Ladies and Gentlemen,
I would like to start by saying what a pleasure it is to be here with you today, and to extend my thanks to IDATE, and especially to their president, Francis LORENTZ, and their CEO, Yves GASSOT, for this invitation.
This conference provides me with an opportunity to share the regulator’s view of the new issues and challenges to emerge in the electronic communications sector.
But, since the central focus of this conference is openness, I feel that I should start by underscoring the fact that the regulatory method itself is based on openness, in other words, on dialogue and transparency. The way that a regulator such as ARCEP works differs a great deal in this respect from that of a classic administration: the goal is to co-produce, to some extent, decisions, regulation and best practices with the sector’s players. The work performed by the Authority therefore begins with a period of in-depth examination, whether in the form of trials, public consultations or working groups. Listening, talking and explaining are all essential components of our methods and actions. Finally, as you know, a few days ago ARCEP created a forward-planning committee whose goal is to cast an eye into the future and steer us towards it, rather than just prolonging old patterns.
1) Regulation and opening the market up to competition
The original focus of the regulation entrusted to ARCEP was, of course, the market’s liberalisation: build a market from a monopoly, then provide that market with momentum. When ART was created back in 1997 its purpose was to establish then put into effect, alongside the tenets of competition law, asymmetrical sector-specific regulation, in other words regulation that applied to a carrier considered to be in a position of market dominance, to help foster competition.
To build a lasting market, however, the goal is to try to achieve not maximum but rather optimum competition. This "optimum", i.e. balanced, competition must make it possible, first, to offer consumers quality services at a reasonable price and, second, for carriers to generate large enough margins that they can innovate and invest and, ultimately, enable economic development and job creation. So there is no contradiction between the goals of investment, innovation and competition when the state of competition is balanced. Innovation and investment are stimulated by competition, and competition will be lasting and benefit the population at large if the players continue to innovate and invest.
During the first stage of market liberalisation, asymmetrical regulation made up the core of ARCEP’s actions. Thanks to the proactive approach taken by the sector’s players for more than 10 years now, this regulated market liberalisation has been truly successful. The fixed services market is a perfect example of this healthy momentum, due notably to the implementation of local loop unbundling. As far as figures go, I’ll say only that, as of 30 June 2009, of the 30 million households in France, there were close to 19 million broadband subscribers, of which 7 million are served by alternative carriers via unbundling. Our country is also the world leader in the area of TV over ADSL, with a base of 7.7 million subscribers, and home to among the lowest prices anywhere in the world, given the breadth of the offers.
Mobile markets too continue to undergo tremendous and steady development, marked by a recent surge in data traffic that was spurred by the rollout of third generation networks, the availability of handsets adapted to new forms of consumption and the introduction of attractive high-volume solutions for consumers. On this last point, it should nevertheless be said that operators have a moral obligation to guarantee that consumers have a means of keeping track of their spending. Should operators fail to meet this moral obligation, ARCEP will not hesitate to propose that it become positive law.
The Authority’s actions in this sector, which are based on regulation but also a policy of scarce resource allocation, i.e. radio spectrum, are geared, here again, to stimulating the mobile market’s development through balanced competition.
It was with this purpose in mind that several years back ARCEP, backed by a great many of the sector’s specialists, proposed the award of a fourth third-generation mobile telephony licence. In favour of this award, the government launched the selection procedure in early August of this year. As you know, only a single application was submitted and deemed eligible. We would have preferred to receive more applications, but at least this proves that the licence was not being offered at a discount, as has sometimes been implied. ARCEP is currently in the process of examining this application closely and we will be paying particular attention to the candidate’s commitments. We will reach a decision before the end of the year.
The arrival of a fourth operator in the marketplace will increase competition, which will be beneficial for consumers: prices in France are in the upper range of averages for Europe, and favour heavy users above all. A new entrant is not, however, likely to destabilise the mobile market since existing operators enjoy solid positions: given its size, the new entrant would no doubt be the first to disappear should a real price war break out! Lastly, it goes without saying that, if it does award this licence, ARCEP will be especially vigilant in making sure that the new operator meet its commitments.
2) Regulating competitive markets
But, and this is the second point I’d like to address, the legitimacy of economic regulation is not confined to markets that were once monopolies. I have been lobbying for a long time (I wrote a long article on the subject in Les Echos back in February 2000) for an active State regulator in all areas of the economy. State action cannot be limited to verifying that companies are complying with competition law. We also need regulation in markets that are competitive: a good case in point being the banking sector and financial markets. In both these markets we are seeing a necessary reinstatement of regulation whose eradication had been planned by "prophets" and partially implemented in some countries, with the disastrous results of which we are all well aware.
In the electronic communications sector, while asymmetrical regulation is intended to be lifted gradually as the state of monopoly dissolves and markets become competitive, new issues arise. These issues require the implementation of symmetrical regulation, in other words regulation that applies equally to all market players. This means that, more and more, the regulator will not only be "policeman", but also a catalyst for market development.
