Reflections about the ongoing Transformation of the

Telecommunications Market

Open Access Conference Accra 2-3 Nov 2009

Anders Comstedt

The telecom business is about network scale effects:

“Size matters”

• Relative size to your competitors

• High Density footprint for low cost per user

Intercontinental connectivity: From scarcity to abundance

• Q: Will all new African submarine cables really be built?

• A: Yes, these projects have such inertia that the only thing to watch out for is if they have passed the tipping point: Is the financing and the vendor supply contract in place?

High volumeLow volume

Profit

Price reduction

$$$

Business realities asscarcity change to abundance

• Will submarine cables be filled up or are we seeing a repetition of the overshoot of transatlantic capacity a decade ago?

• Scare tactics : “Private, non-carrier controlled cables will go down the drain like Global Crossing, be sold for 5% of CAPEX”

• First mover advantages: How much will the success of SEACOM depend on EASSy being a year late?

From scarcity to abundance• How do sub-marine cable projects look upon

themselves in the coming environment?• Will they reinforce market dominance or increase

competition in connected countries? Sell to who?

• Ultimately, will they partly be redundant as lots of cross boarder terrestrial fiber backbones will be rolled out?

• Why is SEACOM the only new cable with a clear communication of its strategy vs NRENs?

Others about African int. cable numbers:

•Western Seaboard

MainOne Phase 1 US$ 200 mMainOne Phase 2 US$ 200 m WACs US$ 450m •Around Africa UhuruNet US$ 1,200 m

•Investment Recovery: Total, Ongoing & Projected basic Investments:

US$ 3.163 billion, excluding Cost of Funds & Return on Investments, estimated at an additional 30 –40 %

Regional Population: c. 750 MInvestment Recovery: Essentially, off 20% of the Regional Population

A daunting Task: Capacity “glut” -Not all envisaged / planned initiatives will materialise

Eastern Seaboard

EASSy US$ 263 mSeacom US$ 650 mLion US$ 200 m

John Shira @ OECD meeting 2009

USD 25/user

Ongoing, Estimated -Projected

Plans for New Sub-SaharanUndersea Cables to Europe and India by

2011

Seacom (7/09)

EASSy(6/10)

TEAMs(9/09)

WACS(Q2/11)

MaIN One(Q4/10)

GLO1(11/09)

ACE(2011?)

$ 650M $ 265M $ 82M $ 2B ? $ 865 M $ 150 M ???

13.7 kkm 10 kkm 4.5 kkm 13 kkm 14 kkm 9.5 kkm 12 kkm

1.28 Tbps 1.4 Tbps 0.12 – 1.2 Tbps 3.84 Tbps 2.5 Tbps? 0.64 Tbps ???

June 2009 Q1/Q2 2010

Sept. 2009 2010 Q4 2010 Q2 2009 2011

Ambitious plans are once again underway to better-connect the African continent

The potential increase in capacity compared to now is 1000X

The issue is whether there is a sustainable market

Before the recession hit, outlook was at least one of these new cable projects would succeed this time

General global trends and debated issues

• Shared infrastructure vs infrastructure competition, is the latter just a dream?

• State interventions to get expansion of broadband services: Australia, EU, US,...

• Network neutrality, more a US than EU issue right now

• From legal monopolies to dealing with abuse of dominant positions

From monopoly to competition

• Privatize• Liberalize• • Abuse from the dominant operator• • Functional separation of services from the

infrastructure inside the dominant operator• Structural separation, split ownership of services

from infrastructure

RR

R

R

Layered networks

Services

Infrastructure

Relative size of US Tower Companies vs. carriers/mobile operatorsmarket capitalization in USD

• Tower CompaniesAmerican Tower, 14.5 billionCrown Castle, 8.8 billionSBA Communications Corporation, 3.3 billion

• Carriers/Mobile Operators Qwest Communications International Inc 6.20 billionSprint/Nexel, 8.33 billionDeutsche Telekom AG, 59.0 billionVerizon Communications Inc, 84.1 billionAT&T Inc. 151.5 billion

10/04/23 13

Number of operators on every level

4-12

5-20

2-4 2-5

3-83-10

1-2

6-30 ? Application

Transmission

Physical

Local National International

REACH

LEVELUser

FEW

MANY

10/04/23 14

Relative costs in different parts of the total network

5

?

50 20

225

200

? ? Application

Transmission

Physical

Local National International

REACH

LEVELUser

Network neutrality, getting to "greater transparency"

• "Greater transparency will give consumers the confidence of knowing that they're getting the service they've paid for, enable innovators to make their offerings work effectively over the Internet, and allow policymakers to ensure that broadband providers are preserving the Internet as a level playing field.“

Genachowski, FCC , Oct 2009

Economics and Technology, Inc. / June 2009 16

The deregulation experiment

• Lack of antitrust enforcement together with premature elimination of TA96 market-opening measures and competitive safeguards resulted in a “perfect storm,” assuring the demise of telecom competition– Mergers of incumbent carriers– Retail and wholesale price deregulation– Horizontal integration of “intermodal” competitors– Use of regulation to block and frustrate entry

Economics and Technology, Inc. / June 2009 17Economics and Technology, Inc. / June 2009

Economics and Technology, Inc. / June 2009 18Economics and Technology, Inc. / June 2009

African NRENs in all of this?

• Make visible the need for orders of magnitude of more capacity

• Enabling a path for operators to selectively and reasonably grow the transformation. Discriminate by referring to the non-commercial nature of NRENs