Lecture 13 SBC FTTU Analysis - PowerPoint Presentation by maclaren1


									Project Lightspeed
SBC Presentation
Jeff Weber
VP-Product & Strategy
February 1, 2005

                   SBC Project Lightspeed

Company assets
No other communications company has our combination of assets
 53 million direct connections to homes and businesses covering 1/3 of
  the United States

 5.1 million high-speed Internet lines
 47 million wireless customers with the acquisition of AT&T Wireless and
  a wireless footprint with the industry’s largest overlap of wireline assets

 20,000 Wi-Fi hotspots in 6,000 venues throughout the 13-state SBC
  territory by 2006

 A nationwide IP backbone covering the nation’s largest cities
 A co-branded satellite video service
 One of the world’s largest directory advertising companies
 A strong financial position

           SBC Project Lightspeed                                               2
 Our strategy is clear:
  Grow by offering the most complete, flexible bundle of high
   quality communications solutions in the market, at a great value

     Needed a stronger video play
  Continually introduce new opportunities to meet and exceed the
   service and experience our customers demand

  Know our customers and offer a personalized service tailored to
   their needs

  Maintain a strong financial position and always be on the lookout
   for ways to be more efficient and cost effective

        SBC Project Lightspeed                                         3
Project Lightspeed Overview
                                 • FTTN requires approximately one-fifth the
Capital                            investment and one-fourth the
Efficient                          deployment time of FTTP-only overbuild
                                 • Expected deployment cap ex of
                                   approximately $4 billion
                                 • Expect 2005 cap ex will be at the high
                                   end of our 2004 guidance range -
                                   $5 billion to $5.5 billion
                                 • Scale expected to drive cost curve
                                   down rapidly

Significant Cost                 • FTTN expected to generate approximately
                                   70% of installation and maintenance
Savings                            savings available from FTTP

        SBC Project Lightspeed                                           4
Project Lightspeed Overview
Market-Changing                 • Integrated IP voice, high-speed Internet
                                  access and video
Services                        • IPTV – choice and control over substantial
                                  content alternatives

Powerful                        • Both FTTP and FTTN
Network                         • Natural extension of current fiber
                                  deployment and broadband network

Speed                           • Targeted deployment to 18 million
                                  households in 3 years
To Market                       • To cover nearly 90% of high-value
                                  residential customers

       SBC Project Lightspeed                                            5
What it isn’t…
            What it is                    What it isn’t

                TV                              PC

   Closed system fully managed
                                   Open system delivered over
   within the SBC environment
                                          the Internet
      and delivered using IP

    More secure than traditional    Less secure than current
   broadcast platforms, customer   platforms, prone to PC-like
      specific content delivery              viruses

   Creative content packaging to
                                   Disruptive a la carte offering
   offer consumers more choice

     SBC Project Lightspeed                                         6
Digital Lifestyle (U-verse branding)

   Fiber                  VDSL   Wireless
    Enhancing communications and
       entertainment at home,
        at work, on the go …

 IPTV                Home           WiFi
     SBC Project Lightspeed                 7
Integrated Communications
and Entertainment Services
                              4 high-quality TV streams,
                              including high-definition TV,
                              and video-on-demand
 • 20-25 Mbps
 • Everything                 High-Speed
   IP                         Internet Access
                              IP Voice
                              Full-featured offering –
                              growing wireless integration

     SBC Project Lightspeed                               8
The Forces are Right

                      Global                         These
  Bandwidth          demand     Deployment
 Requirements                      Costs         developments
                     speeds                       create video
      New          innovation                         and
  compression      and drives         New          consumer
                    down the     distribution     data growth
  technologies     cost curve   architectures    opportunities
     reduce                     allow delivery
   bandwidth                       of higher
    required        Global        bandwidth        Growth
                 Development      at a lower      Potential

       SBC Project Lightspeed                                    9
Significant Market Opportunity
        Industry Revenues                         Industry Revenues
         U.S. Video Market                      U.S. Broadband Market

                           Video market                                Broadband
                           to grow to                                  market
                           $63 billion        $16B                     subscriptions
                           over next four                              expected to
                           years, with                                 grow at a
                           fastest growth                              16% CAGR
                           from new                                    over the next
                           services                                    four years

   2004          2008                         2004           2008
Source: PWC Global Entertainment            Source: IDC Worldwide Broadband Access
and Media Outlook, 2004 - 2008              Services 2004 – 2008

             SBC Project Lightspeed                                                    10
High-Value Customers
     Total Customer              % of Customer $ Spend
 Household Segmentation        Attributed to Each Segment

