ARCEP New Year’s wishes for 2010 – Speech given by the Chairman Jean-Ludovic Silicani - 14th January 2010.

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Madame Minister,

Monsieur Rector,

Members of Parliament and Local officials,

Presidents and Directors,

Ladies and Gentlemen,

Dear friends,

I would like to begin by thanking all of you for taking the time to come celebrate the new year with us, here at the Sorbonne. It is a truly moving experience to come together in this exceptional space, a place of culture and memory, whose reputation and scope of influence have been universal since the Middle Ages. Reminding us that we need to draw from the past to prepare for the future. The digital economy that we are building together, and which brings us all here this evening, is giving birth to a new communication-centric society which, in many ways, resembles those forged by the great discoveries, particularly the invention of the printed book. So, once again, past and future come together.

In these wishes for the year 2010, which I extend to you personally and on behalf of the entire ARCEP Executive Board, I would like to sketch out the main areas of work and the challenges that await us in the coming year.

Introduction: regulation and construction of a durable market

I think it would be helpful to begin with a brief look back at the impressive road that the Authority has travelled since its creation thirteen years ago, and at the central developments in market regulation – which is ARCEP’s central purpose.

The market economy requires that the players adhere to a set of rules which are aimed, first at ensuring a durable source of supply, i.e. the production mechanisms and, second, to provide consumers with sufficient guarantees. Past and recent experiences with deregulation have demonstrated potential dangers, particularly for economic sectors where these risks are systemic – a prime example being the financial sector, or network economics which naturally includes telecommunications.

• This need for "rules of engagement" is particularly acute in sectors which are former monopolies being opened up to competition, and especially those with high barriers to entry – as in the case in both the telecommunications and postal sectors. The purpose of these rules is to enable the creation of a truly durable market by achieving a balance between consumer satisfaction, thanks to a decrease in prices, and the long-term development of production and jobs, through investment and innovation. As I often say, the goal of regulation is to ensure balanced and reasonable competition.

This is why, in a consensual fashion for the past twenty or so years, the rules and principles, both national and European, have gradually involved, first, the implementation of considerable regulation, particularly of those sectors that have opened up to competition and, second, the enforcement of this regulation by independent authorities, like ARCEP, which are distinct from classic ministerial administrations.

• But regulatory systems need to evolve over time, and apace with the different stages in the construction of a durable market. The goal in the first stage is to enable the transition from a monopoly and to open the market up to competition.

The postal sector is at precisely this critical moment with, as you know, the deadline for full liberalisation set for 1 January 2011 in the law that has now been passed by Parliament. I would like to thank senator Hérisson, rapporteur of this very important law, for being here with us this evening.

In the electronic communications sector, meanwhile, the ARCEP has been maintaining asymmetrical regulation for several years now, which therefore weighs more on the incumbent carrier than on competing telcos. This system has made it possible to sustain a competition momentum and to build a market that is now populated with a satisfactory number of diverse players, whose solid economic and financial situation allows them to undertake the sizeable investments that need to be made in the coming years. This robustness provides a stark contrast, of which we can be proud, with the unfortunately much more precarious situation in other sectors of the economy, due in particular to the current downturn.

• The more the market becomes competitive and robust, the more asymmetrical regulation can be relaxed. This is the central tenet of the market analyses performed by ARCEP since 2002. Here, 2010 will mark the onset of a third cycle of market analysis, which will reduce the asymmetrical regulation applied to France Telecom to access markets only. As concerns interconnection markets, this third cycle will provide an opportunity to impose uniform regulation on all market players by eliminating any remaining asymmetries in the areas of fixed voice, mobile or SMS call termination.
• Once the competitive market has been created, regulation still needs to be in place, alongside the application of common competition laws, which falls under the purview of the Competition Authority whose Chairman, Bruno Lasserre, I am delighted to see here this evening. This regulation is more symmetrical and therefore applied in much the same way to all market players. The financial markets sector provides a good illustration of this situation: the AMF regulates all operators in the same way.

In the electronic communication sector, this new stage is now playing out and will lead to the gradual implementation of new regulation that is more symmetrical than in the past.

