Is Free Turning into Just Another Old Telco ?

Fr_dp I'm just back from a two-week trip in the US. You would not believe the number of people who talked to me and asked me about Free (Iliad) while I was there. That a French company with no activities outside of France whatsoever should share so much of the mindshare when it comes to interesting and/or disruptive broadband models is amazing in itself and a tribute to the achievements of the company ever since it started offering internet services in the late 90s and more specifically since they started offering triple play in 2003.

And yet back home I have been observing with a growing dismay what I suspect might be a slow mutation of Free. Their FTTH plans have been less than successful, in part in my opinion because of an excess of confidence. Their recent results have been lacklustre compared to past performance, and it's suspected that they will soon loose the position of second broadband provider in France. Their acquisition of Alice, though cheap by market standards is increasingly looking like it was a mistake (either because it was doomed to fail or because Free did not manage to integrate its acquisition successfully…)

And today, I read in the press that Maxime Lombardini has been ranting about Net Neutrality and how the content guys "have to pay". Not only is this the exact same line that the CEO of France Telecom (amongst others) is on, but it is in direct contradiction to Free's history and its recent announcements.

Now I don't want to make too much out of this, especially since I haven't yet purchased the magazine and have only read some chosen quotes, but it suggests to me that Free might be loosing its own way. If this is true, then it's important to observe at a time where a variety of companies in North America and Asia Pacific are looking at Free as a model. Separating the good replicable stuff from the things to be avoided is important when one latches on to a role model.

So what exactly are we talking about ? Lombardini's declarations, as quoted in Freenews (this translated the whole paragraph, the italic being specifically what Lombardini said):

Once more, his diatribe takes the North American players as targets: « you cannot give ever growing capacity to American providers (and the largest all are, Youtube, Amazon…) without them contributing anything whatsoever »,
he stated during the [ARCEP] conference, stating also that he thought regrettable that the public authorities had already abandoned « the idea of taxing Google.».

There are many reasons why this is disturbing to me:

First of all, it's a patent lie. In this debate the peering and transit economy is systematically shoved under the carpet by traditional telcos (and now by Free as well) as if it didn't exist, but it does exist. It can be argued (and some are arguing) that the content providers are not paying enough, but that's different from saying they are not paying at all.

Secondly, Free (and the incumbent telcos it's joining in this crusade) are barking at the wrong tree. As I've already mentioned here and as I have more seriously examined in a paper I recently released to Yankee Group subscribers called What if Google Paid?, the impact of the content and application providers sharing a reasonable portion of their revenue to network providers would be minimal on their bottom line and would certainly not help finance the infrastructure of next-generation broadband.

Finally, and perhaps more crucially, Free's growth and success was driven by a deep (if perhaps instinctive) understanding that the right business model for a new comer revolves around making money on the access, not on the services. These declarations completely fly in the face of that. Furthermore, they contradict Free's own rationale for FTTH deployment, which was not about increasing service revenues but about improving the cost of broadband provisioning and driving take-up.

This, in addition to all the rest I mentioned above, has me worried that Free is really becoming just another telco, increasingly inefficient in its endeavours, lobbying when it could and should be innovating and generally abandoning its disruptive ways. If I'm right this is good news for traditional telcos, and bad news for believers in the Stupid Network. It also suggests that Free's mobile offerings (when they become available) will be less than thrilling and probably "me too" as opposed to "wow".

Traditional telcos don't like market disruption, and I'm afraid Free is demonstrating that it doesn't either…