France Telecom Group

6 place d’Alleray
75740 Paris Cedex 15
France
(33) 01 44 44 22 22
Fax: (33) 01 44 44 01 46
Web site: http://www.france-telecom.fr

Public Company
Incorporated: 1889 as Direction Générale des Télécommunications
Employees: 165,200
Sales: FFr 151.3 billion
SICs: 4812 Radiotelephone Communications; 4899 Communications Services, Not Elsewhere Classified

The fourth largest telecommunications corporation in the world, France Telecom Group is also one of the last remaining state-owned telecommunications monopolies—but not for long. Faced with the January 1, 1998 elimination of telecommunications monopolies foreseen by the European Union, France Telecom has been preparing its privatization, if only to remain competitive with the coming open season on this last bastion of Europe’s telecommunications market. As part of its preparations, France Telecom has restructured its operations into three operational branches (Mass Market, Corporate Market, and Networks) and two functional branches (Resources and Development). On January 1, 1996, the company’s statute was changed, reforming the company as a “société anonyme” (SA), preparing the way for the France Telecom’s quotation on the Paris Bourse. Initially scheduled to occur in June, the company’s first public offering was postponed—however temporarily.

Early History

The history of French telecommunications is largely that of political intervention in scientific progress. As early as 1837, five years after Samuel Morse conceived his system of electromagnetic telegraphy, the Morse Code, and when Carl von Steinheil had devised an electromagnetic machine through which messages were recorded by a needle, political control over telegraphic services was sought. The French king, Louis Philippe, perhaps saw this as a logical extension of the control of the press which Charles X had initiated as part of the July Ordinances of 1830. State monopoly of telegraphic services, for military and political reasons, was finally established in 1851.

Telegraphic communication was made practicable in the mid-19th century, after scientific experiments by Andre Ampére, Karl Freidrich Gauss, Wilhelm Eduard Weber, Michael Faraday, and Steinheil in Europe, and Morse in America, concerning the relationship between light waves and electromagnetic waves. The most celebrated technical advance in telegraphy was achieved by Emile Baudot, whose system of Rapid Telegraphy was patented in 1874. Other of Baudot’s telegraphic inventions were contemporaneous with the development of the typewriter and by 1890 telegrams began to be transmitted in page form. The French Post Office gradually absorbed the telegraph service, one minister becoming responsible for both early in 1879.

From the last quarter of the 19th century the expansion of telephony in France was equally rapid. In 1880 the three private companies that the French government had licensed merged to form the Société Générale du Telephones (SGT). The year 1883 saw the first telephone exchange installed in Rheims and 1887 the first international circuits connecting Paris to Brussels. SGT’s telephone network was nationalized in September 1889, the state reserving the monopoly of telephonic developments and addressing itself to the problems of technical development with the assistance of scientists Ader and Berthon. In addition to the development of transmission equipment, work progressed on the refinement of switching equipment which automatically made the connections between the lines. In the United States, Strowger’s automatic switchgear, patented in 1889, allowed subscriber connection without the interposition of a human operator. This new type of equipment became famous for its durability. The first automated exchange in France was installed in Nice in October 1913, the last being dismantled only in 1979.

Between 1890 and 1915 the number of telephones in France more than doubled every five years, from 15,432 to 357,515. However, the distribution of instruments in proportion to the population was modest. In 1911 there were 0.6 telephones per 100 people in France while in the United States there were 8.1, in Canada 3.7, in Denmark 3.5, in Sweden 3.4, and in Germany 1.6. One of the main reasons for this slow growth was the method of financing networks. The cities that wished to acquire a telephone system had to provide the administration with the initial finance. The administration later reimbursed the locality in proportion to the receipts from subscribers to the new network. Unequal distribution of telephone networks across the country, and lack of interregional connections, resulted from this approach.

Between the two world wars French government policy ensured that the telephone service was geared more closely to the needs of the commercial and industrial sectors, and that modern services were provided to all at the same price across the country. Originally there were many varieties of telephone sets available but a standard model was introduced in 1924. The setting of more, and better quality, lines was also begun, using underground cables. Long distance connections, already improved by the invention between 1904 and 1915 of the diode and the triode, the audion, and the hard valve lamps, were refined. Arteries of lines radiating from Paris to many regional telephone exchanges were constructed between 1924 and 1938. Finally, the replacement of manual by automatic exchanges was gradually achieved, using the rotary system.

Paris, its environs, and eventually the main provincial centers saw their exchanges automated from the 1930s. In the countryside, however, the problem of modernizing 25,000 exchanges, half of which supported less than five subscribers, had to be approached differently and a semi-automatic system resulted. Nevertheless, France still had one of the lowest ratios of telephones to people in 1938 with 3.79 percent whereas the United States had 15.27 percent, Sweden 12.47 percent, and the United Kingdom 6.74 percent. Most French telephones were used for business purposes and in the home the instrument barely penetrated below the upper middle classes. Most telephones were to be found in urban areas of northern France; elsewhere, only the exclusive resorts, such as Biarritz, Nice, and Cannes, were as well-equipped.

