How tostructure darkfibre acessa g r e e m e n t s
Anne-Solène Gay of Bird & Bird
outlines the telecom licensing
rules in France and explains how
companies should structure
agreements to access dark fibre
now that the market has changed
Dark fibre is optical fibre that is not lit, or being
used. That generally means it is up for sale or
lease to another party. Under French law, the dis-
tinction between dark fibre and lit fibre is one of the key cri-
teria to determine whether a telecom player needs a public
telecoms network operator licence (a L. 33-1 licence) or
n o t .
Telecom licensing in Fr a n c e‘ Telecommunications networks’ are defined, under Section
L. 32 of the French Post and Telecommunications Code, as
‘any form of installation or group of installations that ensure
either the transmission or the transmission and routing of
telecommunications signals [...] between network termina-
tion points’.
In accordance with this definition, the French telecom-
munication regulatory authority (ART) decides that tele-
com players need, and are eligible for, an L. 33-1 licence by
considering whether they are in charge of transmission
functionality (ART’s opinion dated May 30 1997). Wh e t h e r
they are in charge of transmission functionality means
whether the transmission equipment is under their control.
The distinction between the two groups is not always
easy to identify. There is a grey area, specially regarding the
provision and use of wavelength services. These services
are provided on the basis of optical infrastructure by using
Dense Wave Division Multiplexing technology (DWDM).
The legal status of wavelengths (also called open optical
links (OOL) or virtual dark fibre) is unclear under Fr e n c h
telecom regulation. The ART used to consider that OOL
providers are in charge of transmission functionality
although this position is not in line with the technical reali-
t y. OOL providers do not take in charge the transmission
layer but only the multiplexing layer.
The ART changed its position a few months ago by grant-
ing an L. 33-1 licence to an operator for wavelength-based
infrastructure. As a consequence, it can now be considered
that the network operator is the OOL customer and the
next step should logically be that the OOL provider will not
need a licence anymore.
Holding an L. 33-1 licence, and being eligible for such a
licence, is important because they:
a ) give rights to significant market power operators’ inter-
connection tariffs; and
b ) can be perceived as a burden since they generate costs
(mainly licence application costs and recurring licence
fees) for carriers’ carriers, or companies like
Xchangepoint for example, which don’t need intercon-
nection services.
Having to apply for an L. 33-1 licence to operate on the
French telecom market can be perceived as a barrier to
e n t r y. The whole process takes a maximum of four months
for the but practically no less than three months. There is
an up-front application fee of FF1.75 million ($243,760)
and a recurring annual fee of FF875,000 ($121,880) for a
nation-wide licence.
Although, taking in charge transmission functionality can
also be a way to reduce dependence on providers and can
result in technical autonomy. In order to avoid any delay in
their positioning on the French market some players decid-
ed on a two-prong strategy. They would start their busi-
ness on the basis of acquiring capacity from existing opera-
tors using short-term contracts but also, at the same time,
initiating the process to be granted a licence. Once the
licence is granted, they can switch from capacity to dark
f i b r e .
A n y w a y, this French licensing specificity is likely to disap-
pear as soon as the European Directive on the authorization
of electronic communications networks and services is
passed and implemented. Article 3 of the amended pro-
posal for this Directive provides that ‘the provision of elec-
tronic communications […] networks may only be subject
to a general authorization.’ The French licensing system
should therefore be replaced by a class-licence system.
The only required formality that member states may
impose will be a notification.
Article 2 however, of the proposal for a directive on a
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COVER STORY:DARK FIBRE IN FRANCE
DWDM technology
A R T - The French telecommunications regulatory authority
D W D M - Dense Wave Division Multiplexing technology
G b / s – Giga bits per second
G H z – Gigahertz
I R U - Indefeasible right of use
O O L - open optical links or virtual dark fibre
T b / s – Terra bits per second
Technical terms and acronyms
DWDM technology splits light into coloured wave-
lengths increasing capacity by up to 200 channels
common regulatory framework for electronic communica-
tions networks and services, provides for a definition simi-
lar to the current one. It reads: ‘‘Electronic communications
network’ means transmission systems and, where applica-
ble, switching and routing equipment and other resources
which permit the conveyance of signal’. Transmission of
signal will then remain the key criteria for the definition of a
telecommunication network. The ambiguous status of vir-
tual dark fibre will therefore still need to be clarified.
Supply and demand for dark fibreThe French telecom legal regime allows for the deployment
of alternative optical infrastructure and recent technical
developments have increased the capacity of optical fibre.
As a result, the ratio between supply and demand of dark
fibre is getting more and more favourable for dark fibre
c u s t o m e r s .
The balance between supply and demand for dark fibre
and capacity-based services was, for a long time, in favour
of providers. Traditional providers were the holders of
cross-national existing network infrastructure such as:
a ) railways (through Telecom Developpement, a joint-ven-
ture between SNCF French railway company and the
telecom operator Cegetel);
b ) highways (including SANEF, Autoroutes du Sud de la
France); and
c ) the Parisian subway (through its subsidiary Te l c i t é ) .
There are two main reasons for the change in the
demand-supply ratio for dark fibre.
