6-K 1 registrationdocument.htm FRANCE TELECOM FORM 6-K France telecom Form 6-k



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549


FORM 6-K


REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16 OF

THE SECURITIES EXCHANGE ACT OF 1934


April 14, 2009

Commission File No. 1-14712


 

FRANCE TELECOM

(Translation of registrant’s name into English)

 


6, place d’Alleray, 75505 Paris Cedex 15, France

(Address of principal executive offices)

 


Indicate by check mark whether the Registrant files or will file

annual reports under cover of Form 20-F or Form 40-F

Form 20-F

Form 40- F


Indicate by check mark whether the Registrant is submitting the

Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes

No


Indicate by check mark whether the Registrant is submitting the

Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes

No


Indicate by check mark whether the Registrant, by furnishing the

information contained in this Form, is also thereby furnishing the information to the

Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934

Yes

No


(If “Yes” is marked, indicate below the file number assigned to the

Registrant in connection with Rule 12g3-2(b): 82- )


 

Enclosure: France Telecom's 2008 Registration Document as filed with the Autorité des Marchés Financiers on April 10, 2009 (English translation).


 




Société Anonyme (Public Limited Company) with a share capital of 10,459,964,944 euros

Registered office: 6, place d’Alleray 75505 Paris cedex 15

Paris Trade Register 380 129 866




2008 registration document





This document constitutes the English translation of the France Telecom 2008 Registration Document as filed with the Autorité des Marchés Financiers on April 10, 2009 pursuant to Article 212-13 of the AMF General Regulation.




Table of Contents

nota

4

1. person responsible

5

1.1

PERSON RESPONSIBLE FOR THE INFORMATION CONTAINED IN THE REGISTRATION DOCUMENT

5

1.2

DECLARATION BY THE RESPONSIBLE PERSON

5

2. statutory auditors

7

2.1

STATUTORY AUDITORS

7

2.2

ALTERNATE STATUTORY AUDITORS

7

3. selected financial information

9

3.1

CONSOLIDATED STATEMENT OF INCOME

9

3.2

CONSOLIDATED BALANCE SHEET

9

3.3

CONSOLIDATED STATEMENT OF CASH FLOWS

10

3.4

ORGANIC CASH FLOW

10

4. risk factors

11

4.1

RISKS RELATING TO FRANCE TELECOM’S BUSINESS ACTIVITIES

12

4.2

LEGAL RISKS

17

4.3

RISKS RELATING TO THE FINANCIAL MARKETS

19

5. information about the issuer

23

5.1

HISTORY AND DEVELOPMENT OF THE COMPANY

23

5.2

INVESTMENTS

24

6. overview of the Group’s business

25

6.1

ENVIRONMENT AND STRATEGY

26

6.2

PERSONAL COMMUNICATION SERVICES

30

6.3

HOME COMMUNICATION SERVICES

67

6.4

ENTERPRISE COMMUNICATION SERVICES

86

6.5

EMPLOYMENT AND ENVIRONMENTAL INFORMATION

93

6.6

EXCEPTIONAL EVENTS

102

6.7

DEPENDENCY ON PATENTS

102

6.8

REGULATIONS

103

6.9

SUPPLIERS

121

6.10

INSURANCE

122

7. organization structure

123

8. property, plant and equipment

125

8.1

NETWORKS

126

8.2

REAL ESTATE

136

9. analysis of the financial position and earnings

137

9.1

ANALYSIS OF THE GROUP’S FINANCIAL POSITION AND EARNINGS

138

9.2

ANALYSIS OF FRANCE TELECOM S.A.’S FINANCIAL POSITION AND EARNINGS (FRENCH STANDARDS)

185

10. cash flow and capital resources

191

11. innovation, research and development, patents and licenses

193

12. information on trends

195

13. profit forecasts or estimates

197

14. administrative and management bodies and senior management

199

14.1

ORGANIZATION AND OPERATIONS OF THE BOARD OF DIRECTORS

200

14.2

STRUCTURE OF GENERAL MANAGEMENT

212

14.3

INTERNAL CONTROL AND RISK MANAGEMENT

214

14.4

REPORT OF THE STATUTORY AUDITORS

222

15. compensation and benefits paid to directors, officers and senior management

223

15.1

RULES FOR DETERMINING COMPENSATION OF CORPORATE OFFICERS

224

15.2

TOTAL COMPENSATION PAID TO CORPORATE OFFICERS

226

15.3

GROUP MANAGEMENT COMMITTEE COMPENSATION

229

15.4

PROVISIONS FOR PENSIONS, RETIREMENT AND OTHER BENEFITS

229



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16. board practices

231

17. employees

233

17.1

WORKFORCE TRENDS

234

17.2

ORGANIZATION OF WORKING HOURS

237

17.3

COMPENSATION

239

18. major shareholders

245

18.1

DISTRIBUTION OF SHARE CAPITAL AND VOTING RIGHTS

245

18.2

DIRECT AND INDIRECT CONTROL OF FRANCE TELECOM

246

19. related party transactions

247

20. financial information concerning the issuer’s assets and liabilities, financial position and profits and losses

249

20.1

CONSOLIDATED STATEMENTS

251

20.2

NON CONSOLIDATED STATEMENTS

355

20.3

DIVIDEND DISTRIBUTION POLICY

399

20.4

LEGAL AND ARBITRATION PROCEDURES

399

20.5

SIGNIFICANT CHANGE IN FINANCIAL OR COMMERCIAL SITUATION

400

21. additional information

401

21.1

SHARE CAPITAL

402

21.2

ARTICLES OF ASSOCIATION AND BYLAWS

404

21.3

FACTORS WHICH COULD HAVE AN IMPACT IN THE EVENT OF A TENDER OFFER

407

22. significant contracts

409

23. third party information, statements by experts and declarations of any interest

411

24. documents on display

413

25. information on holdings

415

26. shareholders’ meeting

417

26.1

DRAFT RESOLUTIONS TO BE SUBMITTED TO THE COMBINED ORDINARY AND EXTRAORDINARY SHAREHOLDERS’ MEETING TO BE HELD
ON MAY 26, 2009

418

26.2

REPORT OF THE BOARD OF DIRECTORS OF FRANCE TELECOM ON RESOLUTIONS SUBMITTED TO THE ANNUAL SHAREHOLDERS’ MEETING
- FISCAL YEAR 2008

429

26.3

 STATUTORY AUDITORS’ REPORTS

441

registration document appendices

451

TECHNICAL GLOSSARY

452

FINANCIAL GLOSSARY

458

ANNUAL DOCUMENT PREPARED PURSUANT TO ARTICLE 222-7 OF THE GENERAL REGULATION OF THE AMF

460

CORRESPONDENCE TABLES

462




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nota

This Registration Document serves as:

the annual financial report prepared pursuant to Articles L. 451-1-2 of the French Monetary and Financial Code and 222-3 of the AMF General Regulation;

the management report prepared pursuant to Articles L. 225-100, L. 225-100-2, L. 225-100-3, L. 225-102, L. 225-102-1, L. 225-211, L. 232-1, L. 232-6, L. 233-6, L. 233-13 and L. 233-26 of the French Commercial Code, 223-26 of the AMF General Regulation and 243 A of the French General Tax Code;

the Chairman’s report on corporate governance and internal control prepared pursuant to Article L. 225-37 of the French Commercial Code.

Correspondence tables between the information legally required in these reports and this Registration Document are set out on pages 462 to 464.

Information incorporated by reference

Pursuant to Article 28 of Commission Regulation (EC) no. 809/2004, the following information is incorporated by reference into this document:

the consolidated financial statements and the corresponding audit report set out on pages 58 to 160 of the 2007 Annual Financial Report forming volume 2 of the 2007 France Telecom Registration Document filed with the AMF on March 5, 2008, as well as the Group’s Management Report set out on pages 5 to 56 of the same document;

the consolidated financial statements and the corresponding audit report set out on pages 89 to 197 of the 2006 Financial Report forming volume 2 of the 2006 France Telecom Registration Document filed with the AMF on March 30, 2007, as well as the Group’s Management Report set out on pages 1 to 88 of the same document.

The website references in this document are for reference only: the information on these websites is not incorporated by reference into this document.

Definition

In this Registration Document, unless otherwise indicated, the terms “Company” and “France Telecom S.A.” refer to France Telecom S.A. and the terms “France Telecom”, the “Group” and the “France Telecom group” refer to France Telecom S.A. together with its consolidated subsidiaries.

Forward-looking information

This document contains forward-looking statements about France Telecom’s business, including without limitations certain statements made in Section 6.1 Environment and Strategy and Chapter 12 Information on Trends. These forward-looking statements are sometimes identified by the use of the future and conditional and words such as “expects”, “should”, “estimates”, “believes” or “may”.

Although France Telecom believes these statements are based on reasonable assumptions, these forward-looking statements are subject to numerous risks and uncertainties, including matters not yet known to us or not currently considered material by us, and there can be no assurance that anticipated events will occur or that the objectives set out will actually be achieved.

