Telecommunication Market in France: Trends and Analysis

1. SPPI telecommunication in France23rd Voorburg Group MeetingAguascalientes, Mexico22-26 September 2008Denis GacInsee

2. Definition of the service • CPA 2008 • 61.1 subsidiary telecommunications services • 61.2 wireless telecommunications services • 61.3 telecommunications services via satellite • 61.9 other telecommunications services • Business to business only

3. Definition of the service • On each occasion this may include: • The use, maintenance and access to the following transmission systems • Voice telephone • Data files • Texts SMS • Sounds radio • Images TV • Access to the internet

4. Pricing unit of measure • A> Telephone: • the prices are based on • The distance of the call • The time of the call • The length of the call • The network coverage of the operator • The networking costs • the prices, however, are not individualised • "FIXED RATES"  system • there are a number of different fixed rates

5. Pricing unit of measure • B> data transmissions • depend more on the volumes which are transferred • on the speed of the transfer • on the security of the transmissions • prices negotiated between operators and clients • private prices • C> TV and radio transmission • prices negotiated between operators (not very many) and clients (not very many)

6. Number of companies Turnover (billions €) Persons employed Telecommunications Fixed line and mobile telephony Internet service providers Transmission of radio TV programmes Other telecommunication activities Source: INSEE/ EAES 2005 2309 1539 527 103 140 56510 50931 1788 2388 1403 149562 136115 3595 6176 3676 Market conditions and constraints • Size of industry (sectoral perspective) • This is a very concentrated market: The first 10 companies represent 84% of the turnover, that is almost 44 billion € (2005)

7. Market conditions and constraints • According to the EAE source (sectoral survey) • Corporate customers 29.6% • Management customers 0.3% • Household customers 70.1% • The proportion of telecoms services is growing in the budget of households 1.4% en 1992 (15 billion €) • 2.4% en 2006 (24 billion €) • The monthly bill per client is growing by 3% a year.

8. Market conditions and constraintsCompanies represent just 1/3 of the turnover for the sector Source : ARCEP (regulation authority)

9. Market conditions and constraints Telecommunications (without TV and radio)annual revenue by industry (millions €): others data transport added value services wireless wireless internet wired wired Source : ARCEP (regulation authority)

10. Market conditions and constraints Y France Telecom • The market in France Orange (FT) SFR Bouygues Eutelsat TDF Globecast Colt Verizon AT&T Free Wanadoo (FT) Telecom Italia Neuf Cegetel Coriolis Debitel Corporate operators General public operators FAI

11. Market conditions and constraints • Special conditions or restrictions • The mobile telephone is the driving force behind the market, and there is a constant variation in service offers • The fast-growing market continues to lead to mergers and acquisitions, a situation that must be monitored • New services are appearing (voice on IP, ADSL, IP-PN on MPLS pour transport de data) • New operators (MVNO) • Fixed line telephony lacks speed and subscription represents more than half of the turnover in this sub-sector • The operators sell networking services which we do not take into account (intermediate use).

12. Market conditions and constraints • Recordkeeping practices • As regards telephony, ARCEP (an authority regulating electronic telecommunications) conducts a survey on all the operators every quarter: the information we need for the assessment of our rates is given to us by agreement. • For the sub-sectors which are not entirely covered by these surveys (audiovisual transmissions and data transmission), this process is carried out by following the usual method, that is to say by selecting companies and questioning each company at their offices.

13. Standard classification structure • ARCEP nomenclature • Transmission of messages or data • Fixed line telephony services • Internet access services • Mobile telephony services • Information services • Dedicated network services, transmission of data • Added value services • Renting of terminals • Secondary incomes • Additional nomenclature (INSEE) • Other telecommunications services • Television transmission services • Radio transmission services • Other telecommunications services • Cable transmission of radio and TV programmes • Cable transmission of radio and TV programmes

14. National accounts concepts • The same classification is now given by the accountants and the managers of the price rates: • 642C Telecommunications (not audiovisual transmissions) • 642D Transmissions of radio and television programmes • Up to 2004, the telephony consumer price rate was used in order to reduce the price, (a stable rate): but is it impossible to make a consistent volume of production which is growing twice as fast as CA, with a price rate that does not change? • A price rate based on unit values (a rate that decreases) allows consistency with CA and the amount of minutes. • Since 2005, the production price rate has been used (although this is not yet widespread)

15. Pricing methods • There is a continuing debate on the subject of the best method for the calculation of this rate: • unit value? • rate method? • bill method? • Another debate: is a consumer price rate the same as a production price rate? • For telephony, the SPPI /France service has chosen the "unit values" method, • as recommended by the "methodological guide" • by the note "price indexes for telecommunications services" (G Deuchars - US BLS et K Moriya - Bank of Japan) 2001 + (Bordé/Gorko 1999) • and according to the experiences of the other countries • (the CPI /France service, however, has chosen a combination of rate method and bill method) • The advantage that one can see in this is the reduction of the operators response charge through the quarterly recovery of ARCEP files

16. Pricing methods • Fixed line telephony national price per minute (ARCEP) • international price per minute (ARCEP) • to mobile price per minute (ARCEP) • subscription official rate (France Télécom) • Mobile telephony calls price per minute (ARCEP) • SMS price of SMS (ARCEP) • Internet access price of access (ARCEP) • Data transmission survey of 7 companies/40 quotations • TV and radio transmission survey of 6 companies/40 quotations

17. Pricing methods • in telephony and internet: unit prices • Quarterly ARCEP survey figures • Laspeyres rate • rebased annually (proportion of companies rebased annually) • supporting the companies involved throughout the year • in the transmission of data (IP-VPN), TV, radio • ARPA (average revenue per access) • ARPL (average revenue per line)

18. Quality adjustment methodology • The unit price method is designed, in theory, to overcome difficulties in adjustments in the service quality • However, in this case we are dependent on the detail in the available information level • The service category that is detailed should be as precise and homogenous as possible, which is not always the case: • Call price by distance • Call price by time slot • Call price by length of calls… • Unfortunately we are limited by the nature of the case and available detail.

19. Quality adjustment methodology • Unresolved questions • Will special offers (unlimited calls to certain numbers) and the widespread use of fixed rates which incorporate several kinds of service (tripleplay, quadrupleplay) be compatible with our calculation method? (in these kinds of fixed rates there is also a TV service…not our field). Fixed lines and mobiles will soon be on fixed rates. • The modification of the calculation method would require a considerable technical and methodological investment

20. Comparing SPPI with turnover/output • Turnover: • With the market being extremely concentrated, the size of the turnover does not present great difficulties. • Exchanges of services between companies can lead to double accounts (call terminations, rent of large market lines between operators) which are absent from the calculations of the price rate. • Frequent mergers on the market must be monitored closely for the calculation of average prices • Output: • ARCEP regularly issues information on call volumes. The price rate calculation based on unit prices is in accordance with this production approach.

21. SPPI

22. Summary • The subject of telecommunications is a sensitive one, and a consensus has not yet been reached between operators, the regulator, consumer associations and statisticians, both regarding the level (international comparisons, between operators) and development. • This rate is therefore not used around France, due to the fact that there are differing interests: • Operators: a big reduction! • Regulator: prices should come down more! • Consumer associations: prices are going up! • Statisticians: ???