2009-2010: evolving towards ultra high-speed fixed and mobile access

• The work performed in 2009 marked an important stage in the construction of this durable market that I’ve just mentioned. The first thing that comes to mind here is the decision to award the fourth 3G mobile telephony licence to Free Mobile, and so completing the creation of a market in Metropolitan France of four mobile network operators – the same number we find in all of Europe’s major markets. Issuing Free Mobile its 3G frequency licence, the day before yesterday, is the last chapter in a process that began back in 2006! I’ll take this opportunity to underscore the fact that the terms of this licence include all of the commitments that Free Mobile made in its application, and ARCEP will naturally be very mindful of ensuring that these commitments are met.
• The next thing that comes to mind is the adoption in December 2009 of the regulatory framework for optical fibre rollouts in very densely populated areas, which sets symmetrical regulations. It provides market players with enough clarity to begin investments. These new ultra high-speed networks will, of course, profoundly alter the services available to users but also the market structure by enabling real infrastructure-based competition, which is a true guarantor of innovation in those areas where it exists. Once this regulatory framework comes into effect, which will be very soon, operators will have one month to publish an access offer. We are hoping that their sense of pragmatism will prevail and lead quickly to sharing agreements so that, together, by the end of the year we will be able to draw lessons that will inform the next stages of these rollouts, and provide us with some information on both costs and the industrialisation of the processes.
• The work to be performed in the coming year is just as ambitious, and one of the prime areas of focus in 2010 will be ultra-fast broadband, which will include finalising the terms of balanced fixed and mobile ultra high-speed network rollouts across the country. The law on the battle against the digital divide of 17 December 2009, which the Authority is very pleased to see passed, gives national and local public authorities, as well as operators, the tools to achieve this ambition.

After having established the regulatory framework for optical fibre rollouts in the country’s most populated areas last year, 2010 will be devoted to setting the terms and conditions for rollouts in the rest of France. ARCEP will specify the applicable framework, to run parallel to the implementation of the national plan which was announced by the President of the Republic in December, as part of the national loan (grand emprunt). It will be based on increased infrastructure sharing and will encourage shared investments. An ambitious timetable will need to be set so that optical fibre rollouts are performed simultaneously across the country. On Monday (18 January), the Prime Minister will be unveiling the main outlines of this investment plan which will be a key component of the post-recession economy. The Authority will also continue its efforts devoted to rollout costs, and notably on the price charged for duct access, which is a crucial part of fibre deployments.

On the matter of mobile networks, the first half of 2010 will be dedicated to allocating the remaining spectrum in the 2.1 GHz band for 3G mobile broadband. At the same time, in the second half of the year, ARCEP will launch the allocation procedure for the 2.6 GHz-band spectrum and the digital dividend "golden frequencies" for ultra high-speed 4G mobile rollouts – the prime objective being regional development, as stipulated by Parliament in the law on battling the digital divide. How to work this objective into the selection criteria? This is one of the central questions that the Authority will need to answer before the summer, after having performed all of the necessary consultations.

Digital regional development

• Of course these efforts devoted to ultra-fast broadband must not distract us from the Authority’s other essential tasks which correspond to two public policy objectives, namely balanced regional development and improving the services provided to consumers.

This means, first, continuing our efforts on digital regional development by working to extend broadband coverage, both fixed and mobile. ARCEP has also carried out an extensive public consultation on the issue of increasing bitrates on fixed networks. This is an opportunity to make the utmost use of the existing copper loop’s potential but, as the Authority pointed out, it could also mean certain threats to competition. In any event, it would need to be coordinated with upcoming fibre rollouts. In February, ARCEP will be publishing recommendations that take all of these elements into account.

On the matter of mobile coverage, as you know ARCEP ran a major information campaign which included the publication of status reports on 2G and 3G coverage, in August and December, respectively. At the time, the Authority noted that Orange and SFR coverage levels were below what is stipulated in their commitments, as a result of which, and in accordance with the law, both operators were issued a formal notice to perform, along with a proportionate but ambitious timetable. ARCEP will be careful to ensure that these deadlines are met and, if they are not, will impose penalties.

Lastly, at the request of Parliament, ARCEP has just published a detailed report that examines the disparate state of the different electronic communications markets in the overseas regions. It also offers several proposals for remedying the situation. As we know, bringing these geographically complex regions fully into the digital era is a crucial matter from both an economic and social standpoint.

