Wanadoo S.A.

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Wanadoo S.A.

48 rue Camille Desmoulins
Issy les Moulineaux
F-92791 Cedex 9
France
Telephone: 33 1 58 88 50 00
Fax: 33 1 58 88 50 50
Web site: http://www.wanadoo.com

Wholly Owned Subsidiary of France Telecom Group
Incorporated: 1996
Employees: 6,333
Sales: EUR 3.25 billion ($3.89 billion) (2004)
NAIC: 514191 Internet Service Providers; 513390 Other Telecommunications; 511140 Database and Directory Publishers; 541512 Computer Systems Design Services

Wanadoo S.A. is one of Europe's top three Internet service providers (ISPs), along with rivals T-Online and Tiscali. The company, a subsidiary of France Telecom, boasts nearly ten million customers chiefly in France, the United Kingdom, Spain, and The Netherlands, but also in Morocco, Jordan, Mauritius, and Algeria. France remains Wanadoo's single largest market, accounting for more than four million subscribers. The company is also one of the leading ISPs in the United Kingdom, through its subsidiary Wanadoo UK, formerly Freeserve. The company's Internet services have focused especially on building up its broadband network, based on both the ADSL and ADSL + protocols. In 2004, the company launched its WIFIequipped Livebox, combining Internet capability with Internet telephony capacity. Since late 2005, the company also has begun rolling out Internet television services as well. Wanadoo's true strength, however, lies in its strong content and services component. The company's PagesJaunes Internet-based yellow pages directories are a major source of revenues for the group, and include a base of nearly 700,000 business customers. The company also has moved to extend its directories operations into other markets, particularly Spain. Wanadoo also controls online shopping site Marcopoly, specialized in appliances and electronics, and Alapage, specialized in books, CDs, and video. Another Wanadoo operation, Voila, is France's leading French-language Internet portal and search engine. Parent company France Telecom took full control of Wanadoo, which had previously listed 10 percent of its stock on the Euronext Paris Stock Exchange, in 2004. At the end of 2005, France Telecom signaled its intention to merge Wanadoo with its mobile telephone subsidiary, Orange, in order to create a single overriding brand. Wanadoo is expected to be rebranded as an Orange subbrand following the merger process, which could take as much as 18 months to complete. In 2004, Wanadoo posted revenues of EUR 3.25 billion ($3.9 billion).

Late Internet Entry in the 1990s

France Telecom was a true pioneer in offering online services to the general public. Long before the rise of the Internet and the World Wide Web, France Telecom had developed its own proprietary service, with its own terminals, using ordinary telephone lines. Launched in 1982, Minitel, as the service was called, provided users with directory services, as well as a range of other services, such as paid chat and information services. Unlike the Internet, where users paid for the connection but where content was, in large part, free, Minitel users paid both for their connection time and for the various services they used. A third revenue stream came from the rental of the Minitel terminal to customers. Yet this proved an advantage as well, at a time when personal computers remained an expensive purchase.

As such, Minitel became an important source of revenues, and huge profits, for France Telecom. By the early 1990s, revenues from Minitel neared FRF 9.5 billion (equivalent to $1.5 billion). Understandably, France Telecom saw little interest in developing its own Internet service in the early 1990s. Minitel appeared solidly entrenched in France, despite the inroads made by the arrival of early paid online services, including America Online (AOL), Compuserve, and later, MSN. Part of Minitel's strength lay in the extremely low penetration of personal computers among the consumer population.

A number of factors converged to give a boost to the Internet market in France in the mid-1990s. Prices on personal comput-ers had started to shift downward. The development of new multimedia features, and especially the addition of soundcards, high-resolution color graphics, and then CD-ROMs as standard equipment, provided a platform for a wider range of uses, and made the personal computer a more appealing consumer appliance. A new generation of higher-speed modems arrived toward the mid-1990s as well; in just a few years, the maximum connection speed had risen from just 1,200 bits per second (bps) to a maximum of 56,000 bps. The faster speeds were particularly attractive given the arrival of a major Internet innovation, namely, the World Wide Web, which provided a graphical interface to the Internet for the first time.

