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Unbundling and Broadband Development in Europe


									 How to stimulate broadband
       development ?
   France Telecom's views

                       Michel Huet
             Senior Corporate Vice-President
        Public Affairs Directorate, France Telecom
Prepared for the ITU Asia 2002 Forum, December 2- 6, 2002

                                                      ITU december 2002

 Broadband competition:what are the stakes?

 Broadband competition: what are we talking about?

 Lesson learnt from foreign experiences

 A broadband policy for Europe: eEurope and the
 commitment of France Telecom


                              2                      ITU December 2002
I. Broadband competition: what are the stakes?(1)

   The reshaping of the communications sector is taking place at a
  much faster pace than expected

   This reshaping is clearly an output of a combination of various
  parameters mostly of elements of discontinuities compared with the
  old regime of telecommunications:
      a shift of technological barriers,
      a drastic change in the economic equation for all the players,
      brand new players with a quite different background

                                         3                              ITU December 2002
I. Broadband competition: what are the stakes?(2)

   New trends in demand as illustrated with the explosion of the
     mobile market and the needs for higher and higher bit rates.

    The turmoil in the telecommunications sector is bringing new
     phenomenon to the fore:
       Business cycles although not new to many industries are new in
       The discovery of volatility: chronic?
       The growing interdependance of the whole sector

                                        4                            ITU December 2002
Broadband competition: what are we talking about?

  An array of alternative solutions and a growing number of
   competing delivery platforms and networks for DTV, internet and e-
   - cable networks
   - satellite networks
   - digital TV terrestrial networks
   - wireline (copper) networks: adsl, unbundled loops…
   - wireless local loop: WLL,WIFI,
   - mobile networks: GPRS, UMTS

  No consensus on a definition but no need to have a single
   definition: it varies according to the markets
                                        5                  ITU December 2002
Learning from the pioneers

 A clear confirmation of the OECD report main finding:
    “The most fundamental policy available to OECD governments to boost
       broadband access is infrastructure competition”

 North America:
    A worrying gap between supply and demand in the United States, less so in

    The (traditional) role of public policies
    Real competition between infrastructures and between the full range of
       technologies: access (CATV, ADSL, FTTH, mobile,…) and terminal equipment
       ( fixed and mobile phones, PCs, TVs and play station)
      Japan, after Korea, is on the verge of creating the conditions for the coming of a
       true mass market for broadband: investments + competition

 A new competitive edge for this region?             Broadband after mobile?
                                            6                              ITU December 2002
A broadband policy for Europe (1)

 Broadband: an obvious growth engine for Europe too
 Therefore, a need to facilitate the trials and the deployment of a
   whole set of broadband platforms,

 Existing     policies (I.e the e-Europe action plan) should be

 Based on a clear division of labor between the administrations and
   the industry

 Learning from previous experiments and from pioneer countries
And identifying the real stumbling blocks.

                                  7                       ITU December 2002
A broadband policy for Europe (2): The major stumbling blocks

 The gaps between supply and demand: often due to cultural or social

 Regulatory initiatives are not always appropriate:
      A need to state clearly the purpose: one has to choose between low bit rate and high bit
       rate, but not both.
      And to carefully avoid any premature regulatory initiative ( as a single a priori definition
       of broadband): markets should be seen from the customer‘s point of view not through a
       technological and/or regulatory looking glass

 Fostering investments is still crucial:
      The majority of the investments for the services remains to be done!
       Drawing the lesson from the quick deployment of the mobile networks, due to a viable
       competition model based on separated infrastructures: in a very short time, 3 to 5
       networks infrastructures have been spread out in each European member State.

                                                 8                                  ITU December 2002
A broadband policy for Europe (3): Content issues

 An open issue:
    Narrowband service providers consider contents as important but not essential.
    On the contrary, others think that a quick deployment of broadband networks will
     create an increase in demand and consequently an increase supply of broadband

 Napster has already met consumers’ (unexpected) demand:
    democratisation of music on line
    appetence for interpersonal communications (confirmed with SMS).

