Analysys Mason Broadcasting and Mobile Towers Jan12

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Broadcasting and mobile towers: key factors

affecting investment opportunities

Analysys Mason webinar – 26 January 2012

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Marco Cordoni

Partner

Tower market demand and supply

Introducing our presenters

2

Terry Norman

Principal Analyst

Facts and figures on traffic and costs

Lluís Borrell

Partner

Broadcasting tower opportunities

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3

Marco Cordoni: Tower market demand and supply

Terry Norman: Facts and figures on traffic and costs

Lluís Borrell: Broadcasting tower opportunities

Briefing agenda

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Contents

4


Drivers of demand for sites

Supply of towers

Tenancy ratio for tower companies

Pricing considerations for tower companies

Cost considerations for tower companies

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Driver Emerging markets Developed markets

Relevance Effect Relevance Effect

Commercial Coverage

Capacity for voice traffic

Capacity for data traffic

Market

structure

Fixed wireless entrants

Mobile data entrants

Technical 3G roll-out WiMAX/LTE roll-out / /

Multi-technology/band equipment Availability of rooftops

Regulatory Rural broadband targets

The demand for towers is driven by a variety of factors, some of which vary by market maturity

5 Market demand for towers

Medium-High Nil Low Medium High Key: Positive impact Neutral impact Negative impact

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Regulators are reserving spectrum for new

entrants to build competition in mobile broadband

Belgium: 2100MHz reserved for new entrants in

the 2011 3G auction (Tecteo Telenet). 2600MHz

could be reserved for new entrants in the 2011

4G auction

France: fourth 3G licence issued in 2009 (Free)

Netherlands: 2012 auction reserves a 10MHz

block at 800MHz for each of two new entrants

Sweden: spectrum caps on existing operators in

2.6GHz auction as a way to attract new entrants

in 2008 (Intel Capital Corporation)

New data players are emerging and are likely to stimulate tower demand

6 Drivers of demand for sites • Market structure

Spectrum auction rules may attract new entrants

that are likely to require towers

Developed markets

(mobile data as complement to fixed)

Emerging markets

(fixed wireless data substitution effect)

Poor fixed-line infrastructure encourages

the entry of fixed wireless operators

WiMAX/LTE: numerous operators are launching

fixed-wireless services in the bigger cities of

African countries (e.g. Nigeria, Tanzania and

Uganda), in India and in many Latin American

countries

An increase in tower demand, initially in urban

areas, is likely as new operators focus on

urban deployments

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The spectrum bands used for 3G and 4G sites have different impacts on demand for towers

7 Drivers of demand for sites • Technology

Good propagation

characteristics means

there is limited demand

for new towers (colocation

on existing ones)

4G (WiMAX/LTE)

Developed markets Developed/emerging markets

800MHz 2600MHz (or higher) 2100MHz

Emerging markets

3G (HSPA)

Most European countries

have undergone digital

switchover and released

digital dividend spectrum

Some European countries are not

switching off analogue TV until

2015 (e.g. Poland); LTE is likely to

be launched in 2600MHz

Operators in emerging markets

(e.g. Africa) are also launching

WiMAX in this or higher bands

Only a small part of 3G/4G base station coverage expansion

translates into incremental demand for towers.

However, with 3G/4G sites having smaller radii than 2G sites,

there will be need for 3G/4G-only in-fill sites

Operators are still

rolling out 3G networks

in emerging markets

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New RAN equipment and antenna systems could erode the demand for towers

8 Drivers of demand for sites • Technology

Mu

ltip

le

ca

bin

ets

Vendors have developed antennas that can run multiple services and

bands (e.g. tri-band 2.2GHz 3G and

900/1800MHz 2G and dual band 2G 900/1800MHz), allowing

different technologies to run on the same antenna and feeder systems

Sin

gle

ca

bin

et

Common antenna,

separate feeders

Common antenna

and feeder Separate antenna

and feeders

New RAN equipment has also

been developed, with the ability to

run multiple technologies (2G, 3G

and LTE) in one cabinet

Legacy

New

Operators may not require additional tower space to deploy new networks

Dual band: GSM 900MHz + 1800MHz

Legacy New

Multi-technology RAN equipment: 2G and 3G

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Broadband targets could raise demand for rural towers in developed markets

9 Drivers of demand for sites • Regulation

National broadband targets

to provide basic broadband

services to all citizens

Digital

divide

Governments

impose rural

coverage

obligations

Demand for

towers in

rural areas

High cost of

rural fixed

broadband

Wireless rural

broadband

services

2020 European Commission

broadband target: broadband

for all EU citizens by 2013

France: 800MHz licensees must cover 99.6% within 15 years

Germany: 800MHz licensees must roll out to rural areas first

Sweden: one 800MHz licence must provide at least 1Mbit/s to a

list of (rural) addresses

UK: following the 2012 auction, one 800MHz licensee must cover

95% of the population

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Contents

10



Supply of towers




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11 Supply of towers

Besides self-build, towers can be shared between MNOs or sourced from tower companies

Region Sharing between operators (JV) Outsourcing to tower companies

Examples Degree Examples Degree

North

America

Not prevalent Prevalent ownership of tower assets by

independent tower companies

Europe Telefónica O2 and Vodafone

in Germany, Ireland, Spain

and the UK

The tower company model, although

important, is not as prevalent as in the USA

Latin

America

Ecuador Independent tower companies in Brazil and

Mexico

Middle

East

Multiple deals in Kuwait,

Qatar and UAE

Not prevalent

Africa Agreements in Kenya,

Morocco and South Africa

Increasingly dominant in Nigeria, Tanzania,

Ghana and South Africa

Asia &

Pacific

Three mobile operators in

China share cell-site

facilities

Strong in Australia, India and Indonesia.

