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GALILEO Industry Day

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GALILEO Industry Day Powered By Docstoc
					             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

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      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

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    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


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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

                                            tony.poulter@uk.pwcglobal.com

                                                   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.