France's broadband service war

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There are four or five companies competing in most French cities to deliver advanced broadband telecommunications. Prices have been driven down but have stabilised, while the competition has moved to the services that the different operators can deliver via their rival platforms. Alan Burkitt-Gray interviews two of the leading CEOs in the market, Marie-Christine Levet of T-Online and Michaël Boukobza of Iliad

Marie-Christine Levet: the battle between operators has moved to value-added services

Michaël Boukobza: fibre to the home in premium areas, but Iliad is building its own platform

Competition is clearly good for new broadband services. And that's advanced, rigorous competition, driving down prices and — more importantly — stimulating rival operators to introduce more services onto their platform to deliver to customers.

According to the European Competitive Telecoms Association, the three most competitive markets across the European Union are the UK, Denmark and France. All have been "pro-active in driving pro-competitive reforms, have seen a wealth of telecoms offers, growth and investment in the sector, and some of the lowest retail prices in Europe", says ECTA in the latest edition of its regulatory scorecard.

Down at the bottom are Germany, Greece and Poland, which "have struggled in some areas to provide an environment in which competition can flourish, which has a negative impact on both consumers and businesses in those countries", says ECTA.

France is quite staggeringly competitive. The old days when France Telecom — now rebranding itself in its home market at Orange — ruled all have long gone.

Four or five operators are providing broadband services in competition — including two owned by incumbents from neighbouring countries: Telecom Italia promotes its service under the brand Alice, which it also uses in Germany and Italy; and Deutsche Telekom's T-Online operates the successful brand Club Internet. In addition there are two French companies: Neuf Cegetel, a sister company of mobile operator SFR, and Iliad, which operates under the brand Free.

Why is the French market so competitive? We spoke to the CEOs of two of those competitors, Marie-Christine Levet, who runs T-Online and Club Internet, and Michaël Boukobza, CEO of Iliad and Free.

IPTV platform

Earlier in 2006 Club Internet became the first operator in Europe — and one of the first in the world — to use Microsoft's IPTV service delivery platform. It is something of a test-bed for the Deutsche Telekom group, which not only has its giant incumbent operation in Germany but also has investments in eastern Europe and has launched an IPTV service in Spain.

Iliad has also made the headlines, with an announcement in mid-2006 that it plans to install fibre to the home across Paris, in an investment valued at €1 billion. It clearly has the confidence that there is going to be a significant market in delivering broadband services to millions of homes across the city.

Why is the French market so competitive and so advanced? "It is very competitive," says Levet. "It is quite advanced. We have a lot of players in the market and we have a regulator that has stimulated competition. This competition has had a strong impact on the growth of the sector."

There are 10 million broadband internet users across the whole of France, she adds. "We have a very strong growth rate. Everything started at the end of 2003, so that's happened in just three to four years. I think it's an aggressive regulator and also aggressive competition."

But what opened up the triple play market, she says, was her rival, Free, "one of the first in Europe and maybe the world".

Her own company, Club Internet, was one of the first to open the ADSL market. "At the beginning of 2002, we offered a modem for free, and that opened up the ADSL market." Other companies came into the business and then Free offered its free-of-charge set-top box, delivering IPTV services.

"We were the originator that enticed all the other operators into the market," she smiles. Between 2003 and 2004 the market doubled to six million ADSL customers; then the market put on another three million by the next year, "and this year we will again have 33% growth", says Levet.

"So it's really intense competition, with a regulator that has favoured competition."

Aggressive price offers

Are all the operators in the market offering more or less the same? "At the beginning there was a big, big price war," she says. "Free was very aggressive on price and they offered a reduced price compared with France Telecom."

As a result Orange, France Telecom, lost a lot of market share. Now it seems that the war on price has been joined by a war of speed: companies are competing with more bandwidth for a lower price, she says.