French telephonic, telegraphic, and radiocommunications services suffered greatly from World War II, the German occupation, and the fight for liberation. Out of 140 automatic exchanges, 39 were unusable as were 104 of the 228 manual exchanges. The cable network suffered similarly, with equipment and buildings destroyed or badly damaged. A quarter of the 105 main telegraph nodes were out of commission. Submarine lines connecting France with the United Kingdom, the United States, and Africa were destroyed, as was the huge Bordeaux-Croix d’Hins radio station.

Of the several postwar economic plans, the telecommunications sector was not given priority and between 1947 and 1966 only 0.2 percent of the country’s gross national product was spent on telecommunications. However, the creation of the Centre National d’Etudes des Télécommunications—CNET, now France Telecom’s research and development organization—in 1944 was all-important in encouraging further experimentation. From the mid-1940s new technical advances were made as a result of this official collaboration with the French telecommunications and electronics industry. The first coaxial links connected Paris and Toulouse in 1947 and coaxial cable gradually replaced the old paired wire. Shortly after this date, NATO finance ensured the development of transatlantic coaxial connections.

Terrestrial telecommunications technology moved apace. The old rotary switching system was replaced by the crossbar system around 1960, the new equipment being sufficiently versatile to meet the needs of all types of telecommunication, from urban to international. In the mid-1960s digital switching experiments had begun in France and by 1970 fiber optic cable began to be used to support signal transmission. This research was paralleled by work at CNET into the problems of electronic connection which resulted in the Aristote, Socrate, Périclès, and Platon systems of the 1960s and 1970s. These programs of scientific experiment investigated the problems of electronic connection. With hindsight France Telecom of the pre-1970s appears to have had an under-equipped infrastructure, due to delayed technological development which represented around 2 percent of France’s gross national product. However, at that time the system began to be modernized in a long-term strategy to digitalize it. During the same period interest in space-borne telecommunications was growing and in 1962 the United States launched the Telstar satellite. Franco-American experiments resulted in the capture and broadcast of the first television signals from the United States in July 1962. The development of geostationary satellites—whose orbits keep them constantly above the same point on the earth’s surface—led to the establishment of the Intelsat II fleet, which achieved full planetary coverage from 1971. France Telecom is the third largest user of these services. In 1977 Eutelsat, the European satellite organization, worked to achieve the ECS (European Communications Satellite) system. In 1979 France inaugurated a national system of space telecommunications via the Telecom I satellite which serves the domestic market. The mission sought to establish links with French overseas territories, commercial satellite links, and videocommunications. ECS was eventually inaugurated in 1983. In 1991 France Télécom was the fifth largest shareholder in Inmarsat, the international maritime satellite, which is the culmination of over 60 years of development in intercontinental radio-electronic telephone traffic.

Company Perspectives:

We intend to be a world-class service enterprise that is universally recognized for both the quality of our network and the quality of our customer relationships. To achieve this, we have made concrete commitments to all our customers—residential customers, small businesses and large corporations. Because each of these customer segments has specific expectations, our commitments are equally specific. What they all share, though, is a focus on delivering exactly what each customer wants and needs. France Telecom also intends to remain faithful to its values as a provider of public service, treating each customer with the same consideration and providing the same high quality for all of them.

Inching Toward the Modern Era

By 1986 France Télécom had 25 million main lines which supported the connection of 96 percent of French homes, as well as the development of many innovative products and services, such as the Teletel videotex system. From 1983 Teletel began to replace paper telephone directories and its Minitel terminals were purchased by the DOT in substantial quantities to create a largely captive market. In 1989 the Teletel system boasted a total of 85 million connection hours through 5 million terminals. The connection of Teletel to Transpac, the French national packet switching network, which handles data in the form of units or “packets” routed individually through the network, now means that subscribers throughout the country can use other services, regardless of distance. National and international business connections combining voice and text distribution via the “Numeris” ISDN system became possible, though full utilization would wait until the mid-1990s.

Such successes could be attributable to a consistent and monopolistic government policy and efficient investment in telecommunications equipment and in the supplier companies, such as the E10 digital exchanges, a way of encoding information as a series of “on” or “off signals, made by Alcatel. By the 1990s, France’s 100 percent digital phone system was among the most modern in the world. Yet events in the telecommunications world would soon overtake the company, and its monopoly—and the burdens of bureaucracy soon left the company struggling to catch up to the rest of the worldwide industry, already undergoing a process of deregulation and privatization that would transform the nature of the telecommunications business. Eyeing the success of other recently de-nationalized telephone providers, particularly the British system, renamed British Telecom, DGT adopted a new name, France Telecom, giving it at least the appearance of keeping up with modern industry trends.

