US embassy cable - 05PARIS7301

UNCLAS SECTION 01 OF 03 PARIS 007301 
 
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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: 
-- GOF hopes for "dialogue" on internet governance (para 2) 
-- France holds its own on broadband growth, but not in 
Europe's top tier (para 3) 
-- Another (virtual) mobile operator expected soon (para 4) 
-- Huge demand for WiMax licenses creates new headache for 
regulator (para 5) 
-- Orange makes deals to offer mobile customers more content 
(para 6) 
-- ARCEP announces three new bureau chiefs (para 7) 
-- Government stake in France Telecom falls to 33.1% (para 
8) 
-- France Telecom buys out Orange Slovakia (para 9) 
-- Regulator submits relevant market analysis for fixed 
telephony (para 10) 
 
2. (SBU) GOF hopes for "dialogue" on internet governance: 
EconOff met with French Ambassador and head of the Foreign 
Ministry office for WSIS preparations Jean-Michel Hubert on 
October 25 to discuss the current impasse between the USG 
position and the EU/UK proposal on internet governance. 
Hubert made several points (septel), which focused mainly on 
key words and their definitions.  He noted in particular 
that the word "oversight" appeared the four principles 
released by the USG in June 2005, but not in the EU/UK 
proposal.  He also noted that the word "regulation" has 
different meanings in English (both making/defining rules 
and implementing them) and in French (it means only the 
latter).  Indeed, the word regulation has a negative 
connotation in English, whereas many French politicians use 
it as a kinder, softer substitute for the word governance, 
which has a more heavy-handed connotation.  However, 
Hubert's main point during the discussion came down to 
whether the USG will entertain a dialogue on the subject of 
internet governance.  He and the GOF clearly hope that the 
U.S. position will not forestall a dialogue (a word he 
equated with negotiation) on the subject. 
 
3. (U) France holds its own on broadband growth, but not in 
Europe's top tier:  According to recently released June 2005 
OECD statistics, France ranks fourteenth among the 30 OECD 
member countries in terms of broadband penetration (12.8% of 
French inhabitants), above the OECD average, but well below 
the top five cut-off point of 20%.  France came in just 
behind the U.K. (13.5%) and roughly mid-way between its 
neighbors Belgium (18.2%) and Germany (10.2%).  France's 
growth rate (net increase Q2 2004 to Q2 2005) for broadband 
penetration was a respectable 4.77%, which was the tenth 
fastest among the same group of 30 OECD member countries. 
GOF efforts to promote broadband availability and use have 
clearly made headway -- enough to leave policy-makers 
satisfied perhaps, but not enough to gain any significant 
notice, much less, praise among France's OECD peers. 
 
4. (U) Another (virtual) mobile operator expected soon: 
Entrepreneur Richard Branson is reportedly in talks with the 
Carphone Warehouse Group, Europe's largest independent 
mobile phone retailer, about forming a joint venture to 
bring Virgin phones to customers across France.  On October 
24, the companies said they hoped to form a Mobile Virtual 
Network Operator (MVNO), which would buy airtime wholesale 
and offer services by piggy-backing over the network of 
dominant mobile phone operator Orange.  Although the joint 
venture will trade as Virgin Mobile, it will build on 
Carphone's regional mobile operation, known as Omer, in the 
northwest region of Brittany.  Under the brand name MVNO 
Breizh Mobile, Omer has built up its customer base in France 
to som4 48,000 clients, which it hopes to grow to 100,000 by 
early 2006.  Industry sources familiar with talks said the 
Virgin venture was likely to be 50% owned by Carphone and 
50% by Virgin Mobile and parent Virgin Group.  A launch, if 
negotiations go according to plan, is expected in the first 
half of next year.  The French regulator ARCEP had hoped to 
bring more competition to the French mobile market through 
MVNOs.  However, earlier this year, the European Commission 
struck down an ARCEP move to force operators (FT's Orange, 
SFR owned by Vivendi Universal and Vodaphone, and Bouyges 
Telecom) to open their networks to lower-cost MVNOs, saying 
it was unnecessary.  As a result, MVNOs have had limited 
success in France.  Swedish telecoms operator Tele2 set up a 
French MVNO using Orange's network, but company officials 
estimated that virtual network operators had captured less 
than one percent of the market since Germany's Debitel 
signed one of the first French MVNO deals with SFR last 
year. 
 
5. (U) Huge demand for WiMax licenses creates new headache 
for regulator:  Surprised by the outpouring of demand across 
a broad spectrum of businesses for Wimax, telecom regulator 
ARCEP now must decide among 175 candidates, which will get 
the two available licenses.  Of the 175 total, 32 have 
requested national licenses, 67 come from townships and 
other local government groups (20 from regions and 39 from 
departments, which cover smaller areas).  Observers say that 
the regulator is overwhelmed with the prospect narrowing 
such a large field and hopes to avoid what happened in 2000 
when local radio loop licenses were awarded to the largest 
operators, which was described as a disaster by former ARCEP 
board member Dominique Roux, who said that the license 
winners had lied and were the worst candidates.  As a 
result, many start-ups not only failed to get licenses, but 
failed entirely as business ventures.  The selection process 
which was a modified "beauty contest" added an financial 
auction component to weed out candidates.  According to 
ARCEP board member Gabrielle Gauthey, the trama of the bad 
experience with local radio loop licenses naturally leads 
one to consider a pure auction system.  The only decision 
about the selection process that has clearly been taken so 
far is that licenses will be attributed region by region, 
despite protests from local government groups, which had 
pushed for distribution by departments. 
 
