Broadband Bulls, Digital Dilemmas:
KOREAN CABLE’S FUTURE
KCTA Cable Convention & Exhibition
Jeju
June 13, 2006
KOREAN CABLE: AN ANALOG + BB INTERNET STORY TODAY
Subscriber Composition
Cable SO Industry Revenue
(CYE Dec. 06 forecast)
(CYE Dec. 06 forecast)
(mil.)
(US$ bil.)
14
2.00
1.80
12
1.60
1.40
10
1.20
8
1.00
0.80
6
0.60
4
0.40
0.20
2
0.00
0
TOTAL CATV SUBS
Digital Subs
Analog Subs
TOTAL BB CABLE SUBS
SO Directly
Owned
SO Indirectly
Owned
Other
Source: MPA research estimates; KCTA; MIC; KBC
Digital CATV
Advertising & other
Broadband
Analog CATV
CABLE’S SHARE OF DIRECT BB SUBS GROWING RAPIDLY
AT THE EXPENSE OF KT, HANARO
Cable SO’s Share of Direct BB Subs
12.4%
10.3%
7.9%
5.4%
3.3%
Source: MPA research estimates; KCTA; MIC; KBC
CABLE’S BROADBAND ADVANTAGE… vs RIVAL TECHNOLOGIES
•
Broadband HFC Cable

Two-way distribution pipe

Broadband capacity ~ HFC 750 Mhz+

Upgrade costs low with scale

Ability to offer TRIPLE PLAY, VOD, DVR

Strong HD capability

Superior local sales strength to telcos – key driver of triple play, broadband +
digital [key in Japan, Korea, Taiwan, U.S.]
Ability to offer quad play (NTL acquisition of Virgin Mobile, UK; JCOM’s tie up
with Willcom in Japan)

•
DTH Satellite


Offers national reach but lacks two-way return path capability
Sky (UK) acquisition of EasyNet BB in the UK; DBS in the U.S. may make
similar moves
•
ADSL/VDSL


Can offer national reach but dominated by incumbent carriers with conservative
mindsets
Lacks infrastructure to offer video without significant investment in technology
+ content
LLU deregulation often proves futile and unrealistic
Highly prohibitive costs and very long payback period
Long gestation period

•
FTTH


•
Mobile/ Wireless

Standards for satellite mobile TV and 3G video remain early stage and
business models yet to be established