Important factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements include, among others:

overall trends in the economy in general and in France Telecom’s markets;

the effectiveness of the integrated operator strategy including the success and market acceptance of the Orange brand and other strategic, operating and financial initiatives;

France Telecom’s ability to adapt to the ongoing transformation of the telecommunications industry;

regulatory developments and constraints, as well as the outcome of legal proceedings;

risks and uncertainties related to international operations;

exchange rate fluctuations.

Except to the extent required by law (in particular pursuant to Article 223-1 of the AMF General regulation), France Telecom does not undertake any obligation to update forward-looking statements.

The most significant risks are described in Chapter 4 Risk factors.

Glossaries

A glossary of the technical terms and of financial terms is provided on pages 452 et seq. of this document.


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1. person responsible

1.1     PERSON RESPONSIBLE FOR THE INFORMATION CONTAINED IN THE REGISTRATION DOCUMENT

Chairman and Chief Executive Officer

Didier LOMBARD

1.2     DECLARATION BY THE RESPONSIBLE PERSON

“After having taken all reasonable measures in this regard, I hereby certify that the information in this Registration Document is, to the best of my knowledge, in accordance with the facts, with no omissions likely to affect its import.

I hereby certify that, to the best of my knowledge, the financial statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets and liabilities, financial position and results of the Company and of all consolidated companies, and that the Management Report set out on pages 138 to 190 of this Registration Document presents a true image of the business performance, results and financial position of the Company and of all consolidated companies as well as a description of the major risks and uncertainties facing them.

I have received a work completion letter from the statutory auditors, in which they state that they have verified the information regarding the financial position and financial statements presented in this document and have read the whole document .

The statutory auditors have issued reports on the historical financial information presented in this document. These reports contain the following observations:

Without qualifying their opinion on the financial statements, in their report on the consolidated financial statements for the year ended December 31, 2008 set out on page 354 of this document, the statutory auditors drew the reader’s attention to the European Commission’s ruling in relation to the French business tax regime as described in Note 30 on litigation, and to the change in accounting method following the first-time application of IFRIC 13 “Customer Loyalty Programmes” from January 1, 2008 discussed in Note 1.2.

Without qualifying their opinion on the financial statements, in their report on the separate financial statements for the year ended December 31, 2008 set out on page 397 of this document, the statutory auditors drew the reader’s attention to the European Commission’s ruling in relation to the French business tax regime as described in Note 9.1 on litigation.

Without qualifying their opinion on the financial statements, in their report on the consolidated financial statements for the year ended December 31, 2007 set out on page 58 of the 2007 Annual Financial Report forming volume 2 of Registration Document D. 08-0093, the statutory auditors drew the reader’s attention to the European Commission’s ruling in relation to the French business tax regime as described in Note 33 on litigation.

Without qualifying their opinion on the financial statements, in their report on the consolidated financial statements for the year ended December 31, 2006 set out on page 89 of the Financial Report forming volume 2 of Registration Document D. 07-0254, the statutory auditors drew the reader’s attention to the European Commission’s ruling in relation to the French business tax regime as described in Note 33 on litigation.”

Paris, April 10, 2009

Chairman and Chief Executive Officer

Didier LOMBARD


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2. statutory auditors

2.1     STATUTORY AUDITORS

Ernst & Young Audit

Represented by Christian Chiarasini

11, allée de l’Arche

92037 Paris-La Défense Cedex

Ernst & Young Audit was appointed by Government decree of September 18, 1991. Its term of office was subsequently renewed by Government decrees of May 14, 1997 and of May 27, 2003 for a period of six years.

Deloitte & Associés

Represented by Etienne Jacquemin and Jean-Paul Picard

185, avenue Charles de Gaulle

92524 Neuilly-sur-Seine Cedex

Deloitte Touche Tohmatsu (now known as Deloitte & Associés) was appointed by Government decree on May 27, 2003 for a period of six years.

2.2     ALTERNATE STATUTORY AUDITORS

Auditex

Tour Ernst & Young

Faubourg de l’Arche

11, allée de l’Arche

92037 Paris-La Défense Cedex

BEAS

7-9, villa Houssay

92524 Neuilly-sur-Seine Cedex

Auditex and BEAS were appointed by Government decree on May 27, 2003 for a period of six years.

The terms of office of all the statutory auditors expire at the end of the Annual Shareholders’ Meeting of May 26, 2009.

The Board Meeting of March 24, 2009 resolved to ask the Annual Shareholders’ Meeting to reappoint all the Statutory Auditors (see Chapter 26 Shareholders Meeting).


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3. selected financial information

The selected financial information presented below relating to the years ended December 31, 2004, 2005, 2006, 2007 and 2008 is extracted from the Consolidated Financial Statements audited by Ernst & Young Audit and Deloitte & Associés.

The Selected Financial Information for fiscal years ended December 31, 2007 and 2008 must be read together with:

the consolidated financial statements in Chapter 20 Financial Information concerning the Issuer’s Assets and Liabilities, Financial Position and Profits and Losses;

the Group’s management report in Chapter 9 Analysis of the Group’s Financial Position and Earnings in this Registration Document;

the financial glossary on page  458 of this Registration Document.

3.1     CONSOLIDATED STATEMENT OF INCOME

Amounts in accordance with IFRS

2008

2007

2006

2005

2004

Revenues

53,488

100.0%

52,959

100.0%

51,702

100.0%

48,082

100.0%

45,285

100.0%

Gross operating margin

19,399

36.3%

19,116

36.1%

18,539

35.9%

17,953

37.3%

17,516

38.7%

Operating income

10,272

19.2%

10,799

20.4%

6,988

13.5%

10,498

21.8%

8,770

19.4%

Finance costs, net

(2,987)

(5.6)%

(2,650)

(5.0)%

(3,251)

(6.3)%

(3,367)

(7.0)%

(3,645)

(8.0)%

Consolidated net income after tax of continuing operations

4,492

8.4%

6,819

12.9%

1,557

3.0%

5,712

11.9%

2,796

6.2%

Consolidated net income after tax of discontinued operations

0

0.0%

0

0.0%

3,211

6.2%

648

1.3%

414

0.9%

Consolidated Net income after tax (attributable to equity holders of France Telecom S.A.)

4,069

7.6%

6,300

11.9%

4,139

8.0%

5,709

11.9%

3,017

6.7%

Net earnings per share – base (1)

1.56

 

2.42

 

1.59

 

2.28

 

1.23

 

Net earnings per share – diluted (1)

1.54

 

2.36

 

1.57

 

2.20

 

1.22

 

Dividend per share for the year

1.40 (2)

 

1.30

 

1.20

 

1.00

 

0.48

 

(1)

Earnings per share on a comparable basis.

(2)

Subject to approval by the Ordinary General Shareholders’ Meeting of May 26, 2009.


3.2     CONSOLIDATED BALANCE SHEET

Amounts in accordance with IFRS

2008

2007

2006

2005

2004

Intangible fixed assets, net (1)

45,262

48,047

50,230

52,591

43,221

Property, plant and equipment, net

26,534

27,849

28,222

28,570

26,502

Total assets

95,295

101,183

103,171

109,350

98,693

Net financial debt

35,859

37,980

42,017

47,846

49,822

Shareholders’ equity (attributable to equity holders of France Telecom S.A.)

27,600

30,053

26,794

24,860

14,451

(1)

Includes goodwill and other intangible assets.



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3.3     CONSOLIDATED STATEMENT OF CASH FLOWS

 

2008

2007

2006

2005

2004

Net cash provided by operating activities

14,999

14,644

13,863

13,374

12,697

Net cash used in investing activities

(8,035)

(6,881)

(4,691)

(11,677)

(5,591)

Purchases of property, plant and equipment and intangible assets

(7,140)

(7,064)

(7,039)

(6,142)

(5,141)

Net cash used in financing activities

(6,057)

(7,654)

(9,271)

(860)

(7,346)

Cash and cash equivalents at end of year

4,800

4,025

3,970

4,097

3,153


3.4     ORGANIC CASH FLOW

 

2008

2007

2006

2005

2004

Net cash provided by operating activities

14,999

14,644

13,863

13,374

12,697

Purchases of property, plant and equipment and intangible assets

(7,140)

(7,064)

(7,039)

(6,142)

(5,141)

Increase (reduction) from suppliers of fixed assets

(76)

125

228

34

(67)

Proceeds from sale of tangible and intangible assets

233

113

105

215

199

Organic cash flow

8,016

7,818

7,157

7,481

7,688



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4. risk factors

4.1

RISKS RELATING TO FRANCE TELECOM’S BUSINESS ACTIVITIES

12

4.2

LEGAL RISKS

17

4.3

RISKS RELATING TO THE FINANCIAL MARKETS

19




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In addition to the other information contained in this Registration Document, investors should carefully consider the risks described below before making any investment decision. These risks, or any one of them, could have an adverse effect on France Telecom’s business activities, financial position or results. Moreover, additional risks not currently known to France Telecom, or risks that France Telecom currently deems immaterial, may have a similar adverse effect and investors could lose all or part of their investment.

The risks discussed in this chapter involve:

risks relating to France Telecom’s business activities (see Section 4.1);

risks of a legal nature (see Section 4.2);

risks relating to the financial markets (see Section 4.3).

