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UNCLAS SECTION 01 OF 04 PARIS 000630 
 
SIPDIS 
 
STATE FOR EB/CIP 
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: 
-- France Telecom preparing for difficult 2006 (para 2) 
-- Bad results followed by management shake-up (para 3) 
-- ARCEP raps France Telecom's knuckles over convergent 
offer (para 4) 
-- French bargain hunting drives record e-commerce sales 
(para 5) 
-- Chirac promotes Quaero to rival Google in transatlantic 
competition (para 6) 
-- American court deals Yahoo's French case a setback (para 
7) 
-- French regulator and GOF officials headed to the U.S. 
(para 8) 
-- French editors to protest Google's copyright infringement 
(para 9) 
-- Le Monde criticizes "Hypocritical Google" (para 10) 
-- ARCEP introduces new 09 phone number prefix (para 11) 
-- French mobile operators oppose ARCEP's SMS price proposal 
(para 12) 
 
¶2.  France Telecom preparing for difficult 2006:  According 
to recent reports, the 2006 outlook for France Telecom (FT) 
appears bleak.  After a poor finish in 2005, FT was forced 
to admit a slow two to three percent annual growth rate, 
similar to previously poor performances.  In late January, 
FT shares fell more than 8% in one day, erasing a staggering 
five billion euros off its market value.  The slowdown is 
attributed to disappointing results from FT's Polish 
subsidiaries and the rise of competitors in the new emerging 
market for bundled high-speed services.  While facing this 
rise in competition, FT is confronted with a technological 
revolution.  Competitors are gaining in the telecom sector 
by offering low prices for unlimited VoIP telephone, cable, 
and high-speed Internet access, but fierce competition is 
not the only factor devastating France Telecom.  FT and its 
mobile phone unit Orange also took a hit after numerous 
fines and regulations in recent months.  Nearly 600,000 
France Telecom customers left the company and opted to use 
its competitors, slowly breaking down FT's monopoly.  The 
competition among telecom operators benefits consumers with 
lower prices, but damages operators due to weak profits or 
losses resulting from the high cost of providing these new 
services.  To find new sources of revenue, FT plans to 
unveil high-speed services using fiber optic technology.  FT 
will also simplify its services and integrate its networks 
under Internet-protocol technology.  Additionally, FT is 
making bundled mobile and fixed-line services available to 
consumers in a complete package deal in part to discourage 
them from seeking services from other operators. 
 
¶3.  Bad results followed by management shake-up:  France 
Telecom Chairman and CEO Didier Lombard has appointed a 
streamlined management team with a new finance chief, 
according to a January 30 release.  Without mentioning the 
current Chief Financial Officer by name, the release says 
that Gervais Pelissier will take responsibility for group 
finance.  A source close to Lombard acknowledged that the 
current CFO would leave the company.  France Telecom also 
said Louis-Pierre Wenes has been appointed head of "group 
transformation and French operations."  The two men will be 
part of a nine-person "group management committee" chaired 
by Lombard which will include among others Sanjiv Ahuja, 
chief executive of mobile phone unit Orange.  The release 
said Wenes will lead all the group's activities in France, 
including Orange's business in France.  FT's CFO was widely 
regarded as in the hot seat after France Telecom issued a 
revenue warning for 2005 and a profit warning for 2006. 
This came after analysts and fund managers had questioned 
the company's method of communicating news about its 
finances throughout the second half of 2005.  FT stock is 
down 10% since the beginning of the year after having fallen 
14.5% in 2005. 
 
¶4.  ARCEP raps France Telecom's knuckles over convergent 
offer:  French national telecom regulator ARCEP has warned 
France Telecom that it must fulfill its obligations with 
regard to convergent offers.  The warning follows France 
Telecom's launch of its "Family Talk" offer in June 2005, 
which allows unlimited calls, for a flat monthly rate of 39 
euros, between a fixed telephone and three Orange mobile 
phones within the same family.  Before the offer was 
launched, FT obtained approval from ARCEP for only one part 
of it, namely unlimited calls from a fixed telephone to 
three mobile numbers for 30 euros.  After this, the operator 
changed the offer to include calls between Orange mobiles. 
 
