If you’ve been following the French telecom scene these last few days, you can’t have missed the turmoil that the regulator’s latest announcement led to. For those who missed it, the French telecom regulatory authority -the ARCEP- published on January 9th a document detailing its views about the broadband market. This document follows a round of public consultations with stakeholders regarding the state of the market, including FTTH. At this stage, the document doesn’t have a regulatory value and only expressed the regulator’s opinion.
This document addresses mainly two points: business offers on FTTH infrastructure, and the efficiency of FTTH mutualisation in very dense areas. While business offers on FTTH is a very relevant issue, we will explore it in another post.
As for FTTH mutualisation, many people conclude that ARCEP’s latest move is due to Orange’s domination on fiber deployment and sale: over the last 2 years, Orange acquired 75% of FTTH customers, and accounts for half of total investment. And the incumbent makes it clear that FTTH is a tool to win back customers. While there are 7 million eligible lines in France (compared to half of that 3 years ago), Orange is clearly leading the race with about 4,7 million lines covered.
Why is Orange acquiring more customers than they are investing to connect ? In very dense areas of France (defined by the regulator), passive mutualisation is enabled on the vertical network by a distribution point that is most often located in the building basement, and not in a manhole located in the street. Which means each operator is supposed to dig from its horizontal network to the building basement. Orange doesn’t seem to experience operational difficulties to do so; other operators do and regularly complain to the regulator. Having copper infrastructure in these buildings, Orange certainly has benefits over its competitors to equip and connect them (be it infrastructure or even knowledge). Orange is clearly the main building operator in dense areas. The incumbent alone created more than 40% of the vertical network in these areas.
This is why the ARCEP envisions a new obligation for the incumbent: sharing a part of its horizontal network upstream from the distribution point. What is not clear is up to where this obligation applies. Furthermore, the regulator fears that Orange may offer an end-to-end wholesale proposition to players who have not invested in fiber, which would distort competition. The paper concludes with ARCEP’s decision to launch a public consultation on whether it should impose a non-discriminatory obligation on Orange for the sale of PON segments and adduction fiber in very dense areas.
While we are still far from actual decisions from the regulator (which will require a new round of public consultations, and exchanges with the competition authority and European Commission), Orange’s reaction didn’t take long to come. Pierre Louette (Orange’s secretary general) stated that the incumbent’s lead was achieved according to the rules, and that it shouldn’t be held responsible for competitors’ strategic errors.
Orange also cancelled its participation in the latest GRACO after the release of ARCEP’s announcement –a recurring meeting between the ARCEP, local authorities and other stakeholders.
The move considered by the ARCEP may not be enough to spur FTTH deployments by alternative operators. Orange seems determined to protect its advance, and there are plenty of ways to do so even it has to lend adduction fiber. What’s more, it will require operators to connect to Orange’s fiber via another de facto distribution point, which may lead to less reliability for the FTTH infrastructure. More importantly, the option explored by the regulator doesn’t prevent the incumbent to launch a wholesale offer -passive or bitstream-like- which would be negotiated, and not necessarily open to competition. If the ARCEP really wants to solve hurdles to competition, it has to admit that the current model of infrastructure sharing hasn’t performed as well as expected, and that a more neutral model is needed.
The incumbent’s prompt reaction is perhaps the consequence of such a fear: the threat of facing a more extensive scrutiny, in the same way as the British incumbent. In a recent public appearing, Sébastien Soriano stated: ‘Orange’s position in the FTTH landscape could lead to its exploiting more than 70% of lines in private initiative areas. In this regard, there is a risk that its vertical integration is used to strengthen its retail business at the expense of third parties’. Is the French regulator reviewing its position on vertical integration? That’s definitely something we will keep an eye on, after our recent work on the subject: