Galileo - The Commercial Structure and Revenue Opportunity Tony Poulter Global Head of Infrastructure, Government and Utilities ©2002 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the individual member firms of the world-wide PricewaterhouseCoopers organisation. All rights reserved. Agenda q Overview q Market and Business Model q PPP Structure q Financing q Conclusions pwc Overview Phase I - 2001: Phase II – 2002: q q Galileo Operating Company Galileo Operating Company q q Designing the PPP Process: Designing the PPP Process: Business Plan: – Procurement Plan – Procurement Plan Business Plan: – Markets and Revenues – Draft tender documents – Draft tender documents – Markets and Revenues – Costs – Costs – Performance regime – Performance regime – Cost-Benefit Analysis – Cost-Benefit Analysis q q Revenue generation Revenue generation q q PPP structure PPP structure mechanism mechanism q q Financing Financing q q EGNOS Integration EGNOS Integration pwc Market and Business Model pwc Galileo Services Open Access – Free to air; Mass market; Simple positioning Commercial – Encrypted; High accuracy; Guaranteed service Safety of Life – Unencrypted; Integrity; Authentication of signal Search and Rescue – Near real-time reception; Precise; Return link feasible Public Regulated – Encrypted; Integrity; Continuous availability pwc Projected Global Navigation Satellite Systems Market Size Revenue by main application 300 Other Trucks & Buses (route guide etc) 250 Annual Revenues - € billion Light Comm. Vehicles (route guide etc) 200 Cars (route guide etc) Personal communications and location 150 100 50 - 2000 2002 2005 2010 2015 2020 Source: Ovum Consulting Driven principally by personal location-based services and route guidance for cars and Light Commercial Vehicles pwc Projected Wireless Revenue Global turnover from Wireless Location-Based Services 50 40 Turnover (€ billion) 30 20 10 0 2000 2002 2004 2006 So urce: EC Personal location-based services are forecast to take off as users increase reliance on and trust of new technology pwc How Revenue can be Generated for an Operating Company Service Royalties Revenues End User Service Charge Chip Product Chip Price Price Service Products Manufacturers Providers Revenues from: Royalties on chipset sales from Service Providers Manufacturers pwc Royalties on Chipset Sales q q Source of revenue while Source of revenue while maintaining free Open Access maintaining free Open Access Service Service Service Royalties Revenues q Galileo signals to be q Galileo End User signals to be encoded: chipsets contain encoded: chipsets contain Service Charge Chip Product Chip Price Pricedecoding software; decoding software; Service Products Manufacturers Providers q q GOC to hold copyright in GOC to hold copyright in Revenues from: software; software; q q Manufacturers pay royalties: Manufacturers pay royalties: Royalties on chipset up to €0.50 per chipset could up to €0.50 per chipset could sales from Service Providers Manufacturers be reasonable be reasonable pwc Service Revenues q q Commercial Services Commercial Services Royalties Service Revenues End User q q Safety of Life Services Safety of Life Services Service Charge Chip Product Chip Price Price Service Products Manufacturers Providers q q Public Regulated Service Public Regulated Service Royalties on chipset sales from Service Providers Manufacturers pwc Projected Revenues for the Operating Company 600 Service Revenue 500 Royalty Revenue 400 € million 300 200 100 - 2008 2011 2014 2017 2020 Source: Ovum Consulting Early revenues principally from royalties. Service revenues develop as markets evolve. pwc Projected Revenue by Application Assumptions 300 Personal Communications and Location-Based Services q 3bn users world-wide 250 q 90% GNSS enabled q 50% Galileo chipsets Estimated 2020 Revenues (€m) q €0.35 royalty / chipset 200 Aviation 150 q €360m ground-based navigation costs q 50% savings from Galileo usage 100 q 50% of realised savings captured by Galileo Operating Company 50 Oil and Gas q 20,000 units 0 q €10,000 per unit per annum to service Pers. Comms Aviation Oil and Gas Police and Vehicle Marine, provider and Location Fire Route Mining & Guidance Other q 25% to Galileo Operating Company Source: Ovum Consulting pwc Innovative Solutions Could Boost Revenues Assisted Global Navigation Satellite Systems GNSS signal GNSS signal Combination of navigation signal and communication signal via cellular GNSS networks could achieve: receiver q Reduced time to position; Handset with GNSS receiver q Improved availability in urban areas; Cellular Network q Improved battery life; Base station pwc Projected Operating Company Costs 1400 Deployment 1200 Replenishment 1000 € million 800 Operating 600 400 200 0 2000-2005 2010 2015 2020 Source: PwC Phase I Analysis - Nov 2001 (2001 Prices) q Deployment Cost (2006-8) €2.0 bn q Average Annual Operating Cost €135m p.a. q Replenishment Cost (2008-27) €1.8 bn pwc Projected Annual Free Cashflow 400 200 0 2000- 2005 2010 2015 2020 -200 € million -400 Proposed replenishment costs -600 -800 -1,000 -1,200 Source: PwC Phase I Analysis - Nov 2001 (2001 prices) -1,400 Free cashflow breakeven projected in 2011 pwc PPP Structure pwc Overview of the Model Private Sector Public Shareholders Sector Commercial Banks, Equity PPP Bonds & Funding Concession EIB Funding Debt Funding System Deployment Sales and Marketing System Maintenance System Operations EGNOS Provider Service Royalty Revenues Revenues Service Providers Equipment Manufacturers pwc Roles and responsibilities Bidding Implementation Operations Joint Undertaking/ q Regular monitoring of q Assess performance Successor Body q Procure PPP deployment q Specify performance for q Co-ordination with ESA q Assist with market next generation Development work development q Support to the q Specify performance q Monitor performance concession Business plan q Operate network to q q System Contracts Concessionaire maintain signal • Revenue q Financing performance Bidder / q Optimise revenues • System q System deployment and q Co-operate with procurement Regulator testing q Maintain/ replenish • Financing system q Market development 2003 - 2004 2005 - 2008 2008 + pwc Financing pwc Funding Sources & Uses q Development Phase fully funded by EC/ESA Development Public 100% q Deployment expected to be funded – Partly by the Public Sector (up to 33%) Deployment 10% Equity Public 33% – Partly by Concessionaire q PPP should facilitate Concessionaire 90% Debt 67% – 90% debt – 10% equity pwc pwc Financing Considerations We believe Galileo can be financed on this basis through a PPP structure providing there is an appropriate and bankable risk allocation Likely Allocation Risks Joint Undertaking Concessionaire System Contactor System Completion ü ü üü Demand ü ü - Licence & Regulator ü ü - System Performance ü üü ü Political Risk ü ü - PPP procurement process will propose an appropriate allocation of risk pwc Conclusions pwc Conclusions Strong commercial opportunity q To capitalise on a rapidly growing market q To mitigate risk through PPP q To establish a financeable structure and practical process pwc Tony Poulter +44 20 7804 5814 firstname.lastname@example.org www.pwcglobal.com/igu PricewaterhouseCoopers LLP makes no representation or warranty as to the accuracy and completeness of the information contained in this presentation. Any party considering participating in the Galileo concession should undertake their own independent investigation.