By 1995, a growing number of companies had begun to vie for France's nascent Internet market. As the French telephone monopoly, France Telecom naturally benefited from the steady rise in the use of its telephone lines, all the more so because, like most of its European counterparts (and unlike in the United States), customers were accustomed to paid local calls and to per-minute charges. In addition, a large number of new Internet users living in the country's provinces were forced to connect using higher-priced interregional and long-distance phone numbers.

Yet the rise of the use of the Internet and online services clearly threatened Minitel with extinction. As revenues from Minitel began to drop, especially since many of the services available through Minitel could be had for free through the Internet, France Telecom was forced to rethink its indifference to the Internet. In January 1996, therefore, the company announced that it was setting up its own Internet service provider, called Wanadoo.

Wanadoo went live in May 1996. A major feature of the new service was its use of a single telephone number that was accessible nationwide at local dialing rates. While this service was put into place for the country's other national ISPs, Wanadoo greatly benefited from France Telecom's backing in a number of ways. Wanadoo was given control over the implementation and access to the newly launched online version of the French yellow pages, PagesJaunes. Through the end of the 1990s and into the 2000s, PagesJaunes remained Wanadoo's single largest source of revenues and profits. Another benefit from its relationship with France Telecom was its access to its parent's countrywide network of retail stores, giving the company closer proximity to potential customers.

Pan-European Provider in the 2000s

A major step forward for Wanadoo came in 1997 when it teamed up with MSN, in the midst of a brief bid to rival AOL in France. Rather than set up its own network, however, MSN turned to Wanadoo. This placed Wanadoo in position to scoop up MSN's customer base when the Microsoft-owned company decided to exit France in 1998. Also that year, the company lowered its subscription rates, undercutting certain of its rivals by as much as 30 percent in a bid to gain market share. By the end of that year, Wanadoo had established itself as the clear Internet leader in France.

In addition to boosting its subscriber base, Wanadoo launched an effort to expand its range of content and services. By the end of 1999, the company had added several services, including the French-language portal and search engine Voila, which rapidly became one of the leading portals in France. The company also launched a direct-marketing wing, Mediatel, while making a series of acquisitions, including Alapage.com, an e-commerce book, music, and video seller; and the Kompass franchises for France, the Benelux market, and Spain. In 2000, the company boosted its content portfolio again with the purchase of Marcopoly, an e-commerce site specialized in home appliances and electronics.

By 2000, Wanadoo counted more than 1.3 million subscribers in France, representing a market share of more than 50 percent. The company's revenues by then had topped EUR 800 million. Some 87 percent of the group's sales, however, were still generated by its Yellow Pages division. Indeed, much of the success of Wanadoo's initial public offering (IPO) in 2000 came from France Telecom's decision to bundle in the PagesJaunes unit as part of the launch.

The IPO, of just 10 percent of Wanadoo's stock, was enough to fuel Wanadoo's drive to become one of Europe's leading Internet groups. The company had initiated this effort in 1999, launching its ISP service in Belgium and The Netherlands, and planning an entry into Denmark as well. Wanadoo also targeted the Spanish market, which was then one of the least developed Internet markets in Europe. For its entry into Spain, Wanadoo acquired a 69 percent stake in Spain's Uni2, an Internet service provider, which served as the backbone for the launch of the Wanadoo Spain service. The company quickly built up a position as number three ISP in Spain.

France Telecom's acquisition of U.K. mobile telephone company Orange in 2001 pointed the way for Wanadoo's next, and largest, expansion effort. Shortly after, Wanadoo acquired Freeserve, the leading ISP in the United Kingdom, in a deal worth more than $2 billion. The addition of Freeserve added more than 1.5 million subscribers to Wanadoo's subscriber base, propelling the company into the top ranks of European ISPs. Eighteen months after the Freeserve purchase, Wanadoo changed its U.K. subsidiary's name to Wanadoo UK.