Within each section, the risk factors are set out in what the Company’s believes to be the order of decreasing importance. The occurrence of new external or internal events may cause France Telecom to review this order of importance in the future.

Risks are also discussed extensively in several other chapters:

for regulatory risks and risks stemming from regulatory pressures, see Section 6.8 Regulations and Note 30 Litigation to the consolidated financial statements;

for risks relating to the vulnerability of the technical infrastructure and environmental risks see Section 6.5 Employment and Environmental Information;

for risks relating to the financial markets, see:

Note 27 Other Information on Exposure to Market Risks and Financial Instruments to the consolidated financial statements in respect of the management of interest rate, currency, liquidity, covenant, counterparty and equity market risks,

Note 22 Derivative Instruments to the consolidated financial statements.

The framework for managing interest rate, currency and liquidity risks is laid down by the Treasury and Financing Committee. See Section 14.3.1 Control environment:

with respect to insurance, see Section 6.10 Insurance;

more generally, the risk management framework within the France Telecom group is covered as a whole in the Chairman’s report on corporate governance and internal control (see Section 14.3 Internal Control and Risk Management).

4.1     RISKS RELATING TO FRANCE TELECOM’S BUSINESS ACTIVITIES

The current economic crisis may have a material adverse effect on France Telecom’s business activities.

The deterioration in the financial environment since the second half of 2007 accelerated in the second half of 2008. The resulting economic crisis has led to a pronounced slowdown in the global economy that could continue and/or worsen.

France Telecom’s revenues are dependent on household and corporate spending. The deterioration in economic conditions and economic activity, the strong desire of both public and private sector players to reduce their costs (including refraining from buying new products and services), as well as a possible return to inflationary conditions are all factors that could materially adversely impact France Telecom’s business activities, revenues and results.

In addition, content-related services represent an increasingly important growth driver for France Telecom. In a difficult economic climate, these services could be considered discretionary by some customers, resulting in a decrease in revenues and growth outlook.

Accordingly, in the event that the economy, and more specifically the level of economic activity and growth in the markets in which France Telecom operates, does not to recover, its results and financial position would be materially adversely affected.

Should the economic climate deteriorate further, France Telecom may decide to scale back capital expenditures in order to protect organic cash flow generation. The Group believes that it has flexibility in terms of the amount and timing of its capital expenditure program, but a lasting reduction in capital expenditure levels below certain thresholds could affect France Telecom’s future growth.

In order to respond to the rapid and profound changes in the telecommunications sector in France and abroad, France Telecom has opted for an integrated operator strategy. Should this strategy prove ineffective or unsuited to the challenges presented by the changes in its business, France Telecom’s financial position and results could be adversely affected.



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As a result of the rapid changes to the telecommunications sector in France and abroad, France Telecom has decided to maintain and bolster its integrated operator strategy. The plan for transforming France Telecom into an integrated operator is based on the development of convergent fixed-line telephony / mobile telephony / broadband Internet service offers, the strengthening of the Orange brand, the migration to the Internet, the growth in new business activities such as content, audience advertising and e-health, and the Group’s internationalization and cost cutting. The success of this strategy is, however, not guaranteed, and its failure could have an adverse impact on France Telecom’s financial position and results.

If France Telecom fails to successfully implement this integrated operator model or succeeds only partially, France Telecom’s business activities, financial position and results would be adversely affected.

The successful implementation of this strategy depends on the following:

ability to pool the various networks, IT systems, service platforms, shared service centers and call centers, by strengthening the Group’s integration across the board;

ability to simultaneously manage development efforts relating to research and development, strategic partnerships, centralized strategic marketing and the launch of convergent offers;

ability to develop, put in place and market innovative, integrated, “multi-network” and “multi-handset” services that are readily accessible and easy to use;

ability to offer broadband services and multimedia content that match customer demand on an interactive, personalized and multi-screen basis;

ability to carry out the accelerated transformation of the Group’s structures, operating procedures and cost structure, with in particular savings on purchasing and network costs;

ability to develop the Group’s expertise and, in particular in France, to replace expertise in key fields by taking advantage of the increase in retirements;

ability via acquisitions to improve the Group’s position in high-growth geographic markets;

ability to adapt to a further deterioration in the economic climate and situation, which would call for a bigger adjustment to its capital expenditure levels than planned.

If France Telecom fails to implement this integrated operator model or succeeds only partially or not quickly enough, its business activities, financial position and results could be adversely affected.

France Telecom has adopted a single brand strategy (Orange) that may in certain circumstances not be as successful as anticipated and could magnify any image problem.

This strategy is primarily based on:

the placing of the Group’s services and products under the Orange brand, and the use of the brand for new offers such as multi-play or content;

the development of the attractiveness of the Orange brand in all the countries in which the Group operates; and

paying particular attention to the satisfaction of the brand’s customers by ensuring that the services offered respond to the customer’s needs, are simple to use and of a high quality.

If the development of the brand does not to achieve the anticipated success or the brand’s image becomes tarnished, in particular through its extension to new services, products or countries, France Telecom’s business activities, financial position and results could be adversely affected.

The profound transformation of the telecommunications sector is continuing. Shortcomings in the way in which France Telecom adapts to technological developments and new customer behavior could result in the loss of customers and market share in the sectors in which it operates, adversely affecting its revenues, margins and results.

The telecommunications sector has undergone profound changes in recent years, and France Telecom believes that these changes are continuing at the same rapid pace, with growth in both mobile and fixed-line broadband speeds, improved performance of handsets and network platforms and widespread all-IP usage. If France Telecom fails to rapidly and cost-effectively adapt its networks, technologies (including technologies acquired from third parties under patents, licenses and partnerships), processes and services in response to developments in the telecommunications sector and in customer expectations, it may not be able to compete effectively. As a result, France Telecom may lose customers or market share or be obliged to spend significant sums to retain them. Its financial position, margins and results could thus be adversely affected.

In addition, the new technologies that France Telecom decides to develop, in particular fiber to the home (FTTH), may require significant levels of capital expenditures, with lower profit margins or over a longer period than initially anticipated.

The intense competition in the telecommunications sector, including from new entrants to the sector, may affect France Telecom’s resources.

France Telecom faces intense competition in the main markets in which it operates. This competition has resulted, in particular, in an increase in customer retention costs, lower rates (in particular in the fixed-line market and more recently in the mobile market) and the need to carry out new major capital expenditures. In the mobile market in France, competition could further intensify as a result of the granting of a fourth 3G license.



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Moreover, new players from sectors that are either unregulated or subject to different regulations (Internet players such as Yahoo, Google, MSN, Skype or audiovisual players) have moved into the electronic communications market. The France Telecom group has set itself the goal of in turn developing its business in new fields connected with its core business, in particular, relating to the offering of content or advertising audiences or the use of IT and communications technologies in the healthcare sector.

If France Telecom fails to develop its business as planned, or if the new actors succeed in progressively establishing themselves throughout the electronic communications value chain, this could over the medium-term result in:

an erosion in rates and margins on France Telecom’s products and services;

a loss of market share;

an increase in costs associated with capital expenditures on the new technologies required to retain its customers and market share; and

in sum, increased pressure on France Telecom’s profit margins.

For further information on the competition faced by the France Telecom group in each of the traditional business segments (fixed-line, mobile, business), see Chapter 6 Description of Activities.

If growth in mobile telephony and Internet revenues slows as a result of the maturing of major European markets, and if revenues from the development of new convergent, broadband and content services fail to fill the resulting gap, France Telecom’s revenues may not grow or could even decrease, reducing margins and negatively impacting its profitability.

At constant exchange rates and scope of consolidation, the rise in France Telecom’s revenues in recent years has been primarily due to the rapid growth in its mobile communications and Internet businesses, in line with that in the Internet and mobile communications markets in Europe. However, these markets are already showing signs of maturity, and even saturation in certain cases.

At present, a portion of the revenue growth depends on France Telecom’s ability to offer broadband related services that meet customer demand, in particular in terms of multimedia content.

If the markets, particularly France, Poland, the United Kingdom and Spain, do not continue developing in particular with respect to convergent, broadband and content services, while revenues from basic services (fixed-line and mobile telephony, Internet access) stagnate or France Telecom’s market share in these services falls, France Telecom’s revenues may not grow and could even decrease, which could affect its financial position and results.

Similarly, all these markets could be adversely affected by the economic crisis or an intensification in competition (particularly following the granting of a fourth 3G license), which could cause revenues to decrease faster than expected.

For further information on France Telecom’s revenue performance and a breakdown thereof in 2008, see the Group’s Management Report, Section 9.1.2.1.1 Revenues.

For further information on the competition faced by the France Telecom group in each of the traditional business segments (fixed-line, mobile, business) in which it operates, see Chapter 6 Description of Activities.

If France Telecom is unable to reduce its costs, its operating margins, financial position and results could be adversely affected.

One of France Telecom’s goals is to cut costs, in particular its commercial expenses and its fixed costs which, in the countries in which it is the incumbent operator, continue to be higher than those of some of its competitors. Keeping down capital expenditures is also a key factor with regard to profitability.

This cost control depends in particular on:

an ability to pool the various networks, IT systems, service platforms, shared service centers and call centers, by strengthening the Group’s integration across the board;

an ability to carry out the accelerated transformation of the Group’s structures and operations, and the Group’s cost structure, with in particular savings on purchasing and network costs and the outsourcing of certain services.

