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Industry Consultative Group 14 July 2000

Broadband Fixed Wireless Access 40GHz BFWACG(00)36 Market and financial modelling Preliminary Findings. Industry Consultative Group 14 July 2000. Contents. Background 40GHz BFWA market Market & financial assessment Conclusions Next steps. Study objectives.

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Industry Consultative Group 14 July 2000

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  1. Broadband Fixed Wireless Access 40GHz BFWACG(00)36Market and financial modelling Preliminary Findings Industry Consultative Group 14 July 2000

  2. Contents • Background • 40GHz BFWA market • Market & financial assessment • Conclusions • Next steps

  3. Study objectives The objective of this study has been to assess whether a market for 40GHz in the UK is viable. This has been carried out through: • consultation with operators, vendors and other interested parties • market modelling - estimating potential revenues from businesses and households at a detailed county level • financial modelling - to determine the extent that the overall 40GHz business will be profitable for operators

  4. Conclusions from phase one INDUSTRY CONSULTATION • There is interest in the market • The 40GHz market appears to be broader than 28GHz with both business and residential segments and telecoms and broadcast services • Internet is expected to be the key revenue driver by most respondents and broadcast revenues also expected to be important • Butthe overall service composition appears uncertain • No respondent suggested delaying the licensing • There is still uncertainty about timing, equipment costs and when and if economies of scale will be achieved MARKET ASSESSMENT • Total revenues for 2004 were estimated (indicative only)

  5. Contents • Background • 40GHz BFWA market • Market & financial assessment • Conclusions • Next steps

  6. Market definition • The KPMG market assessment model assumes 40GHz BFWA will address the following: Characteristic 28GHz 40GHz Data rates > 64 kbps > 64 kbps Services voice, data (internet) voice, data (internet), Broadcast business and residential business - size: SMEs and medium to large corporates - size: focused on SMEs Target customers - region sub-urban and urban - region: sub-urban Availability Q1 2001 Q1 2002 Technology PMP PMP Geographic coverage UK UK Usage access only i.e. no backhaul access only i.e. no backhaul • Our market assessment also assumes: • that 40GHz provides complementary services to 28GHz i.e. does not take market share from 28GHz • the cell radii or reach of the two technologies are the same

  7. BFWA addressable market Large • bandwidth • speed of roll-out • cost FIBRE • speed of roll-out • cost • availability • cost? 28GHz Medium BFWA Small • speed of roll-out • bandwidth • availability • cost 40GHz Very Small CABLE ADSL SATELLITE Residential Urban Suburban Rural

  8. Contents • Background • 40GHz BFWA market • Market & financial assessment • Conclusions • Next steps

  9. Market and financial model overview Residentialtelecoms model Business model Residentialbroadcast model • county • industry sector • size of business • SOHOs • county • household • county • household Level of analysis • coverage of fibre, cable, ADSL, BFWA & Satellite • potential market • market share • average business spend • coverage of ADSL, BFWA & cable • potential market - broadband telecoms • market share • average b’band internet spend • coverage of ADSL, BFWA, cable & DTT • potential market- pay TV pen. • market share • average pay TV spend Key inputs Outputs • number of business units • revenue per customer • average price • number of households • revenue per household • average price • number of households • revenue per household • average price Revenue per subscriber & Number of subscribers Financial model • capex e.g. base stations, CPE • opex e.g. marketing, core network, SGA • one-off costs e.g. launch • IRR analysis • sensitivity analysis • regional analysis Key inputs Outputs

  10. Market model results

  11. Market model base case results • substantial revenues projected for business telecoms market • SOHO telecoms market revenues significant • residential market revenues sizeable (broadcast and telecoms)

  12. Financial model

  13. Key changes to 28GHz methods • Broadcasting costs introduced e.g. server, head end, set top boxes and programming costs • New costs associated with residential customers e.g. launch costs • Increase in business capacity requirements from 2mbps to 4mbps • Base station expenditure increases

  14. Results - medium market scenario • Business telecoms - profitable • Business and residential telecoms - marginally profitable • Business, residential and SOHO telecoms - positive IRR • Total telecoms residential broadcasting - negative IRR

  15. Contents • Background • 40GHz BFWA market • Market & financial assessment • Conclusions • Next steps

  16. Conclusions • Business telecoms appears to be a profitable market • The addition of SOHO and residential markets under both base and high case scenarios result in businesses where it appears difficult to realise significant profits, given current cost assumptions • The financial model results are highly sensitive to the costs of CPEs, base stations and launch. Equipment costs and base stations are especially uncertain

  17. Contents • Background • 40GHz BFWA market • Market & financial assessment • Conclusions • Next steps

  18. Next steps • Further sensitivity analysis • Discuss results with RA • Finalise results • Regional analysis

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