This record is a partial extract of the original cable. The full text of the original cable is not available.

290914Z Jul 05

UNCLAS SECTION 01 OF 02 PARIS 005224 
 
SIPDIS 
 
STATE FOR EB/CIP AND INR/B 
USDOC FOR NTIA AND ITA 
FCC FOR INTERNATIONAL 
STATE PLEASE PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECPS ETRD FR
SUBJECT: France: Telecom and Information Technology Update 
 
 
NOT FOR INTERNET DISTRIBUTION 
 
¶1. This is another in a series of periodic updates on the 
French telecommunications and information technology 
sectors, including internet and e-commerce. 
 
Contents: 
-- Two Members Added to ARCEP Board (para 2) 
-- France Telecom changes strategy to buy Spanish telecom 
operator (para 3) 
-- Spanish reaction to French purchase (para 4) 
-- France Telecom outperforms market expectations (para 5) 
-- European Commission approves regulation of French 
broadband (para 6) 
 
¶2.  Two Members Added to ARCEP Board:  With regulatory 
oversight of postal services added to the responsibilities 
of the telecom regulator, ART not only changed its name to 
ARCEP (see 24 June 2005 edition, Paris 4444), but also 
expanded its board from five to seven.  The two additional 
board members, Joelle Toledano and Nicolas Curien, were 
named by the French National Assembly and by the Senate in 
late June.  Toledano worked for the French postal services 
group "La Poste" from 1993 to 2005, first in the directorate 
for strategic affairs and later as the director for national 
and European regulation.  Since February 2005, she has been 
a professor at the University of Supelec, a leading 
engineering school in France for energy and information 
services.  Curien founded the International 
Telecommunications Society.  Until his nomination to ARCEP, 
he was professor of economics at the National Conservatory 
of Arts and Trades (Conservatoire National des Arts et 
Metiers or CNAM) and also taught at the prestigious French 
engineering school Ecole Polytechnique.  His research and 
teaching interests were in the fields of market organization 
and regulation in network industries, especially 
telecommunications.  He has published several books and a 
number of academic papers on networks economics. 
 
¶3.  France Telecom changes strategy to buy Spanish mobile 
operator:  France Telecom (FT) has reportedly agreed to buy 
80% of Amena, the Spanish mobile phone group, for 6.4 
billion euros.  The French group fought off competing offers 
from two powerful private equity consortiums in the final 
stages of a four-month auction.  The acquisition - set to be 
funded with cash and shares - comes less than three years 
after FT flirted with financial disaster after spending more 
than 100 billion euros on expansion.  The group, which had 
nearly 50 billion of net debt in 2004, stabilized under 
former-CEO Thierry Breton with a strategy to reverse FT's 
excessive (and financially disastrous) foreign investments 
and focus on its core businesses in France:  fixed-line 
(FT), mobile (Orange), internet services (Wanadoo), and 
corporate services (Equant).  After being named French 
finance minister in February, Breton was succeeded as 
chairman and chief executive by Didier Lombard, who has 
wasted little time securing FT's largest takeover of a 
foreign operator in more than four years and one that will 
significantly expand the company's presence in neighboring 
Spain. 
 
¶4.  Spanish reaction to FT purchase:  The Orange brand will 
replace Amena and merge with Wanadoo, FT's existing fixed- 
line operation in Spain. Combined, the new company will 
represent Spain's largest integrated telecommunications 
group behind Telefonica, the former state monopoly.  During 
a recent visit to Spain, FT CEO Didier Lombard promised that 
the management team would remain "mainly Spanish" and that 
there would be no job cuts.  Lombard said he spoke with Jose 
Montilla, the Spanish industry minister, before launching 
the Amena bid. He was told Madrid would not intervene in the 
auction, but would react favorably to a bid from a foreign 
industrial group.  "It is very important to know there is no 
(Spanish) government opposition," said Lombard.  His 
comments appeared to be an implicit criticism of the French 
government for launching a barrage of protectionist rhetoric 
(septel) in response to this month's rumors about a possible 
bid by PepsiCo for French food group Danone. 
 
¶5. France Telecom outperforms market expectations:  On June 
28, FT announced a profitable first six months of 2005.  The 
telecom group said its net income more than tripled from one 
billion to 3.4 billion euros compared to last year, thanks 
in large part to growth in its mobile division Orange as 
well as asset sales, including Mobilcom and PagesJaunes (the 
French "Yellow Pages" directory services).  From January 1 
to June 30, FT increased its mobile phone customers by 16.3% 
percent to 66.7 million, while broadband customers rose 80% 
to 6.4 million.  FT is hoping to raise revenues three to 
five percent annually through 2008 by integrating mobile 
phone, internet, and fixed line services into single 
packages.  Growth in third-generation mobile phone usage 
coupled with integrated services for homes and businesses 
should more than make up for the decline in revenues from 
fixed-line services.  FT offers "triple play" services with 
TV over DSL, as well as voice telephony and internet 
services.  Currently, only two other operators (Neuf Telecom 
and Free) offer TV over DSL in France via wholesale 
broadband deals with FT.  Other operators are worried that 
FT will effectively stifle competition in France with 
bundled "triple play" offerings. 
 
¶6.  European Commission approves regulation of French 
broadband:  France Telecom will be required to provide other 
market players with wholesale nationwide high-speed access 
to France's telecommunications network. On July 27, the 
European Commission authorized this regulatory measure, 
which had been proposed by the French national regulatory 
authority for electronic communications (ARCEP).  The 
measure will apply until competing network operators have 
built a sufficiently wide backbone network and a large 
enough customer base to enable them to invest further in 
regional high-speed (broadband) services.  FT's large market 
share, its capacity to supply the whole range of broadband 
products at both wholesale and retail level, its size and 
its control of the local infrastructure, led ARCEP to 
conclude that FT is dominant on the wholesale nation-wide 
broadband access market. ARCEP considered that competition 
in this market will be facilitated if FT is obliged to 
ensure internal accounting transparency between its 
wholesale "network" branch and its retail "ISP" entity as 
the recent reintegration of Wanadoo into France Telecom may 
have potential consequences on retail competition.  The 
Commission asked ARCEP to review this market again within a 
year to review new market developments, which could enhance 
competition in the wholesale broadband market in France. 
 
STAPLETON