Cablegate: France: Telecom and Information Technology Update

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Lucia A Keegan 11/07/2006 02:57:17 PM From DB/Inbox: Lucia A Keegan

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UNCLAS SENSITIVE PARIS 07199

SIPDIS
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ACTION: ECON
INFO: FCS POL ORA AMB ENGO SCIO TRDO LABO DCM ECNO
UNESCO AGR ECSO ESCI SCI

DISSEMINATION: ECONOUT /1
CHARGE: PROG

APPROVED: ECON:SDWYER
DRAFTED: ECON:FRADOVIC/HSULLI
CLEARED: NONE

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RR RUEHC RUCPDOC RUEAFCC RUEAWJA RUCNMEM
DE RUEHFR #7199/01 3071337
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TO RUEHC/SECSTATE WASHDC 2821
INFO RUCPDOC/USDOC WASHDC
RUEAFCC/FCC WASHDC
RUEAWJA/DEPARTMENT OF JUSTICE WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS SECTION 01 OF 02 PARIS 007199

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SENSITIVE

STATE FOR EB/CIP AND EUR/WE
USDOC FOR NTIA AND ITA
FCC FOR INTERNATIONAL
STATE PLEASE PASS TO USTR
BRUSSELS FOR USEU JUNDERWOOD

E.O. 12958: N/A
TAGS: ECPS ETRD FR
SUBJECT: France: Telecom and Information Technology Update

1. This is another in a series of periodic updates on the French
telecommunications and information technology sectors, including
internet and e-commerce.

Contents:
-- SFR takes over Tele2 and becomes the second fully integrated
operator after France Telecom (FT)(para 2)
-- Neuf Cegetel acquires AOL France (para 3)
-- Free launches Fiber-to-the-home (FTTH) throughout France by 2012
(para 4)
-- FT's new "unik" service (para 5)
-- Launch of Microsoft's "instant messaging" on Orange (para 6)
-- Consumer group seeks damages for price fixing by mobile phone
operators (para 7)
-- The French electronic communications market on the up and up
(para 8)
-- Mototrola seriously eyeing French communications equipment firm
Sagem (para 9)
-- Debates begin on the GOF draft bill on the television of the
future (para 10)

2. French mobile operator SFR has become the second largest fully
integrated operator in France following its 451.6 million dollar
acquisition earlier this month of Tele2 France. Under the deal, SFR
will take over Tele2's fixed-line operations including its broadband
unit, and would have to operate the business under the Tele2 brand
for up to three years. (Note: SFR will not purchase Tele2's
multiple virtual network operator (MVNO) operations in France (i.e.
business from renting airspace from other companies), which
accounted for 300,000 customers at the end of June 2006. End Note).
At the same time, SFR remains the country's second-largest mobile
operator as well as the largest stakeholder in France's second
largest fixed operator, Neuf Cegetel. SFR, a joint venture between
Vodafone and Vivendi, took-over Tele2 after Neuf backed down from
the bid. The future of the SFR/Neuf Cegetel alliance will
ultimately have to be defined in the coming months.

3. Independent executive agency the French Competition Council has
just approved Neuf Cegetel's purchase of AOL France from Time
Warner. With this 288 million euros (USD 360) acquisition, Neuf
Cegetel will gain over 500,000 high-speed Internet customers to
bring its total to more than 2 million. The deal brings Neuf
Cegetel into close competition with the Illiad Group's subsidiary
Free for the title of second-largest broadband provider in Europe.

4. French alternative broadband provider Free announced in
mid-September that it will spend one billion euros building a fiber
network in France through 2012. This fiber-to-the-home (FTTH)
rollout will begin in central Paris, followed by the Paris suburbs
and other parts of France. Free officials said their plan
contributed to French public authorities' declared aim of
positioning France at the leading edge of information technology.
Meanwhile, France Telecom (FT) is piloting a fiber optic program in
Paris to assess the economic feasibility of such a large project in
cities. Despite being the first French operator to trial FTTH in
January 2006, FT believes there is no available content to warrant
an immediate investment in nationwide FTTH deployment. FT retains
50 percent of the French broadband market, while Free has 18
percent.

