The French Broadband Programme: a network of opportunities

Background to French broadband infrastructure upgrade

France has one of Europe's least developed very-high-speed broadband networks at local level. With 30 million standard (copper wire) telephone lines in place, high-speed ADSL is available across France, but only 16 million homes have access to very-high-speed internet (i.e. 30 Megabits per second (Mbps) and above) and just 12 million have access to broadband speeds of 100 Mbps and above.¹ In addition, France does not have an even distribution of broadband coverage, with high-speed broadband networks existing primarily in densely populated areas (so-called zones noires or "black areas") while less populated semi-urban and rural areas (zones blanches — "white areas") remain, for the most part, without such coverage.

In black areas, there is a vibrant market for the provision of broadband connections and services both to domestic consumers (FttH – "Fibre to the home") and businesses (FttP – "Fibre to the Premises") and, as a result, competition between telecoms operators is fierce. This, however, is not the case in sparsely populated "white areas", where no high-speed broadband infrastructure exists and where returns on the high level of investment required to develop such infrastructure cannot be guaranteed.

* The expressions "high-speed" and "very-high-speed" internet are not legal or technical definitions, but commercial terminology used by operators.

In 2013, in order to remedy this situation, the Government launched the "Plan France Très Haut Débit" (the "Broadband Programme"). The purpose of the Broadband Programme has been to encourage the roll-out of high/very-high-speed broadband networks, particularly in white areas, by co-ordinating new network development projects to be initiated by the public sector (primarily local authorities) and the private sector, and by providing public funding (essentially in the form of subsidies) for the financing of broadband infrastructure in non-economically viable white areas. At the time, the Government's stated objective had been to achieve 100 per cent coverage across France by 2022, generally using fibre optic cable, at a total cost of €20 billion, of which €13.3 billion was to be funded by the state. The Broadband Programme stipulated the use of the more expensive, but much faster, fibre optic cable technology rather than using the (open access) copper wire telephone lines developed at the time France Telecom was a monopoly.² 

French broadband – a brief history

Local authorities have been actively involved in promoting the development of broadband networks since the late 1990s. The first national programme for the development of broadband was launched in 2010, with the Digital Society Fund (Fonds National pour la société numérique, or "FSN") – a fund for the financing of the development of broadband networks managed by public sector financial institution Caisse des Dépôts et Consignations ("CDC") – being established at the same time.

The Broadband Programme launched by President Hollande in February 2013 replaced the 2010 programme. In 2015, the Government established a new department within the Economics Ministry entitled l'Agence du numérique³ (the "Digital Agency"), which is responsible for co-ordinating public and private initiatives and reviewing and assessing new broadband network projects initiated by local authorities to ensure that they are eligible for public funding under the Broadband Programme.

In order to co-ordinate publicly and privately owned projects and to ensure consistency between regional networks, local authorities must implement digital planning schemes (schémas directeurs territoriaux d'aménagement numérique or "SDTAN").⁴ The purpose of an SDTAN is to draw up a list of existing broadband infrastructure in order to identify those white areas where local authorities may take forward broadband infrastructure projects to compensate for the lack of private investment.

Various forms of Public Private Partnerships (PPPs)5 have been the procurement methods most frequently adopted by French local authorities to procure the development of high-speed broadband networks in their areas. In fact, there had been intense PPP activity in the French broadband market for a number of years, even before the Broadband Programme was launched. In recent years, new players have emerged who have built up significant broadband PPP portfolios. At the same time, the 'traditional' telecoms operators - Orange, Bouygues, SFR and Free – have, for the most part, focused their efforts on developing proprietary networks and marketing their high-speed internet offering to users in black areas, leaving space for new entrants in the less profitable white areas.

In a recent announcement,6 President Macron reaffirmed France's commitment to the Broadband Programme but also made substantial changes to its original objectives. The target date for achieving full high-speed coverage across the country has been brought forward to 2020 (from 2022). At the same time, however, coverage is to be achieved not only by developing fibre optic cable in order to guarantee very-high-speed broadband access (i.e. 30 Mbps and above), but also by using alternative 4G and satellite communication technologies and permitting slower connections (in the 5-20 Mbps range).

This shift in Government policy represents an acknowledgement that the original Broadband Programme was behind schedule and significantly over budget.7 It is still unclear whether these new objectives will have a substantial impact on the broadband PPP market, in particular on the cost of future projects, but the new objectives certainly mean that the market will be very active in the coming years. President Macron also announced that the revised Broadband Programme will contain a series of measures aimed not only at incentivising operators, but also at imposing sanctions on operators who are unwilling to participate in the development of broadband networks in the less profitable white areas.

