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Fiber:ThefutureoffixedinEuropeMichaelGryseels,DuarteBegonhaLisbon,25February2010FTTHCouncilEuropeConferenceYoucanobtainasoftcopyoftheRECALLpublicationFutureofFiber,distributedduringtheconference,throughMcKinsey'sTelecomExtranet.•TheTelecomExtranetoffersexecutivesfromtheTelecommunicationsindustryworldwideaccesstothelatestMcKinseythinking,valuablereports,andindustrynews.Contentisupdatedweeklyandisfreeofcharge.Usersmustberegisteredtoaccess-pleaseregistervialinkbelow•TheRECALLpublicationsaredesignedastoolsforexecutivesandboardmemberstoprovideinsightsintofunctionalissueswithinthetelecomindustry.Thepublicationoffersaholisticviewofcurrentchallengesintheindustry-howtotakeadvantageofthemand,ultimately,howtocreatevalueforcustomersandconsumers.ThisRECALLissue(#12)looksatthechallengestheindustrywillneedtoaddresstocreatevalueoutoffiberinvestments.Fromthelogisticsoffibernetworkrollouttotheprinciplesofitsmarketingtothestoriesofthosemeetingthefiberchallengeheadon,thisRECALLwillinformsomeofthecriticalfiber-relateddecisionsbeingmadebyindustryleadersnow.|KeymessagesFiberchangeseverything,requiringa“fulloverhaul”ofthetelecomcompanyandan“open-serviceinnovation”approachInvestinginfibernowiscriticaltoensurethefutureofthefixedindustryanddeliversocio-economicbenefitsThefiberupgradeofaccessnetworksposesasignificantfinancialchallengefortheEuropeanindustry,requiringadequateregulatoryandsupplymodelsMcKinsey&Company2LIS-ZZP241091117|ThewirelineindustrycontinuestoloselinesandprofitandneedstorevampitsvaluepropositionAvailablebandwidthhasbeenquicklyfilledbyapplicationsinthepast,andthisseculartrendislikelytocontinueCopper-basedinfrastructureisinadequatetodeliverbandwidthsrequiredinthefutureSocio-economicbenefitsofhighspeedbroadbandareprovenbyadvancedmarketsInvestinginfibernowiscriticalDeployingfiberischeapertodayasconnectioncostsarefallingandoperatorsreachcriticalmassMcKinsey&Company3LIS-ZZP241091117|SOURCE:McKinseyanalysis1DomesticfixedlinesformajorEuropeanincumbents2DomesticfixedbusinessofmajorEuropeanincumbentsEURbillionsEURbillionsMillions146157168178192-6.6%2008070605200484888999102-4.9%200807060520042828283033-3.6%20080706052004Fixedswitchedaccesslinetrendof12WEincumbents1Fixedlinerevenuetrendof10WEincumbents2FixedlineEBITDAtrendof10WEincumbents▪Ifthetrendcontinues,isthereapointofnoreturn,e.g.,30%morelineslostinthenext5years?▪Howdoesthisprofiterosionaffecttheabilityoftheindustrytocontinueinvestinginaccessnetworks?Thefixed-lineindustrycontinuestoloselinesandneedstorevampitsvaluepropositiontocounterthistrendCAGRMcKinsey&Company4LIS-ZZP241091117|▪TrueHD▪Remotehosting▪3DTVandfullinteractionsolutions▪P2Pmusicsharing▪Basicinternetbrowsing▪IPTV▪Videostreaming▪Video-on-demand▪HDTV▪3Dinmulti-playergaming▪MultiplestreamingHD/3DTV▪Massmarketcloudcomputing▪Full-scale3Demulation▪Full3Dvirtualcol-laboration(real-timevoiceand3Dholography)▪Otherservicesyettobeinvented!!!ISDN0.128DSL1-2ADSL6-16ADSL2+,VDSL25-5050-100100-250250Bandwidth1Mbit/sTime2015201220102006200320001996Alwaysthesamequestion……willweneedthatmuchbandwidth…?!?1Downlinkbandwidthsupportedbyrespectivetechnologies,respectiveuplinkspeedsareconsideredaccordinglySOURCE:McKinseyanalysisAvailablebandwidthhasbeenquicklyfilledinthepastandthetrendislikelytocontinueinthefutureExistinginfrastructureFTTHrequiredMcKinsey&Company5LIS-ZZP241091117|0102030405060708090100CumulativehouseholdsreachedPercent6.05.55.04.54.03.53.02.52.01.51.0~650.5~30SOURCE:iDate;McKinseyanalysisEuropeancopperlooplengthdistribution1Looplengthisthelengthofthecopperlinedeployedtoreachendconsumer;CopperlooplengthforFTTHis0km2Assumingthatstreetcabinetisonaverageinthemiddleofthedistancefromthecentralofficetothecustomer0.501.02.03.05.07.09.011.514.018.035.0ADSL2+downloadspeed2,Mbps▪1kmlooplength:18Mbps,30%HHs▪0.5kmlooplength:30Mbps,15%HHsCurrentlooplength(fromcentraloffice)LooplengthinreasonableFTTCscenarioLooplength,km55.085.0VDSL2withvectoringdownloadspeed2,MbpsOverthelongterm,copperinfrastructureisinadequatetodeliverhigherbandwidthsMcKinsey&Company6LIS-ZZP241091117|Averageconnectioncost1ConstantUSDEvolutionofaverageFTEhoursperconnectionandhomeevolution(Hours,‘000homes)Whilethecostsofcivilworkshaveremainedthesame,thecostofconnectionhasgonedowndramaticallyinthepast5yearsduetolowercostofhardware/CPEandassociatedequipmentOperatorsimprovemanpowerutilizationtohomeconnectionsoncecriticalmassofinstallationisachievedandtechniqueshavebeenmasteredSOURCE:McKinseyanalysisDeployingfiberissubstantiallycheapertodayasconnectioncostsarefallingandoperatorsreachcriticalmass1Constantmanpowercost(10hoursFTE);averagefor4operators2402903304205406750607-19%052004200908691011121418150300560104025-67%+Descrip-tionMcKinsey&Company7LIS-ZZP241091117|Broadersocio-economicbenefitsofhighspeedbroadbandservicesarerealSOURCE:Pressreleases;McKinseyresearch;McKinseyanalysisKoreaEXAMPLESecond-highestrateofstudentsusingITlearning(99.6%)E-learning90%ofmedicalclaimsmanagedelectronic