Editorial

Apr 1st, 2008

Tellabs raised eyebrows in the U.S. (and probably elsewhere) in April when it announced that it had decided to surrender its status as a supplier to Verizon�s GPON program. While making clear that it intends to continue to service the American giant�s BPON requirements, the company didn�t provide us with many details about its GPON reasoning, other than �we did not find the deal economical.� Apparently, the company looked at how much it would have to invest to develop and deliver a GPON system to Verizon�s requirements, then compared that figure to how much revenue it could expect to garner as (most likely) the carrier�s No. 3 GPON equipment supplier. The comparison must have been startling in a very negative way.

I have to give Tellabs credit for having the sense to walk away from a high-profile program when the numbers just didn�t add up. Yes, sticking around would mean the company could still say it was a part of the next phase of the country�s biggest FTTH deployment�but at what cost? The situation reminds me of those stories we here in the States read about titled families in Europe living almost like paupers in the ancestral castle; at some point, the sacrifices necessary to keep up appearances become irrational. And no one is going to pay money to tour the Tellabs facility or spend the night in the president�s office.

In an industry that is known for wrapping products in dollars just to keep them moving out the door, Tellabs� ability to say, �Enough!� provides an example that others ought to ponder. As the U.S. economy slips into recession and the dollar falls further against the euro, CEOs across the industry should take a hard look at both new �opportunities� and existing ones. Showpiece deals that look better in a press release than they do on the ledger are likely to make even less sense today than ever before.

Tellabs made a smart move. But the smartest move is to avoid getting involved in programs like this in the first place.
Stepen M. Hardy
Editorial Director & Associate Publisher
stephenh@pennwell.com

Criticism of Orange (France Telecom) by l�UFC Que Choisir, France�s leading consumer advocacy group, has put the spotlight again on the difficulties the country�s alternative carriers face in deploying FTTH networks.

Criticism of Orange (France Telecom) by l�UFC Que Choisir, France�s leading consumer advocacy group, has put the spotlight again on the difficulties the country�s alternative carriers face in deploying FTTH networks.

The latest flare up raises-two questions: How many FTTH networks can a market support, and where should competition should take place�at the network level or among content providers? In the Netherlands and in Sweden, the consensus seems to be that one alternative FTTH network is enough and that consumers and local economies benefit more when there is competition among service and content providers rather than multiple FTTH networks. In these two countries, the passive layer of the alternative FTTH network is usually built and run by local authorities or municipally owned utilities.

For now the high level of broadband competition in France, which has carried over from DSL to FTTH, is keeping triple-play prices down to the lowest in Europe. However, it is not clear whether France�s alternative carriers will be able to roll out their FTTH networks as planned or whether they will all survive. In their bids to take market share from Orange, the alternative carriers are also weakening each other, a situation that could lead to more consolidation.

But the French don�t seem to perceive this danger, and instead continue to focus on the problem of network sharing. In the April edition of its magazine, Que Choisir criticized Orange by saying that the incumbent was not respecting its promises to share fibre-optic infrastructure with its competitors. The article followed nearly a year of haggling between Orange and France�s alternative carriers. In February, at the FTTH Council Europe�s annual conference, executives from Free (Groupe Iliad) and Neuf Cegetel called on Orange to give them access to Orange�s fibre infrastructure and to discuss reselling Orange�s FTTH services.

Responding to the Que Choisir article, Orange said, �Since its fibre-optic projects were launched, France Telecom has ensured that they are carried out in the best interests of consumers, notably enabling them, home by home, to choose their operator for access to fibre, and complying with competition rules.�

It is hard to say to what extent Orange is cooperating. However, it�s very clear that Orange, like other incumbents, does not want to help its competitors when it is not pressured to do so. France�s alternative carriers should probably rethink their FTTH strategies�possibly borrowing ideas from their northern neighbours�and adopt solutions that rely less on the goodwill of Orange.
Kurt Ruderman
European Editor
kurtruderman@wanadoo.fr

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