WiBro remains out of reach in the near term
CABLE’S BROADBAND ADVANTAGE… BUSINESS IMPACT
BROADBAND CABLE HELPS DELIVER THE DIGITAL HOME
FACT
Internet + IP-based telephony have helped boost digital cable rollouts in U.S., Canada, Japan,
Latin America [Brazil, Chile, Puerto Rico] and Europe [Netherlands, U.K., Hungary]
WHY?
Apart from a few niche and premium channels, cable companies have found the largest driver
of digital adoption to be bundled high speed Internet, VOIP telephony and VOD/DVR services
plus retransmission of HD terrestrial
BROADBAND IS GOOD FOR AN OPERATOR'S HEALTH
FACT
Profit margins for broadband Internet services are 55% on average globally while digital TPS
service margins are 40%+ in some markets
Broadband also contributes on avg 40%-50% to top line growth and approx. 30% to overall
turnover
WHY?
Cable modem and related BB equipments costs are falling rapidly and helped by tax
efficient/low duty frameworks, operators can deploy services at low incremental cost once
investment and upgrade to 750 Mhz+ HFC cable is achieved
KOREAN CABLE IS CONSOLIDATING RAPIDLY AND WILL
CONTINUE TO DO SO WITH MORE DEREGULATION
On Media
4%
Qrix
4%
Cable TV Market Share
Cable Broadband Market Share
(CYE Dec. 06 forecast)
(CYE Dec. 06 forecast)
Other
17%
Tbroad
24%
CMB
8%
HcN
9%
Source: MPA estimates
C&M
15%
CJ CableNet
19%
CMB
3%
Qrix
5%
HcN
3%
Other
14%
Tbroad
31%
On Media
6%
CJ CableNet
16%
C&M
22%
DIGITAL DILEMMAS
CapEx vs ARPU
•
Open cable-standard STBs @ US$200-US$250 with scalable rollout
(i.e. 1 mil. +) bring cost down to US$150
•
ARPU for cable TV however only @ US$5-6/mo.; analog pricing
capped at US$15/mo; digital @ US$18-US$25
Solutions
•
Bolster analog pricing ahead of digital rollout with migration of US$3US$7/mo. subs to US$10-US$15
•
•
MIC may bring relief to technology issues with easing of standards
Offer more flexible digital and analog pricing - cable TV is not a utility
DIGITAL DILEMMAS
Content differentiators
•
•
Limited differentiation between analog + digital
Ad supported basic channels do not want to migrate solely to digital
Lack of HD content
•
Continued restrictions on foreign retransmission channels and
ownership of local PPs (49%)
Solutions
•
•
•
•
Ramp up HD terrestrial content output and leverage cable
retransmission to boost digital [i.e. Japan scenario]
Differentiate digital product with bundled IP telephony
Accelerate investment in local PPs exclusive to cable
Lift restrictions on foreign retransmission channels and FDI in local
PPs
TODAY’S DIGTAL & BROADBAND REALITIES
•
•
•
Analog cable + BB is a high margin biz.
•
Facilities-based regulation on cable SOs may limit ability to compete
on price
•
Impact margins/costs with mandatory QoS, interconnection, backbone
fees
Why go digital when upgrade costs are high
Content is lacking and pricing flexibility is restricted
THE POTENTIAL REGULATORY FRAMEWORK?
Timing
•
•
PM Task Force recommendations ready by Q4 06
•
Convergence framework (Ofcom or FCC Model) is uncertain
IPTV licensing by March 07
IPTV Licenses
•
•
•
KT
Hanaro
Powercomm/Dacom
Will nationwide transmission be allowed?
Yes, as this will be KT’s key differentiator and the cap for Sos will re revised to
1/3 of all subs - 33% approx. as in Taiwan currently
THE POTENTIAL REGULATORY FRAMEWORK?
Bundling
Regulation may limit the ability of KT, in particular, in its provisioning of IPTV video
packaged with Internet, phone and other services
Price restrictions on IPTV
W18K - W24K as in digital CATV; will not pressure or distort the market again by
competing with analog cable pricing
Terrestrial retransmission
KBC/MIC taking the view that retransmission of digital terrestrial and HD terrestrial must
be allowed over all networks - cable, satellite and IP - in order to achieve the digital goal
(as in Japan) and accelerate HD broadcasting after 2008
Programming and Program Access
•
Potential regulation of vertically integrated cable media (CJ, On Media, T
broad, C&M)
•
Potential enforcement of program access rules (a la FCC in the U.S. - vertically
integrated cable media groups have to make their content available to cable’s
competitors with non-discriminatory terms)
KT’S IPTV PLANS
Infrastructure CapEx
•
FY 06: W300 bil. invested with FTTH @ W250 bil. and IPTV @ W50
bil.
•
•
FY 06: Digital content fund ~ W95 bil.
•
Nationwide expansion is expected to take 5 years and will prove
problematic in terms of capEx burden
•
KT hoping to leverage full fibre optic network to offer high quality BB,
WiBro, IPTV and BcN
FTTH will be avail. only to only 200K sub HH with 06, implying inflated
capEX costs of approx. US$ 1,250/sub for FTTH with all B&W
KT’S IPTV PLANS
Infrastructure Equipment
•
VDSL/LAN ready for IPTV ~ 25% of KT’s BB sub base (base case ~
900K subs)
•
•
FYE Dec. 2006 – 40% of its BB sub base at 4 Mbps
•
Gradual migration to 8-10 Mbps, more capEx [By way of comparison,
95% of PCCW’s network in HK is upgraded to 6 Mbps and 60% to 8
Mbps – upgrade to 25 Mbps is planned in the next 2 yrs]
•
IPTV equipment at US$180 – US$200 with STBs at US$150 –
US$170; CA+M/W+EPG+ SMART CARD = US$25 ~US$28
•
350K – 400K STBs order for Q1 07 with capEx at approx. US$50US$60 mil.
•
In consideration: Sky Life STB (MDU, dev. By Thomson) with IP tuner