Consumers & the retail market

Let us look now at the actions taken on behalf of consumers. This will be an even greater priority for ARCEP in 2010 as it is clear that the situation is still lacking in many respects. ARCEP’s actions in this area will be twofold:

• first, it will ensure that operators are capable of developing innovative offers at an affordable price, thanks to a state of fair competition. I’ve already mention this, so I won’t go into it any further;
• second, along with administrations whose specific mandate is consumer protection – such as the DGCCRF (general directorate for fair trade, consumer affairs and fraud control), whose Director General, Mrs. Homobone, I am also delighted to see here this evening – ARCEP will work to ensure that consumers, both individuals and businesses, have access to service offerings under satisfactory conditions.

On this second point, it is important to guarantee that consumers have the ability to make an informed choice when subscribing to a service, as much in terms of the nature and quality of the services marketed by each operator, as the price being charged for them.

Allow me to give a few specific examples of the issues that we will be focusing on this year.

Far too often, even though they are innovative, new offers are hard for consumers to understand. For instance, the specific meaning of the term "unlimited", whether applied to telephony or Internet access, is fuzzy and even ambiguous, not to mention misleading and even false in some instances. Some consumers, not many but still far too many, do not understand exactly what their "unlimited" offer means, until they get their astronomical bill.

In the same vein, Internet access solutions over mobile networks are still not advertising their access speeds, which differ from the maximum speeds that current technologies allow. Limiting bandwidth is a legitimate measure for reducing production costs, and therefore prices, but not being transparent about it is not.

On the matter of number portability, while the situation is satisfactory in the mobile market, we still have a long way to go in the fixed telephony market to achieve an automated process between telcos. Too many customers are still struggling to exercise this essential right to keep their number when switching carriers. Moreover, the advent of the quadruple play bundle, which is excellent in and of itself, combining telephony and Internet access on both fixed and mobile networks, can make switching operators an even more complex affair.

By the same token, the cost of switching operators must not be excessive and must not, in itself, prevent customers from taking advantage of a competitive market. Added to which, continuity of service must be ensured, for instance by keeping unwarranted service interruptions to a minimum, which are gently referred to as "slamming", as well as those that occur when switching carriers.

Another example, the Law of 17 December 2009 on battling against the digital divide introduces the right to keep an e-mail address for six months after having cancelled a contract with one’s ISP. The new European directives of 25 November 2009 include increased provisions in the areas of number portability, maximum contract lengths, the transparency of offers with respect to consumers and governing the contract cancellation process. ARCEP intends to do its utmost to ensure that these new provisions are quickly and effectively put into application in the French market.

This is why the Authority, notably through its consumer affairs committee, will pursue and step up its efforts on all of these issues, and will provide an account of the situation in a precise and clear manner in the report that it must submit to Parliament in 2010, pursuant to the Law of 3 January 2008 for the development of competition for the benefit of consumers.

All of these provisions could translate into initiatives from operators that decide to self-regulate. The Authority would applaud any such initiative. They could also be taken on board in a spirit of co-regulation, through a common approach with other operators, consumers and the State. The Authority would actively support such an approach. Should any such initiative or collaboration fail to manifest, ARCEP will not hesitate to ensure that the measures are properly put into effect, and to impose penalties on those who fail to comply. But my natural optimism tells me that it will not have to come to that.

• Finally, I would like to salute the adoption this past December, after four years of work, of the Telecom Package by the European Parliament and Council – a dossier to which ARCEP devoted a great deal of effort, and which provides a useful complement to the European regulatory framework, strengthening the governing principles of regulation for the coming years. Naturally, the Authority will be very involved in its transposition into national law.

ARCEP will remain very active at the European and international level as well. Here, I would like to extend a special welcome to Mr. Shehadi, the chairman of the Lebanese regulatory authority, and to Mr. Hyndrickx, chairman of the Belgian regulatory authority.

The postal sector

In the postal sector, we have a new framework resulting from the postal law that was officially adopted this past Tuesday, 12 January.

It extends the framework established by the law of 2005, which had already introduced a partial market liberalisation. In the intervening years, the Authority worked to provide La Poste with a clear multi-annual tariff schedule, in the form of price caps, and encourage greater transparency on its offers and on its quality of service performance, in addition lifting barriers to entry for new operators. On this last point, we can only note, with some disappointment, the lack of any real competition for the moment.

Striving for market transparency and efficiency, the Authority will work on establishing the terms of application for this framework in 2010, in view of a complete market liberalisation starting on 1 January 2011.

