FttH in France

WIK Investment Workshop

Brussels 7 March 2017

2

CP

Shared mono-fibre

network Operators’ networks

The shared terminal counts

for ~90% of the cost per line. Minimum

size: 1000

lines

Private initiative

networks, purely

privately funded

Public initiative

networks, mix

of public and

private funding

18 millions (55% of HH)

15 millions (45% of HH)

1/ Asymmetric regulation on existing

infrastructure :(ducts and poles + associated facilities)

Aims to build a level playing field for fibre rollout

2/ Symmetric

regulation of fibre

termination : Access and co-

investment obligation in

the last “drop”

Private investment in dense areas, public-private investment in rural areas

FTTH IN A NUTSHELL

Typical co-investment tariff :

500 € per home passed

200-300 € per subs. connection (drop)

5 €/month opex

-

1

2

3

4

5

6

7

8

0%

5%

10%

15%

20%

25%

30%

35%

40%

2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4

FttH plugs (millions) FttH Subscribers (millions)

FttH penetration rate (%)

3

WHERE DO WE COME FROM

A QUASI EXCLUSIVE BROADBAND DSL MARKET WITH SMALL CABLE PRESENCE

0

5

10

15

20

25

30

Early2006

Early2007

Early2008

Early2009

Early2010

Early2011

Early2012

Early2013

Early2014

Early2015

Early2016N

um

ber

of

acce

ss o

n r

etai

l mar

ket

in m

illio

ns

Broadband <30Mbit/s, xDSL Broadband <30Mbit/s, other technology

Very high broadband >=30 <100 Very high broadband >=100 : cable

Very high broadband >=100 : FttH

Evolution of the number of accesses, by technology, on the retail market

4

WHERE DO WE COME FROM

A FIXED BROADBAND MARKET WITH 4 MAJOR PLAYERS

[40-45%]

[20-25%]

[25-30%]

[5-10%]

[40-45%]

[20-25%]

[20-25%]

[10-15%]

Orange

Free

Numéricable-SFR

Bouygues Telecom

Autres

Q1 2014 Q1 2016

Broadband access market shares (both high and very high speed) in Q1 2014 and Q1 2016

5

WHERE DO WE COME FROM

A MARKET DRIVEN BY LLU LEADING TO SIGNIFICANT INFRASTRUCTURE DEPLOYMENT THAT CAN BE LEVERAGED FOR NGA

-

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

9 000

10 000

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

NRA dégroupés (cumul) % de lignes en zone dégroupée% of unbundled lines Market analysisunbundled MDF (total)

Expansion of « Unbundling » since 2001 (% of lines and number of MDF)

6

A LITTLE HISTORY

10 November 2006: ARCEP presents its work program on VHC Broadband

25 July 2008: Decision imposing access to Orange’s ducts

5 August 2008: Law 2008-776 for the Economy Modernization specifies that the FTTH terminating segment is built by a single operator who must give access under conditions determined by ARCEP

23 December 2009: ARCEP’s decision for FTTH deployment in very dense areas (5,5 millions homes)

15 December 2010: ARCEP’s decision for FTTH deployment outside very dense areas

28 July 2011: Government launches the Broadband National Plan

Q2 2014: market starts shifting to VHC Broadband

21,3 22,7

24,0 24,9

26,0 26,9 27,7

1,5 1,4

1,2 1,0 1,0

0,9 0,8 0,3 0,5

0,9

1,3 1,2

0,0

0,3

0,5

0,8

1,0

1,3

1,5

1,8

2,0

2,3

2,5

2,8

3,0

3,3

3,5

0,0

2,0

4,0

6,0

8,0

10,0

12,0

14,0

16,0

18,0

20,0

22,0

24,0

26,0

28,0

T4 2010 T2 2011 T4 2011 T2 2012 T4 2012 T2 2013 T4 2013 T2 2014 T4 2014 T2 2015 T4 2015 T2 2016 T4 2016

Growth in millions Millions

Broadband subs and net annual growth

Abonnements haut débit Abonnements très haut débitAccroissement annuel net HD THD Accroissement annuel net THD

See more info at http://www.arcep.fr/index.php?id=11310#c21704

7

NGA technologies offer speeds above 100Mbit/s to approx. 30% of the French population, with FttH increasing rapidly

Market overview

1. Cable footprint is expected to remain below 30%

2. FttH rollout undergo rapid growth (+38% yoy) and 25% penetration

Competitive outlook

Strong presence of fixed alternative operators at the local level

Market consensus that only passive access allows for sustainable competition and innovation

-

1

2

3

4

5

6

7

8

0%

5%

10%

15%

20%

25%

30%

35%

40%

2011 Q4 2012 Q4 2013 Q4 2014 Q4 2015 Q4 2016 Q4

FttH plugs (millions) FttH Subscribers (millions) FttH penetration rate (%)

8

ARCEP’s regulation for NGA networks is based on two complementary pillars

France’s market conditions required openness of NGA networks to be guaranteed:

• by specifying conditions of network architectures ahead of rollout

• so that deploying operators adopt architectures compatible for long-term passive sharing

ARCEP’s FttH regulation consists of both asymmetric and symmetric obligations

8

1/ Asymmetric regulation on existing infrastructure : (copper LL + ducts and poles + associated facilities)

Aims to build a level playing field

Minimum review period is every 3 years

2/ Symmetric regulation of fibre termination :

Access and co-investment obligation in the last “drop”

Aims to preserve competition dynamics for new networks,

expected to be deployed by a large number of private or public

initiative operators

9

Very dense areas : (5,5 millions households)

Symmetric rules for fibre vary with area density to strike the balance between competition and costs

CP

Shared multi-fibre network

Operators’ networks

CP

Shared mono-fibre

network Operators’ networks

Set of obligations imposed on the operator deploying the last segment of the network

Provision of passive access at a concentration point

Publication of an access offer including co-investment & line rental options

Access prices based on principles of non-discrimination, objectivity, relevance and efficiency

Structured exchanges of technical information with commercial operators

Flexible setting fit for all fibre local loop operators: incumbent, alternative ISPs, local authorities

Two sharing schemes, depending on the density of the area :

Less dense areas : (27,7 millions households)

The shared terminal counts for ~60% of the cost per line.

The shared terminal counts for ~90% of the cost per line.

Minimum size: 1000 lines

10

Wholesale active access product [WLR] (monthly fee)

Wholesale passive access product [LLU] (monthly fee)

Co-investment

Primo-investor

Parallel rollout

Increasing investment incentive

Co-investment model creates a new rung on the investment ladder

- More efficient than pure infrastructure duplication

- Decreases OPEX per line - Reduces regulatory exposure

and increases predictability - Reconciles regulation and investment

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Slide géographique FttH rollout in private initiative networks is expected to cover up to 54 % of households

FTTH deployment by types of investment

13-14 billion funds (~50% public)

Enables private operators to co-invest into PINs, benefitting from financial and technical access conditions similar to those of privately funded

networks

Public Initiative Networks (PINs) in France: 84 wholesale only operators (mostly PPP), subject to the same symmetric regulation

Public Initiative Networks (PINs) set to cover the rest of territory :

Private initiative networks, purely privately funded

Public initiative networks, mix of public and

private funding

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Thank you for your

attention www.arcep.fr