"Now nearly everybody is offering 24 megabits and the price in the market has stabilised at around €29.90 a month. The price war is finished, and I think there's no way for operators to get the price down lower, otherwise they will sell at a loss."

Now, the battle is more on services, she says. "Value-added services like TV, video on demand, security services," and also the quality of the call centre and the customer-care services.

Is anyone making a profit, with prices having dropped so low? Levet laughs: "No. That's why the price war is finished. It's €29.90 for the triple-play offer." There are variations: some companies charge more for the modem, but essentially they're all the same.

Where they're looking to make money is on extra services that they can deliver using the rival platforms: video-on-demand, premium TV channels, a personal video recorder.

For that €29.90 Club Internet offers 24 megabits plus free telephone calls — an extraordinary bundle of free phone calls, not just local and national but also to 40 international destinations.

"That's the price from the alternative operators," says Levet. "France Telecom charges a higher price. Orange is more around €39.90." How do they justify that? "They have lost a lot of market share, because they were at 80% and it has fallen to 50%." Orange has disguised its higher prices with a series of €29.90 special promotions "for the first three months, or for internet and TV without telephony, for with triple lay but internet limited to one megabit".

It allows Orange to get the €29.90 price in front of the public, "but the real price is €39.90, and they justify that by the quality of Orange", and the fact it has shops that people can visit.

Is there any difference in the quality? "That's what they would tell you," says Levet, who is clearly not a neutral observer. "We position ourselves really as an alternative to them, providing the same quality of service at a less expensive price. We are sure we can compete on that."

Services are available throughout France, but "we have different offers and prices", depending on whether it uses its own network or not. "The TV offer that we have built with Microsoft, we are only offering that on our own network. We need a high bandwidth and a network capacity to do such an offer."

Top 200 cities

Club Internet's own network covers many of the cities in France. "We cover about 50% of the entire population — including all the top 200 cities." It does not have network in low-population areas, such as central France. "There we resell France Telecom lines. We have a different offer — TV is the main difference, but we have voice over IP and internet all over France."

Club Internet was set up as an ISP in October 1995 by the French media group Lagardère. After five years Deutsche Telekom's T-Online International bought it. Since the reorganisation of the German incumbent earlier in 2006 the company — which still operates under the dual brand Club Internet/T-Online France — is a direct subsidiary of Deutsche Telekom in Bonn.

For the first four years after Deutsche Telekom's purchase the Paris operation was focussed on making itself profitable, says Levet. She worked at Accenture, Disney and PepsiCo before launching the ISP Lycos for German media group Bertelsmann in 1997. She was recruited to run Club Internet in December 2001.

"At the end of 2004, beginning of 2005 we put together a growth plan to Deutsche Telekom, which had decided to invest in France and Spain."

The plan was to invest €1 billion in the two countries in new network. "We opened our network one year ago, in November 2005, and we are still growing our network," says Levet. "We are opening new cities every day."

That €1 billion covered not just network "but also equipment and aggressive offers", she adds. "We are right now in the middle of our investment."

The Spanish operation,, has a similar development path, though Deutsche Telekom acquired a local network operator "and they will launch triple play with TV at the end of the year or the beginning of next year", she says, "but the Spanish market is a bit less advanced than the French market".

Pilot for Deutsche Telekom group

The French and Spanish operations, and other parts of the group "are all working with Microsoft TV platform", says Levet. "Microsoft TV has signed a deal with Deutsche Telekom — it was one of the biggest deals that Microsoft signed with an operator. France was the pilot, the first one inside Deutsche Telekom to launch the MSTV solution."

It was "probably the first in the world": in the US the commercial launch, with AT&T, appears limited to a relatively few homes around San Antonio, Texas.

In addition, Club Internet and have the same set-top box and are also working together with Deutsche Telekom's head office on content deals: "Germany's handling most of the negotiations with the American majors, to be able to distribute them in the three countries."

