REGISTRATION DOCUMENT AND FINANCIAL REPORT - Iliad

6. OVERVIEW OF THE GROUP’S BUSINESS
6.1 PRINCIPAL ACTIVITIES
With this type of offering, the customer pays France Télécom for the telephone call while using the Internet at
the local Internet call rate. France Télécom then repays approximately 96% of the average revenues generated to
Free. The economic model for this type of service is therefore based entirely on repayments by France Télécom.
The “50-hour plan”
Following the emergence of fixed-rate packages on the Internet access market and once Free was able to control
the cost of providing telecom minutes following the completion of the first phase of the roll-out of the Group’s
network, it decided in April 2001 to launch its own fixed-rate service whose main selling points were its
reasonable price (€14.94 per month) and the high number of usage hours offered (50 hours). The “50-hour plan”
was therefore designed to complement and serve as an alternative to the “Pay-as-you-go” offering for users
wishing to access the Internet for long periods of time at the lowest possible price. This fixed-rate package is still
one of the most attractively priced on the dial-up market, but is suffering from competition from the unlimited
broadband offerings, particularly in the case of subscribers whose Internet usage approaches or exceeds 50 hours
per month.
Broadband Internet access offering
Free’s ADSL broadband service is based on two modes of access referred to by ARCEP as “Option 5”
(subscribers on lines that have not been unbundled) and “Option 1” (subscribers on unbundled lines).
• Option 5. Under Option 5, the ADSL subscriber’s traffic is delivered directly to the Internet service
provider’s main server center through regional server centers by France Télécom. In this case, the Internet
service provider is dependent on France Télécom for access and for the collection of all the traffic. Since
March 18, 2004, a Freebox modem has been provided by Free to each new subscriber, free of charge. Since
August 2006, telephone line rental has been included in the Freebox subscription (€29.99) in non-unbundled
areas (IP Only offer).
• Option 1. Under Option 1, or local loop unbundling, a Freebox DSLAM is installed in France Télécom sites
and a Freebox modem is installed on the subscriber’s premises. With this configuration, the Group leases the
copper pair for transporting Internet traffic from France Télécom. The “high” frequencies are entirely at the
alternative operator’s disposal for routing data, voice and audiovisual content. ADSL traffic can thereby be
managed from end to end by the Group. In the case of partial unbundling, France Télécom’s role is restricted
to leasing the equipment between the Freebox modem installed on the subscriber’s premises and the Freebox
DSLAM, plus the initial wiring installation. In the case of full unbundling, the subscriber no longer has any
link to France Télécom.
Free’s profit margin from its €29.99 per month ADSL offering varies significantly according to whether the
customer is an Option 1 (unbundled) customer or an Option 5 (not unbundled) customer (for further information,
see Section 9.2.1.2 of this registration document). Therefore, Free’s objective, while still continuing to increase
its overall number of subscribers under both its Option 1 and Option 5 offerings, is to offer Option 1 directly to
new subscribers in unbundled local loop areas and also to migrate existing Option 5 subscribers to the Option 1
configuration.
Freebox. The Group has chosen to develop its own broadband Internet upload and download equipment in-house
in order to win as many new customers as possible in a competitive and fast-growing market by providing
differentiated service offerings. As a result of the technological resources of the development team at Freebox
S.A. combined with an extremely selective purchasing policy, the Group has been able to optimize the cost of
designing a DSLAM and a modem capable of meeting the high bandwidth requirements necessary to offer high
value-added services. The use of both a Freebox DSLAM and a Freebox modem enables Free to provide its
customers with a first rate technical service offering capable of transmitting bandwidth-intensive voice, data and
audiovisual content simultaneously and over long distances (“Triple Play” service offering).
The Freebox DSLAM. The DSLAM developed by Freebox S.A. is technically configured to optimize the
existing Free network and guarantees each subscriber a theoretical download rate of up to 28 Mbit/s (with the
latest version) from the local concentrator. Each Freebox DSLAM, installed in racks which can hold up to two
DSLAMs, can be connected to 1,008 lines and is designed to leverage the Free network which uses only IP
34 - Iliad – Registration Document 2007