New entrants deploy their own n e t w o r k s
The first reason is that the French liberalisation law of
1996 offers new entrants in the telecom market the legal
means to deploy optical networks. Sections 45 and
onwards of the French telecommunication code now pro-
vide for rights of way on public domain and on private
p r o p e r t y.
In order not to have to deal with numerous land owners
and to face numerous authorization procedures, operators
have usually tried to have their networks laid along an exist-
ing non-telecom network infrastructure which already links
targeted connection points (railways, pipelines, highways,
rivers and canals and drainpipes for example).
Thanks to this liberal regime and although rollout usually
takes some time to be completed, the number of Fr e n c h
and even pan-European networks has increased signifi-
c a n t l y. New national and pan-European networks as well as
metropolitan networks have started to compete with offers
made by traditional providers.
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4 • International Technology Law Review • October 2001 www.techlawlive.com
Channel allocation through DWDIN
A R T - The French telecommunications regulatory authority
D W D M - Dense Wave Division Multiplexing technology
G b / s – Giga bits per second
G H z – Gigahertz
I R U - Indefeasible right of use
O O L - open optical links or virtual dark fibre
T b / s – Terra bits per second
Technical terms and acronyms
Greater bandwidth efficiencyThe second reason is a technical one. Constant progress
in the efficiency of DWDM technology from the beginning
of the 1990s has delivered continuous increase in the band-
width supported by a given number of fibres.
By splitting light into a range of coloured wavelengths,
creating up to 200 channels, DWDM technology has dra-
matically increased fibre capacity (see diagram 1). Th i s
technology is now implemented on almost all optical long
distance backbones and even on most metropolitan net-
works. In addition, DWDM equipment, such as intelligent
optical switches, allows real-time traffic management,
which further optimizes bandwidth. The combination of
multiplexing and intelligent allocation of bandwidth avail-
able on the market today allows for capacity upgrades up to
two terabits per second on a single fibre.
As a consequence, to fulfil its own needs or its clients’
needs, a dark fibre customer now requires about ten times
less dark fibre than it used to a few years ago. Moreover,
DWDM technology has not reached its limit yet and the
trend upwards in bandwidth efficiency should keep dou-
bling dark fibre capacity every year (see diagram 3).
As a result of this doubling trend, dark fibre is no longer
scarce. It is now a much more balanced market. The only
persisting shortages of optical fibre involve:
a ) specific segments such as the English channel link
where there is no other alternative to Eurotunnel’s dark
fibre offer than to lay a new submarine cable, which is
being made very difficult by administrative procedures
and fishermen compensation claims; and
b ) remote areas because only the construction of main
segments linking major French and European cities are
p r o f i t a b l e .
To mitigate the lack of provision on rural areas, the Fr e n c h
government passed legislation in July of this year to allow
local public bodies to subsidize the rollout of telecommuni-
cation infrastructure, including dark fibre. This legislation
aims at reducing the digital divide between urban and busi-
ness areas and remote areas.
Market shifts mean power shiftsThis change in the balance of supply and demand for dark
fibre reversed the balance of power between dark fibre
providers and their customers. Providers used to be in a
position to impose their own contractual terms and condi-
tions. Now customers are in a better position to negotiate
tariffs and conditions. These new market conditions are
reflected in the new contracts being entered into. Th e y
also give rise to claims from customers for renegotiation of
tariffs or application of revision and benchmark contractual
clauses in the course of existing contracts.
In order to cope with these changes in the market, former
dark fibre providers tend to move along the value chain to
the capacity market, integrating more value-added compo-
nents in their product. This means they are moving their
core business from the dark fibre to the capacity market.
They will soon however, have to face a similar situation as
this new market becomes increasingly competitive. See
Boom or bust: how to survive in the European backbone
market, Karl Desfontaines, (www. a n a l y s y s . c o m /
a r t i c l e s / S t a n d a r d A r t i c l e . a s p ? i Le f t A r t i c l e = 7 3 6 ) .
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COVER STORY:DARK FIBRE IN FRANCE
When capacity doubles each year
Structuring dark fibre dealsIf the way to structure dark fibre deals remains the same,
customers are now in a position to negotiate better con-
tractual terms. In this new context, counsel should look out
for certain clauses.
In structuring dark fibre agreements, leases and IRUs
(indefeasible right of use) are the most common type of
agreement but there is an increasing preference to use
IRUs. Except for short-term period agreements, operators
tend to prefer IRU solutions to classical lease of dark fibre.
Although the IRU concept is an Anglo-Saxon concept and
doesn’t exist under French law, this solution is in use now in
France. This is the case even when both parties are Fr e n c h
entities and the contract is concluded under French law.
IRUs, which can be defined as a sale of a right of use over
the life of the fibre with a down payment made up-front,
are very much appreciated by dark fibre customers.
Despite the up-front costs, IRUs allow them to register dark
fibre investment in the accounts as a company asset, which
has a beneficial effect on the valuation of the company and
has optimal tax benefits.
Telecom operators appear to have increasingly recourse
to swap solutions. The benefit is reciprocal for the two par-
ties since each of them completes the geographic coverage
of its network at lower costs.
