Demand side regulation and broadband rollout in France

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1 Demand side regulation and broadband rollout in France Pierre Jean Benghozi CERRE Conference 2017 Brussels, 12 December 2017

2 Demand side policy: a double question to address Impossibility of separating demand and supply policy Pascal's bet: in the telecom field: the function creates the organ and precedes the uses The case of market for business IoT : competing solutions 5G malleable and network slicing Anticipating and understanding variety of demand Watch 10 or 20 years back (term for the rise of fiber UFB) An interesting and emblematic case : the B2B and business market 2

3 Ultra Fast (and Fast) Broadband : a french overview 3

4 NGA technologies offer speeds above 100Mbit/s to a third of the French population, with FttH increasing rapidly Millions % 25% Market overview % 15% 1. Cable footprint is expected to remain below 30% Q Q Q Q Q Q2 10% 5% 0% 2. FttH rollouts undergo rapid growth (+37% yoy) and 29% penetration FttH plugs (millions) FttH Suscribers (millions) FttH penetration rate (%) Competitive outlook Strong presence of fixed alternative operators at the local level, in a market based on 4 fixe/mobile convergent operators Market consensus that only passive access allows for sustainable competition and innovation. Passive access is unfeasible with FttLA. Copper sub loop generally too long to deliver NGA throughputs. 4

ARCEP s FttH regulation consists of both asymmetric and symmetric obligations ARCEP s regulation for NGA networks is based on two complementary pillars 2/ Symmetric regulation of fibre termination :

Asymmetric regulation on existing infrastructure : (copper Local Loop + ducts and poles + associated facilities) Aims to build a level playing field Minimum review period is every 3 years France s

5 ARCEP s FttH regulation consists of both asymmetric and symmetric obligations ARCEP s regulation for NGA networks is based on two complementary pillars 2/ Symmetric regulation of fibre termination : Access and co investment obligation in the last drop Aims to preserve competition dynamics for new networks, expected to be deployed by a large number of private or public initiative operators 1/ Asymmetric regulation on existing infrastructure : (copper Local Loop + ducts and poles + associated facilities) Aims to build a level playing field Minimum review period is every 3 years France s market conditions required openness of NGA networks to be guaranteed: by specifying conditions of network architectures ahead of rollout so that deploying operators adopt architectures compatible for long term passive sharing 5

Symmetric rules for fibre vary with area density to strike the balance between competition and

Provision of passive access at a concentration point Publication of an access offer including co

objectivity, relevance and efficiency Structured exchanges of technical information with

alternative ISPs, local authorities Two sharing schemes, depending on the density of the area :

shared terminal counts for ~60% of the cost per line.

6 Symmetric rules for fibre vary with area density to strike the balance between competition and costs Set of obligations imposed on the operator deploying the last segment of the network Provision of passive access at a concentration point Publication of an access offer including co investment & line rental options Access prices based on principles of non discrimination, objectivity, relevance and efficiency Structured exchanges of technical information with commercial operators Flexible setting fit for all fibre local loop operators: incumbent, alternative ISPs, local authorities Two sharing schemes, depending on the density of the area : Shared multi-fibre network Operators networks Very dense areas : (5,5 millions households) CP The shared terminal counts for ~60% of the cost per line. Less dense areas : (27,7 millions households) Operators networks CP Minimum size: 1000 lines Shared mono-fibre network The shared terminal counts for ~90% of the cost per line. 6

Co investment model creates a new rung on the investment ladder Parallel rollout Primo investor Co investment Wholesale active access product [Wholesale Line Rental] (monthly fee) Wholesale passive

7 Co investment model creates a new rung on the investment ladder Parallel rollout Primo investor Co investment Wholesale active access product [Wholesale Line Rental] (monthly fee) Wholesale passive access product [Local Loop Unbundling (monthly fee) More efficient than pure infrastructure duplication Decreases OPEX per line Reduces regulatory exposure and increases predictability Reconciles regulation and investment Increasing investment incentive 7