Our actions will follow through on those performed in previous years, even if ARCEP’s role has been expanded in several areas, notably consumer protection. Moreover, and independently of any regulatory functions, Parliament has also given ARCEP a new responsibility: that of performing an annual assessment of the net cost to La Poste of meeting its regional development obligation.

But 2009 was also marked by a significant decrease in traditional postal activities, with a roughly 5% drop in traffic. This situation is not simply due to the recession, and we know that postal operators in large markets are expecting a structural decline in their business, and are looking for new business models.

This is a trend that we need to take fully into account. It is the regulator’s responsibility to have a clear understanding, through forward-looking assessments, of the way in which the universal service operator’s business model will evolve. This is an essential prerequisite of intelligent and proactive regulation that serves the public interest.

Forward-looking assessment

Alongside this imposing work programme, the Authority will continue its forward-looking assessments, notably within its recently formed Forward-planning Committee. Hello to the members of that committee who are here with us today. The issue of network neutrality will be the central focus of a large international conference that ARCEP will be hosting on 13 April 2010 (mark your calendars). I will not go into this complex and fascinating high-stakes topic, but only note that our internal examination of the matter has been ongoing since this past autumn, and has involved a series of meetings with stakeholders and that, following the conference in April, we plan on publishing guidelines on the issue in early summer 2010.

In conclusion: a modern administration

I will end my talk by mentioning that, in addition to the major dossiers that the Authority dealt with in 2009 as part of its market regulation mandate, we have also been engaged in a major overhaul of the way that ARCEP is managed and operates. Having been a State reform commissioner in the mid 90s, and author of a white paper on the future of the public service, which I submitted to the government last year, I have a personal desire to implement several of its recommendations, following in-depth discussions with the ARCEP staff and their representatives. What we have done proves that we can achieve State reform when we have ideas, when we devote the time that is needed to listening and persuading, and when we have the desire to succeed. This is how the "new State" is built, day by day.

• It is through this process that we have overhauled, streamlined and personalised the scale of remuneration for all of the Authority’s agents (civil servants and contract staff) since January 1^st, which takes better account of the functions exercised and the results obtained.

We have also reorganized the Authority’s departments. We needed to tailor our structure to the way in which the regulated sectors are evolving, based on a dual objective:

• to better indentify ARCEP’s "core business areas" and to ensure that this is where human resources will be concentrated, as they are the Authority’s greatest asset, especially at a time when the State is being so careful to control its spending;
• and to strengthen our relations with the sector’s players (operators, equipment manufacturers, consumers and local authorities).
  
  
• During these past months, commentators have remarked favourably on ARCEP’s independence from "political power" and economic stakeholders. I would like to say two things about this. First, the independence and the quality of the work performed are intrinsically linked, not only to the collegial nature of the work carried out by a diverse and dedicated team, but also to the anonymity of Board discussions, which helps safeguard its independence. Second, I would like to underscore that this independence is worthless if it does not go hand in hand with listening and dialogue. So I would like to thank all of the players for their active contribution to this dialogue, within the many working groups, the many meetings that we have held and in their responses to public consultations. I would also like to mention that the interactions that the Chairman and members of ARCEP have with the French Government and the Parliament are necessary, frequent and fruitful, as illustrated by the presence here this evening of Nathalie Kosciusko-Morizet and senator Pierre Hérisson. It is therefore an independence that is open onto the world that we advocate, and not one of self-containment. We differ here from certain models that want their regulatory authorities to be like Fort Knox, cut off from the rest of the world. This is the very antithesis of regulation which needs to be designed and implemented through osmosis with public and private sector players. We are not here to beleaguer or surprise, but rather to persuade. If this occasionally means that we have to act the policemen, far more often it means acting as a catalyst and, I would even go so far as to say, the midwife of solutions.
• In 2009, as it will be in 2010, none of these ambitious work programmes can be realised without the skills and talents of the ARCEP staff, and their tireless devotion. Both personally and on behalf of the entire Board and, I am certain, on behalf of all of ARCEP’s partners, I would like pay tribute to them here.

The strength of their efforts, guided by a dynamic group of managers, is a crucial ingredient in the credibility of the work performed and decisions made by the Board over which I preside, and which I salute.

So it is on solid bases now replenished, and with confidence, that we can go forth into 2010 – even though we are aware that, for a great many of our fellow citizens, it will be another difficult year. Again, on behalf of the entire Board, I would like to extend my warmest and most sincere wishes for a fine and happy new year.