Gauthey is uniquely qualified to talk about public investment in broadband networks. Before joining the giant optical equipment vendor, she was a member of ARCEP, the French telecoms regulator, and prior to that was responsible for regional digital development strategy at government-owned bank Caisse des Dépôts.

Eight years ago France was seriously lagging behind in broadband adoption, she says. The EU regulation on local loop unbundling (LLU) had just come into force, requiring France Telecom to allow other operators access to the copper cables that run from the customers premises to its telephone exchanges, but this had failed to stimulate broadband competition. France is a very rural country, and expanding their networks into low-density areas of population simply wasn’t looking attractive to alternative operators.

Realizing that market forces alone would not provide the level of broadband adoption that it desired, the French government decided that the Caisse des Dépôts could provide loans at reduced rates to local authorities for broadband development. But these loans had strings attached — local authorities could invest in broadband infrastructure, but were not allowed to act as telecommunications operators.

Local authorities were getting impatient with the market; they wanted to step in and invest, but they weren’t allowed to. In 2003 they eventually they got their own way when the French Parliament passed a new law enabling local authorities to be wholesale operators, and even retail service providers if there were no other available broadband providers.

As a result, a little over €2 bn was invested in local authority projects, mainly in fibre backhaul — the networks that connect local telephone exchanges to the national backbone. About half the money came from the public sector, the remainder from private investment.

In each project the local authority partnered with the wholesale arm of a second-tier telecoms operator, setting up a délégation de service public — what we would call a public-private partnership. Critics of the scheme thought that it would result in small, scattered operators, but in fact there are only four or five operators of these local authority networks, according to Gauthey. SFR set up LD Collectivités, Free set up Axione, Axia set up Covage, and so on.

Impact assessment

At the end of 2008, ARCEP was asked to provide an assessment of the impact of the local authority projects. 86 projects had been initiated, mainly by départements, of which 53 are currently running, covering roughly two-thirds of France.

Gauthey believes that the local authority investments achieved what they set out to do — enabling more cost-effective broadband coverage in medium and low-density rural areas. The evidence is in ARCEP’s data, which shows that LLU surged when these new backhaul networks were built; about 37% of central offices have been unbundled through the use of local authority backhaul networks.

There was also a positive impact on the uptake of mobile broadband, says Gauthey. “France issued mobile broadband licenses while I was at the telecoms regulator, and the only places where this worked were where the local authority backhaul was available,” she contends.

Local authority backhaul has also had an economic benefit for local businesses because it fostered the creation of profitable retail service providers dedicated to smaller businesses and local enterprise. “We had a problem that small companies were not very much on the internet,” Gauthey commented. “Now these companies are the ambassadors for taking up of internet services by SMEs.”

The best part? Backhaul networks are a future-proof investment that will continue to provide value as France tackles an even greater challenge: how to use public money to accelerate the deployment of high-speed broadband and next-generation access (NGA).

Speaking of NGA, recent reports say the French government has decided to invest €2 bn in fibre-to-the-home projects. A formal announcement is expected in December

The European Commission has given the green light to the largest ever government-backed fibre-to-the-home project in Europe.

THD92 is a €422 million (£386 million) project that will bring next-generation broadband to some 829,000 homes and businesses in the Hauts-de-Seine region of France. (THD stands for très haut débit, meaning “very high speed”, and 92 is the number of the Hauts-de-Seine département.)

The EC has approved a subsidy of €59 million for the project, paid for by the Conseil Général des Hauts-de-Seine. The subsidy is regarded as compensation for the cost of connecting homes that would otherwise be uneconomic to reach.

This is a landmark decision for fibre projects because the Hauts-de-Seine, in the western suburbs outside Paris, is one of the wealthiest areas in France, it has good first-generation broadband infrastructure, and there are already several operators rolling out fibre in the area.

The French project is the first to be assessed using the new European guidelines on the public funding of broadband networks. The EC concluded that “the public funding amounting to €59 million would be used to offset the cost of complying with the obligations of a service of general economic interest imposed following an open and transparent tendering procedure, and did not therefore constitute state aid.”

The decision also has a certain political significance: the Hauts-de-Seine département happens to be the home of French President Nicolas Sarkozy, who kick started the THD92 project back in 2004 when he was president of its council.

Like other municipal fibre projects in Europe, THD92 has taken a long time to get off the ground. The network was put out to tender in 2006, and the contract awarded at the end of 2007, before it became ensnared in red tape. And although the project has received a blessing from Brussels, other operators could still mount legal objections.

“The EC approval will allow work to start, even if it does not extinguish the other appeals against the project,” said Avicca, an organisation representing French local authorities, in a statement.

The tender to build and operate the network was won by Sequalum, a consortium that is majority-owned by cable TV operator Numéricable, along with the construction group Eiffage and high-speed network specialist LD Collectivités/Groupe SFR. Sequalum will act as an “operator’s operator” laying dark fibre in the ground (an optical fibre that is sold and installed but not connected to active equipment), and marketing that fibre to the firms that supply the end-user.

If all goes according to plan, the first subscribers could be hooked up as early as next year. The timetable calls for just over half the users to be connected within 3 years, and the network rollout to be completed by 2015.

In larger towns and cities, four operators — Orange, SFR, Free and Numericable — are deploying fiber-optic networks which has brought 4.5 million households within reach of a superfast connection. This might sound like a lot, but this represents less than 20% of homes in France.

At the opposite end of the scale are very isolated rural areas, where could be eligible for state aid, especially now that European guidelines have been clarified. In fact, earlier this month, French prime minister Francois Fillon proposed that the state-owned financial institution Caisse des Depots would invest €750 million (£685 million) over three years to support fibre rollout in areas of low population density (link in french).

“Grey areas” are the regions in between, which aren’t likely to attract investment from telecoms operators, but would fall outside the scope of state aid. To break the impasse, French policy makers are pushing the idea that the main operators should cooperate to build a single, shared network to cover these areas.

A joint venture between the four operators would prevent costly duplication of physical infrastructure, and thus reduce the financial burden on each operator individually. The estimated cost would be around €20 billion.

But can the country’s telecoms companies be persuaded to work together? France Telecom is opposed to the scheme, while alternative operator Free is in favour, according to Le Figaro. Watch this space!