Market observatory: The telecommunications services market in France at the third quarter 2003 (submitting operators) / March 2004

Introduction

Fixed telephony: This quarter, the fixed telephony sector records a further decline with 4.1% less sales and 3.5% lower traffic volumes than in the third quarter 2002. The number of indirect connections (and pre-selection in particular) continues to grow at an annual rate of 17%.
The number of unbundled lines is growing very rapidly, especially partially unbundled lines which now number over 140 000 (86 000 more lines in the third quarter alone).

Internet: We observe a definite decline in dialup Internet revenues with respect to the previous quarter, which was not entirely offset by broadband Internet revenues. Growth in the number of broadband Internet subscribers in the third quarter (340 000 new subscribers) occurred chiefly in September, which explains the relative stability in sales on this segment.
Up 90% in value over one year, broadband now generates more than half of Internet revenues, compared with just one-third a year ago. At the same time, narrow-band has declined by close to 23% in value. Of the 10 million people on line, 2.8 million now subscribe to high-speed packages compared with 1 million a year ago.

Mobile: With €3.4 billion in sales generated during the third quarter, revenues of the mobile telephony sector are for the first time higher than fixed telephony (€3.3 million). With €275 million in sales and more than 2 billion SMS exchanged during the third quarter, data transport’s contribution to growth in the mobile sector is more and more significant (8%).
At the end of the third quarter 2003, the number of cellular mobile subscribers topped 40 million, representing a penetration rate of 66.5%. The share of contract subscribers is growing, eating away at that of mobile prepaid cards, and represented 58.3% of the cellular mobile subscribers at the end of the quarter.

Other market segments: We observe an increase in the revenues generated on a number of segments: hosting services (+41% in one year), data transport (+20%) and, most significantly, sales of terminals and equipment up that rose up strongly (+33%). This increase in the sale of terminals can be attributed entirely to mobile operators.

Notes:
- Data for one quarter may be revised in the subsequent observatory following corrections made by operators in their reports.
- Any discrepancies are due to rounding.

1. The telecommunications market as a whole

1.1 The end user market

With global sales of €8.8 million, the telecommunications market saw 5.4% growth over one year. The greatest part of this growth comes from the mobile telephony sector, which, with sales of €3.4 billion (up 13.3% over the third quarter 2002), for the first time leads the fixed telephony sector, which was down 4.1% for the same period.

Sales (in millions of euros)

Q3 2002

Q4 2002

Q1 2003

Q2 2003

Q3 2003

Change Q3 03/
Q3 02

Fixed telephony ¹

3 468

3 479

3 409

3 386

3 325

-4.1%

Internet ²

288

284

320

333

326

+13.3%

Mobile telephony ³

3 033

3 111

3 124

3 219

3 436

+13.3%

Total telephony and Internet

6 789

6 873

6 853

6 937

7 087

+4.4%

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 included 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.

Global traffic volume for the telecommunications market is up 6.4% over the third quarter 2002. As for sales, most of the growth was generated by the mobile telephony sector, up 20.7% for the period. Traffic volume for fixed telephony declined a further 3.5%.

Note: Internet sales were included in those of fixed telephony until end 2000. Mobile telephony volumes have been revised.

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

1.2.1 The market as a whole

As in previous quarters, the decline in income from mobile interconnection services is due to the decrease in call prices on mobile networks.

Notes:

- Interconnection includes all those services offered by licensed operators under interconnection agreements. Following the mergers and integrations of certain operators early in the year, part of the intra-group flows is no more included in interconnection, which explains the decline between the 1^st and 2^nd quarters.
- Interconnection sales and volumes are not based on the same perimeters, making it difficult to use these two indicators to calculate average prices (interconnection revenues include fixed income such as payments for connection links and services between operators).
- We draw the reader’s attention to the fact that a part of the interconnection figures above may be counted twice, in particular for fixed operators.

1.2.2 Incoming international traffic 6

Revenues and volumes generated by incoming international traffic were down with respect to the third quarter 2002, due in part to a change in the basis for determining the volumes and revenues of mobile operators. Therefore, the figures have been revised beginning with the first quarter 2003.

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

Note: The data for indirect connection numbers have been revised since the previous Observatory. The call-by-call selection numbers take into account only active subscriptions, and pre-selection numbers include only subscriptions in service, net of cancellations.

The number of partially unbundled lines is growing strongly and corresponds in particular to the development of broadband Internet offers based on unbundling the line.

