Cablegate: France: Telecom and Information Technology Update

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

UNCLAS SECTION 01 OF 03 PARIS 007301

SIPDIS

STATE FOR EB/CIP AND INR/B
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:
-- 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

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