Bangladesh, Bhutan, Nepal and Pakistan are

following India’s independent TowerCo model

Medium-High Nil Low Medium High Key:

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Several factors affect operators’ propensity to share/outsource sites, and may vary by market

12 Supply of towers

Medium-High Nil Low Medium High Key: Positive impact Neutral impact Negative impact

Driver Developed markets Emerging markets

Relevance Effect Relevance Effect

Co

mm

erc

ial

Cost reduction

Raise cash

Focus on core services

Roll-out speed

Coverage differentiation

Regula

tory

Tower build restrictions

Mandated/encouraged site-sharing

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An MNO renting 75% of its sites from tower companies can reduce its Year 1 costs by 60%

13 Supply of towers • Commercial

Renting sites reduces

build capex

After five years, MNOs can

experience up to 20% opex

deficit compared to

self-owned sites

The value of

tower companies to MNOs

is sensitive to the break-even

point that depends on the

relative capex and opex

Assumes an MNO rolling out 10 000 sites

in a developed country

Source: Analysys Mason’s research division

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MNOs are spinning off towers to raise cash and focus on key services

14

Source: Tower company websites, operator websites,

news articles and press releases

Supply of towers • Commercial

Operator Country Acquirer Rationale to spin off towers

Optus Australia CCI Focus on customer service

Zain Africa Bharti Pay off some of the debt taken on following M&A

Tigo Ghana Helios Improve capital and operating efficiency; focus on core activities

MTN Ghana ATC Reduce costs (network roll-out and passive infrastructure)

Cell C SA ATC Generate cash and enhance quality and network coverage

Sprint USA TowerCo Focus on core services

T-Mobile USA Planned Finance roll-out of an LTE network

Expensive external debt financing

(e.g. high leverage following earlier

investments/M&A activity)

Difficulty creating value from services

Operator problem Rationale to spin off tower assets

Release cash for re-investment

in new technologies or coverage

Focus on core services

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Tower build restrictions may force operators to seek alternatives for colocation

15 Supply of towers • Regulatory

France: Paris town hall prevents operators

from building new sites

UK: towers require planning commission

approval

USA: local community zoning approval

required; often restrictions put into place

Ghana: no build permit unless the closest

tower is >400m away

Kenya: new tower only allowed if equipment

cannot be accommodated on an existing

tower

Nigeria: towers above 30m height require

approval

Emerging markets Developed markets

Build restrictions imposed by national or local authorities

affect the ability to build towers

Restrictions on building towers increases operators’ willingness to share tower space with

competitors:

‒ this is especially relevant in cases where restrictions are so prohibitive that they impact the

operators’ ability to build towers altogether

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Regulation surrounding site-sharing can encourage or force operators to co-locate

16 Supply of towers • Regulatory

New Zealand: mobile site-sharing is

mandatory upon request by an MNO

Ecuador: mandated site-sharing

China: mobile operators are required to

share cell-sites

Jordan: operators required to provide

infrastructure sharing/colocation

Emerging markets Developed markets

Regulators around the world are implementing regulation

that encourages or mandates site-sharing between operators

Man

date

d

En

co

ura

ged

EU: site-sharing encouraged through the

EU Framework Agreement

India: guidelines promoting infrastructure

sharing

Bangladesh: infrastructure sharing

guidelines to maximise use and avoid

network duplication

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Complexities of negotiating with competitors encourage the use of TowerCo services

17 Supply of towers

Driver Effect on

use of tower

companies

Rationale

Negotiation

complexities

w/competitors

Factors such as level of sharing and structure of JV/site swap

complicate the operator site-sharing model.

JV/site swaps tend to be more adversarial in terms of

negotiation, potentially at greater risk of failure

Contractual

agreement

Tower company contracts provide cost certainty, allowing

operators to forecast costs more accurately. They imply lower

capex but higher opex than site-sharing JV/site-swap between

operators

Time to market

MNOs are able to offer services sooner which is particularly

relevant for new entrants. It also allows them to meet

regulatory coverage requirements faster

Asset

ownership A site-sharing JV provides operators with greater control of

their assets

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FDI restrictions concerning towers could, in some cases, reduce investment opportunities

18 Supply of towers

Source: Press releases

Indonesia

Country FDI restrictions

India

As of 2009, 100% FDI is permitted in telecom

infrastructure companies, subject to the Indian Foreign

Investment Promotion approval

Ghana

As of March 2011, the Ministry of Communications

issued a new directive under which Ghanaians must own

at least 30% of companies providing infrastructure

services for telecoms operators

As of 2008, foreign investment in companies owning and

developing telecoms towers is banned and ownership

must be 100% Indonesian

Foreign companies that already built towers had two

years (as of 2008) to comply with the 2008 regulations

Decre

asin

g l

evel

of

investm

en

t

restr

icti

on

s i

n t

ele

co

ms i

nfr

astr

uctu

re

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Contents

19



Supply of towers




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Tenancy ratio

Tenancy ratios are a key value driver for a tower company

20

Benchmark of tenancy ratio vs.

EBITDA margin

Benchmark of tower companies’

tenancy ratios


Lower incremental cost vs. price for additional tenancies results in

an increasing EBITDA margin with tenancy ratio

FY12

African

TowerCo 2

East Europe

TowerCo

ATC

African

TowerCo 1

Crown Castle

Developed markets Emerging markets

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Operators with lower coverage are more likely to use tower companies, increasing tenancy ratios

21 Tenancy ratio for tower companies

Shortest distance between Operator 1

sites in Africa (km) Shortest distance between Operator 2

sites in Africa (km)

7%

32%

13%

6%3% 3% 2% 3% 3% 2%

4% 4% 4%2% 3%

6%

2% 1% 0%

0%

5%

10%

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<0.4

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% o

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sites

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18%18%

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4%2% 2% 2% 1% 2% 2%

4% 5%3% 3%

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10

-15

15

-20

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-25

>25

% o

f T

igo s

ites

58% of sites located

within 2km 47% of sites located

within 2km





1%

6%

17%

11%

4%3% 2% 3% 2% 3% 3% 4% 4% 4% 4%

12%

6% 5%3%

0%

5%

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15%

20%

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<0.4

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% o

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7% 8% 9%

1% 1% 1% 1%3% 3% 3% 2% 2%

11%9%

6% 6%

0%

5%

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20%

25%

30%

35%

<0.4

0.4

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1-1

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1.5

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2.5

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% o

f A

irte

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35% of sites located

within 2km 34% of sites located

within 2km

Relatively low coverage

Relatively high coverage

% o

f s

ite

s

% o

f sit

es

% o

f s

ite

s

% o

f s

ite

s

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The attractiveness of the sites in a tower company’s portfolio is a key factor in tenancy ratios