(US$100…allows retransmission of SkyLife content)
MPA: KT will launch in 2007 to 40% at 2 – 4 Mbps: SDTV channels +
VOD in Seoul
KT’S IPTV PLANS: CONTENT REMAINS THE KEY ISSUE
Infrastructure Content Plans
•
•
•
W30 bil. invested in Sidus FNH
•
Acquiring content from studios/ libraries to program its own channels
but lacks expertise in programming plus is unwilling to sign output
deals with studios or MG agreements
•
PPs – has been in talks with On Media and CJ Media but can’t get
anything signed because of cable affiliation plus KT will not offer
attractive MG agreements than could persuade it to share content
•
Foreign retransmission and foreign invested local PPs [Turner, Sony,
News Corp./Fox] are just eyeing local ad-driven cable PP JVs or
straight per sub agreements with cable
W95 bil. for digital content investment
Terrestrial retransmission and HD terrestrial (will get, but HD terrestrial
production in Korea is really low at pres.)
HANARO’S IPTV PLANS
•
•
Hanaro is increasingly the subject of M&A talk (SKT, LG Gp. Etc)
•
Key focus is on a service it calls TV portal [Hanaro Media] – to launch
in July 06 using a Celrun IP STB solution (in which Hanaro has
invested W6 bil. in equity – total at W18 bil), dedicated to VOD
services with content ranging from movies, dramas etc
•
•
2 Mbps speed (transmitted online via Celrun HDD STB)
•
Negotiating with 30-40 media owners for content and says it has
signed up CJ, SBS, EBS, BBC, YTN, MBN, NGC etc.
•
Service will cost W9K/mo. plus STB rental fees @ W3K with 30%
discount to existing BB subs. Looking to lower BB churn through the
service and recover BB mkt share plus boost overall BB ARPU.
•
Revenue targeted at W5 bil. in 06; W70-W80 bil. in 07 and W200 bil.
in 2008 when it expects to launch a full IPTV service.
Low cost strategy for IPTV and its decision to go ahead with a portal
launch in 06 is all part of a sale strategy though, at the same time, it
may help neutralize cable’s BB advantage.
Will also provide terrestrial channels (real time) by installing antenna
into consumer STBs.
APPENDIX
CABLE COMPANIES, SUPPORTED BY STRONG REGULATORY AND
COMMERCIAL DYNAMICS, HAVE TRANSFORMED INTO MAJOR
BROADBAND TELECOM PROVIDERS
Selected Leading Broadband Cable Operators (Subscriber data in mil.)
Company
Market
Analog Video
Digital Video
Internet
Telephony
Comcast
USA
11.66
9.79
8.52
1.3
Time Warner Cable
USA
8.90
4.64
4.15
0.9
Cox
USA
3.60
2.70
3.14
1.6
NTL/Telewest
UK
0.61
2.70
2.83
4.32
Charter
USA
3.05
2.80
2.20
0.12
UnitedGlobalCom
Europe
9.36
1.01
1.97
0.86
Adelphia
USA
2.99
2.01
1.71
NM
Cablevision
USA
1.07
1.96
1.69
0.74
Shaw
Canada
1.37
0.80
1.40
0.12
Rodgers
Canada
1.30
0.97
1.18
0.10
Tbroad
Korea
3.20
NM
0.70
NM
J:COM
Japan
1.01
0.70
0.95
1.01
CJ CableNet
Korea
2.00
0.05
0.40
NM
C&M
Korea
2.00
NM
0.54
NM
EMC
Taiwan
1.03
0.05
0.17
0.10
TBC
Taiwan
0.65
0.02
0.10
0.03
i-CABLE
Hong Kong
NM
0.74
0.32
0.12
StarHub
Singapore
0.25
0.20
0.28
0.01
Y/E Dec. 2005 - Q1 2006 (Source: Company Data, MPA research estimates)
GLOBALLY, DSL IS A DRIVER OF BROADBAND BUT IN MARKETS
WHERE CABLE TV HAS A CRITICAL MASS, CABLE IS A MAJOR
BROADBAND CONTRIBUTOR
Global Broadband Breakdown by Technology
FTTx, 9%
Other, 1%
Cable Modem,
25%
DSL, 65%
Y/E Dec. 2005 (Source: MPA research estimates)
Leading Cable TV/Cable Broadband Markets by Penetration
Cable TV Pen./TVHH
Cable BB Pen./HH
Cable Modem
90%
DSL & Other
45.0
40.0
35.0
80%
70%
60%
30.0
25.0
20.0
15.0
50%
40%
30%
20%
Y/E Dec. 2005 (Source: Point Topic, Morgan Stanley,
MPA research estimates)
ng
ap
or
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lia
Y/E Dec. 2005 (Source: Point Topic, Morgan Stanley,
MPA research estimates)
Si
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Ca
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Ja
pa
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.A
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10.0
5.0
0.0
10%
Ko
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a
Cable/DSL & Other Composition in Leading Broadband Markets
by Penetration
BROADBAND IS BECOMING A MAJOR DRIVER OF GLOBAL
ECONOMIES AND KOREA IS LEADING THE WAY
Broadband Sector as a % of GDP
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
Korea Taiwan
USA
Hong
Kong
Japan
China
UK
Y/E Dec. 2005 (Source: MPA research estimates)
Brazil
India
KOREA STILL HAS BROADBAND LEADERSHIP
Global Broadband Penetration Total Subscribers
Density Per 100 Inhabitants
40.0
35.0
30.0
25.0
20.0
15.0
10.0
5.0
30.0
25.0
20.0
15.0
10.0
5.0
Y/E Dec. 2005 (Source: MPA research estimates)
In
di
a
Ch
i
Y/E Dec. 2005 (Source: MPA research estimates)
Ko
re
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Ko
ng
Ta
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ap
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d
Ki
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az
Th i l
ai
Ph lan d
ilip
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s
0.0
na
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Ko
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ilip d
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0.0
Un
i
Total Subscribers (mil.)
45.0
Broadband Penetration Density Per 100 Inhabitants
THANK YOU