If France Telecom is unable to achieve this to a sufficient degree or sufficiently quickly, its margins, financial position and results could be adversely affected.

France Telecom has recognized substantial amounts of goodwill as a result of acquisitions made since 1999. Impairment losses on this goodwill, likely to have a material adverse effect on France Telecom’s balance sheet and results, could be recognized.

France Telecom has recognized substantial amounts of goodwill in connection with its acquisitions since 1999, in particular the acquisitions of Orange, Equant, Amena and the equity interest in TP SA. At December 31, 2008, goodwill amounted to approximately 30.8 billion euros.

Pursuant to IFRS, the present value of goodwill is reviewed annually and, when events or circumstances indicate that an impairment loss may occur, France Telecom recognizes an impairment loss on this goodwill, particularly in the case of events or circumstances that involve material adverse changes of a permanent nature affecting the economic climate or the assumptions and targets used at the time of the acquisition. In particular, France Telecom recognized impairment losses in respect of its interests in Equant, the TP Group and some Orange and Wanadoo subsidiaries in 2002, 2003, 2004 and 2006. New events or adverse circumstances could occur that would cause France Telecom to review the present value of its goodwill and to recognize further substantial impairment losses that could have a material adverse effect on its results.



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In addition, when reviewing the present value of goodwill, France Telecom carries out impairment tests at the level at which the Group assesses the return on investment on the goodwill. This level may be a cash generating unit or a group of cash generating units within the same business or geographic region. The scope of these groups of cash generating units may be reviewed as a result of changes in the Group’s structure, as was the case in 2007 (see Note 6 Impairment to the consolidated financial statements). Moreover, the possible adoption of new rules regarding the definition of business segments could require the Group to review the groups currently defined. Such changes may have an impact on the outcome of impairment tests and, accordingly, on the impairment losses recognized.

For further information on the impairment of goodwill, see Section 9.1.2.2 From Group Gross Operating Margin to Operating Income.

The value of France Telecom’s international investments in telecommunications companies outside Western Europe, as well as the attainment of the expected return on investment, could be materially adversely affected by political, economic and legal developments in those countries.

France Telecom has invested in telecommunications operators in Eastern Europe, the Middle East, Asia and Africa, and plans to make further investments in various countries in these regions. The Group’s growth in fact largely depends on its increased presence, particularly via acquisitions, in high-growth geographic markets.

The political, economic and legal or labor situations in certain countries in these regions may change in an unpredictable manner, as happened in the Ivory Coast. Furthermore, the growth outlook used when making these investments may not reflect what actually occurs, in particular as a result of the impact of the economic crisis, and in this event, France Telecom may not be able to achieve the expected return on investment. Finally, certain planned changes, which should have a positive or stabilizing influence on France Telecom’s business activities and results, such as the adoption of the euro by Poland and Romania, could be delayed. Such political, economic or legislative changes may adversely affect the business activities of companies in which France Telecom has invested or may invest in the future. This could affect the value of these investments or France Telecom’s results.

The technical infrastructure of telecommunications operators is vulnerable to damage or interruptions caused by floods, storms, fires, war, acts of terrorism, other intentionally harmful acts and other similar events.

A natural disaster, such as the storm Klaus which struck in early 2009, Hurricane Dean in Martinique in August 2007 and the storms in December 1999, which disrupted service in France in early 2000, and other unexpected occurrences affecting France Telecom’s facilities or any other incident or failure of its networks may result in serious damage with a high repair cost. In 2000, these repair costs amounted to roughly 150 million euros. In certain cases, France Telecom has no insurance for damage to its aerial lines and must assume the full cost of the damage itself.

Technical network and IT system failures may reduce traffic, lower revenues and harm the reputation of operators or the sector as a whole.

Damage, as well as interruptions to services provided to customers, may also occur following outages (hardware or software), human error or sabotage to critical hardware or software. As a result of the rationalization of the network based on the implementation of all-IP technologies, the increase in the size of the service platforms and the relocation of equipment into fewer buildings, such service interruptions may in the future affect a greater number of customers. While impossible to quantify, the impact of such events occurring at country level could result in customer dissatisfaction, a decrease in France Telecom’s traffic and revenues and government intervention in the country or countries affected.

Finally, the risk of failure of the internal France Telecom IT system has increased due to the accelerated implementation of new services and applications relating to billing and customer relationship management. More specifically, incidents (including the possible loss of control over personal data) may occur during the implementation of new applications or software.

Concerns have been raised as to possible health risks of exposure to mobile telecommunications equipment, which could result in a decrease in the use of mobile telecommunication services or additional difficulties in deploying cell phone towers and wireless networks, or additional lawsuits, which could have adverse effects on France Telecom’s results.

In certain countries in which France Telecom carries on its mobile telephony business, concerns have been raised regarding the possible health risks to humans of exposure to RF (radio frequency) emissions or electromagnetic fields emitted by telecommunications equipment (such as mobile telephones, cell phone towers, Wi-Fi). These concerns have been taken up by public opinion campaigns. The European Commission’s Scientific Committee on Emerging and Newly Identified Health Risks (SCENIHR) concluded in January 2009 that exposure to RF is unlikely to lead to an increased cancer risk in humans but recommended that further studies be carried out to identify whether long-term exposure (well over ten years) could pose some cancer risk. Although the public exposure limits for cell phone towers and wireless networks recommended by the ICNIRP were confirmed by the European Commission in September 2008, certain countries such as Switzerland and Belgium have set lower authorized levels and other countries are considering similar measures. As regards mobile telephones, the possibility that their use may pose a health risk cannot be absolutely discounted even though there is at present no scientific evidence to this effect. In May 2006, the World Health Organization recommended further studies to determine whether additional RF exposure from mobile telephones could pose health risks. Pending the publication of the findings of current studies, certain health authorities are issuing various usage precautions to reduce users’ exposure to electromagnetic fields.



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The potential risks, or the public’s perception of the risks, could have a material adverse effect on France Telecom’s results or financial position due to the risk of a decrease in the number of customers, lower usage per customer, a slowdown in the roll-out of transmitter sites and an increase in the cost of their roll-out, a tarnishing of the Orange brand, an increase in lawsuits or other reasons including acts of vandalism on transmitter sites. Moreover, France Telecom cannot be certain that future scientific research publications or medical research in general will rule out any link between RF emissions and health risks. If such a link were discovered, it could have a material adverse impact on France Telecom’s business activities and results.

For further information, see Section 6.5.2.7 Environmental Information – Electromagnetic Fields

The activities conducted by a telecommunications network operator require the use of certain facilities, products or substances that may represent an environmental hazard or nuisance.

France Telecom believes that its telecommunications operator activities present no major environmental risks. Indeed, these activities do not employ any production processes that seriously threaten rare or non-renewable resources, natural resources (water, air) or biodiversity (see Section 6.5 Employment and Environmental Information).

France Telecom does, however, use certain facilities, products or substances that might represent environmental hazards or nuisances. Prevention programs have been adopted in respect of the corresponding risks.

In general, France Telecom follows the rules governing the recognition of environmental liabilities, and in particular the rules concerning provisions for site remediation and dismantling, in accordance with applicable legislation and regulations (see Note 24 Provisions to the consolidated financial statements). France Telecom cannot, however, rule out the possibility of a legislative or regulatory change that would require it to incur additional expense and to record larger provisions in this respect.

Wherever it operates, France Telecom is exposed to risks relating to its ability to attract and retain skilled personnel in its strategic professions.

France Telecom’s success depends in part on its ability to attract highly-skilled personnel in all the countries in which it operates and to retain and motivate its best employees. If France Telecom is not sufficiently attractive, compared to its competitors, in recruiting when needed the skilled personnel necessary to develop its business, its commercial activities and operating income could be adversely affected.

In addition, in light of the accelerated retirement of Group employees in France anticipated over the medium term, France Telecom will accelerate hiring in its key professions while continuing programs favoring internal job mobility and outplacement. If France Telecom is unable to retain expertise within the Group and maintain sufficient continuity with regard to the management of ongoing projects, its commercial activities and operating income could be adversely affected.

Lastly, outsourcing programs are in place in certain countries in which the Group operates to cover future recruitment problems. These programs may also result in a loss of expertise or ultimately require the outsourced service to be re-acquired.


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4.2     LEGAL RISKS

France Telecom is continually involved in legal proceedings and disputes with regulatory authorities, competitors or other parties. The outcome of such proceedings is generally uncertain and could have a material impact on its results or financial position.

France Telecom’s position as the main operator and provider of network and telecommunications services in France and Poland, and one of the leading telecommunications operators worldwide, attracts the attention of competitors and competition authorities. Accordingly, a number of European Commission investigations into France Telecom’s possible receipt of state aid in France are ongoing and involve very substantial sums. In addition, France Telecom - in particular in France and Poland - is frequently involved in legal proceedings with its competitors and with the regulatory authorities due to its preeminent position in the markets in which it operates, and the complaints filed against France Telecom can, in certain cases, be very substantial. The outcome of lawsuits is by definition unpredictable. In the case of litigation related to competition law, the maximum level of fines provided for by law is 10% of the consolidated revenues of the company at fault (or the group to which it belongs, as the case may be). In 2007, the Office for Electronic Communications (OEC) in Poland imposed a fine of 86 million euros on the TP Group for non-compliance with its regulatory obligations and in 2005, the French competition authorities fined France Telecom 40 million euros and 80 million euros for abuse of its dominant position followed by a 256 million euros fine for collusion.

