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UNCLAS SECTION 01 OF 03 PARIS 002154 
 
SIPDIS 
 
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SIPDIS 
 
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TAGS: ECPS ETRD FR
SUBJECT: France: Telecom and Information Technology Update 
 
REF: Paris 2027 
 
¶1. (U) This update covers recent news in the French 
telecommunications and information technology sectors, including 
internet and e-commerce. 
 
Contents: 
-- Telecom Policy Gets a New Home (para 2) 
-- Fourth Mobile License (para 3) 
-- High Speed Internet Success in France (para 4) 
-- Alcatel-Lucent's Lower Profits (para 5) 
-- Protests over Alcatel-Lucent job cuts (para 6) 
-- Alcatel Promotes Chinese 3G standard (para 7) 
-- Verizon and Alcatel-Lucent Announce Lucrative Contract (para 8) 
-- Deutsche Telekom Sells French Internet Subsidiary 
(para 9) 
-- France Telecom Announces Revenue Increase (para 10) 
-- Orange gets new Boss (para 11) 
-- Orange Video-On-Demand (VOD) becomes Paramount (para 12) 
-- Orange Experiences Rapid Growth in Egypt (para 13) 
-- Mobile Phones As Credit Cards (para 14) 
 
Telecom Policy and Sarkozy's Ministerial Restructuring 
---------------------------------- 
 
¶2. (SBU) President Nicolas Sarkozy has split the former Ministry of 
Economy, Finance and Industry into two separate ministries -- a 
Ministry of Budget, Public Accounts and Civil Service, and a 
Ministry of Economy, Finance and Employment.  Telecommunications 
policy should remain within the purview of the latter, though 
whether it will remain the domain of a Directorate for Information 
Technology is not yet clear.  The new Minister of Economy, Finance 
and Employment, Jean-Louis Borloo, previously served in the Raffarin 
and Villepin governments as Minister for Employment, Labor, and 
Social Cohesion during 2004-2007, and Junior Minister for Towns and 
Urban Renewal from 2002-2004 (reftel). The change in government will 
not affect the telecommunications regulator, Paul Champsaur, who was 
appointed in 2003 and should remain in place until 2009.  President 
Sarkozy supports Champsaur's project to encourage investment in 
fiber to French homes. 
 
Fourth Mobile License 
--------------------- 
 
¶3. (U) Telecom regulator ARCEP has invited bids for France's fourth 
third generation (3G) wireless license, due on July 31.  The license 
will be awarded by a "beauty contest" against a set of criteria 
specified on ARCEP's website (www.arcep.fr).  The application 
procedure is similar to that used in issuing the previous three 3G 
licenses. Rumors in the market indicate that the Iliad Group, in 
conjunction with a partner, and Neuf Cegetel are likely bidders. 
 
New ARCEP Figures Attest to High Speed Internet Success in France 
---------------------------------- 
 
¶4. (U) According to ARCEP's recent data, France counts 12.7 million 
high-speed internet subscribers. In 2006, Internet providers 
attracted 3.2 million new subscribers, a 34 percent increase over 
the previous year. 
 
Alcatel-Lucent's Lower Profits 
------------------------------ 
 
¶5. (U) Alcatel-Lucent, the world's largest supplier of 
telecommunications equipment, said that 2007 first-quarter adjusted 
profit fell 35 percent (year-on-year), hurt by restructuring costs 
and a twelve percent decline in sales.  Profits fell to 199 million 
euros (USD 268 million), down from 306 million euros (USD 413 
million) a year earlier.  To May 10 Alcatel-Lucent stock had fallen 
by 11 percent.  Alcatel-Lucent's wireless business is particularly 
vulnerable, with wireless revenue having fallen 15 percent from a 
year earlier.  CEO Patricia Russo blamed the drop on deferred sales 
in anticipation of Alcatel-Lucent's launch of newer product lines. 
Russo has said that restructuring and integration plans are on track 
and that the company should save 600 million euros (USD 810 million) 
this year.  Investors apparently like what they see and the stock 
has enjoyed a partial rebound in the last week. 
 
