1. -1--1- LLU and Broadband Regulation in France July 2005 Autorité de Régulation des Communications Electroniques et des Postes

2. -2--2- Situation of the broadband market in France Broadband regulation today Hot topics for regulation in the near future

3. -3--3- Broadband market overview DSL clearly leads, cable is second BB penetration rate is growing fast (12,8% of the population, march 31 st ) : 7.7 million broadband subscribers in France (march 31 st )

4. -4--4- Wanadoo / France Télécom Neuf Tiscali Cegetel Club-Internet Tele2 autres AOL Free French retail broadband market is very competitive France Telecom’s retail branch has a market share of 47 % (decreasing for the past 3 years) 3 players have developed a wide national network Many ISPs are active on the retail market The main broadband market players (End 2004)

5. -5--5- LLU is the driving the competition on the DSL market LLU has strongly taken off LLU represents 28% of the French DSL market : more than 2 million lines (march 31 st ), compared to 7.2 DSL accesses shared access is mostly used 3 main players are active on the LLU market

6. -6--6- transport Geographical disparities in terms of available competition have arisen At the end of 2004, 90% of the population was covered by France Télécom’s DSL network LLU covers 55% of the population (950 sites equipped) Competition on the French territory Areas with at least 2 operators Areas with only France Télécom Areas not covered by DSL situation in April 05

7. -7--7- The impact of competition on the retail market Thanks to the competitive pressure of LLU (which started end 2002 in France), the French broadband market is now very dynamic. The offer has diversified : Bit rates offered have increased (up to 20 Mbit/s now with LLU, and 2 Mbit/s is common) New services have developed : TV over DSL, Voice over DSL… Retail tariffs have come down by a factor 2.5 in 2 years Typical LLU retail offers is now 20€/month for 1 to 6 Mbit/s  Rapid growth of the BB market : + 100% in 2003, 90% in 2004

8. -8--8- Source : ART, ECTA This has allowed France to catch up for its delay as regards broadband adoption Broadband penetration in Europe, jan. 2005 (BB lines/population) France is now # 6 country in Europe for BB penetration # 2 country in Europe for DSL lines # 6 country in the world for DSL lines

9. -9--9- Situation of broadband market in France Broadband regulation today Hot topics for regulation in the near future

10. - 10 - FT wholesale products along the broadband value chain LLU Access Regional Backhaul National Backhaul Internet New entrant’s own network Bit stream offer (IP or ATM) New entrant National broadband offer (IP) New entrant France Télécom’ s network New entrant’s network Broadband value chain

11. - 11 - National offer 1 access point No need for a network Clients = ISP Regional offer Regional access points (20 to 130 points) Need for a national network Clients= OLOs, to complement LLU Unbundling Local access points (12 000 MDFs, 900 equipped today) Need for a very capillar network LLU is the keystone of the development of competition OLO closer to the end user more investment in infrastructure more independence towards FT and more innovation Increased capillarity

12. - 12 - To leave sufficient economic spaces and allow competition to develop To make wholesale prices go down, and indirectly retail prices as well To increase broadband adoption of the population and broadband footprint In short : the regulator’s objectives Number of subscribers Tariffs LLU National offer Access Bitstream New entrants France Télécom LLU National offer Bitstream Retail offer Broadband value chain

13. - 13 - Situation of broadband market in France Broadband regulation today Hot topics for regulation in the near future

14. - 14 - Objectives for LLU : full LLU and geographic extension of LLU footprint Beyond the success of shared access, ART is willing to see full LLU develop more in the months to come and LLU footprint extend The experience gained of shared access has shown that both the tariffs and the technical conditions in which LLU is provided are equally crucial to the development of LLU A working program on two main aspects : –Tariffs (full LLU price and colocation costs) –Technical and QoS aspects

15. - 15 - Full LLU tariffs and colocation costs France is the only country in Europe to evaluate full LLU tariffs using the method of « asset replacement paths » (theoretical model simulating a regular reconstruction of the network) : –The economic space left by this method between full LLU and retail line rental is very small –Full LLU development has been disappointing so far, even though it is the wholesale offer offering the greatest possibilities to OLOs ART has launched a public consultation on this matter, and aims at Europe’s best practice as regards full LLU pricing methodology In parallel, a in-depth review of the collocation costs is under way to make sure that there is no artificial barrier to entry to the expansion of LLU on smaller sites

16. - 16 - Quality of Service is a major topic for LLU Competition should not develop at the expense of quality for the end user In particular, in the case of full LLU, QoS is crucial since quality and continuity of the telephony service have to be guaranteed In order for full LLU to take off, OLOs must have access to a high QoS of the wholesale offer, allowing them to compete with the quality of France Télécom’s retail products, especially for business customers Three steps to ensure LLU QoS : Periodical technical meetings with FT and LLU operators Publication by FT of key QoS indicators for LLU and its own retail services (on its website since june 1 st ) Payment by FT of penalties when LLU QoS is insufficient (delays,…)

17. - 17 - Objectives for bitstream : to be a geographical complement to LLU Following market analysis, a reference offer for bitstream will be published by FT in July LLU and bitstream access complement each other : new entrants climb up the ladder of infrastructure competition by migrating from one form of access to the next higher step Bitstream must be available for new entrants to be able to compete with FT at the retail level on the whole territory, in IP or ATM. FT must propose a bitstream offer corresponding to its new retail offers FT must propose migrations between bitstream and LLU ARCEP makes sure economic space of LLU preserved : no squeeze between LLU and bitstream where LLU will develop ; elsewhere, bitstream tariff is based on FT’s costs

18. - 18 - Thank you for your attention cecile.gaubert@arcep.fr