The main proceedings in which France Telecom is involved are described in Note 30 Litigation to the consolidated financial statements. Developments in or the results of some or all of the ongoing proceedings could have a material impact on its results or financial position.

France Telecom continues to operate in highly regulated markets, where its flexibility to manage its business is limited and where it is subject to constant regulatory pressures.

In most countries in which it operates, France Telecom must comply with various regulatory obligations governing the provision of its products and services, primarily relating to the obtaining of licenses, as well as oversight by authorities seeking to maintain effective competition in the electronic communications markets. Furthermore, in certain countries France Telecom faces a number of regulatory constraints as a result of its historically dominant position in the fixed-line telecommunications market, in particular in France and Poland.

France Telecom believes that, in general and in all countries, it complies with all specifically applicable regulations as well as the terms of its operator licenses, but it cannot predict how oversight authorities or courts that may be asked or have already been asked to resolve a certain number of claims will decide on the issue.

For further information on regulations, see Section 6.8 Regulations.

France Telecom’s business activities and results could be materially adversely affected by legislative or regulatory developments or by changes in governmental policy.

France Telecom’s business activities and operating income may be materially adversely affected by legislative, regulatory or government policy changes, and in particular by decisions taken by regulatory and competition authorities in connection with:

the granting, modification or renewal of licenses. In this regard, the relevant French authorities announced their intention to launch another call for bids for the granting of a fourth 3G license in France;

the opening up of France Telecom’s networks and civil engineering infrastructure to rival network operators;

service rates. For example, at the request of Arcep a further cut in call termination prices will take place in France in July 2009; in addition, in 2007, the European Commission imposed cuts in international roaming rates and, in September 2008, a draft regulation was adopted by the Commission with a view to extending this cut to 2013 and to introducing ceilings for SMS roaming rates. Other proposals are being examined, such as the draft recommendation on call terminations released for consultation by the Commission in June 2008.

Such decisions could have a material adverse effect on results.

France Telecom may not fully benefit from the opportunities presented by market liberalization in those countries in which the Group is not the incumbent operator.

In the markets in which France Telecom is not the incumbent operator, regulators may follow a policy that favors the incumbent operator to the detriment of France Telecom or other new operators, by failing to sufficiently encourage the conditions necessary for, and the development of, effective competition, and in particular unbundling which is a key factor in the fixed-line broadband market.

Such a policy could have a material adverse effect on France Telecom’s results in these countries.

The integrated operator and convergence offer strategy developed by France Telecom and by other telecommunications and media sector players could be adversely affected by legislative changes or a confirmation of current case law, in particular with regards to bans on tie-in sales or to restrictions placed on exclusive partnerships.

France Telecom’s business activities and operating income may be materially impacted by legislative, regulatory or government policy changes, and in particular by decisions by regulatory and competition authorities in connection with France Telecom’s possible move into new markets, or the possibility of developing products and services resulting in the convergence of various markets in which France Telecom operates in countries such as France or Poland.



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In this regard, the current regulatory uncertainty has given rise to litigation relating in particular to exclusive relationships between audiovisual distributors and telecommunications operators. For example, on February 23, 2009, the Paris Commercial Court prohibited France Telecom from tying content on the Orange Foot TV channel to subscription for an ADSL Orange access, contrary to earlier case law and certain opinions from the competition authorities. At the same time, the French Competition Authority is in the process of responding to a request for advice from the French Government, apparently specifically on exclusive relations between audiovisual distributors and telecommunications operators. Changes in the applicable regulations governing this issue or the confirmation of the ruling handed down by the Paris Commercial Court, which has been appealed, could result in France Telecom reviewing its content purchasing strategy. These developments could have an adverse impact on France Telecom’s business activities and results.

Similarly, the decision of the French Competition Council to suspend the exclusive arrangement between Orange, its distributors and Apple for the marketing of the iPhone in France could, if the decision is upheld and it becomes definitive, result in France Telecom reviewing its strategy of exclusive partnerships in France.

France Telecom faces risks relating to certain subsidiaries and joint ventures in which it shares control or does not hold a controlling interest.

France Telecom carries on some of its business activities via companies it does not control. The documents of incorporation or agreements governing some of these businesses provide that certain key decisions such as the approval of business plans or the timing and amount of dividend payments require the approval of France Telecom’s partners. Should France Telecom and its partners disagree regarding these decisions, the contribution of these companies to France Telecom’s results and the strategy pursued by France Telecom in the countries in which these companies are located could be adversely affected.

Such risks may in particular involve Mobinil, an Egyptian subsidiary of France Telecom, 71.25% consolidated, as well as the operator in Mauritius (Mauritius Telecom), 40% consolidated, in which France Telecom shares control with another shareholder.

For more information on the outcome of the arbitration proceedings between France Telecom and Orascom, see Section 20.4 Litigation and Arbitration Proceedings.

France Telecom provides Internet access and hosting services, which may result in liability, and France Telecom could also find itself obliged in the future to make investments to limit its liability.

In most of the countries in which France Telecom operates, the provision of Internet-access and hosting services (including operating Internet sites with self-generated content) are regulated under a limited-liability regime applicable to the content that it makes available to the public as a technical service-provider, particularly content protected by copyright or similar laws. However, changes in standards, particularly in France and in certain countries such as Spain and the United Kingdom, are currently the subject of discussions and could call into question or modify this limited liability regime. This could force France Telecom to invest in order to improve the protection of these sites against illegal content or unauthorized downloads, to avoid future liability.

The French government owns, directly and indirectly, 26.65% of France Telecom’s capital and 26.75% of its voting rights, which could, in practice, allow the French government to determine the outcome of votes at Annual Shareholders’ Meetings.

At December 31, 2008, the French government directly and indirectly held, via ERAP, 26.65 % of France Telecom’s shares and 26.75 % of the voting rights, and had three representatives on its Board of Directors out of a total of 15 board members. As the main shareholder, whose interests may differ from those of the other shareholders, the French government could in practice, given the low level of participation at Annual Shareholders’ Meetings and the absence of other major shareholder blocks, determine the outcome of votes on issues requiring a simple majority at these Meetings. Nevertheless, the French Government does not have a golden share, which does not exist in France Telecom, and does not have any other special advantage other than the right to have representatives on the Board of Directors in proportion to its equity interest (see Section 18.2 Direct and Indirect Control of France Telecom).



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4.3     RISKS RELATING TO THE FINANCIAL MARKETS

France Telecom’s results and outlook may be adversely affected if access to capital markets remains difficult or worsens.

For over 12 months, financial markets have been extremely volatile and have manifested signs that they are malfunctioning, materially reducing the liquidity of these markets. In Q4 2008, the liquidity crisis reached unprecedented levels, considerably restricting the access of borrowers or issuers to the financial markets, except at rates considered, at times, as high. Presently, there is no way of knowing whether the situation will improve over the coming months, or even if it will cease to deteriorate. Even if conditions were to improve, intense competition between borrowers or issuers seeking financing could result, which could place additional pressure on financing costs and terms.

As a result, and in these circumstances, companies having recourse to the bond market or to bank loans can have no assurance that they will obtain the financing or refinancing necessary to their businesses at prices and on terms considered reasonable, even for first-rate borrowers or issuers that have strong balance sheets and good ratings, such as France Telecom.

Any inability to access the markets and/or obtain financing on reasonable terms could have a material adverse effect on France Telecom. The Company could, in particular, be required to allocate a significant portion of its available cash to pay off debt, in particular for the purposes of repaying loans that cannot be refinanced. In any event, France Telecom’s results, cash flows and, more generally, financial position and flexibility could be adversely affected.

France Telecom’s business activities could be adversely affected by interest rate fluctuations.

In the normal course of its business, France Telecom has recourse to the capital markets (and in particular the bond market) and to a lesser extent to bank loans, to meet its financing requirements. France Telecom’s policy is to carry a portion of its debt at variable rates while the remainder (the vast majority) is at fixed rates. As a result, France Telecom is exposed to interest rate increases, first on the variable component of its debt, and second, when refinancing. The consequences of entering into a financing arrangement during a period when the available rates are high may be long-lasting, depending on the maturity of the loan or bonds.

To limit exposure to interest rate fluctuations, France Telecom uses, from time to time, derivative instruments, but it cannot guarantee that these hedging transactions will effectively or completely limit its exposure or that suitable hedging instruments will be available at reasonable prices. In addition, hedging costs stemming from interest rate fluctuations could increase, generally.

In cases in which France Telecom has not used derivative instruments or its strategy of using these instruments has not been successful (or if other risks described should materialize) its cash flows and results could be adversely affected.

The management of interest rate risks and an analysis of the sensitivity of the Group’s position to changes in interest rates are set out in Note 27.1 Other Information on Exposure to Market Risks: Interest Rate Risks Management to the consolidated financial statements.