Freeserve had been set up as part of a trend in Europe that saw the rise of a whole new class of Internet providers offering their services for free. The trend helped encourage the breakthrough in the European Internet penetration rates, which had lagged far behind the United States and Japan. Wanadoo was forced to follow suit, and launched its own free subscription service. The loss of these subscriber revenues encouraged Wanadoo and France Telecom to step up the rollout of the next generation of Internet services, based on the high-speed ADSL protocol. In this way, Wanadoo was able to retain many of its free-subscription customers, shifting them toward paid broadband access.

Company Perspectives:

We build and develop Internet access products, services and tools and produce great portal content—all to help our customers get the most from the Internet.

Wanadoo next turned to Spain, where it paid EUR 360 million ($336 million) to acquire the directory publisher Indice Multimedia. By 2002, the company had acquired EresMas, from Grupo Auna, adding more than one million subscribers. The EresMas purchase boosted Wanadoo to the number two spot in the Spanish ISP market. In The Netherlands, the company grew through its purchase of MyWeb B.V., adding 110,000 customers to become that country's number three player.

Not all of Wanadoo's international efforts were successful, however. The company had failed to gain a significant position in Belgium, rising only to fifth place. In 2003, Wanadoo sold off its Belgian arm to Tiscali. Nonetheless, for the most part Wanadoo'ss strategy had paid off. By the end of 2002, the company's sales had topped EUR 2.0 billion. In that year, as well, Wanadoo became the first of the major European ISPs to turn a profit.

France remained the company's stronghold, with more than four million subscribers, including some one million broadband subscribers by 2003. Indeed, the broadband segment was now driving Wanadoo's growth, accounting for some two-thirds of all new subscribers. By 2004, as ADSL modem speeds topped 2 megabits per second (Mbps), with a promise to reach as high as 20 Mbps by the end of that year, Wanadoo launched its Livebox, a WIFI-enabled modem and router featuring Internet telephony services, and the promise of ADSL-based television transmission. By 2005, Wanadoo's subscriber base neared ten million, and revenues had passed EUR 3.25 billion.

The mid-2000s promised a major shift in the telecommunications market, as the mobile telephone sector prepared its own high-speed networks. "Convergence" became the buzzword, combining traditional voice telephone services with Internet access and a whole new range of services.

France Telecom began to position itself for the new market, and in 2004 acquired the minority shares in Wanadoo. By 2005, France Telecom had revealed its intention to merge its Orange and Wanadoo brands into a single brand identity. As part of that process, which was expected to last as long as 18 months, Wanadoo was expected to be rebranded under the Orange name. In the meantime, Wanadoo continued to play a prominent role as one of the true motors of the European Internet market.

Principal Subsidiaries

Wanadoo UK PLC; Wanadoo Spain S.A.; Wanadoo Netherlands B.V.

Principal Competitors

BT Group PLC; UnitedGlobalCom, Inc.; T-Online International AG; Tiscali S.p.A.; Free S.A.; Yahoo! Inc.; Google Inc.; Cegetel S.A.S.; Telecom Italia Media S.p.A.

Key Dates:

1982:: France Telecom launches Minitel, an online directory service.
1996:: France Telecom enters the Internet market with the launch of Wanadoo and online Yellow Pages unit PagesJaunes.
1998:: Wanadoo takes over MSN's French subscriber base; the Voila Internet portal is launched.
1999:: Wanadoo acquires Alapage.com, an online book, video, and music store; the company enters Spain through the acquisition of 69 percent of Uni2; the company enters The Netherlands and Belgian markets.
2000:: Wanadoo is listed on the Euronext Paris Stock Exchange; Marcopoly, specialized in home appliances and electronics, is acquired.
2001:: The company acquires Freeserve, the leading Internet service provider (ISP) in the United Kingdom (later re-branded as Wanadoo UK).
2002:: The company acquires EresMas in Spain, becoming that market's number two ISP.
2003:: Wanadoo exits the Belgian market.
2004:: France Telecom acquires full control of Wanadoo.
2005:: France Telecom announces its intention to merge the Orange and Wanadoo brands.