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Why Does France Have Faster, Cheaper Broadband?
[March 31, 2006]

Why Does France Have Faster, Cheaper Broadband?

TMCnet Associate Editor
According to a recent article in The New York Times, the average American family now spends about $100 a month for a “triple play” cable package delivering television, high speed Internet and IP telephone service.

Meanwhile, in France, the average family spends about $50 - and several new ISPs which have recently come onto the scene in that country are now charging as little as $35 a month for what is basically the same “triple play” package.
Creating further disparity is the fact that broadband networks in France run at much faster speeds (anywhere between 5 to 100 Mbps, compared to 1.5 to 30 Mbps in the U.S.) and therefore deliver better quality signals to consumers.

So how did France - where for years the broadband industry was a government-sanctioned monopoly with virtually no competition – end up with the fastest, most affordable broadband networks in the world? It basically boils down to two things: Strict government regulation and better infrastructure.

Up until six years ago, incumbent carrier France Telecom dominated the broadband market. Throughout the 1990s, it built up its national network slowly and gradually, delivering broadband only to the regions where there was adequate demand. But in 2000 the French government deregulated the broadband industry and forced France Telecom to open parts of its network to outside service providers.

Today, all a start-up ISP has to do is hook up the appropriate equipment to France Telecom’s core network - and it’s off and running. There is no major capital expense for building a new network - basically all a new ISP has to worry about is which head-end/last-mile equipment to buy, and how to differentiate its services. This has resulted in fierce compeition, which in turn has led an explosion of fast, affordable broadband.

Beyond the fact that the infrastructure is already in place, another major factor which has led to fast and cheap broadband is the fact that competing ISPs in France don’t have to pay as much for access fees - particularly compared to their contemporaries in the U.S. and the U.K. As per the French government, competing ISPs in France pay only around Euro14 per month for full access to the local loop, compared to around Euro 20 per month in the UK. For partial access, the fees drop significantly, to just over Euro 4 in France and around Euro11.5 in the UK. The result of this is that uptake of local loop unbundling in France currently stands at about 4 percent, whereas in the UK it has not even reached 1 percent.

The fact that the competing ISPs in France don’t have to pay as much for access is significant. The French government, in seeking to create a competitive environment, has, in essence, mandated an access fee structure that lets smaller ISPs compete against the big guy. This is in contrast to the U.S., where for years Congress and regulators have been pushing for laws forcing incumbent carriers to free up portions of their networks for competing services, but to no avail because the courts have consistently shot down key aspects of such proposals. Some telecom experts feel that forcing the major U.S. carriers to open up portions of their networks would be good for competition. Now, they can conveniently point to the new start-ups in France as proof that this type of regulation would be beneficial.

The start-up Iliad is perhaps the best example of how the new ISPs in France are generating competition. Illiad’s broadband service, called “Free,” offers download speeds of 24 Mbps, yet it costs only around $35 a month for a basic triple play package. The company reports that it has already signed up 1.1 million customers. Similarly, service providers Neuf-Cegetal and Telecom Italia also recently launched triple play services at very competitive prices.

Iliad is considered by many to be a serious threat to France Telecom, which still relies heavily on fixed-line phone service for its revenues. Although France Telecom, which boasts 1 million VoIP customers and 200,000 Internet TV subscribers, launched its own triple play package last year, it has already had to slash its initial sign-up price in order to compete against Iliad. Although the telecom giant offers its triple play service for the same price as Iliad for the first three months, it must raise the price to $48 from there on out in order to keep up profits.

Iliad and the other ISPs coming onto the scene also pose a threat to France Telecom because they are smaller and are therefore run more efficiently. A recent article in the Wall Street Journal pointed out that France Telecom employs a whopping 206,000 employees (many of whom cannot be fired or laid off because of French labor laws), whereas Iliad employs about 1,100. Adding to this is the fact that France, as a whole, is rapidly migrating over to VoIP phone service - so as France Telecom continues to lose customers on its fixed-line phone service, many of those customers are switching to IP telephony – and they will all have the option of choosing the ISP that offers phone service for the cheapest price.

Iliad also poses a threat to the Internet equipment makers such as Alcatel (News - Alert) because of its business strategy of deploying its own proprietary networking equipment. Iliad has reportedly built its own set-top, called the “Free Box,” to deliver voice, video and data, and has also designed its own DSLAM, the device used the route signals into subscribers’ homes. It even used open source Linux software for the development of its IPTV (News - Alert) platform.

What this means is, Iliad and the other competing ISPs are lean machines which are well-positioned to tap into the growing market for next generation services in France. And they will likely continue to deliver broadband that is both faster and cheaper than can be found in most other parts of the world - including the U.S. - for years to come.

Patrick Barnard is Associate Editor for TMCnet and a columnist covering the telecom industry. To see more of his articles, please visit Patrick Barnard’s columnist page.

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