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DW Economic Journal: What changes has the telecoms market had to face over the last 10 years? Do you think we are witnessing a stabilization of the market? Beside the efforts made to cut costs, what initiatives will make it possible to re-establish margins and return to revenue growth?
Michel COMBES: Equipment, both home (telephony, Internet access) and individual (telephony and mobile data) is reaching saturation, thus marking the end of an industrial cycle driven by access to equipment. The new cycle will be driven by connectivity and networks. Responding to this assumes a new industrial strategy. Altice has made the choice of convergence between telecoms, media and advertising, whether in the United States or in Europe.
At a time when the giants of the Web are developing without having the burden of investing in a network, a closer relationship between telecoms, media, and suppliers of content and services is essential. Their complementary nature is becoming self-evident in technological, industrial and economic terms: the media and content publishers enable telecoms operators to differ and become more attractive, while the operators enable them in return to benefit from their distribution strength and speed up their transition to data and digital. Everyone gains from it.
So it isn’t by chance that for the last few months we have witnessed an intensification of the trend to convergence, especially in the United States and United Kingdom. In France, Portugal and Israel, it is Altice that has given it a kick start, creating a new virtuous model based on three pillars: access; digital content and services; advertising. Today, each of the stakeholders involved in this value triangle is trying, while retaining its core business, to move into the other angles to regain value, and I Iike to think that because of the strategy adopted by Altice since 2016 we have gained a head start over our competitors.
With Altice having businesses on both sides of the Atlantic, what is your analysis of recent changes in the US telecoms market?
The American market is showing a strong movement towards the convergence of telecoms and media. It was the cable company, Comcast, that launched the trend in 2011 by buying NBCUniversal before acquiring the DreamWorks Animation studios more recently. A short time ago, AT&T announced its merger with the media giant Time Warner (HBO, CNN, Warner film studios), after acquiring DirecTV in 2015. Another example is that Verizon, the third biggest American operator, has also completely changed its model by buying the AOL internet portal, then Yahoo more recently. Our analysis of the changes in the American market support the vision developed by Patrick DRAHI of a major industrial trend based on convergence.
We are seeing in both the United States and in Europe too, growth in unlimited mobile phone deals. Do you think we may be moving towards the spread of unlimited deals in 4G?
First a word about a major difference between Europe and the United States: competitive pressure. We have four operators for France, which is the same number as for the huge territory of the United States. The competitive pressure that exists in France is also true for the whole of Europe with its 120 telecom operators. In the short term, consumers seem to benefit from this competition which is forcing prices down. But the long term consequences are disastrous as this fall in prices is depriving operators of the resources needed to invest in networks and innovation.
However, today the worldwide trend is clear: demand for content and data, and hence for flows, is exploding, putting networks in both Europe and the United States under pressure. To respond to this ever stronger demand, Altice is investing massively, more than 4 billion a year, in high-speed technologies. And the results are there: we are leaders for high-speed rollouts in France, Portugal and Israel. And we have launched an ambitious plan in the United States. We like to describe ourselves as « the gigabit company ».
Our decision, with Michel PAULIN, to launch unlimited data packages on 4G and high speed broadband in France has shaken up the market. This trend is translating the winning return of SFR in the networks thanks to the Altice strategy. According to the ANFR (the French national frequencies agency), SFR remains for the 6th consecutive quarter, the leader in terms of new 4G sites activated, with 88% of the French population covered. Our objective is to reach 90% 4G coverage by the end of 2017 and 99% in 2018.
By creating unlimited offers, SFR is demonstrating to its customers its ability to differentiate itself by providing them with high quality content on the best networks and giving them a high standard customer experience.
The operators in your group are very involved in the offer of television services (and for SFR, press services). Besides this we are seeing AT&T after having acquired DirecTV preparing to incorporate Time Warner. As a cable operator in the United States do you fear the effects of an AT&T-Time Warner merger? But the leaders in OTT are also increasingly interested in TV and video. Will the entertainment industry, in your opinion, be turned upside down by this competition for content?
