Financing Stimulus for FTTH. Funding Europe’s €260 billion Access Fibre Upgrade: A Radical Seven Point Action Plan ncing a World Class Digital Infrastructure entation to Scottish Government Event, Edinburgh 13 Stanislawski, Partner, Ventura Team LLP on the November 2012 Ventura/Portland report for the FTTH Council Europe
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Financing Stimulus for FTTH. Funding Europe’s €260 billion Access Fibre Upgrade: A Radical Seven Point Action Plan
Financing Stimulus for FTTH. Funding Europe’s €260 billion Access Fibre Upgrade: A Radical Seven Point Action Plan. Financing a World Class Digital Infrastructure Presentation to Scottish Government Event, Edinburgh 13 May 2013 Stefan Stanislawski, Partner, Ventura Team LLP - PowerPoint PPT Presentation
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Financing Stimulus for FTTH.Funding Europe’s €260 billion Access Fibre Upgrade:A Radical Seven Point Action Plan
Financing a World Class Digital InfrastructurePresentation to Scottish Government Event, Edinburgh 13 May 2013Stefan Stanislawski, Partner, Ventura Team LLPBuilds on the November 2012 Ventura/Portland report for the FTTH Council Europe
Kick-off
My credentials: We partly own a successful fibre
operator in Sweden; Last year we helped Jersey Telecom
commit to a complete and profitable fibre switchover;
We are helping start some new fibre projects in real estate telecom;
Our November report for the FTTH Council addressed how to stimulate FTTH financing.
Financing Stimulus for FTTH.Funding Europe’s €260 billion Access Fibre Upgrade:A Radical Seven Point Action Plan
Report by Ventura Team LLP and Portland Advisors
World class infrastructure = fibre
I make no apologies for focussing on fibre in the access network: Fibre into - or very close to - the home is needed for 100M or
1000M; 100M is the fundamental, though not on its own sufficient, basis
for a digital future; Fibre is cheaper: Ultimately lower costs should benefit both
shareholders and customers.
Source: www.rala.com
REALITY CHECKSome things you may not know about the fibre business
BT stock has risen 50% in the last year easily beating the FTSE100Virgin Media has more than doubled driven by the takeover
Compared to other utility stocks BT and Virgin Media are financially healthy and have comparatively high returns on capital employed
London market listed utility sectors with BT and VMED broken out separately.Data from Stockopedia 11th May 2013.EV is total. Other indictors are averages weighted by EV.
Yet our lack of modernisation is an embarrassment
Even comparative laggard Germany has 10x the % fibre coverage we do
Lets not even mention Kazakhstan – they are installing more fibre connections in one year than the UK ever has
Customers of regulated utilities pay a specific amount each month for asset refresh
If neither the regulator nor competition prompts timely asset refresh, then the customer ends up paying for something they do not get …..
Over 25 years fibre should spread everywhere, already paid for in the monthly bill.
This social contract underlies all utility regulation – a fair and stable price is paid for periodic asset renewal.This ensures modernity, efficiency and fitness for purpose.
…. and (unless it maintains a sinking fund) the utility gets “free” money distorting its investment decisions - and potentially the perception of the more casual equity investor.
Asset Class Capital Asset Life WACC MonthlyCost to pass 1038 25 7.4% £7.44
WHAT IF I WERE MADE TELECOM MINISTER OF A NEWLY INDEPENDENT SCOTLAND?
Let’s assume this is my brief…..
The whole country must be modernised in no more than 12 years from today
We are out of the EU so you can move on from 1980s style regulation
Your plan must be capital markets / rating agency friendly
Money is tight so minimise calls on the public purse
This would be my approach
My goal is to modernise the access network while keeping prices at or only slightly above current levels in real terms – we are going to make the fibre switchover.
Next I change policy to be based on a contractual approach to infrastructure.
I redefine universal service to be broadband at 100MBit/s symmetric. This means that estimated USO payments within Scotland of £54m per annum must now flow – through my Ministry - to fibre projects rather than to propping up an obsolete copper voice business.
If that is not possible then I have to start a new fibre utility.In this case I assume I cannot find an “investor friendly” way of clawing back renewal money from BT so the project has to be funded independently.
My first goal is to do a deal with BT to commit to the Fibre Switchover voluntarily on transparent fair terms with contractual guarantees and tough performance bonds.
One way of financing the NetCo(s) is to copy Germany
I heard that Germany is funding 30% of some FTTH project costs using an EIB loan at 1.3% backed by a sovereign guarantee
Let’s assume Scotland funds 25% of financing needed each year in the same way, either from the EIB or some pension funds
This sovereign guaranteed loan is really a form of pseudo-equity, so if all goes according to plan, then its fairly easy to fund the rest with normal bank debt
By year 9 the NetCo(s) will have 1.3 million paying customer premises and revenue of £230m pa
Received wisdom is that investors will flee telecom stocks if faced with fibre capex but hard evidence suggests the opposite. Telecom New Zealand shareholders made 37% TSR in one year because of mass fibre!
Comparison of Telecom New Zealand (faint orange line - TEL:NZC) and Chorus (red - CNU:NZC) share prices before and after end Nov 2011 divestment of the local loop into Chorus.
Shareholders received 1 Chorus share for every 5 TCNZ and this split seems to have released hidden value – the TCNZ price remains stable or grows instead of of falling 20% as one might expect. In fact total TCNZ shareholder returns were 37% over the 12 months up to 23rd Feb 2012.
Source: Financial Times, FT.com
In Australia the Government will renew the local loop by buying Telstra’s assets and providing wholesale access in a rolling programme – compared to the AUS 250 index Telstra shares seem fine (16% up)
Comparison of Telstra (red line - TLS:ASX) with the Australian 250 Index (faint orange - XJO:ASX).
2007: On 24th November the election returned a Labour Party Govt committed to the NBN. 2008: Legislation passed 1H 2008 and an RFP process officially excluded Telstra from NBN in December.2009-2011: NBN starts-up and begins deployment2012: Q1 Telstra structurally separated and agrees “pit and pipe” compensation deal with Govt.
Source: Financial Times, FT.com
EU average LLU charges over recent years (according to the DAE)