                High                  Low
    Low         Value                Value       High
   Value        25%                  25%         Value
   35%                                           34%

           Medium                       Medium
            Value                        Value
            40%                          41%

      SBC Project Lightspeed                                11
High-Value Customer Coverage
  Percent of Each Segment
Covered by Project Lightspeed      • FTTN is efficient in how
  ~90%                               it can be deployed

              ~70%                 • Lightspeed deployment
                                     will cover approximately
                                     90% of high-value and
                                     70% of medium-value


  High       Medium        Low
  Value       Value       Value

          SBC Project Lightspeed                                12
What We Expect to Achieve
• The second largest video provider in our fiber
  footprint within five years
• A lift in high-speed Internet penetration
• Differentiated product set with comparable
• Increased share of overall spend for
  customers’ communications and entertainment

      SBC Project Lightspeed                       13
Strong Platform
for Revenue Growth

     Video                       Data                   Voice
   Opportunity                 Opportunity            Opportunity
• 500 bps of market         • Market share in      • FTTX product set
  share generates             FTTX markets           increases 2007
  $550 to $600                grows to nearly        access line market
  million revenue             50%                    share by 300 bps
                            • FTTX revenues        • Estimated $300
• Goal is to be2nd            increase by nearly     million revenue lift
  largest video               $300 million in        in 2007 from
  provider within             2007                   improved market
  five years                                         share

          SBC Project Lightspeed                                            14
Superior Capabilities Versus Cable
      Video                      Data                Voice
• Flexible content         • Dedicated          • Functional
  choice and VOD             connection           integration with
  capabilities             • Integration with     Cingular wireless
                             WiFi, wireless       service – voice,
• 100% digital IP                                 video and data
  network, with the        • Bandwidth on
  latest technology in       demand
  compression and          • Upstream speeds
  DRM                        – 1 Mbps

     The power of integration drives customer value.
           The key competitive differentiator

            SBC Project Lightspeed                                    15
                                         Interactive Guides

 Power of IPTV
Photo and Music Sharing

              Order Print

             Multiple Camera Angles

                SBC Project Lightspeed                                    16
                                                              Source: Microsoft
 Video differentiation
     Advantages of SBC Video Platform

Quantity of       Ability to offer many traditional channels as well as new content including
content           gaming, music, video on demand, and interactive applications

                  IP platform provides flexibility in developing the user interface and allows
                  for a highly customizable user experience

Tracking &        Ability to track and report detailed subscriber and usage metrics in near
reporting         real time for broadcast channels and interactive services

                  Ability to deliver content tailored to the specific interest of the customer
                  over time
                  More secure, customer specific content delivery, ensures content delivered
Security          to specific end user only; security scheme can be easily updated without
                  replacing set top boxes; pair the network with the set top
                  IP platform facilitates repurposing of video content delivery across the SBC
                  companies’ broad base of platforms (i.e. wireless, internet)

              SBC Project Lightspeed                                                         17
Solid Growth Record
Growth Driven By Bundling,
LD and DSL…
                                                 Consumer Key-Product
  Consumer Wireline Revenue                       Bundle Penetration
                                                     Consumer retail revenue per
    Year-over-Year Growth
                                                     retail access line year-over-
                                                     year growth                   58%
                                       2.8%                               54%
                                1.0%                               50%

                                                            44%                  9.2%

                       (1.8)%                        36%
                  (3.3)%                                           6.1%
                                              31%           5.9%

         (6.9)%                                      3.1%

 2Q03    3Q03     4Q03 1Q04     2Q04   3Q04   2Q03   3Q03   4Q03   1Q04   2Q04   3Q04

             SBC Project Lightspeed                                                 18
SBC | DISH Network
 SBC has demonstrated great success in integrating a video
 offering through its relationship with SBC | DISH Network

   We began marketing our integrated SBC | DISH Network
    satellite TV service in March, expanding from a soft launch
    to full sales-channel coverage in April
   Growing to over 300K subs today
   DBS provides a feasible interim offering to retain voice
    lines; however, it is not a long term solution for profitable
   Owning a video distribution network has the greatest
    potential to generate profitable growth in video

       SBC Project Lightspeed                                       19
Market Success Drivers
Individual Product               • Taken separately, each product offers
                                   superior value to what’s currently
Capabilities                       on the market

Integrated                       • Cingular, wireline, high-speed Internet
                                   access and IPTV – all IP and all
Portfolio                          integrated

Customer                         • Leveraging relationships with our
Relationships                      existing customer base

