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Delivering FTTH with Free.fr

Ed. - To warm us up for the forthcoming Telco 2.0 Exec Brainstorms on new business models (next week in London and 9-10 Dec in Orlando, Florida), Telco 2.0 is blogging from eComm this week. This is probably the best event series on strategic technology developments, and we’re delighted to partner with it. Below are some highlights so far. NB: Google Wave users can follow the conference backchannel by searching “tag:eComm with:public”; presentations will be posted to the individual session waves in due course.

Benoit Felten introduced a presentation typically rich in chewy data on an economic model of FTTH deployment he and his Yankee Group colleagues have prepared. The take-home message is that their sensitivity analysis shows that the primary drivers of return on investment in FTTH deployments are:

  • The take-up rate
  • Cost per home passed
  • Open access

By comparison, initiatives intended to drive up ARPU had a negligible impact on the business case for fibre. Euros spent on increasing take-up, building operational excellence in your fibre deployment teams, or developing a better wholesale model to open the network to other service providers, however, pay back many times over. Just taken in isolation, open access cuts three years off the payback period for an FTTH network.

Operational excellence was also the theme of Rudolf van der Berg of Logica’s presentation on Iliad, who will need no introduction to Telco 2.0 readers. Van der Berg argues that the vast majority of the effort operators make to segment, slice, and generally fiddle with their customer bases is entirely wasted. Instead, Iliad/Free.fr is winning with one hyper-simple product: everything for €30 a month. Of course, this implies a major effort to achieve the superb engineering required to deliver “everything” and to do it at levels of OPEX low enough that such smash-mouth pricing is sustainable.

The slides are available here:

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Comments

Financial analysts are not so strong on Iliad and Free. Here's an example, from one of them, of why:

Reasons for not liking Iliad are more to do with its valuation (very high relative to cash generation), the end of broadband market growth in France and its mobile bid (which we think will destroy value for shareholders)


As a company it is highly innovative, uses a very low cost operating model and has grown rapidly - all of which is reflected in a premium valuation

The question for Iliad is whether as the market growth slows down compeitition will ratchet up - we think it will and this will put pressure on the €30 floor price. Already the cable player is, for the first time, undercuting the €30 price point.

Essentially the French fixed line market has been stable for years but this no longer seems as assured as it once was, as evidenced by Iliad's and (more importantly) France Telecom's falling share of broadband net adds this year.

Iliad generates very little cash after it has spent on fibre deployment, growth is slowing and it wants to build a mobile network... which all looks quite risky to us...

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