22 Tenancy ratio for tower companies

Tower company vs. Operator 4 sites

in main city in Africa

Tower company vs. Operator 2 sites

in main city in Africa

2%

12%

18%

16%

12%

16%

14%

8%

4%

0% 0% 0% 0% 0% 0% 0% 0% 0% 0%0%

4%

8%

12%

16%

20%

<100

10

0-2

00

20

0-3

00

30

0-4

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0-5

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00

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0-7

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0-8

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4.5

k-5

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>5k

% o

f V

odafo

ne s

ites

Distance from tower company’s sites to the nearest

Operator 2 sites in main city in Africa (km)

Distance from tower company’s sites to nearest

Operator 4 sites in main city in Africa (km)

2%

10%10%

12%

10%

14%

12%

10%

8%

4%

10%

0% 0% 0% 0% 0% 0% 0% 0%0%

4%

8%

12%

16%

20%

<100

10

0-2

00

20

0-3

00

30

0-4

00

40

0-5

00

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0-6

00

60

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70

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1.5

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3.5

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k

4k-4

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4.5

k-5

k

>5k

% o

f V

odafo

ne s

ites

34% within

400m

48% within

400m

TowerCo

Operator 2

TowerCo

Operator 4

% o

f sites

% o

f sites

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Estimating site demand requires complex modelling

23

Source: Analysys Mason


2G spectrum allocations

2G site capacity by

operator

2G capacity sites required by settlement and operator

3G capacity sites required by settlement and operator

3G site capacity by

operator

3G spectrum allocations

2G usage by geotype and

operator

2G usage by settlement and

operator

3G usage by settlement and

operator

3G usage by geotype and

operator

2G subscribers by settlement and

operator

3G subscribers by settlement and

operator

Subscribers by settlement and

operator

Penetration by geotype

Population by settlement

Market share by operator

Cell radius by technology

and frequency band

Estimated radius by

settlement

Sites required by settlement

for blanket coverage

Total capacity sites required by settlement and operator

Maximum of capacity and

coverage sites

Annual tower market share by settlement

Allocate co-lo tenants by

tower market shares

Existing towers by

operator and settlement

Own sites available by settlement

Split B2S sites according to tower market

shares

Calculated for each year from 2011 to 2020

Calculated once only, then phased by year

Annual rollout prioritised by

un-served population

Calculate tenancy ratios per settlement

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Contents

24



Supply of towers




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Rental fees typically follow price escalation mechanisms outlined in binding contracts

25 Pricing considerations for tower companies

Tower companies

Eastern

Europe

African

1

African

2

Inflation

Exchange rate

Fuel cost

ARPU

…with escalation mechanisms in place as

per the colocation contracts

Rental fees for anchor tenants

vary between markets…

Developed markets Emerging markets

0

5

10

15

20

25

30

35

40

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we

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Source: Analysys Mason, operator reports

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Additional tenants often pay lower prices than anchor tenants due to building costs

26

Benchmarks for discounts for additional tenants


8%

7%6%

5%

3%

8%

15%

7% 7%

13% 13%

11%

0%

2%

4%

6%

8%

10%

12%

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16%

Ope

rato

r A

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r G

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rato

r H

Dis

cou

nt

Discount for 2nd operator Discount for 3rd operator

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3G/4G colocation may result in a small revenue upside but typically no increase in tenancies

27 Pricing considerations for tower companies

Examples Pricing structure Effect on

revenues

East European

tower company One base fee accommodates six antennas for both 2G and 3G

technologies for ~USD1550 per month

African tower

company 1 One base fee accommodates three antennas only for 2G

technology for ~USD2800 per month

Additional ~USD800 per month to accommodate three

additional antennas for both 2G and 3G technologies

African tower

company 2

Anchor tenant base fee accommodates three antennas for

~USD3000 per month and right to install additional equipment

at no extra charge

Indian tower

company

Base fee accommodates 2G technology for ~USD650 per

month

Additional ~USD110 per month for an overlay 3G BTS

3G operators are not likely to pay standard monthly rentals for an overlay 3G network

therefore incremental revenues from new technologies are likely to be small

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Contents



Supply of towers




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18%

82%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1

Operations & Maintenance Insurance & Others

14%

57%

29%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1

Insurance and Other

Operation and maintenance

Fuel & Electricty

58%

41%

1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1

Insurance & Other

Operation & Maintenance

Fuel & Electricity

Tower companies’ cost structures vary significantly across markets

29 Cost considerations for tower companies

African TowerCo 1 African TowerCo 2 East European TowerCo

In some emerging markets, fuel is a key cost component as towers are either not connected

to a power grid or the power grid is unreliable, requiring diesel generators

Direct cost breakdown of tower companies

Fuel

Operations and maintenance

Other expenses

Fuel & electricity

Operations and Maintenance

Other expenses

Operations and Maintenance

Other expenses

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0

2,000

4,000

6,000

8,000

10,000

12,000

AfricanTowerCo 1 -

outdoor tenant

AfricanTowerCo 1 -indoor tenant

AfricanTowerCo 2

US

D

Tower companies incur significant capex for new towers but minimal capex for new tenants

30

…additional colocation capex could reach

~USD10 000 per new tenant

Build capex lies between USD150 000 and

USD173 000 per tower …


Indoor

Outdoor

173 167 166 161

155 152 150

0

20

40

60

80

100

120

140

160

180

200

US

D (

tho

usa

nd

s)

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The valuation of each tower varies significantly across markets

31 Cost considerations for tower companies

193

170

102 107

74

98

113

153

134

197

131

229

103

0

50

100

150

200

250

700 5000 1660 17 500 750 4500 2535 ~50 000 3200 407 1020 1876 729

Dec-08 May-09 Jan-10 Feb-10 Mar-10 Sep-10 2000 Nov-10 Dec-10

No. towers

under

transaction

Va

lua

tion p

er

To

we

r

(US

D ‘00

0)

Average USD139 000

per tower

Ind

ia X

ce

l

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eri

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sa

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dia

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ali

a

Cro

wn

Ca

stl

e In

tern

ati

on

al

WT

TIL

In

dia

Qu

ipp

o

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32




Briefing agenda

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Contents

33


The commercial context for network sharing and tower

companies

The cost to support traffic growth

Cost savings through network sharing

Analysys Mason Research

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Globally, connection numbers and the traffic per connection are increasing Traffic is expected to increase to

892MB per connection per month in

developed markets (CAGR 31%) …

… and to 301MB per month in

emerging markets (CAGR 28%)