The insolvency or deterioration in the financial position of a bank or other institution with which France Telecom has contractual relations may have a material adverse effect on the Company.

In the course of its business activities, France Telecom engages in contractual relations with financial institutions, particularly in order to manage currency and interest rate risks and to ensure the availability of financing in the event that expected cash resources do not materialize or prove insufficient. Although cash collateral accounts are in place, the failure of these counterparties to meet any of these commitments could have adverse consequences on France Telecom. In this regard, the Group is exposed to counterparty risk with respect to these transactions.

France Telecom’s position as a result of these financing agreements (and in particular with regard to the 8 billion euro undrawn syndicated loan facility, even if the facility includes a large number of lenders ) could be compromised if one or more of the financial institutions with which the Company has contractual relations experiences liquidity problems or is no longer able to meet its obligations.

Investments can also expose France Telecom to counterparty risk since the Company is exposed to the collapse of the financial entities in which it has made investments. See Note 27.5 Other Information on Exposure to Market Risks: Credit Risk and Counterparty Risk Management.

The international banking system is such that financial institutions are interdependent. As a result, the collapse of a single institution (or even rumors regarding the financial position of one of them) may increase the risk for the other institutions, which would increase the counterparty risk for France Telecom.



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France Telecom’s results and cash position are exposed to exchange rate fluctuations.

In general, foreign exchange markets have recently experienced heightened volatility as a result of the global economic and financial crisis, which could increase the currency risks and hedging costs for France Telecom, as a result of higher exchange rates.

A significant portion of France Telecom’s revenues and expenses are recognized in currencies other than the euro. The main currencies for which France Telecom is exposed to a material currency risk are the pound sterling and the Polish zloty. Fluctuations from one period to the next in the average exchange rate for a given currency may have a material effect on the revenues and expenses in this currency, which would in turn have a material effect on France Telecom’s results. For example, in regard to 2008 data, the theoretical impact of a 10% fall against the euro in the main currencies in which the Group’s subsidiaries operate would have cut consolidated revenues by 2.1% and the gross operating profit by 1.8%. In addition to the main currencies, France Telecom carries on its business in other monetary zones, including in certain countries in the CFA Franc zone, which are furthermore considered to be drivers of future growth for France Telecom. A fall in the CFA Franc would adversely affect France Telecom’s revenues and gross operating margin as well as its growth potential.

When preparing the Group’s consolidated financial statements, the assets and liabilities of foreign subsidiaries are converted into euros at the year-end closing rate. This conversion, which does not affect the income statement, may have an adverse effect on the assets and liabilities in the consolidated balance sheet, with a corresponding translation adjustment in equity, for potentially significant amounts. See Note 27.2 Other Information on Exposure to Market Risks: Foreign Exchange Risk Management, Note 12 Other Intangible Assets and Note 20 Equity to the consolidated financial statements.

France Telecom manages the currency risk on commercial transactions (stemming from operations) and financial transactions (stemming from financial debt) in the manner set out in Note 27.2 Other Information on Exposure to Market Risks: Foreign Exchange Risk Management to the consolidated financial statements.

In particular, France Telecom uses derivative instruments to hedge its currency risk exposure, but it cannot guarantee that these hedging transactions will effectively or completely limit this risk. To the extent that France Telecom has not used any derivative instruments to hedge part of this risk, or where its strategy for using such instruments is not successful, France Telecom’s cash flows and results could be adversely affected.

See Note 22 Derivative Instruments to the consolidated financial statements.

The downgrading of France Telecom’s debt rating by the relevant rating agencies could increase borrowing costs and in certain circumstances limit the Company’s access to the capital it needs (and thus have a material adverse effect on its results and financial position).

France Telecom’s financial rating is partly based on factors over which it has no control, namely conditions affecting the telecommunications industry in general or conditions affecting certain countries or regions in which it operates, and can be changed at any time by the relevant rating agencies.

The Company’s rating has already been downgraded in the past (in 2001 and 2002) as a result of concerns raised by the agencies regarding the Company’s ability to implement its debt reduction policy. Even though its debt has fallen considerably since 2001 and 2002, and even though the Company’s rating has improved, it could be reviewed at any time, in light of changing economic conditions, or following a deterioration in the Company’s results or performance.

France Telecom’s results and financial position could be adversely affected by a downturn in the equities market.

Volatility in the equity markets, and especially a downward trend in such markets, could have an adverse impact on France Telecom’s results, in the event of a fall in the stock prices of France Telecom’s listed subsidiaries, in particular TP S.A. (Poland), Mobistar (Belgium) and ECMS (Egypt), if it subsequently becomes necessary to recognize impairment losses on the corresponding assets.

In addition, the Group is exposed to equity market risks via the hedging assets of some of its pension plans, including defined benefit plans, and via free share award plans and similar compensation programs.

See Note 27.6 Equity Market Risk to the consolidated financial statements and Note 23.2 Pensions and Other Long-Term Employee Benefit Obligations.

France Telecom’s share price may fluctuate due to a wide range of factors.

These factors include:

changes by financial analysts of forecasts or recommendations regarding France Telecom or the sector in which France Telecom operates;

the announcement by France Telecom or its competitors of strategic partnerships, their results, changes in their capital structure or other important changes in their businesses;

a rating change by rating agencies or a material change in debt levels;

the recruitment or departure of key employees;

in general, equity market fluctuations.



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In general and as a result of the global economic and financial crisis, equity markets worldwide have been highly volatile over the past twelve months, in terms of prices and trading volumes. Because of this volatility, prices may be permanently disconnected from the position and/or current outlook of the listed company. Investors obliged to sell shares during specific periods that are generally unfavorable for sellers would have to assume and accept the consequences. As a result, investors are asked to take all necessary precautions and to rely only upon their own analysis of the financial position of and outlook for the Company.

Future sales by the French state of its shares in France Telecom may negatively impact France Telecom’s share price.

At the date of publication of this Registration Document, the French state directly and indirectly held, via ERAP, 26.65% of the shares and 26.75% of the voting rights in France Telecom (see Chapter 18 Major Shareholders). Should the French state decide to further reduce its interest in France Telecom, such a sale by the French state, or even the belief that such a sale is imminent, could have an adverse affect on France Telecom’s share price.


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5. information about the issuer

5.1     HISTORY AND DEVELOPMENT OF THE COMPANY

5.1.1 Legal and commercial name

“France Telecom”

5.1.2 Place of registration and number

RCS (Trade Registry) number: Paris RCS 380 129 866

APE code: 642 C

5.1.3 Date of incorporation and duration

France Telecom S.A. was incorporated as a Société Anonyme (French limited company) on December 31, 1996 for a period of 99 years from that date. Barring early liquidation or extension, the company will expire on December 31, 2095.

5.1.4 Registered office, legal form and governing law

6, Place d’Alleray, 75015 Paris, France

Telephone: +33 (1) 44 44 22 22

France Telecom S.A. is governed by French corporate law, subject to specific laws governing the company, notably Act 90-568 of July 2, 1990 on the organization of public postal and telecommunications services, as amended by Act 96-660 of July 26, 1996 and Act 2003-1365 of December 31, 2003.

The regulations applicable to France Telecom S.A. as an operator are described in Section 6.8 Regulation.

5.1.5 Important events in the development of the company’s business

France Telecom is the leading broadband Internet service provider and the third largest mobile operator in Europe and one of the global leaders in telecommunication services for multinational corporations. France Telecom has been listed on the Euronext Paris Eurolist market and on the New York Stock Exchange since October 1997, when the French government sold 25% of its shares to the public and to France Telecom employees. France Telecom’s switch from the public sector to the private sector took place on September 7, 2004 following the State’s disposal of an additional 10.85% of France Telecom’s capital. On December 31, 2008, the French State directly or indirectly owned 26.65% of France Telecom’s capital.

Since the 1990s, France Telecom’s business and its regulatory and competitive landscapes have undergone significant changes that have affected the composition of its revenues as well as its business activities and internal organization. All telecommunications market segments in France have been opened up to competition since January 1, 1998 with the exception of local calls, which were opened up to competition on January 1, 2002.

Against this background of deregulation and heightened competition, from 1999 to 2002 France Telecom pursued a strategy of developing new services and accelerated its international expansion via acquisitions. As a result, France Telecom has increased the portion of its revenues stemming from new services such as mobile telephony, the Internet and data transmission services in France and abroad. Similarly, France Telecom has made a number of strategic investments (acquisitions, equity interests, UMTS licenses). In particular, it acquired Orange Plc. in 2000, Global One and Equant in 2000 and 2001, equity interests in NTL between 1999 and 2001, in the Polish operator TP S.A. in 2000 and 2001, and in Mobilcom in 2000. However, following various transactions, France Telecom no longer holds any interest in NTL and its interest in Mobilcom only stands at 1%. For the most part, it was not possible to finance these strategic investments through share issues, leading to a significant increase in the Group’s debt.

In December 2002, France Telecom launched the “Ambition FT 2005” plan, focused on refinancing its debt and strengthening its balance sheet, as well as the “TOP” operational improvement program, the success of which has enabled the Group to develop its integrated global operator strategy by anticipating changes in the telecommunications industry.