¶5.  French bargain hunting drives record e-commerce sales: 
For 2005, online sales reached a record seven billion euros 
or as much as 10 billion euros counting online financial 
services, according to figures published on January 12 by 
ACSEL, a French e-commerce Association.  E-commerce in 
France attracted 9.3 million internet shoppers and continues 
to grow thanks in large part to the increasing amount of 
internet users with high-speed access.  Online auction sites 
like eBay.fr and PriceMinister.com, which allow transactions 
between individual Internet users, gained two million French 
visitors in 2005.  According to one recent survey, over one 
million novice internet users in France plan to make a 
purchase online.  (Note:  The strong French tendency to use 
debit rather than credit cards has led to more consumer 
reluctance here to shop online, since the financial burden 
of disputed transactions falls more on customers than 
vendors.  End note.)   There has been a marked increase in 
online shopping during this year's annual winter sales where 
French retailers are allowed to offer dramatic discounts to 
shoppers.  In France, the Finance Ministry has strict 
regulations for discounting retail merchandise allowing only 
two annual sales, each with a limited six-week duration. 
Online sales are expected to bring in sales 30 to 40 percent 
higher than average.  So, this long tradition of twice 
yearly sales is clearly migrating to the online shopping 
world with French consumers eagerly looking for even steeper 
discounts on their favorite e-commerce sites. 
 
¶6.  Chirac promotes Quaero to rival Google in transatlantic 
competition:  French officials at the highest levels appear 
to be squarely behind the Franco-German search engine 
project, Quaero, to be launched in late-January or early- 
February.  In their eyes, Quaero will not be the equivalent 
of Google or Yahoo, but rather an exercise in promoting and 
coordinating European innovation and R&D "to attain 
industrial objectives determined by the project ... within 
each industrial strategic framework."  Part of the Quaero 
initiative, Exalead.com expects to have four billion 
documents indexed by the end of January, and to exceed eight 
billion within six months.  Soon, Exalead will also add 
advertising to its site.  Quaero's rivals have a huge head 
start:  87.9% of French search engine users use Google, 
according to Mediametrie.  Only 9.8% claimed to use AOL, 
according to a survey by Exalead.  Additionally, Quaero must 
keep up with the creation of new functions and services 
(Google News, Google Maps, Google Earth, Google Print, etc.) 
In support of Quaero, President Jacques Chirac said that 
France should move rapidly to combat technology industry 
giants, such as Google and Yahoo, saying that Quaero would 
create a new internet search "geography" of knowledge and 
cultures, noting that  "Tomorrow, that which is not 
available online risks of being invisible on a worldwide 
scale."  Moreover, Chirac criticized Microsoft, saying that 
MSN's search technology was inferior and was not considered 
a rival.  Quaero was developed by a European group formed by 
Thomson, France Telecom, and Deutsche Telekom, with the 
apparent objective to create a Quaero-Google rivalry that 
will parallel the Airbus-Boeing rivalry. 
 
¶7.  American court deals Yahoo's French case a setback:  An 
appeals court in the U.S. has handed Yahoo a set back in a 
ruling that supports French anti-racism associations.  A 
French court ruled in 2000 that Yahoo had to remove Nazi 
items from its U.S.-based auction site.  The recent American 
court ruling supports the French ruling as it applies to 
Yahoo.  French human rights groups requested that Yahoo 
block French users from accessing the Nazi content on the 
American site and Yahoo responded that this was impractical. 
The French court exonerated former Yahoo CEO Timothy Koogle 
of responsibility for providing links to now-defunct 
internet auctions of Nazi paraphernalia, but ruled that 
Yahoo would have to pay 15,000 euros a day in fines, an 
amount that now has accumulated to millions of dollars.  The 
American judges, however, doubt that France will demand 
collection of the funds.  Still, the news of the recent 
American court ruling led one local paper to feature the 
headline "The Triumph of French Law." 
 
¶8.  French regulator and GOF officials headed to the U.S.: 
In separate meetings, ARCEP and Industry Ministry officials 
have expressed their intention to travel to the U.S. in 
April and June.  Appointed to the job in late-2005, Emmanuel 
Gabla replaced Emmanuel Caquot as head of the Industry 
Ministry Service for Technology and Information Society. 
During a courtesy call with EB/CIP DAS Ambassador David 
Gross, Gabla said that he hoped to organize bilateral 
meetings in Washington in April 2006 at State, 
Commerce/NTIA, DOJ as well as with telecom industry 
representatives.  Gabla hoped to include an ARCEP 
commissioner on the trip, possibly Gabrielle Gauthey.  Given 
Gabla's keen interest in elections and other issues for the 
upcoming ITU plenary, we suspect that this would be a key 
topic of their visit.  Separately, an official in ARCEP's 
office of international affairs said that ARCEP President 
Paul Champsaur hopes to travel to Washington in June 2006 
for meetings with FCC Chairman Kevin Martin and others, 
possibly during the week of June 12. 
 