Connections worldwide will grow

from 5 billion to 7 billion (CAGR 7%)

Penetration has almost reached

saturation in developed markets

In emerging markets, the number of

connections is expected to grow

substantially

34 The commercial context for network sharing and tower companies

Average wireless network traffic

per connection worldwide

Average number of wireless

network connections worldwide

-100

100

300

500

700

900

2011 2012 2013 2014 2015 2016

Tra

ffic

(M

B p

er

month

)

World Developed markets Emerging markets

0

1

2

3

4

5

6

7

8

2011 2012 2013 2014 2015 2016

Connect

ions

(bill

ion)


Source: Analysys Mason, 2011

21454-482

Traffic is growing at 42% per annum, but data revenue per GB is falling at 18% per annum We expect mobile traffic to grow

from 570PB to 3243PB per month

by 2016 (CAGR 42%)

Revenue is falling at 18% per

annum

Assuming operators continue using

the flat-rate pricing model, we

predict revenue of less than USD4

per GB by 2016 in both developed

and emerging markets

The degree to which tiered pricing is

adopted in the future will affect this

forecast

35 The commercial context for network sharing and tower companies

Traffic from mobile connections worldwide

Revenue per GB of mobile

broadband traffic worldwide

0

500

1000

1500

2000

2500

3000

3500

2011 2012 2013 2014 2015 2016

Tra

ffic

(P

B p

er

month

)


0

2

4

6

8

10

12

14

2011 2012 2013 2014 2015 2016

Reve

nue p

er

gig

abyt

e

(US

D)



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Contents

36



companies




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0

10

20

30

40

50

2011 2012 2013 2014 2015 2016

Bill

ions

(US

D)

How much will it cost to build the networks to deliver 42% traffic growth?

37

If operators service demand by

simply building more sites the cost

will grow dramatically

Within five years, their RAN

expenditure will be eight times what

it is today

Alternatively, operators could deploy

network cost reduction strategies

A realistic increase in network spend

can only be achieved if operators cut

their network carriage costs by

around 50%


LTE (data) UMTS (data)

Forecast RAN capex spend for

Western European operator*

Forecast RAN capex spend for Western

European operator with 50% cost reduction*

0

2

4

6

8

10

12

2011 2012 2013 2014 2015 2016

Bill

ions

(U

SD

)

*GSM, UMTS (R '99 and HSPA), MIMO, Dual Carrier, LTE


21454-482

Key requirements: upgrade to HSPA+, acquire spectrum, deploy LTE and reduce costs

Operators will employ a mix of the following to reduce costs:

upgrade existing HSPA base stations to HSPA+ as required

buy spectrum as it becomes available; deploy 800MHz and 900MHz

deploy LTE (mass-market deployment from 2013)

employ self-optimising networks

maximise use of network capacity management and optimisation

techniques

deploy small cell solutions (active network offloading) – enhanced capacity,

25–30% savings per site vs. building new sites

offload as much traffic as possible onto indoor (fixed broadband) network

share networks: 20–30% cost savings with passive sharing

38 The cost to support traffic growth

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Contents

39



companies




21454-482

Network or infrastructure sharing comes in many different forms …

40 Cost savings through network sharing

Increased cost savings (and risk)

Increased network sharing

Spectrum sharing

Joint planning

Shared sites

Shared spectrum

Network sharing

Separate core network

Active network sharing

Joint planning

Shared sites

Separate spectrum

Network sharing


Site share + joint roll-out

Joint planning

Shared sites

Separate spectrum

Separate base stations


Passive (site)

sharing

Separate planning

Shared sites

Separate spectrum



Deeper (core)

sharing

Joint planning

Shared sites

Shared spectrum

Network sharing

Shared core network

No sharing

Separate planning

Separate sites

Separate spectrum



http://images.google.it/imgres?imgurl=http://www.txcyber.com/graphics/wireless-tower-anim.gif&imgrefurl=http://www.txcyber.com/access/main.html&h=288&w=122&sz=5&hl=it&start=14&um=1&tbnid=bNUekRTGiELvwM:&tbnh=115&tbnw=49&prev=/images?q=wireless+tower&um=1&hl=it&rlz=1T4GGLJ_itIT176IT176&sa=N







21454-482

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Land rent

H/W

/ S/W

annual support

Electricity/D

iesel

MW

backhaul annual costs

RF

engineering support costs

Pow

er maintenance

Maintenance m

anpower

Spares

Managem

ent (G&

A)

Insurance

Security

Other expenses (fees)

Transportation

… and offers considerable cost-saving opportunities


Typical opex costs per site Typical capex costs per site

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Bu

ildin

g, rig

gin

g, a

nd

ma

teria

ls

Po

we

r

No

de

B/B

TS

Ne

two

rk testin

g

Site

acq

uisitio

n a

nd

desig

n

Micro

wave

backh

aul

Sp

are

s

Ro

ute

r pricin

g

Emerging Developed


21454-482

As an example, we examine potential savings under two RAN-sharing scenarios

We consider the costs and benefits over five years of two different types of

RAN sharing

Scenario A is a joint-venture: a new build, with roll-out of an LTE network. A

total of 2500 sites are deployed, evenly spread over five years

Scenario B is a consolidation of two mature networks in an emerging

market – for example, two GSM networks:

we modelled two cases where the site count is reduced evenly over five

years, by either 1000 or 1500 sites

For both scenarios, we modelled passive sharing only

On each site, the operators share the mast or pole, cabin and utilities, but each

has a separate antenna, eNode B and backhaul


21454-482

Results show potential savings are substantial in both the joint-venture new build …


Scenario A: Cumulative capex and opex

savings in a developed market

Scenario A: Cumulative capex and opex

savings in an emerging market

0%

5%

10%

15%

20%

25%

30%

35%

Year 1 Year 2 Year 3 Year 4 Year 5

Pe

rcen

tage

sa

ving

Capex Opex

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%


Pe

rcen

tage

sa

ving

Capex Opex


21454-482

… and for the consolidation of two networks


Scenario B: Cumulative opex savings

in an emerging market

Scenario B: Ratio of annual opex saving to

capex spend in an emerging market

0%

2%

4%

6%

8%

10%

12%

14%

16%


An

nu

al p

erc

ee

nta

ge

op

ex

savi

ng

1500 site case 1000 site case

0.0

0.2

0.4

0.6

0.8

1.0

1.2

Year 1 Year 2 Year 3 Year 4 Year 5R

atio

of o

pe

x sa

ving t

o a

nn

ua

l ca

pe

x sp

en

d

1000 sites 1500 sites Break-even line


21454-482

In the UK, Vodafone and O2 have used passive sharing to reduce costs


Site count and population coverage:

Orange UK


Vodafone and O2 UK

0

10

20

30

40

50

60

70

80

90

100

0

2000

4000

6000

8000

10000

12000

14000

2007 2010

Perc

enta

ge o

f poula

tion c

ove

rage

Site

count

Vodafone

O2

Percentage population coverage

2007−2010

Vodafone

O2

Site count

0

10

20

30

40

50

60

70

80

90

100

0

2000

4000

6000

8000

10000

12000

14000

2007 2010

Pe

rcen

tage

of

po

ula

tion

co

vera

ge

Site

co

un

t

Orange

percentage population coverage Orange(2007 to 2010)


21454-482

T-Mobile and Three have saved costs and extended coverage through active sharing The extension to coverage has

helped Three move to pole position in carrying data. It claims to carry 70% of the country’s mobile broadband data traffic

Handover and roaming handover have been very challenging to manage

A frequency converter was needed to shift Three’s carrier to within 20MHz of T-Mobile’s to allow MORAN to be implemented

It is rumoured that as many as 4500 T-Mobile sites are awaiting decommissioning



Three and T-Mobile

0

20

40

60

80

100

0

2000

4000

6000

8000

10000

12000

14000

2007 2010

Pe

rce

nta

ge

of

po

ula

tion

co

vera

ge

Site

co

un

t3 UK

T-Mobile

percentage population coverage 3 UK(2007 to 2010)

percentage population coverage T-Mobile(2007 to 2010)


21454-482

Other important considerations (drivers)

Cost saving and coverage extension

Mobile Broadband Network Limited (MBNL) in the UK has a unique active

network-sharing agreement because it covers the consolidation of established

sites, as well as the development of new sites. Consolidation is a notoriously

troublesome process

Extending coverage into rural areas

In Spain, Orange and Vodafone have an active network-sharing agreement

that was devised to develop mobile broadband coverage in rural areas


21454-482

Other important considerations (drivers)

An evolutionary path for obsolete technologies – e.g. CDMA (WiMAX?)

The case of Bell Mobility and TELUS in Canada demonstrates the potential for

established partnerships to deepen, and for sharing to pave the upgrade path

for CDMA operators

A route to market for operators that fail to win a licence

EVN Telecom and Hanoi Telecom (Vietnamobile) in Vietnam demonstrate that

operators can use a sharing arrangement in order jointly to acquire a 3G

licence

Cost-effective LTE roll-out

Net4Mobility in Sweden, which was the first LTE network-sharing agreement to

be announced


21454-482

Infrastructure sharing brings benefits that encourage support from regulators … Consumer benefits: more widespread mobile services, faster network roll-out,

increased choice of suppliers and lower cost of services

Sharing offers a cost-effective means of delivering mobile broadband services

to rural communities which helps bridge the digital divide

May stimulate competition: e.g. shifting the focus of operators’ differentiation

from coverage towards services, or by enabling new entrants to launch their

services more rapidly

Environmental benefits: decrease in number of cell-sites, which reduces visual

impact and lowers energy consumption if power supplies shared

Pooling spectrum for RAN or backhaul operation is sometimes allowed, to

optimise the use of national spectral resources. However, operators are often

required to use their assigned frequencies as a condition of RAN sharing


21454-482

… and regulation is increasingly supportive

Passive infrastructure sharing is permitted in many countries worldwide

Active infrastructure sharing is less commonly supported, but is

becoming more widely considered, especially because of its potential

benefits for rural broadband


21454-482

Examples of passive sharing


Spain

Poland

United

Kingdom

Ireland

Italy

Germany Belgium

Austria

Czech Rep.

Denmark

Country Date Details

Poland July 2011

Polska Telefonia Cyfrowa (T-Mobile), and PTK Centertel (Orange) formed

50:50 JV NetWorkS! to manage an infrastructure sharing agreement. Around

3500 sites will be dismantled in the next three years

Denmark June 2011 TeliaSonera and Telenor will give each other access to their respective

network towers in areas where they would otherwise have had to build their

own. The two companies will also establish a common infrastructure

company that will operate the joint network

Austria April 2011 T-Mobile and Orange announced a network partnership agreement

concerning the joint use of their existing 3G infrastructure in rural areas

Czech

Republic

February

2011

Telefónica O2 and T-Mobile signed an agreement on sharing 3G networks.

The six-year cooperation covers infrastructure

Belgium October 2009 BASE (KPN Group Belgium) and Mobistar agreed to jointly acquire and build

new sites for their respective mobile networks

Italy August 2009 Vodafone and Telecom Italia Mobile agreed to share passive infrastructure.

The agreement covers existing and future passive network equipment, such

as civil works, electricity poles and pylons and energy systems

Italy July 2009 Telecom Italia Mobile and 3 struck a site sharing deal. This included: poles,

cables, electricity supply and conditioning systems and other civil

infrastructure

Spain,

Germany,

UK,

March 2009 Telefónica O2 and Vodafone, announced that they would share infrastructure

in several European markets in an effort to cut costs and protect profit

margins

Spain January 2008 France Telecom’s Orange and TeliaSonera’s Xfera Moviles (operating under

the Yoigo banner) announced a five year agreement to share their network

infrastructure in Spain

1 This table represents only a selection of examples of passive infrastructure sharing. Omissions

include passive sharing agreements in the Netherlands and Cyprus which have been superseded

by mergers and acquisitions while other deals have been superseded by active and active+

sharing agreements

France

Sweden


21454-482

Examples of active sharing


Spain

France

United

Kingdom

Sweden

Poland

Country Date Details

Poland July 2011 Polska Telefonia Cyfrowa (T-Mobile), and PTK Centertel (Orange) formed

50:50 JV NetWorkS! to manage a RAN sharing agreement

France October 2010 Agreement between SFR, Orange, and Bouygues Telecom for 3G (HSPA+

at 900 Mhz) active Radio Access Network (RAN) sharing

UK December

2007

T-Mobile and H3G founded a 50:50 JV company, MBNL, to consolidate their

3G networks, with estimated cost savings of around GBP2 billion

UK February

2010

Orange and T-Mobile agreed to spectrum and RAN sharing. 10 000 base

stations to be fitted with Huawei's FlexiRAN architecture

Sweden April 2009 Tele2 and Telenor formed a JV, Net4Mobility, to build shared national LTE

and GSM networks

Spain November

2006

RAN-sharing agreement Orange and Vodafone for towns with populations

below 25 000


21454-482

Even deeper sharing – spectrum sharing


Spain

France

United

Kingdom

Sweden


Country Date Details Status

Poland July 2011 Polska Telefonia Cyfrowa (T-Mobile), and PTK Centertel

(Orange) formed 50:50 JV NetWorkS! to manage a RAN

sharing agreement

Around 3500 sites

will be dismantled

in the next three

years.

