France’s Broadband Miracle

16 Comments

Readers here shouldn’t be surprised about the broadband miracle in France, for we have written about it again and again and again. But it is good to see the Wall Street Journal write about how France went from a laggard to a broadband leader, mostly because of a quasi-socialist government that pushed sharing of networks as a concept. You know the same concept that was supposed to take root after 1996 Telecom Act.

WSJ writes about Iliad, that has 1.1 million customers, and charges $36 a month for 81 TV channels, unlimited phone calls within France and to 14 countries, and a high-speed connection. And they are not alone. It is one aggressive market, and despite all the challenges, even France Telecom is doing well, mostly because it has adopted the “broadband mantra.” There are others, and you can get the complete lowdown on the France Page on the Broadband Wiki. [It also reminds me, if anyone can help me translate this, I can bring the numbers up to date.]

16 Comments

Thierry

A few numbers about DSL availability: you have around 12 000 local exchanges in France (soon 13 000 because FT is adding some to shorten the local loops). In reaction to regions and municipalities networks, FT has promised to open all of the exchanges to DSL. This should give around 97-98% coverage at 512 kbit/s, and around 80-85% coverage at 2 Mbit/s. That’s just the specifics of DSL and of FT’s local loop (which is deemed good quality).
For a new entrant to open LLU in an exchange, it needs two things : the exchange to have enough lines so that the margin on the unbundled lines will pay for the fixed costs of opening the exchange, and dark fiber to bring broadband into the exchange.
All the new entrants start by going into the 300 exchanges that give you 50% population coverage. With a 18% market share, Iliad can open more exchanges, increasing coverage to 60-70% of the population. Where they go depend a lot on dark fiber availability, which is one of the reasons why local authorities have started building fiber networks.
When new entrants cannot open an exchange, they have the opportunity to buy bitstream ADSL from FT, but depending on the bandwidth they want, this costs between 20 and 22€ (before tax), so a lot of ISPs have stopped using it and just offer DSL where they can unbundle.
On http://www.ortel.fr/ (click on the green map) will give you a good overall picture of where FT is and where the competition is (in red)

Jeff Clavier

Yipee. No French bashing for once :-).

Re the penetration of broadband in France: I am sure that there are areas where you cannot get gobs of bandwidth, but I would say that most mid-size towns enjoy the availability of 3 to 4 competitive offering, keeping prices down. My parents (who live in Tours, in the Loire Valley) could get 15Mbs down for 15 EUR – and that was last year. Just checked: now it is 20Mb.

Free (the Group Iliad offering) has been a pionneer since way back when they were one of the first to offer dialup access “for free” (though you had to pay for local minutes at the regular price) in a reliable way.

Matt S.

I do think it reasonable (if not ideal) that if the infrastructure was built by a gov’t monopoly, then there is a good argument for forced sharing. Upsides and downsides, though, the downside being that incentives for new infrastructure are greatly diminished. So, we will know the outcome in 20 years — did the next-gen fiber network get built? At what expense?

It is tax money that has made this possible, and I won’t argue whether that is equitable or not. But if we were to tally the real costs of building and maintaining the network (including FT salaries, pensions and property taxes), then apply it per-capita for those who are actually seeing the benefits (urbanites), we will most likely find the costs to be high.

It sounds like a decent product at a high price. Intriguing, but not a miracle.

Olivier

I (living in France) am happy that you are happy about the fact that France (for once) can make headlines in the WSJ in a positive way.

The present situation, as detailed by Laurence and Thierry above, is the result of VERY efficient use of the regulation tools and scalpel-precision pricing, adapted often to the changing competitive environment.

But looking just at the DSL situation, I think one miss the real forest.

France is today, it is correct, lagging on FTTH deployment by, at least an order of magnitude (not need to go the far east, just north), but count of the same efficiency in the area of fiber networks.

Up to now, 800M€ has already been dedicated by municipalities and other public entities to build open fiber network, mainly, until now, for opening to DSL competition areas either excluded of DSL or in a competitive dry area.

Municipalities and public entities are now starting to understand that they should target as well FTTH and, while not underestimating the difficulties, are starting to focuss their actions towards acting in case the market forces are not enough to deliver fiber for all.

And pay attention to the fact that the regulator (nor the EU) seems to be ready to abdicate like the FCC did on the goal of guaranteeing customer freedom in the fiber infrastructure arena :-)

arno

isn’t it true though that, like lots of services in France, if you are not in Paris (or maybe Marseille), good luck getting any real broadband anywhere else in province?

Andre Oppermann

Iliad has got some very interesting press releases and annual reports on their website. To quickly summarize they have EUR 724m revenues with 1,595,000 ADSL customers. Of those 1,304,000 are using their VoIP service (unlimited calls to all fixed lines in France, west Europe and north America), 1,100,000 have IPTV and 195,000 subscribe to additional PayTV. The company is having an EBITDA margin of 31%.

