MuniWireless

Is Numericable poised to inject even more competition into the French broadband market? That’s certainly the question on people’s minds these days, after Pierre Danon, new CEO of Numericable, presented a new vision and strategy for the cable company in which Cinven and Carlyle have heavily invested. His goal is to turn Numericable into an active player in the highly competitive French broadband market, and to make inroads into other European markets.

The cable  industry in France has always lagged behind its European counterparts. After a government-driven “Cable Plan” failed in the early 1980s, the market remained fragmented and disorganized. In 2002 a small cable operator in Alsace began acquiring competitors. External growth accelerated when Cinven, a European investment fund, joined the group in 2005. It acquired the cable assets of France Telecom and TDF, and a year later bought Noos, previously part of UPC France, a Dutch cable operator.

When the entity changed its name to Numericable in 2007, it was holding 98% of the cable assets in France. Concerned about its failure to gain a significant share in the French broadband market (which is mostly DSL), Numericable bought Completel, a company operating a fiber network for operators and enterprises, with access to 600 unbundled central offices and fiber networks in 30 French cities (50 expected by 2009).

Turning around cable’s bad image

In March 2008, Carlyle  (a US fund) invested in Numericable, giving it enough resources to consolidate and streamline its different assets and establish a credible platform for growth. Pierre Danon, who became CEO this summer, took over a company still shaken by massive customer dissatisfaction. “Today, the company has €6.5 billion in capitalization,” said Danon, “and revenues are €1.3 billion per year.” Danon, however, refused to elaborate on its profitability. “We invest €250 million to 350 million annually to improve and upgrade our network with 3 goals: self-finance our activities, improve our market share with better services and competitive offers, and be ready for acquisitions for external growth in France and in Europe.”  Clearly, he has positioned the company in the high speed broadband market as a competitor to France Telecom, Vivendi, Bouygues Télécom and Iliad-Free.

Numericable has a potential market of 9.6 million houses in France, mostly through its traditional analog cable which is already installed in large and medium-sized cities. It provides TV to 3.5 million subscribers, broadband Internet to 930,000 subscribers, telephony to 650,000 subscribers, and has 4450 enterprise customers. “We are relatively small compared to France Telecom or Vivendi, and are comparable to Free in term of revenues,” Danon said. Last year, Numericable entered the triple play market with an offer based on free TV, Internet access and free telephony to 45 countries, competing with the “Big Three” of the DSL market: Orange, Free and Neuf. “We are still dealing with a large number of customer complaints,” Danon admitted, “but we are rapidly improving.”

An aggressive and innovative challenger

Today, Numericable is aggressively upgrading its network, switching from analog to digital TV, but also switching the infrastructure to fiber, to be a player in the race for high speed access in France. The fiber market is a new challenge for Numericable, which is developing a solution similar to Verizon’s Fiber to the Building (FTTB), and access into the building to the end user with its existing in-house coax cable. It is also one of the first cable operators to use the draft of the protocol DOCSIS 3.0,  bringing up to 100 Mbps to the end user with Netgear equipment. Cisco has developed the DSLAM for cable operators using DOCSIS 3.0. Today Numericable has 104,000 subscribers to its 100 Mbps service, much more than France Telecom, which recently acknowledged being one year late with only 14,200 subscribers (to its FTTH service). Neither Neuf nor Free has disclosed their FTTH subscriber numbers.

Pierre Danon says Numericable has already upgraded 2.7 million homes to DOCSIS 3.0, among them 1 million in Paris, from the 3.4 million houses that are able to be connect to its fiber network. To attract new customers, Numericable is extending its triple play offer with a new €19.90 double play offer: 100Mbps and unlimited fixed telephony. It is also considering some kind of converged fixed-mobile offering. In November, Numericable plans to attract subscribers with a free service for photo and video sharing between PC and TV devices, and a personal space named “mynumericable.fr”, in partnership with Netvibes. Customers will be able to personalize and customize their home page.

Extending the reach to enterprises, operators and municipalities

Numericable’s acquisition of the Completel fiber network forms the basis of a new strategy to grow Numericable’s market share. Aside from a new attractive triple play offer targeted at small businesses, Danon has announced a new strategy to open its fiber network to other operators, to enterprises and to municipalities and government agencies. “Completel has existing customers in France, such as BT, Verizon and Bouygues Telecom. Cellular operators can use our network to collect mobile data traffic and raise data throughput for cell sites which are not connected to fiber. Virtual operators with no network can use our network to package offers that even compete with ours. This is already the case with Darty, and we will continue with others to let new services emerge.”

Completel has recently signed agreements with the French Ministry of Finance to bring VoIP to more than 170 communities in France, and with the Region Alsace to put fiber access into 156 high schools. Completel, acting as an independent division, today ranks as the first competitive fiber network operator in France. Responding to a question, Pierre Danon mentioned that Numericable is not moving into the content business, a strategy that Orange has been pursuing recently. “We already pay more than a €100 million a year in fees for the content we broadcast on TV. It is not our business to generate content. This would be a completely new activity for us.”