01 May 1999

The 'For Sale' sign on France Telecom's (FT's) 'Plan Cable' networks looks to set in motion an auction, which is stunning given the traditionally poor state of French cable. But those of us with very long cable memories need to look again.

The new head of France's independent cable operators, the ebullient Gerard Le Febvre, president, Cable Services de France, says the turning point for the long-suffering French operators came last Autumn. That's when telecoms liberalisation began to kick in and it became clear that FT would heed the urging of Brussels' competition watchdogs and shed its cable TV business.

FT says it is selling off its 'Plan Cable' networks because it cannot make money in cable. This statement by CEO Michel Bon is ironic: the company that built the costly and unwieldy Plan Cable system says it can't make money running it. When probed as to why, Bon admits that, unlike in Holland, where 98 per cent of homes are passed by cable, in France barely one in ten have the opportunity to subscribe to cable.

This isn't just idle knowledge on Bon's part: last year FT purchased the largest Dutch cable television operator Casema from the country's dominant phone operator KPN. FT"s plans to compete in the local loop communications business in Holland are exactly what those bidding for the FT systems want to do on French soil. A high price on those systems will, however, increase the financial pressure on French cable operators Lyonnaise Cable and NC Numericable, the most obvious buyers. A high price could favour an outside buyer - anyone from another phone company to Microsoft or a bank. This last scenario is playing out in Germany where Deutsche Bank has indicated that it isn't interested in simply acting as a broker to sell Deutsche Telekom's cable nets, it may want to buy them for its own account.

Why all this interest? It isn't about selling more TV channels. It's about selling communications, specifically the Internet. The broadband infrastructure to the home is taking on a new lustre. AT&T buys Tele-Communications Inc. (TCI), Comcast buys MediaOne, etc.

In France, both Lyonnaise Cable and NC Numericable use the Plan Cable nets to reach many of their subscribers. Lyonnaise uses FT systems passing two million homes, with 664,000 subs; NC Numericable uses FT networks, passing 1.7 million homes and counting 616,000 subs.

Lyonnaise and NC Numericable pay a negotiated (and in NC Numericable's case a disputed ) fee for using FT networks. Both want end-to-end ownership of their networks, so they can better control expenses in their loss-making cable businesses. Owning the networks would also let them launch telephony and Internet services to compete with FT.

Lyonnaise, however, offers some telephony and Internet, counting 1,856 telephone lines and 9,928 Internet connections at the end of 1998. For NC Numericable, acquiring the Plan Cable systems is complicated by its owners. Canal+ became its controlling shareholder in 1997, but Canal+ CEO Pierre Lescure admits that before communications services can be launched on the network "we need to talk to Vivendi and our US partners." The sticking point is that Canal+ shareholder Vivendi already has a telecom's arm, Cegetel, that runs a mobile phone and Internet services, along with partners Callahan & Associates and AOL/Bertelsmann.

Le Febvre says his systems, Cable Service de France and Rhone Vision Cable, are showing healthy TV take-up, at around 40 per cent, but that it is the addition of telephone and Web services that will turn the sytems to profit. So, then why if French cable is starting to look good, has Time Warner just sold its stakes in the Rhone Valley and elsewhere to UPC? Well, Time Warner has been a seller for a while, it says it has other fish to fry.

According to Le Febvre, it costs about FFr2,500 (£250) to build a home and, up until recently, selling for more than FFr1,500 a home was a fair stretch, if not impossible. LeFebvre says the price is edging up to around the same cost of building a home. Indeed UPC's CEO Mark Schneider told analysts that he paid $363 (£220) per home passed for Time Warner's systems.

Well-below the $2,700 to $3,000 per home-passed value accorded UK cable systems, and well behind the US cable subscriber (not home passed) price of $4,000 to $5,000 each.

Of course, the differences between UK and French cable are numerous, but two points leap to mind: first the cost to upgrade systems built to carry video one-way to carry telecoms two-way will be anywhere from $500 to $800. In the Rhone Valley, UPC inherits neither of these problems, according to a source. Of about 90,000 homes built out of a potential 250,000, some 25,000 are TV subscribers and the system was built to allow two-way services. Mere electronics upgrades and home equipment will do the rest. The situation is different for Lyonnaise and NC Numericable.

The Plan Cable systems need extensive re-vamping, just how much and at what cost, is bound to be the crux of the negotiation with FT.

So, how much does FT want for its Plan Cable systems? Between FFr1,700 to FFr10,000 a home passed, a big range. But, UPC's Schneider figures that 11 million European cable TV subscribers will be put on the market in the next two years by former PTT monopolies. Who'll start the bidding?