THE TELECOMMUNICATIONS MARKET IN FRANCE 1ST QUARTER 2003(Licensed operators)

Introduction

Fixed telephony

Although the number of fixed-line telephones once more topped the 34-million mark at the end of the first quarter 2003, the continuing slowdown in the fixed telephony sector is seen both in sales figures (-4% over one year) and in traffic volumes (-4.6% over one year).

On the other hand, the number of indirect connections via carrier selection grew with close to 10 millions lines concerned. The number of active call-by-call selection users rose by close to 9% over one year, whereas the number of pre-selection users rose by almost 43% over one year. There were almost 500 000 new pre-selection users for the first quarter 2003 alone.

Since end 2002, local loop unbundling has been developing, especially partial unbundling used to develop ADSL offers. There were 18 000 unbundled lines (partially or totally) at the end of the first quarter.

Internet

Borne up by new offers launched by several operators in late 2002 and early 2003, the broadband market is without a doubt the engine of growth for the Internet sector. The number of broadband users rose to two million with 1.8 million ADSL users, while broadband sales now represent 44% of Internet revenue compared with 22% a year ago.

Mobiles

The mobile sector continues to be the main source of growth for the telecommunications sector. With sales of €3.1 billion in the first quarter 2003, it represents more than one-third of the total telecommunications sector.

The total number of mobile phones continues to grow and reached almost 39 million at the end of the quarter for a penetration rate of 64.5%. The share of flat-rate packages has been growing for several quarters and now represents close to 57% of the total.

Notes :

ü Data for one quarter may be revised in the subsequent observatory following corrections made by operators in their declaration.

ü Any discrepancies are due to rounding.

1. The overall telecommunications market

1.1 The end-user market

In the first quarter 2003, the telecommunications market saw overall annual growth of 2.6% in sales. The increase was greater for telephony and Internet, reaching 4.1%, but was borne up primarily by mobile telephony, up 13.4% over one year. The share of fixed telephony in total revenues of the telecommunications market fell.

Global volume for the market is up 5% over one year. Traffic volumes for mobile telephony and Internet continue to grow with more than 14.6 billion minutes in traffic for mobile telephony during the 1st quarter 2003 (for close to 20% growth over one year) and close to 19 billion minutes for Internet.

The volume of calls from fixed lines, while slightly higher than the previous quarter is down 4.6% over the first quarter 2002.

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1) This indicator includes sales of access fees and subscriptions, calls from fixed lines excluding calls to Internet, of public phones and cards.

2) Not including the added value of unlicensed ISPs (e.g., Wanadoo, AOL and Club Internet).

3) This item includes data transport on mobile networks.

4) The indicator includes only sales of data transport from fixed lines, since data transport from mobile lines is include in global mobile telephony figures.

5) This market is not covered by the telecommunications services market per se. Since the contribution of licensed operators on this market is low, this indicator gives only a partial view of actual figures.

1.2 The intermediate market between licensed operators (telephony interconnection services)

1.2.1 Total market

Interconnection sales declined overall by 12% over one year. The share of mobile operators represented close to 47 % of the value of the intermediate market for just 16% of the share of traffic.

Notes:

- Sales and volumes of interconnection are not based on the same perimeters, making it difficult to compare these two indicators to calculate average prices (interconnection revenues include fixed revenues such as payments for connection links and services to operators).

- The reader's attention is drawn to the fact that in the interconnection figures above, some data may be counted twice, in particular for fixed operators.

1.2.2 Incoming international traffic 6)

Revenues from traffic originating outside France to users in France grew globally over the previous quarter thanks to fixed telephony. However, revenues and volumes are down sharply with respect to the figures from the 1st quarter 2002.

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6) This market segment is a subset of the total market (cf. 1.2.1)

2. Market segments

2.1 Fixed telephony

2.1.1 Access, subscriptions and fixed lines

During the 1st quarter 2003, the number of fixed lines rose once more above the 34-million mark. With 9.6 million lines, the number of indirect connections grew 7.8% over one quarter. The strongest growth was for the number of indirect connections via pre-selection with 12.4% growth, or an increase of over 490 000 lines with respect to the previous quarter.

Partial unbundling of the local loop allows operators to develop new ADSL offers for the general public. Total unbundling of the local loop is used for business applications.

2.1.2 Fixed lines (excluding public payphones, phone cards and Internet)

The decline in the number of calls from fixed lines observed during the first quarter 2003 over the first quarter 2002 should be qualified given the relative stability in terms of both value and volume during these two quarters.

* the breakdown between local calls and long-distance calls is an ART estimate ** excluding Internet access calls

**excluding Internet access calls

2.1.3 Fixed line telephone cards 7)

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7) These figures do not cover the entire market because this survey covers only operators holding L33.1 or L34.1 licenses. However, a license is not required to sell telephone cards. Unlicensed operators are surveyed by INSEE, in a common publication (cf. INSEE Première n°918 August 2003 on the telecommunications market in 2001).