Since the end of 2003 this strategy has been reflected in the buyout of all minority interests in Orange and Wanadoo, the acquisition of all the assets and liabilities of Equant, the integration of Wanadoo into France Telecom S.A., the implementation of a new Group structure in line with this strategy, and the sustained launch of new offers.

In June 2005, France Telecom launched the “NExT” plan (New Experience in Telecommunications), designed to transform the Group over a three year period, turning France Telecom into the benchmark operator for new telecommunications services in Europe. In 2006, “Orange” thus became the Group’s sole brand for Internet, television and mobile services in most of the countries in which the Group operates, with “Orange Business Services” becoming the brand for services offered to businesses worldwide.



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As part of the NExT plan, France Telecom acquired close to 80% of the capital of the Spanish mobile operator Amena in November 2005. In 2006, all France Telecom’s mobile, fixed-line and Internet operations in Spain were consolidated into a single 79.3% owned entity (France Telecom España), operating under the “Orange” brand.

At the same time, France Telecom streamlined its asset portfolio, disposing of non-strategic assets, including the following subsidiaries and equity interests:

in 2003: Casema, Eutelsat, Wind, CTE (El Salvador) and Telecom Argentina;

in 2004: Noos, Bitco (Thailand), Orange Denmark, Radianz (Equant equity interest), and ST Microelectronics;

in 2005: Tower Participations (company owning TDF), Intelsat, cable network operations, and Mobilcom AG;

in 2007: Internet and mobile operations in the Netherlands.

In addition, PagesJaunes Group, the Group’s directories subsidiary, was listed on the stock market (Euronext Paris) in 2004, and France Telecom’s interest (54% at the end of 2005) was sold off in October 2006.

The completion of the 2006-2008 NExT plan (New Experience in Telecoms) confirms the success of France Telecom-Orange’s profound business transformation.

In March 2009, France Telecom launched its new strategic plan, Orange 2012. It will build upon the success of the Group’s strategy and will apply new action plans in order to achieve an ambitious objective for organic cash flow generation (see Section 6.1.2 France Telecom’s strategy).

5.2     INVESTMENTS

See Section 9.1.2


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6. overview of the Group’s business


6.1

ENVIRONMENT AND STRATEGY

26

6.1.1

Developments in the telecommunications services market

26

6.1.2

France Telecom’s strategy

27

6.1.3

General description of the business

29

6.2

PERSONAL COMMUNICATION SERVICES

30

6.2.1

France

32

6.2.2

Poland

35

6.2.3

United Kingdom

40

6.2.4

Spain

43

6.2.5

Rest of the World

46

6.3

HOME COMMUNICATION SERVICES

67

6.3.1

France

68

6.3.2

Poland

76

6.3.3

United Kingdom

80

6.3.4

Spain

82

6.3.5

Rest of the World

84

6.4

ENTERPRISE COMMUNICATION SERVICES

86

6.4.1

Market

86

6.4.2

Orange’s Line of Products and Services

87

6.4.3

Sales and Distribution

90

6.4.4

Competitive Environment

90

6.4.5

Key Events

92

6.5

EMPLOYMENT AND ENVIRONMENTAL INFORMATION

93

6.5.1

Employment information

93

6.5.2

Environmental information

97

6.6

EXCEPTIONAL EVENTS

102

6.7

DEPENDENCY ON PATENTS

102

6.8

REGULATIONS

103

6.8.1

Applicable European law and regulation

103

6.8.2

French Legal and Regulatory Framework

105

6.8.3

Legal and Regulatory Framework in the United Kingdom

113

6.8.4

Polish Legal and Regulatory Framework

116

6.8.5

Spanish Legal and Regulatory Framework

118

6.9

SUPPLIERS

121

6.10

INSURANCE

122





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6.1     ENVIRONMENT AND STRATEGY

6.1.1 Developments in the telecommunications services market

Transformations in the sector

Over the last decade, three developments have profoundly transformed the telecommunications sector:

the widespread use of digital technology, which concerns networks, terminals, applications, and content (moving towards electronic text, images and audio);

the widespread application of the IP protocol, which has resulted in the creation of the Internet on a global scale (World Wide Web);

the explosion in connectivity (with, in addition to IP, the development of the mobile telephone, Wi-Fi, and home networks), in tandem with increased network capacity (deployment and multiplexing of long-distance fiber optics, broadband local loop with ADSL, and next-generation mobile networks).

THE GROWTH IN CONNECTIVITY: DISTRIBUTION OF MOBILES WORLDWIDE (2005-2008)

 

Mobile customers (thousands)

Mobile customers as % of population

 

2005

2006

2007

2008F

2005

2006

2007

2008F

North America

224,771

251,529

277,045

294,024

68.4

75.9

82.8

87.1

Europe

691,704

801,825

889,219

938,139

73.1

70.4

100.8

106.0

Asia-Pacific

820,009

1,058,100

1,363,013

1,686,496

22.8

29.1

37.0

45.3

Latin America

232,042

296,117

362,393

425,571

43.1

54.4

65.8

76.3

Africa & Middle East

188,185

271,662

379,907

475,141

18.9

26.7

36.6

44.8

TOTAL

2,156,711

2,679,233

3,271,577

3,819,371

27.6

34.3

41.3

46.5

Source: Idate


These three developments have driven the following major changes currently taking place:

the convergence of networks, which were previously compartmentalized by application (voice, data, television, and radio), but now provide an increasing number of services (e.g., triple-play services available on ADSL access);

the extension of telecommunications services to new areas such as content, promoting the build-up of new, user-based business models, and online advertising, which represented more than 10% of advertiser spending in 2008;

the convergence of services with, for example, the same audiovisual content available on all three screens: TV, PC, and mobile telephone;

the emergence of a new “ecosystem” within the Information and Communications Technologies sector, marked by the growing interpenetration of the four major business sectors: equipment, networks, intermediation services, and content. Based on the scope defined by Idate in its DigiWorld study, this “ecosystem” represented a global market of 2,894 billion euros in 2008, which repressents 7.3% of global GNP. Telecommunications services make up more than one third of the value of this group.

DIGIWORLDS’ GLOBAL MARKET BY SECTOR IN 2008

 

In billions of euros

Distribution (%)

Telecommunications services

1,065

37

Telecommunications equipment

225

7

Software & IT services

700

24

IT equipment

320

11

Television services

281

10

Consumer electronics

303

11

TOTAL

2,894

100

Source: DigiWorld, Idate 2008.


The telecommunications services market in 2008

The global telecommunications services market grew 4.2% in 2008 compared to 6.2% in 2007. This slowdown is especially noticeable in North America (1.4% versus 3.9%) and in Europe (2% versus 3.7%) (source: Idate).



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As was the case during the previous period (2003-2007), the European market continued to grow at a faster rate than the North American market: 2% compared to 1.4% respectively. [In 2008,] the other regions, while totaling 42% of the sector’s business, represented 75% revenue growth. The Africa and Middle East region, in which the Group is especially active posted the strongest growth in 2008: an increase of +17.5%.

THE WORLDWIDE TELECOMMUNICATIONS SERVICES MARKET IN 2008

BREAKDOWN OF VALUE BY REGION AND ANNUAL GROWTH RATE (SOURCE: IDATE)

In Europe, faced with the continued downward trend in fixed-line telephony (down 5% in 2008), the sector’s growth is led by mobiles (53% of all revenue, and 4.3% growth) as well as data and Internet access services: an increase of 6.9% in 2008.

THE EUROPEAN TELECOMMUNICATIONS SERVICES MARKET IN 2008

BREAKDOWN OF VALUE BY SEGMENT AND ANNUAL GROWTH RATE (SOURCE: IDATE)

Outlook

For the coming years, the major trends are:

deployment of very high-speed fixed-line and mobile infrastructures, which will revolutionize the service world by making it possible to develop high-definition content, multiply usage on a single access, symmetrize flows, promote exchanges between users, and converge services;

multiplication of communications terminals (home, office and personal equipment), which will give rise to the “Internet of objects.” This connectivity, extended throughout the environment, is likely to make daily life (habitat management, secured transactions, e-health) and business life easier;

expected advances in intermediation services (search engines with the future development of multimedia search engines, and development of e-business), which are likely to enhance the relevance of the services offered, due to customized content and geolocalization of applications, and thereby increase the number of users and associated revenues;

increase in volume and quantity of content services offered (large-scale, high-definition image and eventually 3D), and diversification of the media used (TV, video, photo, publishing), which are in the process of radically renewing their operating procedures by offering greater freedom of choice and more complete service interactivity.

In light of these developments, market actors positioned in the various segments of the value chain are developing their economic models. Equipment suppliers, network operators, and service or content providers are, in fact, seeking to move beyond the traditional frontiers of their original business, to create new ways to offer their existing customers added value or to broaden their customer base. This development is making for more complex relationships among these actors, who are by turns partners and competitors, while increasing competition is resulting from the result of the growth of innovation rather than regulatory decisions.