Alcatel-Lucent Labor Issues 
--------------------------- 
 
¶6. (SBU) Alcatel-Lucent restructuring plans include 12,500 job cuts 
over three years to help reduce costs, and the company had achieved 
 
PARIS 00002154  002 OF 003 
 
 
15 percent of its target by the end of the first quarter.  In the 
largest demonstration against these plans so far, an estimated 3,000 
to 5,000 workers marched on the company's headquarters in Paris on 
March 15 against the 1,500 planned cuts in France.  "Alcatel-Lucent 
is a global company with its base in Europe and this is a French and 
European problem affecting the future of high-tech industries," said 
Confederation Francaise Democratique du Travail (CFDT) union 
Secretary General Francois Chereque.  French employees took part 
 
SIPDIS 
alongside workers from Belgium, Germany, Italy, the Netherlands and 
Spain.  Affected regional governments are also taking action against 
Alcatel-Lucent.  In response to Alcatel-Lucent's plans to close a 
research center and lay off 200 local employees, the Brittany 
regional government blocked a 1.8 million euro (USD 2.39 million) 
regional aid grant to a "competitiveness cluster" in which 
Alcatel-Lucent participates. 
 
Alcatel Promotes Chinese 3G standard 
------------------------------------ 
 
¶7. (U) Alcatel-Lucent's Chinese affiliate, Alcatel Shanghai Bell, 
and China's Datang Mobile will provide the Chinese TD-SCDMA third 
generation (3G) mobile phone standard used in a trial by China 
Mobile.  China Mobile will use the 3G standard in a trial network 
expansion in Shanghai and Guangzhou.  The TD-SCDMA technology allows 
for voice and high-speed data services, such as internet access, 
video streaming, and remote access to software applications. 
Chinese carriers reportedly have been reluctant to use TD-SCDMA, 
preferring to use the better known cdma2000 and W-CDMA standards. 
 
Verizon and Alcatel-Lucent Announce a USD 6 Billion Contract 
---------------------------------- 
 
¶8. (U) Verizon Wireless and Alcatel-Lucent announced in late March a 
three-year agreement worth an expected USD 6 billion for 
Alcatel-Lucent to supply a wide variety of network equipment, 
software and services supporting Verizon Wireless' ongoing network 
expansion and continuous improvements.  With this agreement 
Alcatel-Lucent continues to be Verizon Wireless' primary network 
infrastructure supplier and will continue to help grow Verizon 
Wireless' multimedia and data services.  Under the agreement, 
Alcatel-Lucent will provide infrastructure solutions to transition 
Verizon Wireless to an all-internet protocol network. 
 
Deutsche Telekom Sells French Internet Subsidiary 
---------------------------------- 
 
¶9. (U) Telecom operator Neuf Cegetel won a tender for French 
Internet operator Club Internet, an ISP sold by Deutsche Telekom. 
Neuf Cegetel's bid, between 430 and 460 million euros (USD 560-600 
million), topped that of rival operator Free, owned by the Iliad 
Group.  Club Internet, which has 600,000 subscribers to its high 
speed internet service, made a 2006 operating loss of about 100 
million euros (on sales of more than 200 million euros) as a result 
of heavy investment to encourage client growth.  With this 
acquisition, Neuf Cegetel has the second largest number of 
subscribers to its Internet service in France, overtaking close 
rival Free.  France Telecom remains the market leader, with 49.2 
percent of the market.  Rumors are floating that Telecom Italia's 
French Internet unit, Alice, may be the next company up for sale.  A 
recent magazine rated Alice's customer service the worst in a market 
not known for its customer friendliness. 
 