France October

2010

Agreement between SFR, Orange, and Bouygues

Telecom for 3G (HSPA+ at 900 Mhz) active Radio Access

Network (RAN) sharing

Active

UK December

2007

T-Mobile and H3G founded a 50:50 JV company, MBNL,

to consolidate their 3G networks, with estimated cost

savings of around GBP2 billion

Active

UK February

2010

Orange and T-Mobile agreed to spectrum and RAN

sharing. 10,000 base stations to be fitted with Huawei’s

FlexiRAN architecture

Active

Sweden April 2009 Tele2 and Telenor formed a JV, Net4Mobility, to build

shared national LTE and GSM networks

Active

Spain November

2006

RAN-sharing agreement France Telecom and Vodafone

for towns with populations below 25 000

Active

21454-482

Contents

54



companies




21454-482

We offer a vast portfolio of subscription research programmes

55 Analysys Mason Research

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revenue data, ongoing tracking of market share and leading offers for key services

21454-482

Related publications from Analysys Mason

Recent publications

Wireless network traffic worldwide: forecasts and analysis 2011–2016

Spectrum: valuing that which has no intrinsic value

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Forthcoming publications

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Site sharing is becoming increasingly important to MNOs in the Middle

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56 Analysys Mason Research

21454-482

57




Briefing agenda

21454-482

Contents

58


Why?

Initial considerations

Trends and challenges – impact on investment case

Future opportunities

21454-482

Broadcasting tower investments have gained momentum over the last 12 months

59 Why?

M&A momentum – Four transactions worth in total over EUR1.1 billion Date: December 2010

Target: CRA

Buyer: Macquarie

Seller: Falcon (Mid Europa)

Deal value: around EUR574 million (source: The Australian)

Czech

Republic

Date: October 2011

Target: Axion (regional player)

Buyer: Antin Infrastructure Partners

Seller: TDF

Deal value: around EUR115 million (source: InfraNews)

Spain

Date: March 2011

Target: Emitel

Buyer: Montagu

Seller: Telekom Polska

Deal value: around EUR432 million (source: unquote.com)

Poland

Date: June 2011

Target: Alticom

Buyer: Infracapital

Seller: TDF

Deal value: around EUR100 million from TDF (source: Telecompaper)

Netherlands

21454-482

Contents

60


Why?




21454-482

Broadcasting towers in Europe – some initial considerations

Different service mix

Greater readiness to outsource the transmission network

Stronger importance of regulation

Initial considerations • European broadcasting towers 61

Broadcasting tower companies in Europe are different from typical

tower companies such as American Towers

21454-482

Terrestrial remains the most important TV distribution platform in the EU …

62

Terrestrial remains the most

important TV distribution platform

in the EU:

e.g. more than 33% of

households

In some countries, terrestrial is a

second platform and enjoys a

good position:

e.g. Finland

In some countries, terrestrial

plays a limited role, well behind

cable and satellite

Initial considerations • European broadcasting towers

HHs terrestrial position

in selected EU countries (2009/2010)

Main distribution platform

Second distribution platform

Third and fourth distribution platform Source: Ofcom, EAO, national regulators

21454-482

… DTT/DSO has been a major driver of change in Europe and will continue to be so until 2015

DTT/DSO has had a significant

effect on the structure of the TV

market

More than 13 countries have

already successfully completed

the analogue switch-off

In the majority of EU countries,

the transition is in progress and

is expected to be completed by

2013

63 Initial considerations • European broadcasting towers

Progress of DSO in Europe

ASO complete

Analogue switch-off (ASO) underway

DSO not formally launched

Source: DigiTAG, Ofcom, Analysys Mason

21454-482

Broadcasting tower companies are the most common in Europe but other options exist …

64

Broadcasting tower companies are

the most common approach across

Europe

In some markets, major telecoms

groups provide broadcasting tower

services

TV channels have their own

broadcasting infrastructure in a few

countries


Ownership of main terrestrial

broadcast network operators

TV channels

Telecoms groups

Broadcasting tower companies

RTE NL

Arqiva Alticom

Teracom

Teracom

Norkring

Digita

Levira

Media Broadcast Norkring

Abertis

RTP

TDF Swisscom ORS Antenna Hungária Norkring

OiV

Mediaset

RaiWay

České Radiokomunikace

Digea

TVI

SIC

Source: Ofcom, EAO, national regulators

21454-482

France TDF TDF

Spain Abertis Telecom Abertis Telecom

Netherlands Alticom

UK Arqiva Arqiva Arqiva

Czech

Republic CRa CRa CRa

Italy RAI DTT

channels Rai, RaiWay RaiWay

… they can occupy different positions in the value chain and use various models


Broadcasting towers Distribution to towers Multiplexing Channels

Standard market structure – one main broadcasting tower operator

Vertically integrated market structure – several broadcasting tower operators

Broadcasting Distribution Multiplexing Channels

65

Source: Public sources, Analysys Mason

21454-482

The long-term sustainability of DTT is determined by a number of factors

Success of DTT


Platforms

Development of other platforms to

maintain a competitive edge:

technological improvements to enable

content-rich services

imposition of regulatory measures

Quality

Technology and quality of service (QoS) for

DTT vis-à-vis other platforms:

coverage

possibility/need for a return path

QoS

Prices

Affordability of DTT is more favourable

than other digital platforms, in terms of:

set-up prices (one-off payments of

set-top boxes (STBs), other

equipment such as

dishes and connections)

recurring (e.g. monthly) fees

Content

Breadth and quality of content on DTT:

number of channels

availability of premium content

pay-TV offerings

All this is determined by the willingness of

broadcasters to join the DTT platform

66

21454-482

SMP remedies are often, but not always, imposed to favour competition


Market/submarket

definition

Three-criteria test No ex-ante regulation

(but ex-post could apply)

Ex-ante regulation applicable

SMP

Remedies

Passed

Failed

1

2

3

Typical process for SMP designation and remedies

Transparency

Non discrimination

Obligation to publish a reference offer

Access obligation

Price control (methodology usually not specified)

67


21454-482

Contents

68


Why?




