
n
Austra
lia
Cable TV Pen./TVHH Cable BB Pen./HH
Y/E Dec. 2005 (Source: Point Topic, Morgan Stanley, MPA research estimates)
Leading Cable TV/Cable Broadband Markets by Penetration
Y/E Dec. 2005 (Source: Point Topic, Morgan Stanley, MPA research estimates)
Cable/DSL & Other Composition in Leading Broadband Markets by Penetration
0.05.0
10.015.020.025.030.035.040.045.0
U.S.A
.China
Japa
nKore
aU.K
.
Canada
Austra
lia
Singap
ore
Cable Modem DSL & Other
BROADBAND IS BECOMING A MAJOR DRIVER OF GLOBAL ECONOMIES AND KOREA IS LEADING THE WAY
Broadband Sector as a % of GDP
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
Korea Taiwan USA HongKong
Japan China UK Brazil India
Y/E Dec. 2005 (Source: MPA research estimates)
KOREA STILL HAS BROADBAND LEADERSHIP
0.0
5.0
10.0
15.0
20.0
25.0
30.0
Korea
Hong K
ong
Taiwan
Japa
n
United K
ingdom
Singap
ore
United S
tates
Austra
liaChina
Brazil
Thaila
nd
Philipp
ines
India
Global Broadband Penetration - Total Subscribers
Broadband Penetration - Density Per 100 Inhabitants
Y/E Dec. 2005 (Source: MPA research estimates) Y/E Dec. 2005 (Source: MPA research estimates)
Tota
l Sub
scrib
ers
(mil.
)
Den
sity
Per
100
Inha
bita
nts
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
United S
tates
ChinaJa
pan
Korea
United K
ingdom
Taiwan
Brazil
Austra
lia
Hong K
ongInd
ia
Singap
ore
Thaila
nd
Philipp
ines
THANK YOU