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Digital Agenda in Europe: The role of the market Brussels, June 16, 2011 Alfredo Baptista, CTO CONFIDENTIAL AND PROPRIETARY Any use of this material without.

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Presentation on theme: "Digital Agenda in Europe: The role of the market Brussels, June 16, 2011 Alfredo Baptista, CTO CONFIDENTIAL AND PROPRIETARY Any use of this material without."— Presentation transcript:

1 Digital Agenda in Europe: The role of the market Brussels, June 16, 2011 Alfredo Baptista, CTO CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of Portugal Telecom is strictly prohibited

2 1 Contents Fibre as a key driver of competitiveness in the wireline business PT as a case study in fibre network deployment Fibre as a strategic pillar for each business unit

3 2 Strong competition from cable operators in Portugal in 2007 Source:Screen Digest 100% = Others 2007 1,390 75% 20% 5% 2004 1,252 79% 17% 4% Pay-TV market share (thousands of subscribers) Two dominant players in pay-TV…… with strong positioning in the broadband market PT market share (2007) Percentage -44pp ULL areasNon-ULL areas Broadband penetration (2005) Percentage of house ULL areasNon-ULL areas x2 Ranking #1 #2 #3 Non-ULL areasULL areas

4 3 PT launched an IPTV offer supported by disruptive communication Multiscreen and QoS TV anywhere Largest distribution and support network Tailored offer Variety of channels, VoD with 2,000 titles Content New TV experience Personalized, Interactive Functionalities Communication Disruptive communication High recall levels

5 4 This offer captured an existing opportunity in the market 2007 *Static TV guide with no updates **Pay-movies available at specific pre-scheduled times Source:Screen Digest; WMM Global Insight Relative importance of attribute (beyond price) Percentage Domotic Fixed voice Brand10 Broadband12 TV29 Interest in services Percentage of homes in Portugal Digital recording24 VoD27** TV Guide/EPG27* Live-pause33 HD41 21Gaming Cable offer in 2007 * ** IPTV … with room for improvement in advanced services offer TV offer is a driver of operator choice…

6 5 … and underpinned the turnaround of wireline business Q4Q3Q2Q1Q4Q3Q4Q3Q2Q1Q2Q1 Revenue growth %.YoY Voice retail accesses growth %. YoY Q4Q3Q2 -0.6 Q1Q4Q1Q3 -0.3 Q2 -3.6 Q1Q4Q3Q2 200720082009 200720082009 Meo IPTV drove turnaround of wireline business by 2009 Meo success is an European case-study… +22pp -14pp ZON (cable) Other 2009 13% 23% 2007 21% 1% 15432 Operator Source:Anacom; Annual reports Pay-TV market share Market share 21 months after launch Percentage

7 6 Technological evolution of cable technology… Strong cable investment in technological evolution beyond copper infrastructure capabilities DOCSIS 3.0 maximum internet connection speed Mbps 2010200920082007 N.a. House- hold coverage % 054252 … beyond copper infrastructure capabilities Connection speed (Mbps) Accesses % 100 12168 ~70% 1 SD TV 100% 1 HD TV 2 SD TVs FTTH ADSL Source:Annual reports

8 7 Local market context favourable towards investment in fibre rollout Efficient deployment fostered by full access to nationwide duct network Only competitive commercial alternative in high cable penetration and competition areas As a result, PT launched an ambitious FTTH rollout plan Note:Some double counting on the total homes passed may occur due to the possibility of the same home being served by more than a provider Source:FTTH Council The launch of PTs FTTH offer gave a boost to fibre technology in Portugal -- Anacom (July 2010) 1 million homes passed with FTTH in 2010 and the goal of 1,6 million by the end of the year PT FTTH passed homes Thousands 20112009 x4 2010 1,000 1,600

9 8 Contents Fibre as a key driver of competitiveness in the wireline business PT as a case study in fibre network deployment Fibre as a strategic pillar for each business unit

10 9 Structured end-to-end fibre rollout process Key activities Rollout success Construction process Preparation and training Technological solution 123 4 Selection of efficient architecture technology (GPON) RF-overlay to allow multiple TV sets Field force transformation program Dedicated field force training academy Strategic partnership ecosystem for technology, construction and R&D Structured, end-to- end construction process Technical and commercial geographic viability studies Productivity- enhancement support processes and tools < 200 of Capex per home passed Installation efficiency and reduced maintenance needs Impact on customer base growth both through new clients and reduced churn HQ Cabinet ONT OLTSplitter

11 10 Selection of GPON and RF-overlay technologies Selection of GPON due to its potential and efficient architecture Higher speeds (100 Mbps vs. 24 Mbps for ADSL 2+) Better QoS with less down time Less opex with reduced energy consumption (~2.5 to 5 times less) Less space required, with equipment 4 to 7 times more concentrated Lower capex with reductions between 30 and 60% Potential to increase bandwidth with emerging NGN PON (10GPON, WDM- PON, etc.) Introduction of RF-overlay as a competitive advantage Key sources of advantage Unlimited number of TV sets (with ~70 channels) Significant reduction of investment in customer acquisition Simplification of home installation, which should allow for lower investment Reduction of IP bandwidth dedicated to TV streams allowing for broadband offers with higher speeds IP Signal RF Signal ONT WiFi Home Gateway VOIP STB … HQ Cabinet ONT OLTSplitter 1 xDSL Advantages vs.... Ethernet 2P