21454-482

Trends and challenges – key issues to be investigated

69 Trends and challenges • Impact on investment case

Selected key factors Key issues Relative

importance

Role of DTT as a platform Dominant and marginal role and impact on pricing

DTT/DSO Progress against DSO

MUXes (capacity) Potential for growth or reduction

Broadcasters economics –

traditional and new

Pressure on number of clients and revenue per client

Over-the-top services growth Threat to viability of the platform in the short or long

term

Value chain position Revenue and margin opportunity

Spectrum/HDTV/Pay DTT Neutral or potential upside

Radio – DAB Potential for analogue radio switch-off?

Regulatory evolution Potential for ex-ante or ex-post pressure

Incumbent or challenger Extent of reliance on incumbent network

Low High


21454-482

FTA DTT model is based on large presence but niche pay-DTT model can also succeed


0%

5%

10%

15%

20%

25%

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Pa

y D

TT

hou

seho

ld

pen

etr

atio

n (

%) European average

France

Italy

Netherlands

Spain

UK

Forecast of pay-DTT household penetration (%) in selected countries

FTA DTT has been most successful in countries where terrestrial was the main historical platform

Except for Italy and Sweden (c. 15% of households), pay DTT has had limited success typically:

penetration of less than 10% of households

it has had little impact on the overall pay-TV market


21454-482

DTT role can significantly increase when taking into account secondary TV sets


In the UK, over 25% of HHs

had a secondary TV set reliant

on terrestrial

Secondary TV sets seem also

to be an important element for

countries with limited

penetration of DTT for primary

sets like Germany

21.4%

13.6%11.2%

8.7% 7.3%

63.9%

50.4%

39.5%

31.0%

24.4%

0%

10%

20%

30%

40%

50%

60%

70%

2006 2007 2008 2009 2010

Pe

ne

tratio

n a

s %

of T

V s

ets

Analogue terrestrial on primary

Analogue terrestrial on secondary

UK penetration of analogue terrestrial on

primary and secondary TV sets, 2006–10

Source: Ofcom digital progress update Q4/10

21454-482

DTT spectrum can be awarded at different levels creating different business models


UK – Distribution of multiplexes

and transmission MUX 1

MUX 2

MUX A

MUX B

MUX C MUX D

TV channels BBC1,

BBC2,

CBBC,

BBC3,

BBC News,

BBC Red

Button

ITV1, ITV1

+1, ITV2,

Channel 4,

Channel

4+1, More4,

E4,

Channel 5,

Rabbit

ITV3, QVC, bid

tv, ITV2+1, E4,

5*, 5 USA,

Quest,

Challenge,

CITV, Teletext

Hols, 1-2-1

Dating

BBC4,

CBeebies,

BBC

Parliament

Pick TV,

Dave, Dave

ja vu, E4+1,

The Big

Deal,

Create and

Craft, Price-

drop, Gems

TV, Pick

TV+1, Food

Network

Yesterday,

Film4,

4Music, Viva,

Ideal World,

ITV4, Rocks

& Co, Russia

Today, Al

Jazeera

English, Sky

Text

Multiplex

(licence

holder)

BBC Digital 3&4

(ITV + C4)

SDN

(ITV)

BBC

Arqiva

(NGW)

Arqiva

(NGW)

Modulation

scheme

16-QAM 64-QAM 64-QAM 16 QAM 16QAM 16QAM

Multiplex

transmission

provider

Arqiva

France – Distribution of multiplexes

and transmission MUX 1 MUX 2 MUX 3 MUX 4 MUX 5 MUX 6

TV Channels

(licence

holder)

France 2

France 3

France Ô

France 5

LCP/Publi

c Sénat

Local TV

France 4

I-Télé

BFM TV

Direct 8

Direct Star

Gulli

Canal +

Canal+ HD

Canal +

Cinema

Canal +

Sport

TPS Star

Planète+

CFoot

M6

W9

Paris

Première

NT1

Arte HD

TF1 HD

France 2 HD

M6 HD

TF1

Arte

TMC

TF6

LC1

Eurosport

France

NRJ 12

Multiplex

manager

Société de

Gestion du

Réseau

(France

Télévisions)

Nouvelles

TV

Numérique

s

(Lagardere

)

Cm. Du

Numérique

Hertzien

(Canal Plus)

Multi 4

(Société

opératrice du

multiplex R4)

Multiplex R5 SMR6 (TF1)

Compression

technology

MPEG-2 MPEG-2 MPEG-4 MPEG-2/

MPEG-4

MPEG-4 MPEG-2/

MPEG-4

Multiplex

transmission

provider

TDF and, to a lesser extent, Towercast

Source: DTT channel/service allocation by multiplex,

Digital TV Group (DTG)

21454-482

500

1,000

1,500

2,000

2,500

Denmark

Spain

Sweden

Austria

Italy

France

Germany

UK

With DTT/DSO, EU broadcasting markets are getting more competitive in number of TV channels


Evolution of competition level (HHI*)

by market in selected countries (2004–09)

Overall, as a guideline, if:

HHI>1800, a market is concentrated

1800>HHI >1000, a market is moderately

concentrated

HHI<1000, a market is more competitive

TV markets in the EU have become more

competitive in the last ten years, but in

economic terms they are still largely

‘moderately concentrated’

In the USA, HHI is <1000, so the market is far

more competitive (similar to what could be

expected with connected TV)

The competitive landscape appears to have

changed less in terms of revenues, as many

new TV channels are controlled by PSBs and

historical commercial broadcasters – this might

put pressure on broadcasting revenues

Source: EAO, Analysys Mason

*HHI = Herfindahl index

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DTT/DSO and financial crisis are putting pressure on broadcasters – TowerCos are somehow isolated


Source: EAO, EIU, Analysys Mason. Excludes Mediaset,

whose revenues include many other elements

Evolution of operating revenues for Europe’s major

commercial TV groups, at 2005 prices (2001–10)

-35% -45% -14% -21% -21%

Revenue

growth,

2006–10

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

A3 ITV TF1 TV4 RTL

EU

R m

illio

n

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Operating budget cuts could put pressure on transmission costs but they are

relatively small for larger players (only a few % of revenues)

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Sustainability of TV channels on DTT might be assessed based on broadcasters’ economics


Selected examples DTT transmission costs

as % revenues

Long-term sustainability?

