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

251738Z Aug 05

UNCLAS SECTION 01 OF 02 PARIS 005750 
 
SIPDIS 
 
STATE FOR EB/CIP, EUR/ERA AND INR/B 
USDOC FOR NTIA AND ITA 
FCC FOR INTERNATIONAL 
STATE PLEASE PASS TO USTR 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: ECPS ECON ETRD PGOV FR
SUBJECT: FRANCE'S MOBILE OPERATORS FACE ALLEGATIONS OVER 
PRICE-FIXING; ECONOMY MINISTER UNDER SUSPICION 
 
 
NOT FOR INTERNET DISTRIBUTION 
 
¶1.  (SBU) SUMMARY. France's three main mobile telephone 
operators (Orange, SFR and Bouygues) are being investigated 
by the government's Fraud Office for anticompetitive 
practices.  If found guilty by France's Competition Council 
of a concerted effort to fix calling rates from 1997 to 
2003, they could face fines of up to 10 percent of their 
respective annual revenues.  A decision by the Council is 
expected before the end of the year, according to the August 
24 issue of "Le Canard Enchaine", the French satirical and 
investigative weekly that made the ongoing government 
investigation public.  The weekly hints at least some 
involvement by former France Telecom CEO and current Economy 
Minister Thierry Breton, which could spell trouble for the 
minister and the government. END SUMMARY. 
 
¶2.  (SBU)  The investigation results from an original 
complaint by French consumer group UFC-Que Choisir in 
February 2002.  The consumer association noted that each 
mobile operator had adopted "strictly identical rates."  An 
investigation carried out by the Economy and Finance 
Ministry's Competition, Consumer Affairs and Fraud Office 
(DGCCRF) documented the allegations further, according to 
"Le Canard Enchaine" in its August 24 issue.   In its May 
2004 report, the Fraud Office found memos and minutes of 
"secret regular meetings" between the three operators to 
allow them to be more reactive to market changes. (Note: 
Orange is owned by France Telecom, Bouygues is privately- 
owned, and SFR is owned jointly by Vodafone and Vivendi.) 
 
¶3.  (SBU)  "Le Canard" cites many of the operators' 
documents which were never intended to be "communicated to 
outsiders, either to ART, the French telecoms regulatory 
authority or to the Economy and Finance Ministry."  The 
documents further point to the minutes of an October 28, 
2002 meeting between the three operators, in the presence of 
then- France Telecom CEO Thierry Breton.  During that 
meeting, the CEO of FT's mobile unit Orange allegedly 
referred to the "Yalta of market share" agreed by the three 
operators.  An earlier note claims that Breton's predecessor 
Michel Bon had given a green light to the secret agreement. 
 
¶4.  (SBU)  Finally, according to the press reports, the 
investigation carried out by the Fraud Office concluded the 
(tortured?) reasoning behind the alleged collusion : to keep 
financially ailing Bouygues afloat in order to prevent FT's 
Orange market share from crossing the watershed 49.6 percent 
mark, at which point the regulator would be required to step 
in and set prices.   The Fraud Office's report allegedly 
quotes Thierry Breton as using this explanation in a meeting 
it documents.  FT allegedly feared that if Bouygues went 
bankrupt, most of its customers would move to Orange. 
 
¶5. (SBU) Breton, who was CEO from October 2003 to 2005, 
before being named Economy and Finance Minister, shepherded 
France Telecom's gradual transformation from a state- 
controlled company to one where the GOF owns approximately 
39 percent.  Mobile operator Orange was a publicly trade 
company in 2000 when France Telecom acquired it from 
Vodafone, in a deal approved by European Commission 
authorities. Under Breton's tenure, FT bought back all 
outstanding shares of the company. 
 
¶6. (U) Breton and other ministry officials categorically 
deny these allegations.  Breton says the facts being 
investigated took place before he took over at FT, and added 
that France's three mobile phone operators "would have to be 
punished" should any evidence of a price-fixing agreement be 
found. 
 
COMMENT 
------- 
¶7. (SBU) In the short-term, the allegations against Breton 
could weaken the minister's personal efforts to push for tax 
reform in the fall, and could distract public and press from 
Prime Minister de Villepin's singular focus on employment. 
If it mushrooms, a highly visible scandal involving Breton 
(France's fourth Economy minister in two years) could be 
politically damaging for the Chirac government.  A scandal 
involving one of the new government's leading ministers 
would certainly provide the deeply divided Socialist Party 
with one thing to agree on.  (In parliament next week there 
will be no lack of socialist lambasting of price fixing by 
capitalist fat cats).  Chirac's other rivals and their 
supporters are also lining up to take political advantage of 
the government's weaknesses.  The knives may be even sharper 
next week as much of France returns to work and school. 
 
HOFMANN