Under French law, local authorities8 may create and/or operate publicly-owned broadband network infrastructure (réseaux d'initiative publique or "RIP") only in those white areas where there has been a lack of private investment (insuffisance d'initiatives privées propres à satisfaire les besoins des utilisateurs finals).9  

As mentioned in footnote 5, local authorities may procure the construction and operation of RIPs using several different procurement methods. Most of the projects are structured as concessions (concession) in which the concessionaire bears capacity demand risk. The public service delegation (délégations de service public or "DSP") is one form of concession commonly used by local authorities: it often involves the design, construction, financing, operation (including the marketing of network capacity to retail operators on the wholesale market) and maintenance of the RIP, typically with a duration of between 25 and 30 years. Construction is project financed by the concessionaire, but also involves a substantial element of public funding provided by the state under the Broadband Programme and from local authorities. Another form of DSP used by local authorities to procure broadband networks is the affermage, in which the private operator operates and maintains (at its own risk) broadband infrastructure which has been built and financed by the local authority.

A local authority, or group of local authorities, wishing to establish a RIP in its/their area and to benefit from state subsidies under the Broadband Programme must apply to the CDC to seek approval for public funding. The approval is granted in two stages, in order to give the procuring authority visibility in terms of the availability of state funding for the project right from the outset (i.e. at the time it initiates the procurement of the broadband PPP project). 

State funding under the Broadband Programme is treated as State aid under European Law and is therefore subject to the EU rules on the public financing of broadband networks set out by the European Commission.¹⁰ The Broadband Programme was notified by France to the European Commission in October 2014, and the State aid regime contained in the Programme was authorised by the Commission in November 2016.¹¹ This means that France is not required to notify the Commission each time it awards a subsidy to an individual broadband infrastructure project, to the extent that the project complies with the terms of the State aid regime authorised by the Commission. 

Under the authorised regime, subsidies may only be granted in connection with the financing of the construction of broadband infrastructure in white areas. Subsidies cannot be applied to the financing of the acquisition of existing infrastructure or networks (or of the right to use such infrastructure or networks). Similarly, subsidies under the Broadband Programme may not be used to subsidise the operation of the broadband network during the operational phase. When seeking State funding for the construction of a broadband network, the procuring authority must provide a robust business plan demonstrating that, other than the initial public funding required for the construction of the network, the network will generate sufficient revenues for it to be economically and financially viable without the need for any further subsidisation.

Prior to launching the procurement process, the procuring authority must submit a detailed description of the technical, commercial and financial structure of the project to the CDC for review by the Digital Agency. If the project is deemed eligible for funding by the State, the procuring authority receives a "preliminary agreement in principle" (accord préalable de principe) from the Prime Minister's office.  

Once the procuring authority has completed the tendering process for the selection of the private partner and has selected a preferred bidder, it submits a final, complete application to the CDC for review by the Digital Agency which, if successful, results in the making of a "final financing decision" by the Prime Minister, setting out the amount of the funding granted by the State and the terms on which it is granted. In general, the final financing decision will confirm the initial "clearing" decision unless the project as awarded by the local authority is substantially different from the one submitted at the initial stage of the approval process and/or if it does not satisfy the conditions precedent set out by the State in the preliminary agreement in principle.¹² 

An active broadband PPP market

The French broadband PPP market is currently extremely active. For example, since the end of last year several local authorities (and groupings of local authorities) have launched tenders for procuring the construction of significant RIPs¹³, the preferred bidder has been confirmed for the €1bn Grand Est FttH broadband PPP and BAFOs have been submitted for the €400m Charente Maritime FttH broadband concession. In 2016, both the €500m Alsace broadband PPP and the €600m Nord Pas de Calais FttH broadband concession reached financial close.

As mentioned above, traditional national telecoms operators have focused on developing high-speed fibre optic broadband networks in black areas and still hold a significant market share.¹⁴ This has left space for new entrants willing to invest in concessions and other DSPs for the development and operation of RIPs.  

A number of smaller operators have built a significant portfolio of broadband PPP projects in recent years. For example, Covage operates 40 networks across the country, including 29 RIPs. Axione Infrastructures (in which Bouygues Energies & Services holds a 15 per cent stake) operates 24 RIPs, primarily in rural areas in the northern and central regions of France. Altitude Infrastructure operates 16 networks, including RIPs in the north-west of France (Normandie), the south (Occitanie) and the east (Provence-Alpes-Côtes d'Azur, Meuse and Alsace).  

Unlike the vertically integrated national telecoms operators, which operate both as broadband infrastructure operators offering network capacity to other operators on the wholesale market and as internet service providers to end users (homes and businesses) on the retail market, the new RIP operators are essentially offering network capacity on the wholesale market to internet service providers such as Adista, Videofutur, Nordnet (a subsidiary of Orange) and Coriolis.

On several projects a number of specialist infrastructure funds have bid and invested alongside the new RIP operators. These include, in particular, FIDEPPP, Marguerite Fund, InfraVia, as well as CDC. In addition, other infrastructure funds such as DIF have already invested in operational RIPs.