France Telecom Announces Revenue Increase on Mobile Gains 
---------------------------------- 
 
¶10. (SBU) France Telecom (FT), Europe's second largest phone 
company, said first-quarter sales unexpectedly rose 1.8 percent, 
lifted by revenues from mobile services in emerging markets and 
Internet services in France.  Sales increased to 12.84 billion euros 
(USD 17.52 billion) from 12.81 billion euros a year earlier.  FT 
executives told us that value-added Internet services would make up 
for declines in traditional voice calls by the end of 2007.  FT also 
expected growth by expanding its wireless business in emerging 
African and Central European markets, which are growing rapidly. 
Analysts had expected a mild sales decline prior to the release of 
first quarter results.  Operating profits rose 1.5 percent to 4.66 
billion euros (USD 6 billion) in contrast to the 1.5 percent decline 
that analysts had predicted.  FT shares rose by 3 percent to 21.59 
euros (USD 28) on the news. 
 
Orange Gets a New Boss 
---------------------- 
 
 
PARIS 00002154  003 OF 003 
 
 
¶11. (U) In the preamble to the announcement of its quarterly 
earnings, France Telecom announced the departure of mobile telephony 
subsidiary Orange's Director-General Sajiv Ahuja.  Ahuja has led 
Orange since 2003, and is leaving at a time when profits are 
rebounding.  Profits in the first quarter grew by 1.8 percent, with 
revenues growing by 1.5 percent.  Management of the business unit 
will pass to Olaf Swantee, who is moving over from Hewlett Packard. 
 
 
Orange Offers New Video On Demand Services 
---------------------------------- 
 
¶12. (U) Orange has signed an agreement that will allow its broadband 
digital TV and high-speed Internet subscribers access to new video 
on demand (VOD) content from Paramount and DreamWorks Studios. 
Orange's VOD package, 24/24 Video, rotates its film offer each week 
from a catalogue of over 2,500 films. They include back catalogue 
titles from major studios and independent French and international 
productions.  Rental starts at 3 euros for 24 hours and includes 
unlimited viewing, pause functions and fast forward and rewind. 
Films are offered in French or original language versions with 
subtitles. 
 
Orange Experiences Rapid Growth in Egypt 
---------------------------------- 
 
¶13. (U) France Telecom's growth strategy in Egypt is emblematic of 
growth in emerging telecom markets.  FT owns 71.25 percent of 
Egyptian mobile operator Mobinil, which recently reached 10 million 
subscribers and has a 52 percent market share in the country.  FT is 
seeking to use Mobinil as a springboard for further investment in 
the Africa and Middle East region.  FT plans to create 400 new jobs 
at France Telecom's Orange Business Services (formerly Equant) 
centre in Cairo, bringing the total number of employees there to 
1,500.  Orange Business Services -- a global leader in communication 
solutions for multinational companies worldwide -- has its largest 
center in Cairo. 
 
Mobile Phones as Credit Cards 
----------------------------- 
 
¶14. (U) French wireless telecoms groups Bouygues Telecom, Orange and 
SFR agreed with French train company SNCF, Paris metro firm RATP, 
and private firms Keolis, Transdev, and Veolia to allow travelers to 
use cell phones as contactless credit cards.  The companies set up a 
working group on April 13 to implement the accord.  The working 
group, which is part of the Secure Electronic Transaction 
"competitiveness cluster" located in Caen, Normandy, intends to 
provide a common standard for "transportation cards on mobile 
phones" by next fall.  To pay for a ride, users will need only wave 
their cell phones past readers to be installed throughout France. 
This system has already been tested by Bouygues Telecom on Paris's 
public transportation system RATP since March 2006.  French rail 
company SNCF also has a mobile phone ticketing service, under 
experimentation since July 2006, and which requires an 
Internet-capable phone. Users pay for the ticket over a secure 
payment system and receive a multimedia message to their phone that 
includes a bar code.  The message serves as a ticket that can be 
shown to ticket collectors on the train. 
 
STAPLETON