As well as a wide selection of conventional TV channels and premium channels — from the Canal Plus network — the company is offering a range of VOD services, says Levet. Customers can buy individual movies, but can also buy packages of themed programmes — 50 hours of children's programmes for €4.90, for example. "It's a very successful package." There are also packages of channels in Italian, Arabic, German and other languages.

All channels, including the regular broadcast channels, are distributed through the network, says Levet: "Our network is quite brand-new. It's ADSL 2+ and 24 megabits so we have plenty capacity. We don't have a problem with capacity."

Fibre through Paris

If his plans work out, Boukobza and his Iliad/Free company will have an even newer network. The company plans to start in 2007 rolling out fibre through Paris using ducts owned by the local authority. It will be a case of ADSL 2+ and local loop unbundling versus fibre to the home.

"We think — we strongly believe — that fibre to the home, directly to the subscriber, is the future of the fixed telecom industry," says Boukobza. "We have decided to target some areas, to replace ADSL and unbundling with fibre."

But Boukobza is clear not to say that ADSL is finished, he emphasises. "We never said that we are going to fibre all the country. What we have said is that only in very targeted areas we will replace ADSL with fibre.

Which areas? "The areas where Free has more than 15% of market share." But, be careful, he warns: "Not the market share of the broadband market, but the share of the total wireline connections in the area."

By 2012 the company expects to be available across an area of four million households in France, "that is, between 18% and 20% of the French population", he says. "In this area, where we have more than 15% of subscribers, around 700,000, at the end of 2012 those subscribers that are today ADSL Freebox subscribers will be fibre Freebox subscribers."

That means the deployment — in Paris, suburbs of Paris and some other cities — "will be like a leopard skin", says Boukobza. "Some areas will be transformed to fibre and the rest of the country will continue with DSL." If you live on one of the leopard's spots, where landline penetration is more than 15%, you'll be fibred. Otherwise it will be DSL.

The tariff will continue at €29.99, and it will be offered to other potential subscribers, says Boukobza.

But where Free does build out fibre networks, it will offer the capacity on a wholesale basis to other operators "that want to rent dark fibre", he adds.

What is the basis of that 15% cut-off? "Because we are going to replace ADSL by fibre, in those areas we will save the rental fee we pay to France Telecom for unbundling the local loop. We will replace an opex by a capex."

That capex is going to be €1 billion "from today to 2012", he adds. "This €1 billion is for equipping all those areas, representing four million households, and migrating the 700,000 subscribers I mentioned. Yes, we will spend €1 billion, but not tomorrow morning. At the end of the €1 billion programme, we will have a footprint of four million households in France, and we will have equipped 700,000 of our existing subscribers with an optical Freebox."

High-definition content

The investment should give Free "a better market share", says Boukobza. "We have an elasticity to improve the 15% after we have fibred the area."

But Free will also have considerably more capacity for services. "We will have dedicated fibre from the subscriber to the optical central office that we will build, so we have the ability to have huge amounts of bandwidth."

With fully symmetry, Free will be able to offer customers the ability to create and deliver their own high-definition programmes. Boukobza points to the success of MySpace and YouTube: "Internet users want to send to the network more content," he says. Fibre is the only technology that will allow them to start delivering this content in high-definition.

Iliad has already started the civil engineering in the suburbs of Paris. "We will have the first subscriber equipped with fibre before the end of the first half of 2007," he says.

Free is unusual in that it designs its own set-top boxes — and it plans to do the same with the fibre version of the Freebox. It also designs its own DSLAMs.

"We have had an R&D team of 20 people since the beginning of 2001. At the time there was no pure-IP triple-play set-top boxes on the market. We want to continue to keep the technological know-how and the best subscriber/capex ratio in the industry."

How can Iliad produce its own platform, without the scale efficiencies of a major manufacturer? "What we have is a team that is fully dedicated to our services. We are very focussed on what we are doing. We write 100% of the software." Though the actual physical manufacture is subcontracted. GTB