8 Evolution of telecom investments in France Billion 9,0 8,9 8,0 7,0 6,0 5,5 6,3 7,0 6,1 6,5 5,9 6,4 7,3 7,4 2,3 2,5 7,3 7,0 2,6 2,4 7,8 2,3 2,7 5,0 2,6 3,3 2,4 2,2 2,2 2,0 4,0 2,4 3,0 2,0 1,0 3,0 3,7 3,7 3,8 4,3 3,7 4,4 5,0 4,9 4,7 4,7 5,5 6,2 0, p Estimation Mobile investment des investissements fixes Investissements hors achats de fréquences Investment excluding purchase of frequenciest Estimation Broadband des investlent investissements mobiles 8

FttH rollout in private initiative networks is expected Slide géographique to cover up to 54 % of

(~50% public) Public Initiative Networks (PINs) in France: 84 wholesale only operators, subject to the

technical access conditions similar to those of privately funded networks Public initiative networks, mix

9 FttH rollout in private initiative networks is expected Slide géographique to cover up to 54 % of households Public Initiative Networks (PINs) set to cover the rest of territory : billion funds (~50% public) Public Initiative Networks (PINs) in France: 84 wholesale only operators, subject to the same symmetric regulation Enables private operators to co invest into PINs, benefitting from financial and technical access conditions similar to those of privately funded networks Public initiative networks, mix of public and private funding Private initiative networks, purely privately funded FTTH deployment by types of investment 9

area Private commitments area Awarded Ongoing

10 State of progress of public initiative networks in low density Slide géographique areas Private investments area Private commitments area Awarded Ongoing procurement procedure Ongoing project design Government data 10

11 Setting the stage : a technological portfolio 11

12 Preliminary conclusions of the undergoing market analysis in Slide France géographique In France, the high speed and very high speed access products belong to a single nationwide market, with Orange designated as Significant Market Power on markets 3a, 3b and 4. Regarding legacy infrastructure (copper, civil works ), efforts to fine tune the remedies to : facilitate the roll out of FttH networks and; in the meantime, preserve the general quality of service of LLU products Regarding FttH, symmetric regulation is considered sufficient but Orange took actions to improve competition focused on on access in very dense areas and ; nationwide enhancement to operational sharing process. But need for specific access remedies to remove competition deadlocks for business end users, by ensuring a more competitive business wholesale market Orange will also offer wholesale FttH+ (FttH with Service Level Agreement) to meet SMBs needs and substitute to LLU with SLAs. 12

13 Demand at stake : some reactions to the Cerre report 13

14 Basic broadband v. Ultra Fast Broadbad? Ambiguity of demand side policy since demand side means an economy of functionality and an obligation of results instead of an obligation of means Lock in effects regarding uses in the infrastructures Fixed cost economy and threshold effects in developments Cf.. Proposal Cour des Comptes on enhanced copper VDSL v. fiber Consequence : the question is not only basic v.ufb but organizing the response to demand by a portfolio of technologies Fixed / mobile joint problem + cable + copper + satellite Especially true for the universal service: should objectives target average flows or UFB France governmental objective ; Good broadband in 2020, VHB in

15 Demand for UFB? Actual contrasting results in terms of conversion Copper / fiber Copper decommissioning have different impacts according to areas Legal difficulty moving from coverage obligations to adoption obligations Implemation problem Responding to demand on very dense areas creates dissatisfaction on areas of lower coverage A killer application or killer device problem? See ex. set top Boxes See eg mobile with smartphones Users : what value for money of Ultra/ Very Fast broadband : Contrasted results? Lack of premium price for 4G or premium for fixed Arpu = + n? Discrimination of demand according to coverage areas A glass ceiling? 15

16 Demand side policies and/or data based regulation? Data based regulation Importance of observatories The issue of standardizing: protocols as well as vocabulary and definitions A key dimension for light hand regulation A mean to articulate demand / suply policy? Incentizing competition and investing Supporting variety of users decision process 16

17 Demand side policies: institutional and regulatory stakes Overlapping of regulatory bodies and set of laws designed through supply side policies Vertical integration and interoperability concerns Competition, one stop shopping and/or one stop provider? A goal of industrial policy rather than regulation? 17

Analysing consumer broadband markets in the NGA transition Ilsa Godlovitch

Analysing consumer broadband markets in the NGA transition Ilsa Godlovitch Implementing the New Recommendation on Relevant Markets 18 November 2014, Brussels 0 Broadband markets: from old to new Market