The convergence of telecoms and media is a fundamental shift, whether this be in the United States or Europe. We have driven that industrial vision developed by Patrick DRAHI for a great many years. It is in this that we see our future and the future of the digital industry.
Of course, the sectors concerned are changing as a result of convergence which is leading telecoms operators to invest the funding or production of content. With Alain WEILL, who directs our content activities, we have a clear vision: we are investing in 4 major areas: the press (with the SFR Press application which has 80 press titles), news (with channels like BFM Paris and i24news), sport (launch of channels and the acquisition of sports rights like the Premier League and the Champion League) and entertainment.
In this last area, our group has launched an SVOD platform in France, which, in the space of a few weeks, has become number one in the country with more than 1.2 million subscribers. Thanks to the worldwide recognized expertise of HOT, our Israeli subsidiary, we have also launched ourselves into the production of original creation with the series « Les Médicis » as well as « Taken ». Lastly, we have concluded strategic partnerships with NBCUniversal and Discovery enabling SFR to become the exclusive distributor of 8 new entertainment channels.
But our competitors are neither the entertainment industry nor the only telecommunications operators. They are global digital platforms. It is vital that we expand in their territory in the same way as they have expanded in ours. For what is WhatsApp, if not a telecommunications service? This will happen not only through our ability to create and distribute exclusive content, but also through our performance in network access and our presence in the advertising business. So our strategy is based on many convergences: between technologies, between industries, between holders and users of data.
While the consolidations on a market are very clearly accompanied by commercial synergies and infrastructures, cross-border operations are regarded with more mistrust. How do you see the synergies between the different Altice operators? Where are they?
With a 23.5 billion euro turnover in 2016, a presence in 10 countries and more than 50 million customers, Altice is a major player in telecoms, content and advertising across the world. Within Altice, we work in a horizontal way which makes us more efficient and flexible than the predominantly centralized and vertical organizations of our competitors. We are an industrial start-up and we have been able to combine international reach with an entrepreneurial spirit. In concrete terms, a well thought out innovation developed in one country may benefit all our subsidiaries and consequently all our customers throughout the world. In a word, we ensure that the knowledge and expertise of each subsidiary benefits the others.
Altice Labs are another strength of our group. Comprising over a thousand Research and Development (R&D) engineers, the purpose of these innovation centers is to construct the future for the sector. Here too our objective is to pool the group’s expertise and the innovative solutions created by our labs. Three Altice Labs have opened in Portugal, Israel and France. Others will be opened soon.
The Commission has begun a new cycle of re-examination of the regulatory framework, what in your opinion are the points that have to shift in order to encourage investment in high speed networks while maintaining competition? What interest do you have in the Public-Private Partnership (PPP) or network sharing models advocated by the Commission?
A review of the European Telecoms Package was needed in order to adapt regulation to the growth of uses and to market changes, whereas the European Union has set itself ambitious objectives in order to construct the « gigabit society » of the future. This ambition can only be achieved if Europe, which is indisputably the most fragmented and competitive market in the world, creates a framework favorable to freeing up the capacity for investment, innovation and value creation of its telecommunications players. The European Union, which has stated its digital ambition, will not be in a position to hold it if it does not dramatically change its approach: indeed, in the course of the last two decades the EU has been incapable of organizing itself to withstand competition from the global digital giants. Thus in France, the telecom operators represent more than 80% of the taxes paid by the digital ecosystem, almost 90% of investments and two thirds of the jobs, but no more than half the revenue. This situation is not tenable.
We are calling for an « aggiornamento » of regulation in Europe, which abandons its current consumerist approach for an industrial centric one. Our transatlantic experience and outlook enables us to compare and measure the brakes on investment that exist in Europe and that must be removed as quickly as possible. We think that the European Union has to urgently draw on the American and Korean regulations, which have succeeded in creating industrial champions capable of dominating international markets. Europe needs to liberate the 21st century industrial generation.