6. (U) Orange makes deals to offer mobile customers more 
content:  Canal Plus, the largest French film and television 
group, has teamed up with France's largest mobile phone 
operator, Orange, to commercialize content for mobile 
phones.  Canal Plus is the first media group to wager on new 
specially adapted television formats for mobile phones and 
the group hopes to distribute it widely among French cell 
phone users.  Betting one thing that is bound to be a draw, 
Canal Plus and Orange will share rights to distribute soccer 
and rugby sporting events.  Ironically, Canal Plus is a 
subsidiary of Vivendi Universal, which owns over 50% of SFR, 
Orange's largest competitor.  As a result of a second deal, 
starting October 17, French consumers were able to download 
Madonna's new single "Hung Up" on their cell phones before 
its physical release.   This world premiere initiative is 
part of a partnership between Warner Music, France Telecom 
and Orange.  The offering is part of an exclusive national 
multi-platform marketing campaign, which supports Madonna's 
new album, which will be released internationally on 
November 14. 
 
7. (U) ARCEP announces three new bureau chiefs:  National 
regulatory authority for electronic communication and postal 
services announced three new "chefs de service" or bureau 
chiefs on October 20.  From her previous post as President 
of the Administrative Tribunal and before that a court 
reporter in the Paris Appeals Court, Joelle Adda takes over 
the legal affairs division.  Isabelle Kablas-Langlois will 
be in charge of the economic and planning division, bringing 
with her a wealth of experience from France's leading agency 
for economic statistics and analysis, INSEE, as well as 
working on competition and regulatory issues at French 
energy utility Electricite de France.  Kablas-Langlois has 
also published several articles on patents and innovation. 
The new third division chief, Guillaume Lacroix, will focus 
on postal regulation. 
 
8. (U) Government stake in France Telecom falls to 33.1%: 
In early-September, France Telecom announced a new share 
offering that dilutes the GOF stake considerably.  The three 
billion euros ($3.7 billion) of new shares offered helped to 
finance its acquisition of Spanish wireless operator Amena, 
which was announced last July.  The deal comes amid a number 
of large share offerings in France this year, most of which 
are aimed at helping the state cut debt.  In June, the 
government sold 3.4 billion euros of FT shares; in July, it 
raised 2.5 billion euros through a partial privatization of 
Gaz de France SA; and within the next several weeks, the GOF 
is expected to launch a partial privatization of the world's 
larges power company, French utility Electricite de France. 
Before the share offering, the GOF stake in France Telecom 
was 34.9% and now, since the GOF did not buy any of the new 
shares, its stake is down to 33.1%, which still gives the 
French government a blocking minority at shareholder 
meetings.  This new level might have been psychologically 
important to some, since it is no more than "just enough" to 
maintain an ability to block controversial moves -- however, 
it occurred with relatively little fan fare in early 
September as the French were returning to work after summer 
vacations.  This was in stark contrast to a general strike 
on October 4 and a dramatic ferry hijacking and continuing 
protests in some towns and cities in southern France after a 
GOF move to partially privatize the Corsican ferry company 
SNCM. 
 
9. (U) France Telecom buys out Orange Slovakia:  According 
to business news reports on October 21, France Telecom will 
pay $628 million to buy all shares of Orange Slovakia, the 
leading cell phone operator in Slovakia.  FT already holds a 
63.8% stake in the company, whose 2.3 million customers make 
up 57% of the nation's cell phone market, the French company 
said Thursday.  Among the sellers of the remaining shares of 
Orange Slovakia is a consortium of financial investors led 
by AIG New Europe Fund.  Reportedly, the deal should be 
completed before yearend. 
 
10. (U) Regulator submits relevant market analysis for fixed 
telephony:  ARCEP submitted to the European Commission draft 
decisions concerning retail (access and communications) and 
wholesale markets (call origination, carriage and call 
termination), excluding call termination services to 
alternative fixed operators, as well as geographic call 
termination markets of alternative fixed operators. 
Following recent public consultations, ARCEP modified a 
number of elements in its draft decision on its relevant 
market analysis for fixed telephony, whose three main points 
were:  (a) for the retail markets on which France Telecom 
has significant market power: France Telecom will be 
exempted from having to submit its retail prices for 
approval, (b) for the wholesale carriage markets on which 
France Telecom has significant market power: France Telecom 
will be subject to pricing controls for services offered, 
and (c)  for the wholesale call termination markets of 
alternative fixed operators on which these operators have 
significant market power: they will be obliged to provide 
access.  The European Commission is expected to soon 
complete their review of these decisions and provide 
observations. 
 
STAPLETON