I would like to talk about two major issues that the sector and the regulator are having to contend with. They correspond to two challenges inherent in opening up the market:
- the first major issue, which I’ll call horizontal, is of course the development of very high-speed fixed and mobile networks. This new situation requires a balanced reconciliation of the goals of competition, investment and regional development, and so require us to think about how to guarantee the rollout of open networks that will be used for the next fifty years or more;
- the second openness-related issue, which we can qualify as vertical, concerns the relationship between the different stakeholders along the value chain (equipment manufacturers, operators, service providers, content suppliers) whose formerly distinct strategies are becoming increasingly entwined and giving rise to tricky questions, especially the question of Net neutrality and, more generally, the neutrality of electronic communications networks.
Of course, these two issues are bound up with one another: the purpose in both cases being to build a new, lasting and innovative digital ecosystem. I’ll take this opportunity remind us all of the size of the digital economy in this country which, according to IDATE figures, represented around 115 billion euros at the end of 2008, or 6% of France’s GDP, as well as several hundred thousand jobs. The considerable investment corresponds to the nation’s digital equipment (core networks, backbones, last mile networks, etc.), which will cost an estimated 50 billion euros, at least, over the next 10 years and which will help make our businesses more competitive and contribute to the development of new innovative services. As I often say, this economic challenge is comparable, in its scope and its potential impact on the economy and on society, to the construction of the railroads in the late 19th century – an undertaking that sustained growth during the Edwardian era for close to 20 years. This challenge allows us to dream of a new "Belle époque": a grand digital era, both societal and economic.
The actions taken by public authorities, and by the regulator in particular, will therefore be critical.
3) Let us examine the first challenge: horizontal openness, i.e. ultra high-speed network rollouts
The issues of digital regional development, openness and network sharing have long been central to the regulator’s actions. The first area concerned is mobile networks: although operators have been sharing transmission sites for some time, in accordance with the Law on modernising the economy of 2008, ARCEP is now working with operators on solutions for sharing 3G mobile installations, which are expected to result in a framework agreement between operators before the end of the year. The allocation of digital dividend spectrum for 4th generation mobile telephony, in other words very high-speed mobile, which will be rolled out in the second half of 2010, gives rise to new questions: given the scarcity of available frequencies, the allocation methods being established by ARCEP will need to allow the largest possible number of operators to have access to the 800 MHz band, while also sustaining a competitive dynamic that encourages innovation.
The problems tied to deploying open networks are even more acute when it comes to fixed ultra-fast broadband rollouts. The deployment of a new optical fibre local loop is meant to allow a maximum number of users to gradually have access to virtually unlimited bandwidth. The healthy momentum of the French broadband market, along with the leading players’ willingness to invest, are helping to create a positive environment. What we need now is to trigger a new investment cycle.
The deployment of these new networks must not, however, weaken competition and must especially not lead to the creation of a new monopoly of the local loop. The goal then is to ensure that the last mile of optical fibre networks, which constitutes a potential bottleneck, be open and technology-neutral, while maintaining incentives to invest and a system of infrastructure-based competition, which is crucial to competition, wherever possible. This will require that a minimum set of regulations be set, or imposed ex ante, to provide players with the regulatory guidelines they have requested.
It was for this reason that the Law on modernising the economy, of August 2008, stipulates that third-parties will have access to the network serving users, notably the indoor network installed on private property, in order to minimise and coordinate installations while also ensuring that all property owners and tenants have the freedom to choose their electronic communications operator.
The law assigns ARCEP the task of defining the system by which this principle of sharing will be put into effect, and especially of establishing those cases where the shared access point can be located on private property. To this end, as you know, ARCEP has commissioned a number of studies and has been running a series of trials since autumn 2008. These trials were initially confined to very densely populated areas whose profitability potential would allow several operators to deploy dense networks up to the premises, or nearby. After publishing guidelines last April, after a series consultation and, finally, after receiving favourable opinions, notably from the Competition Authority and the European Commission, ARCEP’s draft legal framework is expected to be adopted then put into effect by the end of the year. Although there were some disagreements initially, the country’s leading operators are now all behind this planned legal framework. To ensure technological neutrality for the two main architectures being planned, the draft framework includes a provision that allows third-party operators to request that the building operator install a dedicated fibre on their behalf – provided they make the request before the work is performed and that they share the cost – or for a cross-connection system to be installed near the shared access point. Operators will be required to publish their access offers in the month after this legal framework goes into effect, which means that the starting signal for fibre rollouts will be given in a matter of weeks.
ARCEP is also working with all public authorities (Parliament, government, local authorities) and operators to define the terms for rolling out optical fibre in the rest of the country, in other words in the less densely and sparsely populated areas. Rollouts in these areas will involve shared deployment of the horizontal portion of the network, which must be open to all operators in an impartial fashion, provided rollout costs are shared fairly.
