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France Telecom Core Business Under Siege

According to Analysys Research, while a number of mobile operators have successfully focused their strategy on fixed�mobile substitution and taken revenues from fixed operators, highly innovative quadruple-play offerings are becoming increasingly common in OECD countries. These offerings could present a real growth opportunity and may allow fixed operators to recover.

Historically, broadband operators have progressively added video and fixed voice to their Internet offerings, and are now starting to include mobile telephony services. In a recent analysis of multi-play offerings, the OECD reported that in 10 of the 30 OECD countries, fixed operators have extended their multi-play services with mobile telephony. This trend is illustrated by recent developments in France, where a number of major players have announced innovative offers.

One such player is the alternative ISP Neuf Cegetel (Neuf), which has launched an MVNO. It provides WiFi telephony services via any WiFi-enabled device within the coverage of any Neuf ADSL WiFi line or of over 2500 public WiFi hot spots in France. Since Neuf�s broadband package includes unlimited calls to all national and approximately 15 international destinations, this implies the potential substitution of relatively expensive mobile calls by �free� fixed calls.

Another alternative French ISP -- ironically named 'Free' -- also offers WiFi telephony, to all ADSL WiFi subscribers that have the latest version of its Freebox modem. The principle is basically the same as Neuf�s offer: any calls to mobile numbers within the coverage of the Free WiFi access network are billed to the subscriber�s personal account, and are free (without additional cost) for all national, and most international calls.

However, unlike Neuf, Free has not launched any MVNO services. Free�s subscribers will therefore have to keep a separate mobile subscription, and Free will not be able to address revenues from incoming mobile calls or from calls to mobiles outside its WiFi coverage.

The incumbent operator, France Telecom, which since the beginning of June has re-branded its ISP Wanadoo under the Orange brand, has also announced that it will provide quadruple-play services from September 2006 (via a convergent handset called �Unik�).

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