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UNCLAS SECTION 01 OF 02 PARIS 003613 
 
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 
 
¶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 is Europe's largest single broadband provider 
(para 2); 
-- FT seeking revision of E.U. regulations (para 3); 
-- FT's dwindling subscribers base (para 4); 
-- FT responds to fierce domestic competition (para 5); 
-- France's All-Digital Television Policy (para 6); 
-- Vivendi break-up proposal rejected (para 7); 
-- Picking winners - Quaero and TVMSL get GOF R&D funding (para 8). 
 
¶2.  France Telecom is Europe's largest single broadband provider: 
With 7.6 million broadband subscribers at the end of 2005, France 
Telecom remains the largest broadband service provider in Europe, 
according to the latest Strategy Analytics Broadband Service 
Provider Subscriber Database. At the end of 2005, the 76 service 
providers in the database accounted for more than 52 million 
broadband subscriptions in 20 European countries, an increase of 53 
percent from the same period in 2004. This represents 86 percent of 
the total 2005 European broadband market. 
 
¶3.  France Telecom seeking revision of E.U. regulations: France 
Telecom (FT) has asked the European Union to scrap regulations drawn 
up in the 1990s, saying they discourage the Continent's incumbent 
operators from investing in new networks.  FT is asking for a 
complete phase out of current regulations by 2012. The company is 
proposing limiting fixed-line regulation on the wholesale market, 
while changing wholesale regulation in the mobile market to foster 
the growth of network operators rather than virtual operators, or 
MVNOs.  FT has written the E.U. saying that the current regulation, 
which aimed to enhance competition, has contributed to the decline 
of Europe's high-tech sector. 
 
¶4.  France Telecom's dwindling subscribers base: France Telecom is 
losing customers in droves.  About 1.5 million fixed-line contracts 
are expected to be cancelled in 2006 as clients desert to cheaper 
bundled service offers rather than pay FT's monthly subscription 
fee.  Figures from ARCEP, the telecom regulator, showed France 
Telecom's cancellation rate is running at 30,000 subscribers a week, 
compared with 10,000 in December, as clients take up offers from the 
likes of Neuf Cegetel, Free or Club Internet.  Rental line income 
brought in 4.2 billion euros last year, more than the billings from 
calls themselves.  Over 3 million households have picked an 
alternative operator, of which 30 percent have completely opted out, 
compared with 7 percent a year earlier. Rival operators made inroads 
by offering cheaper call tariffs and bundling them with competitive 
rates for broadband internet access.  FT's Wanadoo broadband service 
still holds the dominant market share, with 4.5 million subscribers, 
followed by 1.6 million with Free and 1.2 million at Neuf Cegetel. 
FT, however, played down the figures, saying the cancellations 
represented 3.5 percent of the residential fixed-line market. 
 
¶5.  FT responds to fierce domestic competition: FT has announced 
plans to sell an internet dedicated service called ADSL Only to 
alternative operators.  The new service would be a wire connection 
but without a normal phone service and would be sold solely for 
internet use and would be free of the phone rental charge.  The 
service could be used for internet calls, under the voice over 
internet protocol (VOIP) system, pioneered by Skype.  FT also aims 
to develop the so-called quadruple-play package, combining voice, 
internet, television and mobile phone.  The company further intends 
to phase out the Wanadoo name and merge its service under the Orange 
mobile brand. 
 
¶6.  France's All-Digital Television Policy: Following up on his New 
Year's pledge to ensure that France is "one of the most advanced 
nations in digital technology," French President Jacques Chirac 
recently unveiled a new "Strategic Digital Committee" to carry out 
the new strategy.  A cornerstone of this strategy is that HDTV be 
deployed throughout France by 2011.  The new committee is chaired by 
the Prime Minister and includes the Ministers of Culture and 
Industry as well as the chairmen of telecom regulator ARCEP and 
television regulator CSA.  President Chirac has also expressed hope 
that, in time, the two regulators would merge.  According to one of 
our contacts, the controversial merger is now a fait accompli given 
Chirac's endorsement, although CSA staff was chagrined by his 
pronouncement. 
 
¶7.  Vivendi break-up proposal rejected: French media and telecom 
group Vivendi recently rejected a shareholder's proposal to break up 
the company, adding that its conglomerate strategy should generate 
higher earnings this year than previously forecast.  The supervisory 
and management boards of the group said they rejected the proposal 
by Monaco-based private equity firm Sebastian Holdings, because it 
was "based on economic and legal hypotheses that are unrealistic." 
The plan, which was backed by Deutsche Bank and Bank of America, 
involved a sale of the company's telecom and pay-television 
operations and a leveraged buyout of the remainder of the assets, 
according to press reports.  The French company - whose operations 
include pay-TV broadcasting, computer gaming, music, and wireless 
services - reported a 41 percent rise in first-quarter net profit, 
boosted by strong growth at its music and games businesses.  The 
group intends to pursue its strategy of combining its media and 
telecom businesses. 
 
¶8.  Picking winners - Quaero and TVMSL get GOF R&D funding:  In 
late-April, President Chirac announced that the French Agency for 
Industrial Innovation will fund some 15 large R&D projects this year 
with 1.7 billion euros in state aid (see Paris 2747 for more 
details).  Of the five initial R&D projects announced, two are 
focused on information and communication technologies (ICT).  Each 
project will involve shared public-private sector risk, with a major 
French company leading the project and working in tandem with small 
and medium-sized firms and public research labs.  The projects are 
designed to produce marketable technologies within five years.  The 
first major information technology project is Quaero, a 
Franco-German effort to develop multimedia applications, including a 
Google-type search engine, for which the lead company will be 
Thomson.  The Quaero project will receive 90 million euros in GOF 
state aid, although the German Government, Thomson and other 
participating companies are expected to contribute toward the total 
expected project cost of 250 million euros.  The other major 
information and communications technology project is TVMSL which 
aims to develop a new television standard for mobile phones.  The 
lead company for TVMSL is Alcatel.  The TVMSL project will receive 
38 million euros in state aid toward a total expected cost of 98 
million euros. 
 
Stapleton