Is it the End of the Internet (in France) ?

23 Aug

Fr_dp For the last week or so, the French net scene has been abuzz with rumours of an end to unlimited wireline internet offerings. Comparisons are made with Australia and US capping, and net denizens, analysts and activists are screaming blue murder as if it was the end of the world.

The story started when OWNI published a story based on a leaked draft version of a response to a consultation by ARCEP. The organisation planning to respond is the FFT, French Telecom Federation, an industry organisation that has – amongst others – Orange, Bouygues and SFR as members. The draft clearly shows a set of proposed segmented wireline internet offerings, some of which are capped.

From there, the thing went bananas (I received at least 5 or 6 emails asking me for my opinion on it) to the point that the Minister in charge of ICT, the infamous Eric Besson went out of his way (and of his holiday maybe ?) to comment – on his facebook of all places – about the story. More on this later though.

French Internet star Serge Soudoplatoff posted a note on his blog entitled Business model de l’Internet: des moments noirs à venir (Internet Business Model: Dark Times Ahead) explains why the cost base of the internet shouldn't drive towards pay as you go models but fears that they are coming with dire consequences on usage. He makes comparisons with airline models and the infamous Australian caps. 

And yet I fail to see why this is a big story. I even fail to see why anyone is surprised. The trend has been clear for the last couple of years and will only amplify: as acquisition growth for internet services flattens, ISPs look for new ways to generate revenue from the existing customer base, hence segmentation. If you want to segment your offerings, you need to move away from all-you-can-eat. All of that is normal, to be expected, and in no way wrong…

…provided you have a fair and competitive marketplace, that is. In a fair and competitive marketplace, since the cost structure doesn't dictate caps to be necessary, one or more players will always offer all you can eat as a (powerful) differentiator. In France Free was that disruptive player and in fact dictated the market conditions to all the others for many years. 

Understanbly, the legacy players who have much heavier overhead costs to bear are trying to reintroduce more profit into the mix, but I suspect Free would only love for them to do that. Free and Numéricable have already said that they in no way envisaged to rescind all you can eat, and would only stand to gain if their competitors introduced this kind of segmentation. In other words, there is no business model issue (unlike what Soudoplatoff's title suggests), there's a marketing issue for some players in the market. 

Indeed, what would happen if Orange, SFR and Bouygues segmented the market in the way the OWNI piece suggests? Small users would become capped. Some of them would satisfy themselves with cheap capped offers – presumably cheaper than what they are paying today (otherwise, good luck migrating them to the new offers…), some of them will leave on principle for alternate all you can eat offers. The big users would either face more expensive offerings than todays' market standards or severe capping. Both will be cause to migrate to existing cheaper / all you can eat offerings. 

In all likelihood, the players considering such moves would encourage churn of high usage / high value potential customers and retain only small users unlikely to be attracted to innovative offerings and/or pay more than the standard fare. Not a good idea.

Could Free and Numéricable turn around and play ball with the segmented approaches ? It's a possibility, and I'm not one of those who see Free as a saintly company above cynical shifts in position, but I don't see it happening. They would have too much to lose, both in brand equity and in customer churn. Furthermore, it would be a classic case of cartel price fixing, for which Orange, SFR and Bouygues have been heavily fined in the past (albeit in the mobile voice space). Good luck passing that one past competition authorities with that kind of precedent in the marketplace…

However, back to Mr. Besson, he has no business saying that he "refuses" caps. This is still, as far as I'm aware, a free market, and it's not his role to say how operators should be allowed or not allowed to package their access offerings as long as the market is functioning.

Capping exists in the US and in Australia because the market is not functioning. In the context of market failures with either monopoly / duopoly in the access (US) or in the internet traffic aggregation (Australia) then you have an issue and capping becomes unavoidable. However, what should be addressed in these countries is not the capping per se, it's the market failures that have resulted in capping becoming an issue…

2 Responses to “Is it the End of the Internet (in France) ?”

  1. Thom' August 23, 2011 at 5:17 pm #

    Canada has the same problem as US : monopoly positions that allows a couple of ISP to cap and overprice their offers (I’m currently paying twice or thrice as much as I was in France, for a lower quality service). Let’s hope a real free market will prevail in France, in which, as you say, capped offers are not a problem (just a bad marketing move).
    As for Besson, my guess is he still thinks telecom is a government-operated market… French politicians are completely outdated for all that concerns new technologies and new markets, anyway.

  2. broadband blogger April 13, 2012 at 9:33 am #

    Having monopoly in the industry of telecommunication will not give better competition. Consumers will suffer on this.

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