Different models are being examined to encourage this sharing, to stimulate investment and ensure consistency in public and private initiatives. One thing in particular that is being examined, as part of the national loan (Grand emprunt) is the opportunity and terms for allocating public monies. The President of the Republic will soon be unveiling an ambitious overall plan in this area.
The various efforts will therefore culminate in a clear framework, starting in 2010, for fibre optic rollouts nationwide. In addition to this, a reasonable programme for increasing the speed of existing networks, whether copper pair or coaxial cable, must help back up optical fibre network deployments.
I think I should also underscore the fact that these rollouts need to be launched at the same time, and not one after the other, across the country. Although our fellow citizens can understand that not everyone will have access to ultra-fast broadband immediately and simultaneously, they are not willing to accept an excessively long wait which would create an unacceptable digital divide.
4) Second challenge: vertical, regulating the value chain
Achieving very high-speed network rollouts that are successful over the long term brings to the fore the question of underlying business model, which is often raised by operators and users. There is no network without content, and vice-versa: ultra-fast broadband rollouts enable a huge surge of new applications, some of which we cannot even imagine today. On the other hand, the existence of attractive content stimulates consumers’ appetite for ultra high-speed access and spurs network deployments. As a result, the issue of how value and network financing will be shared between the various players along the value chain naturally arises.
The first thing we should note, as I indicated at the start of my talk, is the change in players’ strategies over the past few years. They are working to position themselves along the value chain by stepping outside their traditional roles: equipment manufacturers are developing service platforms, service providers are developing operating systems for mobile handsets and some telcos are investing in content.
Among other things, these shifting strategies are translating into exclusivity policies that cannot be faulted per se, but which do create certain concerns on the competition front. ARCEP has been called upon several times to issue an opinion on these matters. In its Opinion of 7 July 2009, the Competition Authority set the guidelines for and limits on these exclusivity mechanisms.
Beyond these questions over player strategies is the more general issue of the relationships between the different links in the chain, and especially between content and pipes. This issue harkens back to the question of Net neutrality, and more generally of network neutrality, which needs to be examined from three angles: code of conduct, technical and economic.
The first angle looks at neutrality with respect to the extent of network operators’ interference and the public’s influence over the nature of content – when that content is illegal, for instance. The second angle views neutrality in terms of the how admissible certain traffic shaping practices are (giving priority to this or that service, for instance). And, finally, the third angle views neutrality with respect to how value is shared between network operators and content providers, and their respective contributions to financing the networks.
All three of these angles of analysis are, in reality, elements in the same chain of events. It begins with the need to increase bandwidth to accommodate online applications. To avoid bottlenecks, sizeable investments need to be made in the network. Financing these investments then gives rise to the question of content providers’ financial contribution to new generation network rollouts, i.e. optical fibre: this is the economic aspect of neutrality.
This financial contribution can only be viewed as counterbalancing the costs that content providers and their customers generate for access network operators. Controlling these costs – in other words reducing network congestion in the short term and optimising the management of traffic flows that are constantly consuming bandwidth – drives operators to modulate quality of service and prioritise traffic: this is the technical aspect of neutrality which is closely linked to the economic aspect.
Lastly, some of these traffic shaping practices on access networks are relatively independent of the provenance, type and destination of the content, others are less so or not at all: here we touch on the ethical aspect of neutrality.
From a regulatory standpoint, this means that the definition and then the guidelines established for an "acceptable" neutrality must look at the chain of events "from both ends": on the lower end of the chain, this means setting limits beyond which the networks would no longer be considered neutral with respect to content; on the upper end, this means establishing traffic shaping and quality of service rules with which operators must comply. Here, I would like to offer the reminder that a telco’s primary obligation is to deliver a service that works, at a price that is reasonable and understandable for the user.
As you know, this debate over Net neutrality, which began in the United States, is becoming amplified now in France. As a result, and a time when national regulators need to increase their areas of expertise, following the adoption and transposition of the Telecom Package, ARCEP has decided to engage in an in-depth examination of this important and multifaceted subject. This examination will centre around the two essential principles of the laws that govern electronic communications: impartiality (in other words, the fact that a network operator cannot favour certain content unduly, notably its own content if it is a vertically integrated carrier and if it uses the same network as other content providers) and transparency, especially with respect to consumers, which means informing them in instances when traffic management rules are being applied.
The Authority’s examination of this topic has been ongoing since September. In early 2010, ARCEP will begin a second phase, which will be public this time and focused most notably on discussions with the sector’s players, along with a symposium on neutrality in the spring. During that time, ARCEP is also expecting to submit its guidelines to public consultation, and publish them by early summer 2010.
We will therefore be actively involved in the various national, European and international debates over neutrality. The round-table that will be starting in a few minutes will help further global discussions on this topic.
To conclude, I would like to say that ARCEP plans on playing a central role in finding effective responses to these very compelling problems, and in ensuring that the changes in strategic and economic balances that are currently taking place occur in such a way as to be beneficial to consumers and citizens, and not made at their expense.