Philippe Distler: In more sparsely populated parts of France,
more than 90% of FTTH rollout costs will be shared 
                        
                        
Arcep, the French regulator, is pursuing France’s aim to develop fibre to the home services by encouraging operators to invest in their own infrastructure but also to share costs and investment between one another.
“New entrants need to develop their own infrastructure to an economically reasonable extent,” says Philippe Distler, the director general of Arcep. But they shouldn’t have to duplicate the legacy infrastructure.
He is clearly uncomfortable with the idea of “basing regulation only on wholesale offers that need to be regulated and permanently managed by the regulator”. French competition law “supposes a market with a sufficient number of players who have invested in their own infrastructure and who have gained a sufficient degree of economic and technical independence from the incumbent carrier”.
Once the new entrants have invested in own networks, “it becomes harder — and more costly — for the incumbent carrier to squeeze them out of the market”, says Distler, who trained as a telecoms engineer at the École Polytechnique et de Télécom Paris and then went on to study networks at CNET, France’s Centre National d’Études des Télécommunications.
“It is absolutely essential for them to control their own infrastructure,” he says: “Not only in terms of their cost structure, and thus their ability to economically compete, but also in terms of their technical and operational independence, which is crucial to their ability to build innovative services.”
With parliamentary authority Arcep — the abbreviation stands for the French for “authority for the regulation of electronic communications and posts — has made the incumbent, France Telecom Orange, share its ducts and poles — and the Paris sewers — with other operators. “This rollout goes as close as economically possible to the customer’s premises. This is the main thrust of the network sharing arrangements mandated by the parliament.”
Inside the customers’ buildings there is only a single fibre network that is shared by all of the operators, he notes. “Operators share the investments made in the building according to the rules defined by Arcep. This is a real game-changer from an economic and competition perspective.”
There is more infrastructure sharing in rural areas, though. As an engineer, he points out that “the economics of telecom networks are relatively simple: costs are proportionate to linear length, in other words the length of the trenches that need to be dug and of the fibres that need to be installed in them”. 
                        
                        
Rural infrastructure 
                        
Distances to be covered are longer in rural areas. “The portion that operators need to build together and share is naturally greater. We thus have decided to move the concentration point further up the network, to serve around a thousand lines,” he says. “In these more sparsely populated parts of the country, more than 90% of FTTH rollout costs will be shared.”
There is “a certain degree of duplication in the infrastructure”, he agrees. “But this is more a question of balance between the gains incurred by this additional expenditure ... and the benefits in terms of livelier market competition and so, ultimately, in terms of market development, innovation, and prices and services offered to end users.”
The switch to fibre is inevitable, says Distler. This means “deploying the telecommunications infrastructure that will serve the country for the next 50 years, by replacing copper wires with optical fibre” — a phrase that resembles the comment by Australian telecoms minister Stephen Conroy, in an interview with Global Telecoms Business in early 2011, that his country’s fibre-based National Broadband Network will serve the country for 70 years.
“France has a dynamic broadband market structure with relatively powerful players who have, I firmly believe, the will and the capability to deploy their own fibre local loop,” says Distler.
The civil engineering and the last few metres of fibre “will be shared between all the providers”, he adds. “Nobody knows how far private initiative will go, and the question of nationwide coverage is indeed on the table. But I am convinced that a sizeable portion of the population can be covered by the investments made by the operators alone.”
But the process will take time, he warns. “Regardless of the amount of money being spent, the rollout process will be spread out over 15 or 20 years. We are already seeing it in Paris and other major cities: outfitting apartment buildings one by one is an arduous task. You need to secure the agreement of all the property owners, perform the installation work in the common areas of the building, and then in the individual flats.”
But a momentum is starting to build, he says. Operators “are gradually accepting the idea of shared investment and a cooperation-based approach”.
It will also take time for the market for fibre-based services to build up. “I’m reasonably optimistic. We are still in the flat part of the exponential curve. We cannot dance faster than the music,” he notes. “We need to build the toys before we can use them. The fact that operators discuss together and with the local authorities, before they deploy, is extremely important, not only to avoid wasting resources but also to ensure a technical cohesion for the deployments, and to get nationwide service providers on board.” 
                        
                        
Hundreds of millions of euros 
                        
Operators are deploying their networks, “and have already buried hundreds of millions of euros worth of fibre underground,” says Distler. “Everything will fall into place over the course of the year. I believe that we are past the point of no return.”
The strategy builds on the existing structure of the broadband market in France, “where several operators announced very early on their intention to invest in their own infrastructure”, he says. “The capex figures — which we are fine-tuning — stand at around €25 billion over 15 years.”
There is no investment barrier, but “all operators today are watched closely by financial markets”, which are wary of investment. “They watch sales revenues, and don’t like uncertainty. But sales revenues are precisely the main uncertainty in the fibre market. The problem with fibre is not cost, but revenue. No one really knows yet how many people will be willing to pay more than they already do for broadband ... and how much more they will be willing to pay.”
France already has a high quality ADSL retail market with extremely competitive prices, he notes. “If we could decree that everyone in France had to subscribe to fibre, for €80 a month, the question of nationwide coverage would be solved.”
Would he like a project such as Australia’s NBN — which is a government-funded scheme to build a carrier-neutral network reaching into every home?
“It seems doctrinaire to address the question in a theological fashion, by designating the ‘right model’,” says Distler. “There is no right model per se: it depends on the market context and on the detailed implementation conditions.”
The only real incentive is the existence of sufficient competition, he says. That will guarantee an efficient retail market for the consumer’s benefit. “Personally, I don’t think that a single monopolistic structure will help to accelerate fibre rollouts, as one should not underestimate its operational difficulties. Also, recreating a monopoly would be a step in the wrong direction. As soon as there is a single infrastructure, the operator who controls it will invariably be tempted to limit its investments, or to demand a high return on investment.”
That will mean high wholesale prices that inevitably carry over to retail prices. “Regulated monopoly is seldom associated with economic efficiency. We have a pragmatic approach: we try to convince the players to cooperate and to share their investments. We consider that, thanks to the rules in place, each player will be able to invest proportionately to its size or its market share.”
There need to be solutions to allow the smallest players, which do not want to deploy their own infrastructure, to be present in the market, he adds. “All of this is put gradually in place and requires the stakeholders to learn to work together.”
But are the operators willing to take risks and do they want to invest? “Our construction does indeed rest on the idea that there is a core of operators — or groups of operators — who are willing to invest to control their cost structures and their network,” says Distler.
Telecoms has large investments with returns that are earned over a long period. “There is risk in fibre rollout because we don’t know when the retail market will switch, how much revenue will be generated, and how the transition from the existing market — ADSL — to the fibre market will play out,” he warns.
“We are firmly convinced that it will occur, but at what pace? And yes, all this can seem like a very long slog, but on the scale of creating a new market — and a new network for the next century — the journey is still very much in the realm of the reasonable.” GTB
                        
Further reading from Global Telecoms Business:
Orange and SFR to share optical fibre 16 Nov 2011
France launches auction for 4G spectrum 16 Jun 2011
France to begin 4G auction by May 11 Apr 2011
Iliad seeks roaming options for 3G launch in France 02 Dec 2010
SFR invests €1.5bn in network expansion 09 Jul 2010