Arcep speaks

Speech by ARCEP Chairman, Mr. Jean-Ludovic SILICANI at the seminar on the digital economy, 10 September 2009 – The regulator’s viewpoint –

Prime Ministers, Ministers, Ladies and Gentlemen,

All components combined (equipment, electronic communication services, digital content), the digital economy constitutes a sector that is fundamental to our economy: generating revenue of more than 100 billions euros, it represents 5% of GDP and hundreds of thousands of jobs. This is why stimulating digital equipment nationwide, particularly through ultra high-speed access, both fixed and mobile, for both residential and business users, is a top priority for the coming decade. Achieving this will involve stepping up investments considerably: by tens of billions of euros.

This investment will also act as a lever to strengthen the competitiveness of our businesses and contribute to the development of new innovative services. This economic challenge is comparable, in its scope and the impact it can have on the economy, to the challenge of building railroads in the late 19th century which sustained the growth momentum of the Edwardian era for close to twenty years.

It is therefore crucial that we implement an ambitious plan that will enable the swift deployment of ultra high-speed networks. The actions taken by public authorities, in which ARCEP naturally plays an active part, must, in my opinion, focus on three areas in particular: the creation of a legal framework that will free up investment; facilitate private sector initiative to speed up deployments and, finally, mobilise public funds to ensure that coverage be as broad and swift as possible.

A balance could thus be struck between stimulating private operators’ investments to as great an extent as possible – which is key to competition and innovation – and public investments which are needed in areas where private initiative is lacking. This balance will need to be evaluated with respect to national and European legal frameworks, notably legislation governing State aid.

To free up investments and spur the rollout of ultra high-speed networks, the essential first step is to install fibre infrastructure in the most densely populated areas. In this zone I, where the population is highly concentrated, infrastructure-based competition is economically viable for installations near to customer premises, which ARCEP estimates at around 5 million households spread out over some 150 towns belonging to 25 metropolitan areas. To minimise the work that needs to be performed on private property, while also guaranteeing that users have choice, the Law on modernisation of the economy of 2008 laid down a principle of shared fibre installations in buildings.

After a long series of trials and consultations with the sector’s players, ARCEP produced a draft legal framework that defines this principle. Following the Competition Authority’s consultation, which is currently underway, and European Commission consultation, and after receiving government endorsement, this framework should come into effect before the end of the year. In the month that follows, electronic communications operators will be required to make public their optical fibre network access offer. This means that the starting pistol for a cycle of investment in fibre-to-the-home will go off in France in early 2010, and most of the country’s operators are already actively preparing for it.

In a second part of the country, which can be called semi-densely populated zones, network

economics do allow for privately-funded optical network rollouts, but only provided that a substantial portion of the infrastructure be shared.

The goal for this zone, then, is to deploy a shared network – notably in the last drop to customer premises – and one that must be open to the different operators in a non-discriminatory fashion, provided that each assumes a fair share of the costs.

This process of network sharing requires strong coordination between the players to avoid having rollouts and terms of access that are too disparate. A second stage of works and trials is thus underway, under the aegis of ARCEP, which involves close collaboration between operators, local authorities, the Caisse des dépôts et consignations and other public players, working together to define the system to be implemented. Several trials and studies are in progress, including in the region of Angoulême and in the Ardèche and Drôme regions.

There are different models that can help stimulate this system of sharing. In particular, public involvement alongside private operators can help speed up deployments by acting as a lever. Under a shared investment model with private operators, a public authority can supply a portion of the capital for the shared infrastructure project, alongside private operators, acting as an "informed" investor. This system can be implemented at either the national or local level. Augustin de Romanet will no doubt address these points in a few moments, so I will not elaborate any further.

I will only cite, as an example, the approach taken by Manche Numérique, a project whose aim is to create two optical fibre networks with a total 26,000 connections through a public service delegation, in the greater Cherbourg and Saint-Lö areas.

Lastly, the most sparsely populated parts of the country (Zone III) are not profitable enough for a deployment funded solely by private sector operators. Public intervention in the form of subsidies therefore becomes necessary in this case, through public-initiative networks, for instance, which have been deployed successfully in the broadband market using several possible systems (PSD, 3 PPP, etc.). These initiatives undertaken by local authorities could be completed by a national subsidy: it was in this spirit that the proposal included in the Pintat Act – which was passed by the Senate on 20 July, for which Senator Retailleau acted as rapporteur, and will be debated soon in the National Assembly, with Ms. Laure de la Raudière as its rapporteur – plans for the creation of a national digital development fund. In this third zone, providing ultra-fast broadband access should lead to the use of all available technologies, notably mobile ones starting in 2010-2011 thanks to the allocation of digital dividend frequencies, or even satellite technologies.

But, beyond this segmentation of the country into three zones, which does provide a useful framework for analysis, allow me to emphasise several points.

First, we need to be careful about defining the dividing lines between these zones. While zone I needs to be defined precisely, since the goal is to set the geographical scope of application for the legal framework governing network sharing, the dividing line between zones II and III will depend on rollout economics, which are not entirely clear as yet, and on how successful shared investment schemes prove. It can therefore not be defined ahead of time by an administrative decision but, rather, it will be the market’s dynamism or, on the contrary, its shortcomings, that will determine these borders.

In addition, although public involvement in very densely populated areas (zone I) may appear at odds with Community laws, notably the European Commission’s draft guidelines on State aid for ultra high-speed networks, a much broader scope of intervention is possible in zones II and III.

Moreover, regional development needs will necessarily bring local players to engage in global projects for these two types of zone. Lastly, there is always the possibility of public authorities acting as informed investors – as is the case with the city of Amsterdam’s passive CityNet network which was approved by the European Commission on the grounds that the city of Amsterdam was investing as a private player in a profitable network, alongside other private sector players. It is in this legal and economic framework, then, that public investment priorities need to be set for zones II and III.

From a more general perspective, public authority involvement needs to be part of a digital regional development plan aimed at ensuring the coherence of public initiatives and providing a sound complement to private investment. This is why the Pintat Act plans on having guidelines, produced by local authorities in tandem with State departments and operators. These guidelines will provide an opportunity to underscore the importance of the role played by local authorities, notably as the managers of public property. Local authorities can also make a direct contribution to accelerating demand by equipping their social housing with fibre.

This process of digital regional development must not be confined to ultra-fast broadband. In some parts of the country, and under certain conditions, a project to increase access speeds, in other words pulling fibre to the cabinet, or rolling out an optical fibre collection network for wireless services (Wi-Fi, WiMAX, cellular), can constitute an intermediate step towards ultra high-speed access which will itself be achieved with the deployment of fibre to the home.

It is nevertheless essential that the investments made in increasing bitrates be part of a process of preparing the future deployment of ultra-fast broadband, and not undermine the investments that private operators have already made, notably in unbundling, which would be a groundless waste of funds. To facilitate the implementation of projects devoted to increasing access speeds under the proper conditions, ARCEP will publish a set of recommendations, before the end of the year and after having consulted with the market players, which will act as a "toolbox" for local authorities and operators.

Finally, and to conclude, I would like to underscore that the distinction between these three zones should not lead to overly sequential deployments: although fibre rollouts are lengthy undertakings, which will begin in the most densely populated areas, it is important that preliminary work begin right away on setting the terms for deployments in the rest of the country. Our fellow citizens can understand that not everyone will have access to ultra-fast broadband immediately and at the same time, but they are not willing to accept an excessively long wait, either. Here, then, by stepping up investments, State aid will help not only to strengthen growth but also solidarity between regions.


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