 3 key issues:
    finding the right balance between commercial and non commercial (I.e free) services,
      a fair share of value between players,
      improved security and an efficient protection level regarding rights holders

                                                9                                ITU December 2002
European Operators are already pulling the broadband train (1)

    Despite the gloomy picture, European network operators have taken the
      risk to carry out a very substantial part of fixed up-front investments in
      ADSL coverage, wherever economically and technically feasible…

    …driving significant capital expenditures…
          € 9 Bn. combined investments in broadband in the period 1999-2001 for the 5 major
           European network operators (~70% of total broadband investments in the EU)

    …thus leading to high levels of availability of broadband throughout                 the
          …An average ADSL coverage of 76% has been already achieved in the 5 mayor
           European markets

                                                10                                   ITU December 2002
European Operators are already pulling the broadband train (2)

      Supporting through    their strategy the e-Europe Action Plan goal of
        achieving widespread availability of broadband access by 2005

      However, current low levels of broadband adoption (~9Mn
        connections in the EU) imply a need for significant additional
        investments in the future, in the order of € 525 / subscriber connection

                                          11                             ITU December 2002
France Telecom Committed to Accelerating Broadband Takeup
in Europe

        Supporting eEurope 2005: Broadband, a growth engine for the
                                 Information Society
 Stimulating the market in France with
       new unbundled rates that are the lowest in Europe
       reduced wholesale ADSL and bitstream tariffs proposal (-20% to -45%)
       an objective of 1.3 million ADSL subscribers by year and having already celebrated
        the 1 million

 A strong broadband competitor investing in European Internet market
       seeking favorable regulatory conditions in other countries too

                                            12                              ITU December 2002
  Broadband in France : A Growing Range of Alternatives

 Various access types:
       Cable - 200,000 broadband subscribers
       ADSL - 1 000,000 subscribers
       WLL - 1000 subscribers
       Optical Fiber - in business centers

 A full range of wholesale and operator offers:
       LLU
       ADSL Connect ATM (‘ ACA ’)
       ‘ Collecte IP/ADSL ’ (transport), ‘ IP/ADSL ’ (end user access)

 A larger choice of retail products          (subject to ART approval)   :
       ‘ La Ligne ADSL ’: 128, 512, 1024/128, 1024/256; ‘ Turbo DSL ’

                                                           13                 ITU December 2002
Unbundling : European Comparison
                             Full unbundling monthly tariffs (in euros)






 8                                              12,6             12,6           12,7
                   12,2        12,5




     France   Netherlands   Germany           Spain             Italy     Average Europe    UK

                                                14                                         ITU December 2002
Shared Access : European Comparison
                        Monthly tariff for shared access (in euros)





  4                                                                             7,3

                  4,7       4,8             5,2


      France   Spain    Germany      Average Europe    Netherlands    UK     Italy

                                            15                               ITU December 2002
Success Factors for eEurope 2005 (1)

 However, more needs to be done to overcome the current crisis and
  to fully exploit the potential of European broadband networks and

 Inter-platform competition is key to successful broadband

 Need for strong commitment by governments:
      to create a favourable investment environment
      to help develop appropriate skills and overcome “technophobia”
      to foster broadband services’ use in gov’t offices
      Increase budgets for e-government, e-health, e-learning
      to help fund broadband deployment in rural areas
      Fiscal incentive to foster demand

                                                    16                  ITU December 2002
Success Factors for eEurope 2005 (2)

      New European Regulatory Framework is clearly a step in the right direction,
         It must be introduced and implemented in a timely and co-ordinated fashion (more

         Ex ante regulation should remain only a transitory tool to open competitive markets

         Ought not to be applied to emerging markets

         And certainly not to protect business models which do not contribute to long term

     So as to set up an investment-friendly regulatory environment
         A light, stable and predictable framework

         That promotes infrastructure competition, and avoids intervention favouring one
          technology over another

                                                 17                                    ITU December 2002
Conclusions (1)
   « As  we policymakers are all quick to acknowledge, broadband
  deployment is the central communications policy objective in America.
  .… »

   « The greatest challenge in promoting broadband is deciding how to
  stimulate the enormous investment required to turn the promise of
  broadband into reality »

             FCC’s Chairman MICHAEL K. POWELL, separate statement
             Action by the Commission February 14, 2002, by Notice of
              Proposed Rulemaking (FCC 02-42).
             Re: Appropriate Framework for Broadband Access to the Internet
              Over Wireline Facilities; Universal Service Obligations of
              Broadband Providers, CC Docket No. 02-XXXX .

                                        18                             ITU December 2002
Conclusions (2)

   “We must also provide incentives for more effective and sustainable
     competitive entry through our network access policies by providing
     incentives to new entrants and incumbents to produce an efficient
     wholesale market and by providing a regulatory framework that
     promotes competition, investment and innovation to deploy advanced
     networks ”,

  Written statement of Chairman Michael Powell before the Committee on
     Commerce, Science, and Transportation, « Financial Turmoil in the
     Telecommunications Marketplace : Maintaining the Operations of Essential
     Communications », p.15.