Speed To Market                  • We get to the right customers fast

        SBC Project Lightspeed                                               20
Unique Operational Approach
• Procurement
• Partner in new ways
• Choose based on what is available not what we want
• Critical to trust key partners
   – Alcatel account team differentiated itself from competitors
   – Alcatel project team is part of SBC

         SBC Project Lightspeed                                    21
Project Lightspeed Network Plan
  All-digital, high-bandwidth IP network
       to reach more than 18 million
       households within three years
                      • Fiber to the node in existing neighborhoods
FTTN                  • Flexible and cost-efficient

                      • Fiber to the premise for new construction
 FTTP                   and multi-dwelling units
                      • Will deploy FTTP in selected rehab situations

     SBC Project Lightspeed                                       22
Network Alternatives
Fiber to the RT (Pronto)
  Central              Fiber             Remote         Copper          Copper
   Hub                                   Terminal
            Fiber to within 6,000 feet                                           1.5 - 6.0 Mbps
               of home on average;
              12,000 feet maximum

Fiber to the Node (FTTN)
  Central                          Fiber                                Copper
   Hub      Fiber to within 3,000 feet of home
            on average; 5,000 feet maximum
                                                                                 20 - 25 Mbps

                                                                                   New Build
Fiber to the Premise (FTTP)
  Central                                    Fiber
   Hub      Fiber from the central office to the home
                                                                                 Up to 39 Mbps

            SBC Project Lightspeed                                                             23
Project Lightspeed Video
Network Architecture
 National               Regional                      Local

   Super                                              Video       to customers
   Head                  Video Hub                   Serving
   Ends                    Offices                   Offices
• National         • Storage of                    • Distribution
  content            content/intelligence            of video
  aggregation         – VOD library                • Local aggregation
• Redundant           – Time-shifted TV              point
  infrastructure      – Interactive applications   • Number: 140
• VOD encoding     • Local content
• Number: 2          aggregation
                   • Number: 40

           SBC Project Lightspeed                                                24
IP Video Distribution Advantages
Broadcast Video

 Channel Lineup:
  23456789                     3       4       5

SBC IP Video

                                   2       7       9

              SBC Project Lightspeed                   25
Expected Deployment Costs
            Deployment Costs
          Per Household Passed                 • In overbuild situations,
                                                 comparable deployment costs for
  New Build                Overbuild             FTTP are more than 5X costs
                                      $1,350     for FTTN
                                               • FTTN deployed by 2007,
                                                 one-fourth the time vs. full FTTP
 $1,100     $1,100                               deployment
                                               • FTTN deployment costs
                                                 include all video infrastructure,
                                                 fiber and electronics, including
                                                 line cards

                                               • FTTP overbuild deployment
                                                 costs include all fiber,
                                                 electronics and video, plus the
   RT       FTTP           FTTN       FTTP
                                                 service drop and ONT

             SBC Project Lightspeed                                             26
Project Lightspeed
Expected Subscriber Costs
  Deployment Costs              Success Based
Per Household Passed           Subscriber Costs         • In greenfield
                                                          deployments, FTTP
                                                          costs the same as
                                                        • In overbuilds, FTTN is
                              Nearly one-third            about one-fifth the
                             lower than DISH &
                                                          cost of FTTP
                                                        • Subscriber costs
                 $250                                     decline rapidly driven
                                                          by scale and IP
                                    Declines over 10%     technology curve
    FTTP          FTTN               annually during
  Greenfield    Overbuild            next five years

               SBC Project Lightspeed                                         27
Targeted Time To Market
   2Q04             3Q04             4Q04           1Q05        2Q05       3Q05        4Q05
           FTTP Field Trials
 (scalability, provisioning, customer experience)

                                       IP Video Trials
                           (video quality, operational integration)

                                                           Begin Network Construction

                                                             FTTX Video Field Trials
                                                              (customer acceptance)


            SBC Project Lightspeed                                                              28
Project Lightspeed Overview
                          • Capital efficient, financially disciplined approach
Investment                • Creates a logical migration path with minimal
                            risk of stranded investment

                          • Significant revenue opportunities in video,
Return                      high-speed data and integrated services;
                            improves retention of highest-value customers
                          • Substantial opportunities for operating
                            expense savings
                          • Project returns are in excess of cost
                            of capital; flexibility for continued dividend
                            growth and share repurchase
                          • Growth in wireline operations should more
                            than offset up-front dilution from Project

         SBC Project Lightspeed                                              29
  Video is important (both defense and offense)
  The time is now for switched video world wide
  Microsoft and Alcatel have a leadership position
  Opportunity is overwhelming for Alcatel
  Partner like Alcatel/SBC and there is no limit on your

       SBC Project Lightspeed                               30

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