Lessons learned and future prospects

The new course set by President Macron for the Broadband Programme closely echoes the conclusions and recommendations delivered in January 2017 by the French Audit Office (Cour des comptes) in a special public report on "high and very-high-speed broadband networks".¹⁵

For example, the report points out that several RIPs were awarded to private operators on the basis of overly optimistic business plans and are not sustainable in the long term. Several RIP concessions need to be restructured, or will require restructuring in the near future. They were entered into without proper consideration having been given to the actual needs of personal and business users in the relevant area: e.g. private users are unlikely, for the most part, to require high-speed connections in excess of 10 Mbps, while the offering to businesses in earlier concessions has often proven technically unsatisfactory and unreliable. In practice, a number of RIPs have not been able to overcome competition from existing upgraded copper wire networks providing sufficiently high-speed ADSL internet connections at a lower price, in particular for private users and SMEs.

Another issue adversely affecting local RIPs has been the insufficient size of several local projects which were initiated at municipal or "département" level. These RIPs have insufficient critical mass to enable them to undertake appropriate marketing of their capacity. Another issue has been that awarding local authorities have often proved unable to properly monitor the DSP during the operational phase.

For these reasons, the Broadband Programme, as redesigned by the Government generally in accordance with the recommendations of the Cour des comptes, is no longer intended to be an "all fibre optic" programme. Alternative technologies such as upgraded copper wire ADSL networks, satellite and 4G - which guarantee high-speed broadband access, if not very-high-speed broadband access – are now also being considered as alternatives to the construction of expensive fibre optic networks.

The redesigned Broadband Programme is currently the subject of intense discussions between the Government and telecoms operators. The likely outcome of these discussions is, as yet, unknown. There is little doubt, however, that the market will remain active, with further RIPs being tendered, possibly with greater competition resulting from increased participation by the "traditional" telecoms operators.The combination of increased competition and the structural weaknesses in a number of operating RIPs means that certain RIPs will need to be restructured to avoid facing termination. In addition, certain infrastructure investors and operators will wish to divest their participation in individual RIPs or portfolios, presenting opportunities for secondary market investors too. All of these considerations point to a busy few years to come in the French broadband PPP market.

1.  Compare this to the UK where at least 24 Megabits per second is available to 91 per cent of homes and businesses in the UK, and the UK government expects that very-high-speed broadband access will be available to 95 per cent of UK homes and businesses by the end of 2017. Source: Department for Culture, Media & Sport, "Extending Local Full Fibre Networks Call for Evidence", December 2016.
2.  Orange is the new name of France Telecom S.A. (2013), the former telecoms monopoly privatised in 2004.
3.  Decree No. 2015-113 dated 3 February 2015 creating a national department entitled the Digital Agency (l'Agence du numérique).
4.  Article L. 1425-2 of the General Local Authorities Code (Code général des collectivités territoriales).
5.  Essentially in the form of: (a) an availability-based marché de partenariat; and (b) a demand-based concession, both of which include the financing and construction of the infrastructure, or an affermage, which excludes financing and construction.
6.  Statement made by President Emmanuel Macron on 17 July 2017 to representatives of local authorities during a conference (Conférence nationale des territoires) held at the French Senate.
7.  The total cost of the Broadband Programme was estimated at €20bn by the Government of which €13.3bn was to be funded by the public sector. In its January 2017 report entitled "Les réseaux fixes de haut et très haut débit - un premier bilan", France's audit office - the "Cour des comptes" - estimated that the cost would be closer to €35bn.
8. This refers to any level of local government, i.e., commune (municipalities), départements (counties) or régions (regions). Up until now, most broadband PPPs have been procured at département level, by individual départements or by groups of départements (grouped together in a syndicat mixte ouvert or "SMO").
9.  Article L. 1425-1 of the 'General Local Authorities Code' (Code général des collectivités territoriales).
10.  Communication from the Commission – EU Guidelines for the application of State aid rules in relation to the rapid deployment of broadband networks (2013/C25/01) as amended in June 2014 by the Communication from the Commission No. 2014/C 198/02. 
11.  Authorisation No. SA. 37183 of 7 November 2016. Available on the European Commission competition website, in the State Aid Register (http://ec.europa.eu/competition/elojade/isef/case_details.cfm?proc_code=3_SA_37183).
12.  For more details on the procedure see Cahier des Charges FTHD, Réseaux d'initiative publique, version mars 2017 (http://www.francethd.fr/ressources/documents-de-reference.html). 
13.  Région Grand Est (FttH concession), Département de l'Hérault (FttH concession) and Département de Haute Garonne (concession), Pyrénées Atlantique (FttH concession), Angers (FttH concession), Aix-en-Provence (FttH concession).
14.  Orange currently operates 70 per cent of current FttH/FttO connections, SFR 11 per cent and Free 4 per cent.
15.  "Les réseaux fixes de haut et très haut débit - un premier bilan", Rapport public thématique, Cour des comptes / Chambres régionales et territoriales des comptes, Janvier 2017.