                                       19                               ITU December 2002
Conclusions (3)

   «The objective of this Action plan (i.e. e-Europe) is to stimulate secure services,
      applications and content based on a basely available broadband infrastructure»
      eEurope 2005 : An information society for all, COM 2002 (263) Final, 28.05.2002

   « To reach everybody, we must promote Internet access through the terminals that
      are already in each home -the TV set- and in each pocket -the mobile phone »
      Commissioner Erkki Liikanen, ECCA Conference, May 28 2002

   « I am convinced that the democratisation of the permanent connection, and above
      all of the high speed permanent connection, is on the conditions for the Information
      society and the digital economy to deliver their promises. It is a necessary step for
      the Internet to become the 4th mass media » Jean-Pierre Raffarin, French Prime

   Goal according to the Budget and Finance Minister Francis Mer : «      10 million
      subscribers to high speed Internet within the next five years »

                                             20                                   ITU December 2002

           ITU december 2002
Learning from the pioneers (1) : broadband in USA -
infrastructures without users

   A strong deployment of broadband access: from 75% to 85% of the
     households, next to 99% including satellite,

   But a very low penetration rate: about 7% of households
   No agreement for explaining the gap between supply and demand:
         price,
         contents are not attractive (no « killer application »),
         technology barrier
         regulation.

   Public intervention is not deemed necessary
   However rolling back regulation may help: FCC’s february

                                                     22              ITU December 2002
    Learning from the pioneers (2):
    Canada : e-government and national development

    The only country committed in a voluntary and systematic equipment of

    Conditions are created for an intensive consumption

    A project “Networking the country”" based on 4 priorities:
        1. Implementing the transport: any community should be linked with a coherent infrastructure,
        2. Connecting the community in low density areas: a tool for a national and regional development,
        3. Connecting administrative offices to promote the effective use of public services,
        4. Connecting companies and households in order to stimulate and spur every businesses supposed to become

 Canadian policy makers trust the market players rather than the traditional
    regulatory approach: alternative approaches of regulation (forbearance)

 Demand         is ow outpacing supply especially for DSL

                                                            23                                           ITU December 2002
 Learning from the pioneers (3) :
 South Korea - a government policy success

 A penetration rate over 50%
 A strong commitment of the State
 The broadband success in South Korea could be mainly explained
         The presence of a modern infrastructure
         The government will to promote and to use broadband services
         The government commitment in introducing the “Broadband IT Building Certification System”
          in office buildings and apartment complexes
         A strong competition in local markets
         Development of multimedia content: multimedia/network games accelerated the pace of
          broadband Internet diffusion

                                                    24                                 ITU December 2002
Learning from the pioneers (4) :
South Korea - a government policy success

A    demand fostered by competition between players deploying
  alternative infrastructures (FTTH, LAN, W-LAN) without any
  mandatory LLU

 An  industrial policy meant to stimulate exportation of know-how:
  Hanaro, KT’s challenger, building a global strategy

   But a model no so easy to import: quasi-addiction to videogames

                                  25                       ITU December 2002
Learning from the pioneers (7):
Japan Making up for lost time

 A still modest penetration rate: 3.2 millions (CATV: 1.3, ADSL: 1.8 )
 However     a very ambitious action plan (e-Japan) rooted in a
competition policy, targets within 5 years (2006) :
         10 millions ultra high speed access (optical networks: FTTH), NTT expected to offer
          this kind of access
         30 millions high speed (ADLS+ CATV)
         11.6 millions low speed (PTSN and ISD) out of 48 millions households
         In the short term: availability of Internet Always-on connection (within one year)

 Already a large number of Internet users (73 millions):
         the success story of the I-mode (31 millions subs for Docomo),
         3G in the starting block: FOMA aims at 6 millions subs in 2006

                                             26                                 ITU December 2002
 Learning from the pioneers (8):
 Japan Making up for lost time

A market boosted by the investments of competitors
    Yahoo BB for the ADSL market: the market maker, 400 000 subs per month for
     the all market, 6.5 millions for the end of 2002

    TT Net, a subsidiary of the power company, TEPCO, Yusen for FTTH
    eAccess building metropolitan ring network: the major CLEC
    NTT must react and invest quickly

                                         27                       ITU December 2002

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