France’s Free Telecom sets off FTTH revolution
An announcement by the alternative carrier Free to invest €1 billion in FTTH networks across France could be the project that the fibre-optics industry has been waiting for to jumpstart the European FTTH market.
In France, which has one of Europe’s most competitive and mature broadband access markets thanks to fierce DSL competition, Free’s project puts pressure on the incumbent and alternative carriers currently hesitating to make the move to faster FTTX access technologies. An acceleration of FTTX plans by France Telecom and alternative French carriers in response to Free will likely cause a ripple effect in other countries with mature broadband markets.
“It is an important step for France and it could be a catalyst for Europe,” says Hartwig Tauber, president FTTH Council Europe, commenting on Free’s September announcement.
For the past 2 years, members of trade associations like the FTTH Council Europe have been discussing what is needed to reach the FTTH deployment levels of Asia and North America. The council, Europe’s main FTTH lobbying group, says the main obstacles to growth include a lack of big commercial FTTH projects to stimulate competition, an unclear European broadband vision, and no regulatory framework regarding unbundling of new fibre infrastructure. The unclear regulatory situation, the council says, is preventing incumbents from investing in FTTH networks.
According to Tauber, as of June 2006, the EU had fewer than 800,000 FTTX subscribers, compared to Japan’s 5.6 million FTTX subscribers. The United States has fewer than 0.5 million FTTH subscribers, but more homes passed than in Europe. (Recent estimates from one U.S. analyst put the North American number considerably higher; see “FTTH Conference Illustrates Applications’ Progress” at right.)
Roland Montagne, an analyst with French consultancy IDATE, which performed a recent study for the council, attributes Japan’s high FTTH penetration to government support and low pricing. In Japan and other broadband markets today, he says, there is no single service requiring 50 Mbit/s or more. But there are a lot of services that combined might benefit from such a data rate. The explosion of triple play in France and other countries is a good example. Symmetry in upstream and downstream speeds is very important, Montagne adds, as more people have digital cameras and are uploading photos. Another potential bandwidth demand driver is high-definition television (HDTV).
Free chief executive officer Michaël Boukobza is confident that HDTV will take off and become an important FTTH driver. But Tauber and other industry observers concede that HDTV has started slowly in Europe, where this year’s World Cup Soccer matches, which were broadcast in HDTV, had been expected to catalyse HDTV sales.
Free’s FTTH project changes the playing field in France. Free, which helped make France the most competitive DSL market in Europe through an aggressive pricing strategy, aims to apply the same scheme to France’s nascent FTTH market. Its project, the largest planned FTTH rollout to date in Europe, will start in Paris in 2007 and pass more than 4 million households in France by 2012. Free’s goal is to move all its subscribers onto fibre by the end of the project. The alternative carrier, owned by France’s Iliad Group, plans to offer a 50 Mbit/s triple-play services package over FTTH for €29.90, the price it charges now for ADSL2+ service.
Price is the key. France has a very mature DSL broadband access market. So launching a 50 Mbit/s FTTH triple-play package for the same price as its 20 Mbit/s DSL package will be an easy sell.
Free is targeting buildings where it already has a greater than 15% ADSL penetration rate. Once it connects its current ADSL subscribers with FTTH, Free, because of scale, will be able to reduce its per-subscriber FTTH connection cost to €350, Boukobza says.
In October, before its competitors had time to react to its September FTTH announcement, Free dropped another bomb with the acquisition of Citéfibre, Paris’s only alternative carrier selling FTTH broadband services. The acquisition gives Free an FTTH network in Paris’s 15th arrondissement.
Free’s most lethal weapon in its FTTH campaign against the incumbent, France Telecom, is an offer to make its fibre network available to competitors. This will put pressure on France Telecom, which, like many European incumbents, has threatened to reduce its FTTX investments if forced to unbundle new fibre access infrastructure.
Without pressure from any sizable FTTH competition until now, France Telecom has been slowly rolling out FTTH GPON networks in Paris and its suburbs and has not yet announced any big FTTH investment plans. The incumbent has been testing the waters and waiting for decisions from the European commission and ARCEP, the French telecom regulator.
ARCEP has not used the word “unbundling” but has said it wants France Telecom to make infrastructure available to carriers to help boost competition in France. And in recent conferences, the regulator has said that it favours point-to-point FTTH architecture, which it claims is easier to unbundle. Pressure from competition could force France Telecom to make concessions.
Free, which will use point-to-point Ethernet to connect subscribers, is installing 720-fibre cables supplied by Draka in the Paris sewer system. The sewers consist of large tunnels and galleries, which connect nearly every building in the city, eliminating the need for digging and lowering installation costs by more than 30%, according to IDATE’s Montagne. Free will likely deploy its Paris fibre networks quickly, since use of sewer right-of-way is on a first come/first serve basis and there is a limited amount of space. Free’s citywide network might make alternative operators and even France Telecom rethink their fibre installation plans and instead lease fibre from Free for parts or all of their FTTH networks.
The outcome of France Telecom’s FTTH decision over coming months could influence the strategies of Spain’s Telefónica and Telecom Italia, which have announced GPON FTTH plans. Most incumbents are using or plan to use PON architecture while most utilities, municipalities, and alternative carriers are using point-to-point Ethernet over their FTTX networks. Many within the latter group, such as the city of Pau in southern France, which currently has the country’s largest FTTH project, are using the open access model. (For more information on utility activities, see “European Utility Telecom Divisions Confront New Market Conditions,” page 9.)