Historical broadcaster A Less than 1% DTT costs are not main concern

Historical broadcaster B Less than 3% DTT costs are not main concern

Historical broadcaster C Less than 3% DTT costs are not main concern

New broadcaster A Less than 20% DTT costs are significant but

broadcaster might be able to cope

with it

New broadcaster B Between 20% and 40% It might require some innovative

pricing to favor a new entrant

Future new broadcaster More than 40% Unlikely to be sustainable long term –

probably requires closer look into

incremental revenues


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0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

2010 2011 2012 2013 2014 2015

PB

per

month

Central and EasternEurope

Western Europe

OTT might challenge DTT in the long term as vendors forecast an explosion of video traffic


Internet video traffic in Europe (2010–15) Internet video-to-TV traffic will increase

14-fold in Western Europe and 24-fold in

Eastern Europe between 2010 and 2015

In the UK, consumption of video delivered

through the Internet to a video screen will rise

from 8% of total Internet video traffic in 2010 to

14% in 2015

In Germany, Internet video will account for

more than half of all Internet consumption by

2013

In France, 67% of broadband connections will

exceed 10Mbit/s in 2015, up from 36% today

The average broadband speed in Central and

Eastern Europe in 2015 will be 20Mbit/s

With a 58% CAGR over five years, this forecast would support an aggressive and

disruptive development in connected TV space

Source: Cisco VNI Forecasts 2011

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Only if you consider OTT to substitute linear TV this might pose a threat – this seems long term


Scenario 1 – Online video is

complementary to traditional TV

Scenario 2 – Online video as a

substitute for traditional TV

0

50

100

150

200

250

Consu

mptio

n o

f onlin

e v

ideo v

s T

V (

min

)

TV Online Video

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Conclusion


Selected key factors Comments and lessons

Role of DTT as a platform Potential for both large penetration (FTA) and small

penetration (pay TV)

DTT/DSO Significant change pre- and post-DSO

MUXes (capacity) Different models exists – this will affect the revenue and

margin profiles

Broadcasters’ economics –

traditional and new

New TV channels economics will be more difficult and might

need innovative commercial approaches

Over-the-top services growth Probably long term but needs to be assessed on a case-by-

case basis

Licensing/Value chain position Very different models can be developed

Spectrum/HDTV/Pay DTT Digital dividend could be negative

Radio – DAB Unlikely in the short to medium term

Regulatory evolution Different approaches based on market definition

Incumbent or challenger Very different models as incumbent or challenger


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Contents

79


Why?




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Divestment and State sales could trigger new transactions in 2012 and beyond? [1/2]

80 Future opportunities

Country Main broadcasting

towerco Main shareholder(s) Type of tower company

Potential

transaction

rationale?

Austria ORS ORF (60%), Medicur Holding (40%) TV channel State sale?

Belgium Norkring België Telenor Telecoms operator Non-core?

Croatia OIV Republic of Croatia Broadcasting towerco State sale?

Czech

Republic

České

Radiokomunikace

Macquarie Infrastructure Broadcasting towerco Recent

transaction

Denmark Teracom Danmark Teracom Group (Swedish state) Broadcasting towerco State sale?

Estonia Levira TDF (49%) / Estonian State (51%) Broadcasting towerco Divestment?

Finland Digita TDF Broadcasting towerco Divestment?

France TDF TPG Capital Broadcasting towerco Unlikely?

Germany Media Broadcast TDF Broadcasting towerco Divestment?

Greece Digea Mega, ANT1, Alpha, Alter, Star, m and

Skai

TV channel Outsourcing?

For discussion – Selected main tower companies, shareholders and

potential transaction rationale

Likely? Unlikely? Less likely?

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Divestment and State sales could trigger new transactions in 2012 and beyond? [2/2]

81 Future opportunities

Country Main broadcasting towerco

Main shareholder(s) Type of tower company Potential transaction rationale?

Ireland RTÉ NL RTE – Irish state TV channel State sale?

Italy RAI Way RAI – Italian state TV channel State sale?

Elettronica Industriale

Mediaset TV channel

Outsourcing?

Netherlands Alticom Infracapital Broadcasting towerco Recent transaction

Norway Norkring Telenor Telecoms operator Non core?

Portugal RTP RTP – Portuguese State TV channel State sale?

SIC SIC – Impresa TV channel Outsourcing?

TVI TVI – Grupo PRISA TV channel Outsourcing?

Slovenia Norkring d.o.o Telenor Telecoms operator Non core?

Spain Abertis La Caixa, ACS, CVC Broadcasting towerco Follow up recent changes

Sweden Teracom Teracom Group (Swedish State) Broadcasting towerco State sale?

UK Arqiva CPPIB (48%), Macquarie (32%) Broadcasting towerco Unlikely?

For discussion – Selected main tower companies, shareholders and

potential transaction rationale

Likely? Unlikely? Less likely?

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Contact details

82

Lluís Borrell

Partner

[email protected]

Analysys Mason

José Abascal 44 4°

28003 Madrid

Spain

Tel: +34 91 399 5016

Fax: +34 91 451 8071

Terry Norman

Principal Analyst

[email protected]

Analysys Mason

Bush House, North West Wing

Aldwych

London WC2B 4PJ

UK

Tel: +44 (0)845 600 5244

Fax: +44 (0)20 7395 9001

Marco Cordoni

Partner

[email protected]

Analysys Mason

Bush House, North West Wing

Aldwych

London WC2B 4PJ

UK

Tel: +44 (0)845 600 5244

Fax: +44 (0)20 7395 9001

www.analysysmason.com

Analysys Mason Broadcasting and Mobile Towers Jan12

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