FY2005 numbers: http://www.iliad.fr/actualites/CP20060315 Eng.pdf
Management Report on FY2005 (interesing read, lots of background information): http://www.iliad.fr/actualites/ManagementReport2005.pdf
FY2005 results presentation (very interesting, further information): http://www.iliad.fr/actualites/ILIADRA2005.pdf

All arguments that the competitors are getting a free ride on the backs of the incumbents are completely unfounded. For example in France CLECs have to pay EUR 10.82/month per copper line to France Telecom. FT itself charges around EUR 16/month (incl. approx. 20% sales tax) for a normal analog phone line. Discouting having to provide the voice switch and its associated costs makes it about the same. Assuming that all 30,000,000 fixed lines in France were only sold to CLECs FT would still make some 3,9bn revenues a year. This should be sufficient to maintain their entire copper plant and allow for some profits too.

Unbundling at low (cost oriented) prices is the right way to go because in Europe the ILECs built their copper plants backed by a government guaranteed monopoly over the last 50 years or so. It is simply not viable to expect competitors to trench up all streets again to run a parallel infrastructure. It’s far more efficient and cost effective to use the existing one for all of them. So in the old days the incumbants were able to get away with whatever price they wanted to charge the customer. Now they actually have to provide some real service for it. Only the intense competition from Free and others made FT clean up its act, raise bandwitdth, lower price and compete for the good of the customer.

Om Malik

andrew,

i agree with your premise. and well, i wasn’t picking iliad as an example only. (complaints – well that’s the downside of cheap price.)

there are many other competitors in the market, and there is real competition. i think the aggressive competition is forcing everyone to either shape-up, and this includes france telecom, or ship out.

on the france telecom, i think they have done a good job of holding their own, and competing with the little guys.

Andrew Schmitt

I read the same article this morning and found it rather one sided. While France Telecom is no model of efficiency, all of the fixed costs are paid by that unit and the CLEC has the advantage of an almost 100% variable cost model business.

They also have the luxury of cherry-picking the easiest lines, and the best customers. France Telecom must serve everyone.

You also neglected to mention that the same article highlights Iliad as being the #1 source of formal complaints, with over 1/2 of all consumer filings.

Thierry

The price Iliad and others are paying to FT for the local loop is around 10$ per month for a fully unbundled line (no more switched voice provided by FT) and around 3$ per month for a “partially” unbundled line, but in this case the client pays 16$ (tax included) to FT for his voice subscription. The 16$ per line per month that is paid on the 30 M phone lines in France is actually what pays for a large part of FT’s employees.
And this does not include all the fees paid by new entrants to access other parts of FT’s infrastructure. I will give detailed numbers here when i have more time, but you can be sure that the price has been computed by the regulator to make sure that FT was duly compensated for time and labor… and FT has made sure that the parameters in this calculation were good enough.
I think the bright idea that the regulator had back in 2002 was to set a very low price for partial unbundling, that gave an opportunity to new entrants but did not deprive FT of any revenue as clients were still paying a subscription.
Up to the beginning of 2005, partial unbundling was driving ADSL numbers. Now that VoIP offers are more mainstreet, full unbundling is taking up. The numbers at the end of 2005 are: 2.23 M partially unbundled lines, 0.6 M fully unbundled lines, out of 8,9 M DSL lines.

Pascal

Don’t hesitate to send me an email about what you would want me to translate : I can help you out with translation if you want :-)

Continue well – broadband rocks in France which should learn that true competition can be good for companies (iliad stock is rising like crazy) and users (great penetration, usage in sharp rise…)

Laurence

Competitive providers does benefit from the exisiting infrastructure that was put in place by FT. However, FT has been deploying these networks, whether it is Local Loop Copper or Fibers with budgets that were provided by Tax payers in France. The fact that the regulator is openning access these assets (LLU) to new entrants does not seems so unfair. As long as the cost of maintaining these equipments is shared accross the board there should be no specific complain. It seems to me that France has understood the Economical value of Telecommunication and the huge impact of ubiquitous Broadband Access drive growth. Unfortunately there is other major issues in this country that are reducing its competitiveness.
In a sense, Singapore & Singtel have been following the same path and it has been proven extremely positive.

Matt S.

The WSJ article is very interesting and it’s certainly a market to watch. However, Iliad can charge what it does because it didn’t pay for the infrastructure on which it rides. France Telecom bears the capital and labor costs and Iliad makes it look easy.

The actual cost of delivering those bits to consumers is many times $36. FT has 200,000 employees. Where do their salaries come from?

I am happy that consumers are happy, and Iliad is doing some innovative stuff. But it’s not a miracle, it’s just a case of passing the costs off to the “other guy”.

Jackson West

Looks like you already updated the numbers, but to paraphrase the recent updates: As of the first quarter of 2005 there are 7.4 million broadband subscribers in France (out of a population of approximately 60 million). France Telecom was fined 80 million euros in November of 2005 for their anti-competitive practices between 1999 and 2002.

Man am I jealous of the low price and high speed…

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