Thanks to the Pau project and the success of other municipal and regional government-backed fibre projects in France, fibre became a political buzzword last year. Following the example of Pau’s mayor, French politicians began talking about how broadband access was key to economic growth and the need to futureproof France’s broadband networks.
The politicians behind the municipal and regional government fibre projects say they are building the networks to stimulate competition and bring broadband access to areas not served by France Telecom. Some municipal and regional governments have decided to work with France Telecom, while others have built networks with France Telecom’s competitors.
Boukobza says his company began planning its FTTH project a year ago and that the company made its announcement in September because the project was ready. But his plans take advantage of local politics, which are behind broadband projects in Paris and the neighbouring Hauts-de-Seine département.
France Telecom unveiled its FTTH plan on January 17, 2006, making it the first European incumbent to announce a FTTH strategy. The announcement drew a lot of attention because France Telecom had become the global leader in DSL deployments. The company’s decision to drop plans to deploy VDSL2 and instead use a GPON FTTH architecture was seen as a turning point in Europe.
The announcement followed a series of fibre-related announcements by politicians, including France’s president and the mayor of Paris.
On January 4, Paris’s socialist mayor, Bertrand Delanoë, used his traditional New Year’s greeting talk to announce an RFP for a citywide broadband network to be built in 2006. He offered to give free broadband access to people who could not afford it.
No details were announced about the dates of the RFP or how the city would finance the project. The city, as of November, had still not presented its plan. But the city has leased sewer rights-of-way to Free, which has given the impression that Free is Paris’s FTTH service provider. Free has also offered to give free low-bandwidth FTTH service to people otherwise unable to afford it in social housing projects it has already cabled.
The day after the mayor’s January speech, French President Jacques Chirac declared in his New Year’s speech that all telecommunications companies wishing to build fibre-optic networks nationwide should be allowed to do it.
Some saw Chirac’s fibre statements as a challenge to Nicolas Sarkozy, his fellow Union pour un Mouvement Populaire party member and political rival. Sarkozy, France’s interior minister and an announced presidential candidate for 2007, is behind a major fibre project in the Hauts-de-Seine département, which includes important Parisian suburbs where France Telecom plans to build FTTH networks. In November 2005, Sarkozy, who is also head of the Hauts-de-Seine government, announced a plan to build a département-wide fibre-optic network to provide broadband services to Hauts-de-Seine’s 1.5 million inhabitants and 100,000 businesses.
Until September 2006, CitéFibre and Erenis, another alterative carrier, were the only companies selling FTTX services in Paris. Erenis has been offering services over FTTB/ADSL networks since 2002 and has connected thousands of apartments. Since CitéFibre and Erenis market their services door-to-door in selected neighbourhoods, they have remained unknown to most Paris residents. This kept France Telecom in the spotlight until Free’s FTTH announcement in September.
France Telecom, which hosted the Broadband World Forum in Paris in October, did not comment on Free’s project at the event, but was pressured into a statement about its own FTTH plans following a keynote talk by French Minister for Industry François Loos. The minister touted France’s DSL market (approximately 11 million DSL subscribers, up from 600,000 in 2002) and announced a goal to link 4 million homes to the Internet using FTTH connections by 2012.
Loos said to reach that target, service providers would have to overcome a number of obstacles. Notably, “local governments, building owners, and network operators have to agree to share the cable ducts that will carry the fibre,” he asserted.
Following Loos on stage in the session, France Telecom’s chairman and chief executive officer, Didier Lombard, said of Loos’s FTTH target, “I think we will do better than that.” Lombard, apparently a bit irked by government pressure on France Telecom to share infrastructure, warned, “If France Telecom is to invest billions of euros in a new fibre local access network, it must be able to assure shareholders that they will see a return on that investment…Through years of regulatory change, you have encouraged the creation of competing operators. Now you have to give operators some stability, so that they can invest.”
Lombard concluded, “The regulatory framework of 1996 was effective at the time. There must now be a regulatory framework to allow investment, so there can be an equitable return on investment. We will invest on the condition that we know where we are going.”
Senior executives from other European incumbents used the Broadband World Forum to criticise the current regulatory situation in Europe.
“Old regulations should not apply to new infrastructure,” said Vincente San Miquel, general director, information services at Telefónica, during a session on future broadband challenges. “We will reduce level of investments without the right regulatory situation. It [unbundling] has been solved in the United States.”
Telefónica has launched a GPON FTTH trial but has not yet announced a commercial rollout.
Speaking on the same panel, Thomas Schnöring, head of strategy, T-Com Production & Service, Deutsche Telekom, said that Deutsche Telekom had passed 2.9 million households in 10 cities with a fibre-to-the-curb (FTTC)/VDSL architecture since fall 2005 as part of a multibillion-euro, multiyear plan. However, he said that “we are slowing our investment because the regulatory situation is not clear. We need to have clear regulation. We want to be able to decide how we work with competitors.”
Stefano Pileri, Telecom Italia’s chief technology officer, was the only panel member who did not talk about regulatory hurdles for FTTH. His company plans to start FTTX deployments in 2007, first using FTTC, because, Pileri said, “It’s easier and there is more experience. In more dense urban areas we will use FTTB. FTTH is naturally futureproof. Will trial GPON.”