Altice and ERDF: a perfect match for rural fiber in France?

Altice has drawn significant attention from the French telecom world since it announced 3 months ago that it would deploy fiber throughout France without public subsidies. The unexpected pledge brought further uncertainty to a national broadband plan struggling to reach cruise speeds, be it regarding deployments or market penetration. In other circumstances, such announcement should have gained strong political support: a private deployment of a next generation network open to all operators is usually considered a gift by policy makers and regulators.

Altice’s move was however met with scepticism –to say the least– as the operator hasn’t been a leading advocate for Fiber-to-the-Home (FTTH) in France: after the acquisition of SFR, would-be customer could only subscribe to coax offers, even if their households were previously eligible to FTTH. A recent analysis by Benoit Felten (in French) shows why an actual national deployment by Altice seems unlikely, although not impossible. Some even see Altice’s move as a strategic maneuver to slow down public-funded projects and extract further value from its coax network. In fact, the company’s investment plan closely followed a failure in the tender for one of the most important French public FTTH projects (1.5m lines for €1.3bn) in the Grand Est region this summer, despite massive lobbying.

But there is one scenario that may have been overlooked, and which could prove interesting for the (formerly?) cable operator: a partnership between Altice and the French electricity utility ERDF (now Enedis). The involvement of electric utilities in fiber deployments has raised interest lately as national operations emerged in Ireland (SIRO) and Italy (Open Fiber), and as they are deemed well suited for rural deployments, precisely where Altice doesn’t have a next generation network.

Fiber + energy initiatives are however nothing new; some even started close to two decades ago, essentially in Northern Europe and North America. They are often cited as virtuous models for FTTH rollout, although not always for the right reasons: the expected synergies are not easy to find, be it for deployment, operations or services. The real strength of utilities when it comes to deploying fiber may rather come from the experience of dealing with costly infrastructure, and the associated long-term frame of mind. If you are interested to learn more about these models, keep posted, as we are about to publish the report ‘Examining the fiber + energy combination’.

Enedis (ex-ERDF) has an extensive network with 1.4 million km of low and medium voltage lines, reaching 35m customers spread over 95% of the national territory. This network could be leveraged for a faster deployment in rural areas, and it already is, at least on a theoretical point of view. What’s more, Enedis is used to heavy investment in infrastructure, with close to €3.5bn invested in the distribution network in 2016. And having the utility onboard would certainly bring credit to the initiative and help reassure local authorities regarding the reliability of the announcement. By bringing together experience in the telecom world and in rural infrastructure, a joint-venture between Altice and Enedis may have strong cards to play in the French rural broadband game.

But the network Altice hopes to deploy (100% coverage) would compete with the ones financed by local authorities (called RIP, for public initiative network), and it’s about to become a major headache for the telecom regulator ARCEP. In fact, the French Senate mandated the ARCEP in late August to investigate the feasibility and the consequences of Altice’s ambition. RIPs are essentially deployed in rural areas, and an infrastructure competition could severely deteriorate their business case, preventing further deployments or rendering whole operations unprofitable. While the regulator may have a hard time preventing Altice from deploying its network (due to the principle of freedom of establishment of networks), it could be tricky for Enedis to engage in such a project. Enedis is wholly owned by EDF, which is 85% owned by the State, and one can be sure that local authorities would massively pressure the Government to oppose a potential partnership with Altice.

The circumstances, mostly linked to Altice’s background, may make it hard for an Altice + Enedis integration model to reach the success of such operations in other countries. The scenario of a partnership is however mostly overlooked when it comes to Altice’s ambition, even though the question of ‘who’ still remains (infrastructure manager, fund management, someone else?). While the reliability of Altice’s statement is largely put in question, it shouldn’t however be taken too lightly, as wholesale-only infrastructure deployments can have a strong case for large-scale coverage.