Iliad (Free) was in the headlines for all of 2012: it successfully launched its mobile operations, initiated a price war in the French mobile market, and had achieved more than 6% market share within 9 months. At the very beginning of 2013, Free was once again in the spotlight. On 3 January, it released a software update of its Freebox Revolution Server (its Internet set top box/modem) which included an ‘AdBlocker’. Once the Freebox was updated, the AdBlocker was activated by default (an ‘opt-out’ mode), blocking advertising on all types of terminals connected to the box (i.e. laptop, mobile phone, games console). However, it appears that only some types of advertising (e.g. Google advertising) were blocked, whereas some others (e.g. Facebook advertising) were not. Furthermore, there was no possibility of defining a whitelist of web pages that would not be blocked by the system.
Within a few days, the AdBlocker had generated a lot of discussion within the blogosphere and at government level. Fleur Pellerin, the French minister in charge of the digital economy, requested Free to deactivate AdBlocker; and the company quickly complied.
So why would Free choose to do this?
First explanation: as retaliation for Google’s refusal to pay transit fees
The broadband market is often described by economists as a two-sided market in which revenues can be collected both from the end users (retail broadband charges) as well as from content providers, which may pay for their content to be accessible from the Internet (at the moment either by buying services from a content delivery network or by paying their own ISP). Free has been trying for some time to get Google to pay for a direct interconnection to its network, and we understand that Google has always refused.
With this background, could Free’s AdBlocker be seen as a retaliation mechanism? We note that while Minister Pellerin described Free’s behaviour as “rude” and “not acceptable”, she also pointed out that this incident “raised the growing issue of the sharing of value between telecoms operator and content provider”.
Of course, end users can themselves choose to block adverts in a similar way to the AdBlocker, for example by using browser plug-ins – though this represents an ‘opt-in’ model and only a small minority of users actually do this.
This explanation is, however, not completely satisfactory. French Internet sites rely heavily on banner advertising, and would be much more severely impacted by Free’s AdBlocker than Google itself (given the very small share that Free subscribers represent out of Google’s entire global market). This would inevitably (and as it did immediately) create serious concerns by the government, which could not tolerate the situation. Moreover, if Google had given in to this pressure from Free, this would have created a precedent that could be used by other operators. Overall, therefore, if this was indeed an attempt by Free to intimidate Google, it appears that it would have had a limited chance of success.
Second explanation: to send a strong signal to the French government
Free’s behaviour could also be considered in the light of the specific French context:
- In January 2012, François Hollande, while still a candidate for the presidency, announced a very aggressive target of achieving full (100%) ultrafast broadband coverage by 2022 – though this target has still not been made official since he became President. In February of this year, the government is due to issue a digital roadmap, in which ultrafast broadband will undoubtedly be a key component.
- The deployment of ultrafast broadband – and in particular FTTH – in France has been much slower than initially anticipated, and indeed slower than initially announced by French operators. Free even stated at an ARCEP event in September 2012 that copper “still has much to offer” and that it was reducing its interest in fibre – at least in the short term.
- There is currently a major argument between major Internet companies (including Amazon and Google) and EU national governments (including France and the UK) about the use of ‘tax-efficient’ (some would say ‘tax-avoiding’) corporate structures. In particular, Google has been alleged to report revenues that it generates on French soil in Luxembourg, where the organisation has its European HQ.
In this context, Free’s actions can perhaps be seen as making it very concrete to the government that, as content providers are not contributing to investment in French infrastructure either directly (via IP interconnect payments) or indirectly (through taxes), then ultrafast broadband investments will have to be made at a slower pace.
There are therefore two main possible explanations for the AdBlocker affair: either Free was motivated by its negotiations regarding delivering Google traffic, or it wished to send a strong signal to the government about the need to be realistic in its digital roadmap. Of course, there may have been a bit of both …
Analysys Mason is a major strategy consulting company specialised in telecoms and media with 12 offices in 4 continents and a strong presence in the French market. For further details please contact Stéphane Piot.