L a s t l y, dark fibre providers also provide related services
such as collocation, maintenance, shelter space, back-haul
services, data centre services. Dark fibre contracts are
therefore usually part of a global deal.
In any kind of dark fibre or dark fibre-related contracts,
customers should be aware of certain clauses that will have
a determining effect on the quality of the service they get.
Landowners and rightsDark fibre contracts usually reflect legal constraints
imposed by the landowner on the dark fibre provider
(mainly on the grounds of French public domain law).
Notions such as general interest (intérêt général) may enti-
tle the landowner to withdraw rights of way granted to the
dark fibre provider.
The existence and life of the dark fibre provider’s rights to
the underlying domain should then be secured by asking
for clear declarations and warranties. The contract should
also detail cases when changes in the route might occur
and how financial consequences of these changes are dealt
with. In any case, an alternative solution should be made
available to the customer at market costs to ensure the con-
tinuity of its service.
A c c e p t a n c eAcceptance is a very important issue because it usually trig-
gers a substantial part of the customer’s payment obliga-
tions. Tacit acceptance should be avoided. Definition of
discrepancies justifying the refusal of acceptance should be
clearly and broadly defined so that any non-compliance to
technical specifications, which must be precisely detailed in
an appendix, can be denounced. Time to remedy to dis-
crepancies identified during the acceptance procedure
must also be specified.
M a i n t e n a n c eThe scope of the maintenance must be clearly defined. As
regards preventive maintenance, measures to be taken
should be fully described. The customer’s traffic should
bear limited consequences and the customer must be
given prior notice.
As regards corrective maintenance, alert procedure must
be practical and easy to implement. Restoration times must
be short and compliant with the customer’s requirements.
In case of late restoration, the provider should pay penalties
proportionate to the delay. The customer should also be
informed of its access rights to its installation.
The scope of the force majeure (acts of God including
earthquakes and floods) clause should not be too wide.
This is especially true when the customer should be careful
that it does not include personnel strikes when the cus-
tomer has to rely on the provider’s employees for mainte-
nance or to have access to its own installation.
Price and deliveryWhen a recurring fee is due by the customer, the customer
should ask for an actualization mechanism that ensures that
the price reflects accurate, current market prices for dark
fibre. Otherwise, the customer should make sure that it can
terminate the contract to enter a new contract at the new
market conditions.
Delivery dates must be clearly stated and dissuasive
penalties for late delivery should be provided for.
L i a b i l i t yLiability clause is usually a tough clause to negotiate since
providers do not want to bear risks associated to the cus-
tomer’s business. Customers should nevertheless try to
obtain a cap as high as possible and avoid a broad definition
of excluded indirect damages. Reference to the definition
of indirect damages according to French case law is usually
much more favourable to the customer than the contractu-
al definition proposed by providers.
Payment under IRU agreementsAs an IRU is paid by a non-refundable lump sum, the pay-
ment clause is very important. Once payment is made, the
customer is no longer able to put pressure on the provider.
As a consequence, the customer should make sure that a
substantial percentage of the lump sum is retained until full
acceptance. The last part of the payment should only be
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6 • International Technology Law Review • October 2001 www.techlawlive.com
triggered by the full acceptance of the considered seg-
ment.
In addition, when a segment cannot be used independ-
ently of other segments to be provided by the same
p r o v i d e r, payment for the considered segment should be
due only after acceptance of all related segments to be
delivered.
Duration under IRU agreementsAs the IRU acquisition is made by a non-refundable down
payment, it is important to make sure that the contract will
last. To this effect, the duration clause, the force majeure
clause and the termination clause should be given a special
attention.
In particular, the force majeure clause usually states that in
case the force majeure event lasts more than a few months
(usually six or nine months), the contract is terminated.
Customers should make sure that events included in the
force majeure definition are not likely to occur and/or last
for a long time.
Swap contractsWhile entering into swap contracts, telecom operators
should look out for non-compete clauses that the parties
might be tempted to insert in the contract. These clauses
usually try to ensure that each of the parties will not com-
pete in the other party’s market. These clauses are very
likely to be considered as unfairly restrictive under compe-
tition rules and as such unlawful.
These are only the main clauses to focus on. Each negoti-
ation must be tailored depending on the customer’s busi-
ness requirements and on the provider’s features.
As long as big cities and business areas are concerned,
long distance optical networks both national and interna-
tional as well as metropolitan optical networks do not con-
stitute a bottleneck anymore for new entrants, neither in
terms of price nor in terms of availability. In addition, the
constraining licensing requirements should be lifted as a
result of the new EU Directives.
As the dark fibre market is becoming a more balanced
market, the price of leased lines in France, and in Europe,
and the last mile access will be the next battles to fight. As
far as the dark fibre market is concerned, prices and condi-
tions are now driven more by demand for capacity rather
than the terms imposed by dark fibre providers. Now there
is greater supply, it will be very interesting to see what hap-
pens to bandwidth demand.
Anne-Solène Gay ([email protected])
Bird & Bird
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COVER STORY:DARK FIBRE IN FRANCE