2.1.4 Calls from public payphones

Public payphone sales (down 26%) and volumes (down 15%) fell sharply. There are now fewer than 200 000 public payphones.

2.2 Internet

Borne up by new operator offers, revenues from broadband Internet rose sharply during the first quarter 2003 (+133% over the first quarter 2002 and +46% over the fourth quarter 2002). Broadband is now clearly the engine for growth for the Internet sector.

Sales are for services billed by licensed operators directly to the end user or to access providers when these are not licensed operators. Therefore, the figures do not include total financial consumption; they ignore the added value of access providers who are not licensed operators.

The publication distinguishes between two types of subscription for Internet access calls for the end user:

(1) (a) users pay for a flat number of minutes for calls to Internet to their ISP. In this case, the local loop operator collects Internet traffic for the ISPs (AFA definition: paying accounts on the basis of a monthly flat rate).
(b) If the local loop operator also provides Internet access, flat-rate revenues are entered on the "Revenues from narrow-band Internet flat-rate packages" line.

(2) Users have a free access account (no monthly subscription) from an access provider and pay only for what they actually consume ("pay as you go") directly to the local loop operator (AFA definition: free access accounts or billed according to use).

In order to understand the move to broadband Internet, ART's Market Observatory now includes not only the number of users of licensed operators, but also the number of subscriptions sold by licensed operators of unlicensed ISPs, which sell them to end users. Public AFORM data for cable and France Telecom data for ADSL are given for operator assistance in the second table.

(*) Source: AFA data (1)
(**) Source: AFA data to 3rd quarter 2002, ART's Market Observatory beginning the 4th quarter 2002.

With over 500 000 new users in the first quarter 2003, the number of Internet users rose by close to 24% over one year. The broadband market has once again seen strong annual (+183%) and quarterly (+31%) growth, and has topped the two-million customer mark.

(1) AFA: Association des Fournisseurs d'Accès et de Services Internet (http://www.afa-france.com/). According to the AFA definition, the following are included: free access accounts or accounts billed based on use which have at least one connection in the past 40 days, and all paying flat-rate monthly accounts (may include consumer and professional telephone flat-rate packages). AFA collects data from the following operators: AOL France, 9 Online, Club Internet, Free, Inter PC, NC, Noos, Tiscali France, UPC France and Wanadoo. (2) AFORM: Association Française des Opérateurs de Réseaux Multiservices (http://www.aform.org)

2.3 Mobile telephony

As in previous quarters, the mobile market continued its sharp rise with annual growth of 13.5% in sales and 19.4% in volume. Thanks to SMS, data transport on mobile networks saw the strongest growth in the sector with sales up a full 68% over one year.

*Satellite mobile networks. paging

For volumes, we see significant growth in the volume of mobile-to-mobile calls, whether to mobile phones on the same network or on other networks.

*: These call volumes include calls to check voice mail.

8) Roaming out covers calls made in a foreign country by users of French mobile operators.

The continuous increase in the number of SMS should be seen in light of the revenues they generate (cf. table page 13).

Mobile phone numbers

With close to 39 million users, the penetration rate of mobile phones in the population reached 64.5% at the end of the first quarter 2003. The market continues to restructure in favour of flat-rate packages, which, at the first quarter 2003, represented 56.8% of total numbers compared with 43.2% for pre-paid packages. A year ago, these market shares were respectively 48.2% for flat-rate packages and 51.8% for pre-paid deals.

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9) A pre-paid card is said to be active if the customer has made or received at least one call during the past three months. Only telephone calls are considered, whether free or paying. SMS are not included in the calculation.

Indicators per user

(2)This indicator is calculated by dividing the volume of mobile telephony traffic of quarter N by an estimate of the average number of users of quarter N [(total number of users at the end of quarter N + total number of users at the end of quarter N-1) / 2]

(3)This indicator is calculated by dividing the number of SMS of quarter N by an estimate of the average number of users of quarter N [(total number of users at the end of quarter N + total number of users at the end of quarter N-1) / 2].

The average monthly number of SMS per user has been growing constantly with around 17 messages during the first quarter compared with 14.5 for the fourth quarter 2002. The average monthly volume of traffic per user is also growing with a rise of more than 14% over one year.

2.4 Other market segments

2.4.1 Advanced services

2.4.2 Leased lines and data transport (fixed line operators)

2.4.3 Other telephony related services

Directory services

Terminals and equipment

Revenues from the sale and rental of terminals and equipment are seasonal, particularly for mobile operators. The weight of licensed operators is low on this market segment.

2.4.4 Hosting and call centre management