5. In early October, FT's mobile arm Orange France launched new
phones allowing customers to make phone calls on mobile and Wi-Fi
networks. Dubbed Unik, the service allows a person to make free
phone calls inside France over the Internet connection and to switch
over to the mobile phone network when leaving home. FT customers
will pay 10 euros (USD 12.50) per month for fixed-line calls within
France, in addition to 99 euros (USD 123.75) and more for the phone
itself and charges for Livebox, a system which connects users to
broadband lines. For 22 euros (USD 27.50) per month customers can
get unlimited calls to both Orange mobiles and fixed lines. Though
Unik can be cheaper for Orange customers, people who call a Unik
line will be charged for a mobile phone call, rather for a fixed-
line call. Calling a mobile phone is generally more expensive and
the adoption of mobile phone rates for converged phones has elicited
concern from some consumer groups.

6. On October 16, Microsoft Chief Executive Steven Ballmer announced
an "instant messaging" product to be offered by Orange. When the
service starts in December, Orange subscribers will be able to
conduct real-time chats by voice, text, or video on their phones or
personal computers, using a version of Microsoft's messaging
software. The companies are now calling the service Orange
Messenger by Windows Live. Yahoo is launching a rival internet
messaging product with France-based Bouygues Telecom.

7. French consumer group UFC-Que Choisir announced in mid-October
that it had submitted a request for damages at the Paris Tribunal of
Commerce for price fixing by French mobile phone operators Bouygues,
Orange and SFR. UFC said it had received 12,530 requests for
damages and was requesting 750,000 euros, or roughly 60 euros (USD
75) per person. Last year, the French Competition Council fined the
three operators 534 million euros (USD 667.5 million) for forming a
cartel and freezing mobile phone prices between 2000 and 2002.

8. The number of telephone service subscriptions (37.2 million
subscribers) is up almost 6 percent at the end of the first quarter
of this year, mostly due to the very rapid development of telephony
using broadband Internet connections (VoIP-Voice-over-Internet
Protocol). Full unbundling has also contributed to this extremely
rapid growth, with some one million lines established at the end of
the first quarter. During that same period, high-speed Internet
continued to grow, totaling 10.5 million subscribers. Similarly,
mobile telephone continued its expansion, adding up to 48.6 million
subscribers thanks to the arrival of multiple virtual network
operators (MVNO). All in all, income generated by the electronic
communications market in France reached 10.1 billion euros (USD 12.6
billion).

9. Motorola Mobile Devices President Ronald Garriques, in an
exclusive interview with the Figaro on October 26, indicated a
"serious interest" in acquiring French communications equipment firm
Sagem, a subsidiary of Safran. Garriques indicated that acquiring
Sagem "is an option in a sector that is in the process of
consolidating ... I do not know yet if we will get it." Garriques
praised Sagem's management for being among the most respected in the
mobile telephony sector and indicated that, in determining which
firms to acquire, Motorola considered first the human resources of
the target firm more than its technology or brand. In September
French aero engines and telecoms group Safran said it was studying
all options for its Sagem division, which has been dogged by a
series of financial losses. Motorola has made a series of recent
acquisitions in Europe including Mitsubishi Europe based in Rennes,
France-based TPP Com, UK-based Sendo, and Danish firm BenQ.
Garriques signaled Motorola's intention to continue acquisitions as
part of its strategy of increasing market share in France and the
rest of Europe.
10. With the advent of TV services on mobile phones and the
extension of the French digital terrestrial TV (DTT) platform, the
French Culture Ministry has drafted a bill on "the modernization of
audiovisual broadcasting and the future of television," currently
before the Senate. The bill would foster television broadcasting
over mobile phones, the introduction of high definition television
(HDTV), and the replacement of analog television by digital TV in
2011. Debates are due to take place November 20, 21 and 22. After
passage, the draft bill will then move to the National Assembly.
Stapleton

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