Although the European project for the digital market proposes some positive measures, in particular greater harmonization and more objective criteria concerning the frequency allocation process schedules. Other elements, on the other hand, seem to be continuing in the direction of the current overregulation. They constitute dangerous brakes on investment. I am thinking, for example, of the introduction of off licence obligations for operators, notably mobile network sharing obligations, which would lead to very considerable legal uncertainty. Similarly, the obligation to publish 3 year investment plans would be counter-productive: if these projections then have to be converted to obligations accompanied by the possibility of sanctions, they will be revised downwards by the operators and will not encourage investment… and ultimately it will be the customers who are penalised.
This is why a European policy at last supporting an industrial vision favourable to investment seems to me essential. It is all the more so because there is still no real convergence between the, almost non-existent, regulation applying to the OTTs and the numerous and excessive regulations incumbent on operators, even though some are already offering the same services to consumers.
With fibre, 5G is the other investment that is going to be forced on all operators. Would you hope, like some operators and vendors, to see the work of standardisation speeded up? Within what timeframe do you see the first full scale commercial deployments?
The standardization of 5G is expected for 2020 and the first commercial offers around 2022. Like other stakeholders in the market, Altice and SFR are preparing for the deployment of this technology that will make it possible to tackle the capacity challenges forecast with the explosion in use and to massively expand the use of connected devices.
So, for a few months already, with its partners our group has been conducting the trials needed to prepare for the arrival of 5G on its network. Besides this, our Altice Lab in Portugal is devoted to 5G. This isn’t by chance, since Portugal is particularly far ahead on the subject of 5G!
However, it must be remembered that telecoms operators are not the only ones on which the arrival of 5G and its marketing depend. Indeed, without the creation of appropriate terminals, 5G will not reach potential customers. So each of these stakeholders will have to be ready for this deadline. Between now and then we are making every effort to strengthen our 4G mobile network in order to increase its density and to be able to offer our customers constantly higher speeds. For the last 18 months, Altice and SFR have completed unprecedented levels of deployment in France allowing us to both provide denser 4G/4G+ coverage and increase the speeds offered to our customers. Our aim is to turn on 4G+ up to 300Mbps in the 32 largest French conurbations.
Finally, where are operators’ drivers for growth: in investment and differentiation by the networks? In the race for content? In the IoT, the Cloud and added value services?
In the new industrial cycle we are going through, operators legitimately seek to gain value from avenues that are extensions of and adjacent to their core business. Differentiation by IoT content and services or virtualisation is actually an important source of growth. But it isn’t the only one. Data is indisputably the technological and economic issue of the 21st century.
The data to which operators have access first make it possible to respond to the expectation of personalised services. With Big Data, we are now in a position to talk not just to population segments, but to each individual according to his or her tastes, centers of interest or even location. We are capable of tailoring services to the individual consumers.
The second expectation emanates from local communities and public transport enterprises and concerns flows in the movement of people traffic. SFR has, for example, developed SFR Geostatistics, which is based on the analysis of data from its body of mobile customers. These data, anonymized and measured in real time, make it possible to statistically and reliably model the flow of people in an area. This makes it a valuable tool to aid decisions about investment in transport infrastructure (road, rail, air, bus, metro, etc.).
The third and last expectation concerns advertising, which is the third pillar of our model. We believe that it is not inevitable that advertising remain exclusively in the hands of digital platforms, as the converging operators are compiling portfolios of very big customers and huge audiences. In this area we are acting in two ways. First by concluding strategic partnerships: so Altice is in exclusive negotiations with Teads, the world leader in on line advertising videos. The technology developed by Teads and its founder Pierre CHAPPAZ offers the press the possibility of selling spaces for video right in the middle of articles, while guaranteeing the customer a targeted audience by aiming at suitable titles.
Then, by putting tailor-made advertising in place: using our data, we are going to be able to run campaigns designed to suit each person’s situation. We are doing this successfully in the United States. In New York, 30 different advertising messages can be sent to viewers at the same time. In France, the first targeted advertisements will be launched in summer 2017 on our regional channel, BFM Paris. With time, we want to devise multi-screen advertising (digital and TV) appropriate for each individual.
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