Macron Should Call Billionaire Patrick Drahi's Bluff

(Bloomberg Gadfly) -- Tycoon Patrick Drahi has been telling everyone lately that he's going to spend about 15 billion euros ($17.6 billion) building a national fiber broadband network in France. What's more, he says his local operator SFR Group SA will have it done by 2025 and won't take the public subsidies used by his rivals.

If he follows through on the big talk (and that's a big if), SFR would opt out of a six-year old government-led plan that aims to coordinate construction of a fiber network by offering sweeteners to operators building outside the big cities.

While Drahi's scheme might make sense for SFR as it tries to keep up with market leader Orange SA, his go-it-alone strategy threatens to derail the state-sponsored scheme. That plan envisages just one network in smaller towns and the countryside that's rented out by its owner to competitors. 

Crippling France's broadband efforts would be bad. Although the scheme is far from perfect -- one government study estimated potential cost overruns of 15 billion euros and eight years of delay --  its aim is laudable and its design logical. Orange, Iliad SA, Bouygues SA and a crop of new rural-focused companies, have been working pretty harmoniously. 

So the French state and the other operators shouldn't let themselves be side-tracked by Drahi's possible second network, or move to rewrite the rules to try to accommodate someone with such a patchy record on investment.

Indeed, there's a risk that SFR's new fiber pledge is a mere negotiating tactic. Drahi has been trying to get Orange to revisit a 2011 agreement with SFR to co-build to some 14 million households in suburbs and smaller towns. Signed before Drahi bought SFR, the deal calls for Orange to build and own 80 percent of the homes and SFR only 20 percent.

Now Drahi has realized that SFR might end up having to pay more on rental fees to Orange to use its fiber lines in all those extra locations, especially if they're faster than his older cable network. Drahi wants Orange to agree to a 50-50 split instead. Orange has said no and the two sides are in litigation.

Rather than being distracted, French President Emmanuel Macron would be best off calling Drahi's bluff by telling him to go ahead and start building. Either SFR will follow through, and some parts of France will end up with two networks instead of one, or his promises will prove hollow.

Sure, having two networks wouldn't be ideal for the new companies bidding to build rural networks. It would be a clear negative for Orange, which has committed the most capital to building nationally, some 3 billion euros from 2015 to 2018. But, as Spain's experience has shown, having more than one operator racing to build fiber creates more competition and is good for consumers. 

So far, investors in Drahi holding company Altice NV are unfazed about his grand fiber ambitions, not just in France but in the U.S. and Portugal too. This seems odd given the implied cash outlay for a highly-leveraged group. Altice says it can build fiber broadband much faster and much cheaper than rivals, promising that the projects can be done within its annual capital spending budget of about 4 billion euros.

It's impossible to know whether this is true yet. Either Altice does have a magical ability to do things better than everyone else, or Drahi's real skill is in the lobbying more than the digging. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Leila Abboud is a Bloomberg Gadfly columnist covering technology. She previously worked for Reuters and the Wall Street Journal.

To contact the author of this story: Leila Abboud in Paris at labboud@bloomberg.net.

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net.