Demands for full deregulation of the European telecommunications industry resulted from the Commission of the European Communities (CEC) Green Paper in 1987. In part, the inability of monopoly organizations to cope with rapid technological change, and also the need for the competition essential to support an economy driven more by information rather than production informed these moves. Once again, arguments about the provision of a universal telephone service prevailed over exclusive concentration on technological progress. However, various countries have evolved different solutions to the problems of reorganization. Whereas in the United Kingdom British Telecom opted for full privatization, France Télécom resisted this and technological advance has taken place within a monopoly environment. France Telecom nevertheless faced the loss of portions of its monopoly after 1993, under the terms of the European Community’s Open Network Provision of 1989, which guaranteed to all value-added network service (VANs) providers equal access to its country’s telecommunications infrastructure. The supply of terminal equipment such as telefax machines and telephone handsets, and VANs services such as home banking, would then become open to competition, although strictly licensed. Competition in the provision of computer data transfer was also to be allowed, provided that private firms did not undercut France Télécom.

The French legal act passed on July 2,1990, on the organization of public posts and telecommunications services, transformed France Télécom (formerly Direction Générale des Télécommunications) into a public service carrier with corporate legal status. This legal reform substantially changed the contractual relations between France’s national operator and its partners; from January 1, 1991, these relations became governed by the French concept of “private law.” Thus France Télécom now gained budgetary, management, and organizational independence, like most of its European competitors. Yet the company remained under the guardianship—and tight control—of the Ministry of Posts and Telecommunications. The company’s monopoly status remained intact.

A frenzy of alliances and mergers would soon come to typify the French telecommunications industry in the late 1980s and 1990s, as it tried to achieve the international scale necessary to compete in new markets such as car telephones and radio telephone paging equipment. France Télécom and Matra, the recently privatized defense and electronics group, soon faced competition from France’s largest private water distributor, the Compagnie Génrale des Eaux, which formed a partnership with Alcatel and Nokia of Finland to offer a second national car telephone network. Again, Alcatel, the telecommunications division of the Compagnie Générale d’Electricité (CGE), absorbed ITT to form the world’s second largest telecommunications venture after that of American Telephone and Telegraph. Matra, which in 1987 successfully bid with Ericsson of Sweden for control of CGCT, France’s other major supplier of public switching equipment, later acquired a 15 percent stake in Société Anonyme de Télécommunications (SAT). Nevertheless, despite these incursions into its traditional market areas, France Télécom emerged as one of the world’s top four public telecommunications carriers.

During the 1990s, France Télécom found itself rushing to catch up with many of the major developments in the telecommunications industry. In particular, the company was very late to the Internet table—a lateness blamed on the company’s complacency with its Minitel “cash cow.” But the Minitel service, which had not seen any significant technological advancement since its introduction in 1983, quickly paled in comparison to the Internet, and particularly the rise of the World Wide Web. In May 1996, France Telecom finally introduced its own Internet provider service, dubbed Wanadoo. The company also joined the growing wave of mergers and partnerships sweeping the telecommunications industry, announcing its intention to form a partnership with Deutsche Telekom and Sprint Communications, called Global One. In 1997, the company joined another joint-venture partnership, Infostrada, formed by Olivetti Corporation and Bell Atlantic, which brought the company into Italy’s recently deregulated telecommunications industry. During the 1990s, France Telecom began entering other opening international markets, including Argentina, Mexico, Indonesia, Senegal, and, in 1997, Vietnam. In recognition of its own growing international nature, the company removed the accents from the spelling of its name, becoming France Telecom in 1993.

In the meantime, France Telecom—at least its management—eyed with some envy the developments of the European telecommunications industry, as country after country denationalized their telephone carriers and ended their government monopolies, a process culminating in Deutsche Telekom’s deregulation in 1996. An initial attempt to end French government control of the company and bring the company to the stock market was brutally rebuffed: by France Telecom’s own employees, 75 percent of whom participated in a strike protesting the move—which would end their civil servant status. The next attempt to denationalize the company waited until 1995, and again was quashed by an employee strike. But several months later, the French government passed a new law transforming the company into a société anonyme—an event that took place on January 1, 1997—creating a public company in name if not yet in fact. The date for the company’s entry on the Paris Bourse, for a sale of shares worth from FFr 25 billion to 40 billion, the largest public offering ever in France, was set for June 1997.

France’s government, led by the right wing, seemed at last prepared to allow France Telecom to leap into the new telecommunications era—except the national election of May 1997 brought the Socialist Party, vowing to stop, or at least postpone the public offering, to power. Placed on hold, France Telecom’s public offering (which would result in the French government’s stake being reduced to some 55 percent) nevertheless seemed an inevitability—and likely to occur before the European Union’s January 1, 1998 deadline.

Principal Subsidiaries

Transpac; Télédiffusion de France; Télé systémes; Telecom Systémes Mobiles; Compagnie Auxiliaire de Télécommunications; France Cables et Radio; Entreprise Générale de Télécommunications; VTCOM; France Telecom America del Sur; France Telecom North America; France Telecom Deutschland; France Telecom Bruxelles; France Telecom Espana; France Telecom Italia; France Telecom Polska; France Telecom Praha (Czech Republic); France Telecom UK; France Telecom Moskow; France Telecom Nordic (Sweden); France Telecom Cote d’lvoire (Ivory Coast); France Telecom China; France Telecom India; France Telecom Jakarta (Indonesia); France Telecom Japan K.K.; France Telecom Vietnam.