12 11 Transformation and training of field force Requalification of internal field force academyDedicated training center for SPs Training of internal technicians to boost efficiency and client satisfaction Selective process for ~330 high skills technicians with a 12-month rotation in the academy # of technicians by age 2007 2009 2009: average age of 43 2007: average age of 45 Compulsory certification process for all SPs Quality assessment tests to SP equipment Real-life situation practical tests for SP technicians Technical activity support tools training (e.g., PDA) 2

13 12 Ecosystem of partnerships to deliver leading-edge fibre solutions at scale ObjectivePT initiatives Technology suppliers Strong partnership with leading suppliers Partners Fast rollout, building on strong external SPs and internal technical know- how Construction providers Launch of a tender bid to select partners to design and construct the fibre network (6 service providers selected, including the 4 copper SPs) Creation of a G-PON project office to supervise the rollout Leverage of best fibre suppliers to define key network architecture criteria Supplier selection takes into consideration in-depth technical analysis and logistics capabilities Build state-of- -the-art knowledge and technologies for future needs R&D specialists WDM-PON ONT project with the objective of massifying ultra-high speed access (>2 Gbps) Advanced technological platform (IMS) for development of convergent multimedia services 2

14 13 Innovative processes to ensure efficient end-to-end construction Fusion process Clear curve Innovative efficient construction methods Improved signal quality Reduced cost Faster installation Increased cornering angles (up to 90º) Theoretical viability Real viability Detailed evaluation of viability Ranking of market potential Consistency of geographical assessment SP capability and workload assessment Commercial and technical on-site survey Commercial launch Sign-off Construction stages Key challenges Market potential vs. penetration trade-off Consistency in selection criteria between different areas Assessment of construction and new duct needs Flexibility in design to avoid interference with other utilities ducts External factor delays Lack of qualified work force Optical system test under harsh conditions Trade-off of acceptable maximum values and sample size Trade-off between availability and delay of commercial launch Construction Project Evaluation 3

15 14 Efficiency coupled with superior customer experience Increased customer satisfactionBetter quality of service Increased usageMore TV sets per customer Meo churn rate % Meo repairs 2011 Customers with RF-overlay % Average traffic/access High speed internet downstream (2009). Kbps GPON xDSL 4x Meo fibre launch -4pp 1Q111Q10 -85% FTTHADSL <2 TV sets >2 TV sets 62

16 15 Contents Fibre as a key driver of competitiveness in the wireline business PT as a case study in fibre network deployment Fibre as a strategic pillar for each business unit

17 16 Fibre optics brings advantages across the market segments Fibre Optic Cable Residential Business Mobile Backhaul Community Multiple TVs without requiring STB High-speed internet with high upload speeds Digital TV with STB giving access to advanced services Voice calls with advanced IP functionalities Utilisation of Femto cells to improve indoor coverage Disruptive cost structure will allow massification of optical solutions on the business market and enabling medium and small companies access to better communications Fibre Optic spread across the cities and towns will lower the CAPEX to migrate the Mobile Network to LTE, due to less costs on the backhaul e-Education: sharing of educational materials (including video) e-Government: efficiency in constituents-government relation e-Health: remote telemedicine and teleassistance e-Security: all law enforcement connected by a single network IPTV stream VOIP Analog RF TV Broadband FentoCell Backhaul

18 17 Fibre allows for a range of advanced residential services Fibre enables new advanced services… Full 3D Super HD Gaming-on- demand High speed internet Next-generation homes Surveillance system Internet-enabled household appliances Real-time monitoring (e.g., energy consumption) … and accelerates download/upload speeds Download time for a DVD movie* Minutes Fibre (100 Mbps) 7 ADSL (24 Mbps) 31 Upload time for a 100 photos** Minutes Fibre (10 Mbps) 7 ADSL (1 Mbps) 75 *5 GB **500 MB Advanced services Intelligent homes

19 18 Fibre as enabler of an enhanced customer experience Advanced applicationsAvailable everywhereHome of the future Customized music player Cloud-based gaming Multi-screen and multi-platform Remote access from all devices Real-time energy monitoring Remote control of home appliances

20 19 Advanced convergent offers for Corporate and SME customers leveraging fibre infrastructure Convergent F-M voice & data solutions with access to subsidized equipment (e.g. PC, PBX) Integrated and vertical offer with business specific software Flexible pricing solution per workstation Unlimited wireless voice and flat rate data plans One-stop-shop for advanced IT/IS solutions Focus on Business Process Outsourcing providing flexibility and scale Machine to Machine process optimization and efficiency enhancement SME offerCorporate solutions Cloud Computing Superior cloud-based offer leveraging strategic partnerships focusing on IaaS and SaaS Adaptable, scalable and highly reliable platform based on multi-tenant infrastructure

21 20 1Q083Q07 505 646 3Q10 769 1Q113Q09 211 384 1Q093Q081Q10 MEO customers Thousands Video-on- demand Launch of advanced settop box Disney Channel European club soccer Euro 2008 in HD MEO Fibre Remote EPG/PVR on phone and PC Launch of Meo@PC First 3D broadcasting Multi-room PVR New widgets Pay-TV market share % +30pp -23pp Cable Others 1Q11 55 13 31 19 1 78 2007 Fixed lines net adds Thousands 1Q07 -88% 1Q091Q11 Meos success has become a case-study

22 21 All in all… … fibre is a viable technology in competitive markets … efficient planning and deployment in a structured end- to-end process are key for success … fibre is at the core of every business units strategy

23 Digital Agenda in Europe: The role of the market Brussels, June 16, 2011 Alfredo Baptista, CTO CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of Portugal Telecom is strictly prohibited


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