¶9.  French editors to protest Google's copyright 
infringement:  In late January, French daily Le Figaro 
reported that several French editors are ready to sue Google 
for copyright infringement now that Google has scanned 
French books to put on-line. The growing concern of French 
publishing houses that Google has digitized excerpts from 
hundreds of French books without authorization led to the 
report.  The Google initiative has French editors 
contemplating building a European Digital Library.  French 
editors are dubious of Google's intentions as well as its 
assertions that the initiative aims to "promote culture and 
books."  Brice Amor, head of the legal department at 
Gallimard publishing, said "Of course we are going to react! 
It's infringement!  We aren't going to just sit here!" 
saying that numerous works from Gallimard are already being 
infringed through digitization.  Serge Eyrolles, president 
of the National Editors Union (Syndicat national de 
l'edition SNE), explained that book excerpts are only 
allowed if they do not exceed a paragraph.  He also 
indicated in September that if Google digitizes French 
authors without permission, the editor in question would sue 
and SNE would support and join them in such a lawsuit. 
 
¶10. Le Monde criticizes "Hypocritical Google":  In late 
January, French daily Le Monde devoted a front-page article 
and an editorial to Google's practices in China which seek 
to avoid a confrontation with the government by restricting 
access to e-mail, chat rooms and blogs.  The editorial, 
entitled "Hypocritical Google" notes that "In the U.S. 
Google has butted heads with the Bush Administration to 
defend civil liberties, something neither Microsoft's MSN, 
AOL nor Yahoo has done ... While the Bush Administration is 
the object of growing criticism with regard to civil 
liberties, Google's refusal to provide data on the searches 
done by the users on its site to the Justice Department ... 
made it the national champion of civil liberties in the U.S. 
It only took a few days for Google to undo this image"  The 
editorial emphasized that "In order to conquer the Chinese 
market with its 111 million Netsurfers... Google has agreed 
to censor itself. Expressions such as 'Human Rights' or 
`Independence for Taiwan' automatically lead to a page on 
the official party line."  The editorial ended by noting 
sarcastically "in Google's defense" that the company's 
policy is to "adapt to the country it finds itself in ... 
This means that it resists in the U.S. and caves in China. 
This is hypocrisy." 
 
¶11.  ARCEP introduces new 09 phone number prefix:  In 
response to growing telephone usage and the development of 
new services, ARCEP has made way for a new range of 
telephone numbers in France.  The new telephone numbers are 
expected to aid in the development of new high-speed 
services offered by operators and service providers.  Ten 
million phone numbers beginning with 097 will be made 
available for non-geographic interpersonal communication 
services, hoping to create a positive association with 
innovative, low-cost services and the telephone prefix. 
Additionally, the new numbering system should not disrupt 
current French telephone numbers.  The numbering will remain 
organized by geographical location 01-05, with 06 as the 
prefix for mobile phones, and access to value-added services 
beginning with 08.  (Note: When calling from outside France, 
the zero is replaced with country code 33.) 
 
 
 
 
¶12.  French mobile operators oppose ARCEP's SMS price 
proposal:  An October 2005 proposal by the French telecom 
regulator ARCEP to introduce regulations and halve wholesale 
prices for short messaging services (SMS) has won the 
support of the consumers' association Afutt, but has drawn 
criticism from France's three mobile operators.  They argue 
that the regulator has not proved the existence of any 
problems with regard to competition on the market.  They 
also say that, overall, SMS prices in France stand at or 
below the European average, a claim which ARCEP challenges 
by noting that the mobile operators have not cited 
verifiable sources.  Mobile operator SFR has said that the 
margin on SMS enables companies to offer generous subsidies 
on telephone prices, while rival Orange has said that the 
loss of income for the operator should ARCEP's wholesale 
price cuts come into force would have to be recouped through 
a price increase on another service, and that consumers 
would therefore not benefit.  The France Telecom subsidiary 
also made the argument that a marked reduction in SMS 
charges would lead to an increase in spam messages, the 
content of which could pose a problem with regard to the 
protection of young users. 
 
Stapleton