2.1.2. Calls from fixed lines (excluding public payphones, cards and Internet)

Revenues and volumes generated by calls from fixed lines continue to decline overall. Only the volume of calls to mobiles continues to grow, up 10% for the period.

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

** excluding Internet access calls

The 15% decline on average in the price of call termination to mobile networks caused a 2.2% decline in revenues over the 3^rd quarter, despite the fact that volumes were up 10%.

2.1.3 Fixed phone cards

2.1.4 Public payphones

2.2 Internet

Note: It is important to remember that 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.

We observe a definite decline in dialup Internet revenues with respect to the second quarter 2003, which was not entirely offset by the increase in broadband Internet revenues. The slowdown in growth of broadband revenues can be explained by a number of phenomena:

- on the one hand, the number of high-speed Internet subscribers increased almost exclusively at the end of the quarter (September) whereas the sales cover the entire July-September period. The effects on sales won’t appear until the fourth quarter;
- on the other hand, the increasing presence of new packages with lower speeds and prices that the 512 kbits packages offered to end users;
- finally, these may be the first effects of the price decrease, thanks primarily, to unbundling.

Still, broadband now generates 52% of Internet revenues, compared with just 31% one year ago. More than ever, it gave the impetus for Internet growth.

Note: This publication distinguishes between two types of subscription for Internet access calls for end users:

Broadband Internet growth remains strong with more than 1.7 million new clients in one year, of which close to 300 000 were acquired during the third quarter, representing an annual growth of 168%. ADSL access, whose number has almost tripled in one year, represents the vast majority of broadband Internet accesses.
Dialup Internet subscriptions are down since late March 2003 (275 000 fewer subscriptions in six months). Thus, the decline in traffic and revenues on this segment do not appear to be due only to seasonal effects, but to a switch to broadband packages.

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

Note: In order to understand the move to broadband Internet, ART’s Market Observatory now includes not only the number of subscriptions with licensed operators, but also the number of subscriptions sold by licensed operators to unlicensed ISPs, which sell them to end users.

Note: Public AFORM data for cable and France Telecom data for ADSL are given for information purposes. The total of the two lines of the table above is not equal to the figures in the "Broadband Internet subscriptions" of the previous table, which covers other broadband access such as the wireless local loop, in addition to cable and ADSL.

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 had 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, Aricia, Cario, Club Internet, Free (dial-up only), Inter PC, NC, Numéricâble, Noos, Tiscali France, UPC France and Wanadoo.
2) AFORM: Association Française des Opérateurs de Réseaux Multiservices (http://www.aform.org)

2.3. Mobile telephony

The mobile telephony market continues to register regular growth with an annual increase of 12.4% in sales and 20.3% in volume. Data transport saw much stronger growth than the sector as a whole. This growth is fed, to a large part, by high interpersonal messaging volumes, and primarily SMS, whose success cannot be denied (over 2 billion SMS were sent during the third quarter 2003).

* These call volumes include calls to check voice mail.
** Following corrections made by an operator, the roaming out volumes were corrected for the first two quarters of 2003.

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

At the end of the third quarter 2003, the number of mobile phones topped 40 million, representing a penetration rate of 66.5%. The number of mobile prepaid cards continues to decline and, in the third quarter 2003, represented just 41.7% of the total number of cellular mobile subscribers, compared with 58.3% for contract subscribers.

8) A prepaid 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

(1) This indicator is calculated by dividing the mobile telephony sales of quarter N by an estimate of the average number of clients of quarter N [(total number of clients at the end of quarter N + total number of clients at the end of quarter N-1) / 2]. This indicator, which does not include interconnection revenues, nor those from advanced services, is different from the traditional average revenue per user indicator (ARPU).

(2) This indicator is calculated by dividing the mobile telephony traffic volume 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 is 17 messages at the third quarter compared with 13 at the second quarter 2002. The average monthly volume of traffic and the average monthly invoice per user are also up with increases of 14.9% and 7.7%, respectively over one year.

2.4. Other market segments

2.4.1. Advanced services

* adjusted figures

2.4.2. Leased lines and data transport (fixed line operators)

Note: Leased line sales may include double accounts in that they cover sales from operators to other operators.These sales may represent up to 35% of total leased line sales.
Licensed operators represent only a part of the total data transport market (about one-half in 2001).

2.4.3. Other telephony-related services

Directory services

Terminals and equipment

Revenues generated by terminal and equipment sales are up strongly (+33% compared with the third quarter 2002). This growth is due entirely to the sales of mobile operators.

2.4.4. Hosting and call centre management