6.1.2 France Telecom’s strategy

Confirming the Group’s priorities

The strategy followed by the Group from 2006 to 2008 under the NExT plan was structured around four major priorities: convergence of networks and services, migration to the Internet, increased contribution of new growth activities, and globalization of the Group under the Orange brand. These priorities, which have helped the Group grow stronger and surpass its organic cash flow objectives, will remain at the core of its strategy for the next three years.



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Convergence

France Telecom has set up an integrated operator strategy that makes it possible to meet customer demands to access the same services independently of technologies and access modes, and totake advantage of the economies of scale created. Thus, in the context of the NExT plan:

the Orange brand brought the Group’s various activities together and was extended to two-thirds of the 182 million customers the Group had at the end of 2008;

convergent products and services were launched, such as Livebox, Unik terminals, and Business Everywhere or Internet Everywhere offers;

the networks, the information system, and the service platforms were integrated;

innovation was structured around a Technocentre, responsible for the development of new products and services, and Orange Labs research centers;

supplies were centralized, to reduce costs.

Migration to the Internet

France Telecom is committed to implementing IP technology for all the services it offers to customers, thereby becoming the number one Internet service provider in Europe, and the world’s number one provider of TV over IP. France Telecom is also the leader in Voice over IP in France, where that technology represented 44% of outgoing traffic from fixed-line telephones in the third quarter of 2008 (source: ARCEP), ahead of the other countries.

Thus, France Telecom has been able to offset the decline in traditional fixed-line telephony revenues with revenues from broadband access and associated services.

New growth activities

France Telecom has developed new activities related to its core business, such as content broadcasting, audience and advertising, as well as in healthcare activities. This development has given rise to new, innovative offers. For instance, initiatives were taken in France and Poland to deliver content on three screens (TV, PC, and mobile telephone) in a “non-linear” manner, i.e. whenever the customer desires.

International development

At the end of 2008, through new acquisitions and new licenses, the France Telecom group broadened its geographic coverage to 30 countries, in addition to the Orange Business Services activities developed for businesses in 166 countries. Thus, the Group’s revenues outside France rose from 43% to 47% between 2005 and 2008.

The acquisition policy was realized according to strict criteria, in order to stimulate organic growth and create value through economies of scale and use of the Group’s expertise.

Orange 2012: new action plans to further the strategy

As part of Orange 2012, the implementation of the strategic priorities thus confirmed will revolve around three major areas:

simplifying the customers’ experience;

developing the Group’s agility in carrying out its businesses;

ensuring performance that is sustainable over time.

Simplicity

Faced with the profusion of technologies and services, the Group will strive to make them accessible to the greatest number of people, by focusing its innovation efforts on ergonomics, quality, and ease of use of the products and services, as well as simplifying the steps in the “customer experience” so they can enjoy “pacified technology.”

Agility

To contend with extremely rapid changes, the Group will streamline the management of its offer portfolio and accelerate its time to market, in order to better seize new opportunities. The Group’s push toward greater flexibility will also involve continued transformation and optimization of its cost structure.

Finally, with respect to its infrastructures (fiber optics, HSDPA and LTE mobile networks), the Group will adapt the pace of its deployment to take into account developments in the regulatory environment and usage.

Sustainable performance

The Group will also focus on capitalizing on synergies between countries where it operates, and on completing the integration process it has undertaken, with the pooling of networks, platforms, and information systems, the spread of innovations, and the expansion of the Orange brand.

The Group will continue to pursue new growth activities, in particular in the areas of content, advertising, and e-health. With regard to content, the Group’s strategy will continue to rely on the factors that set it apart, such as improvement of its networks and technologies in order to develop interactivity and customization, and its multi-screen deployment capability (TV, PC, mobile).

Faced with the expected acceleration of retirements from its workforce in France in the medium term, France Telecom will prepare for new hires in its key business areas, while continuing its existing internal and external mobility programs. In particular, priority will be given in France to hiring young people under apprenticeship contracts.



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Finally, France Telecom will enhance its corporate social responsibility activities to give the greatest number of people access to digital technologies, and to contribute to the preservation of the environment and provide solutions to societal issues such as personal data security and the protection of children.

Maintaining organic cash flow

Orange 2012’s financial ambition is to maintain annual organic cashflow over the 2009-2011 period at a level equivalent to that achieved in 2008 (8 billion euros), based on current macroeconomic forecasts before any acquisition of spectrum.

This assumes that investment will remain steady at 12% to 13% of revenues. The Group’s new action plans should generate up to 1.5 billion euros in terms of annual savings on costs or investments. This will facilitate the Group in achieving its Orange 2012 financial ambition by balancing the negative factors impacting margins linked in particular to the economic, the competitive or the regulatory environments. Should the economic outlook deteriorate further, the Group also reserves the right to adjust investment levels to preserve its organic cash flow generation.

During the period the Group will move to preserve the strength of its balance sheet by reducing its debt so as to ensure a net debt to EBITDA ratio of less than 2.

It will continue to provide its shareholders with attractive remuneration with a payout ratio greater than or equal to 45%. The possibility of additional remuneration would be decided taking into account the market environment, future performance as well as investment requirements.

Finally, with respect to its acquisitions policy, and with no transformational deal envisaged, the Group:

will support organic growth in markets where it is already present; and

in new markets and territories, will pursue targeted transactions that allow it fully to capitalise on its expertise to create maximum value.

The Group will also continue dynamically to review its portfolio.

By their very nature, attaining these objectives is subject to numerous risks and uncertainties, which may lead to significant differences between the objectives announced and actual results. The most significant risks are described in Section 4 Risk factors.

6.1.3 General description of the business

France Telecom is the leading telecommunications operator in France, and one of the leading telecom operators in the world. The France Telecom group is the leading broadband Internet service provider and the third-largest mobile operator in Europe, as well as one of the world market leaders in telecommunications services for multinational companies. It offers its individual and business customers, and other telecommunications operators, a full range of telecommunications services. Its main activities include providing fixed-line and mobile telecommunications services (local, national, and international), Internet services, multimedia communications services, equipment sales and leases, information services, and other value-added services. Orange is the Group’s single brand for Internet, television and mobile services in most of the countries in which the Group operates, and Orange Business Services is the brand for services offered to businesses around the world.

As of December 31, 2008, France Telecom provided services to 182.3 million customers worldwide, up from 170.5 million customers at December 31, 2007.

Summary table of the Group’s customers

(at December 31, in thousands, for the controlled companies)

2008

2007

Mobile

  

France

25,202

24,226

Europe (excluding France)

61,304

59,596

World (excluding Europe)

35,315

26,158

TOTAL

121,821

109,980

Fixed

  

France

34,593

34,174

Europe (excluding France)

10,470

11,999

World (excluding Europe)

1,667

1,213

TOTAL

46,730

47,386




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Summary table of the Group’s customers

(at December 31, in thousands, for the controlled companies)

2008

2007

Internet

  

France

8,778

7,917

Europe (excluding France)

4,745

5,040

World (excluding Europe)

238

151

TOTAL

13,761

13,108

Total

  

France

68,573

66,317

Europe (excluding France)

76,519

76,635

World (excluding Europe)

37,220

27,522

GRAND TOTAL

182,312

170,474


Customers

The definition of customers is provided below for each category of service:

mobile service customers: a mobile service customer is a holder of a SIM card or of a prepaid card who has placed at least one call and has not passed the date after which it is contractually impossible to receive calls;

fixed-line telephony service customers: the aggregate of standard analog lines and Integrated Services Digital Network (ISDN) access lines in service (including fully unbundled lines), each ISDN channel being treated as one line;

Internet access customers: customers who have entered into a monthly payment subscription contract as well as the active customers of free access accounts, i.e. access customers showing activity in the last month, identified by actual use.

Business segments

The Group’s businesses are described in the 2008 Registration Document for each of the following three business segments:

the “Personal Communication Services” (PCS) segment consists of the mobile telecommunications services in France, the United Kingdom, Spain, Poland and the Rest of the world. It includes all the Orange subsidiaries, and the mobile operations of France Telecom España in Spain and TP Group in Poland (with its subsidiary PTK Centertel), and the other Group companies abroad;

the “Home Communication Services” (HCS) segment includes the telecommunication fixed-line services (fixed-line telephony, Internet services, services to operators) in France, Poland and the Rest of the world, as well as the distribution operations and support functions provided to the France Telecom group’s other business segments;

the “Enterprise Communication Services” (ECS) segment covers the communication solutions and services dedicated to businesses in France and worldwide.

6.2     PERSONAL COMMUNICATION SERVICES

The Personal Communication Services (PCS) segment consists of the telecommunication mobile services in France, the United Kingdom, Spain, Poland and Rest of the world. It recorded revenues of 29.5 billion euros in 2008 before intra-group eliminations. At December 31, 2008, France Telecom had 122 million mobile customers worldwide, including 26.7 million broadband customers.

France Telecom’s mobile activities and services are based on GSM, GPRS, Edge, UMTS and HSPDA technologies (see Section 8.1.2. Access Networks). The Group participated in several UMTS license awarding processes in Europe, and it holds licenses through its subsidiaries in France, the United Kingdom, Spain, Poland, Belgium, Romania, Slovakia, Switzerland, Moldova and Egypt.

The following tables list the countries in which France Telecom currently operates, the operators, the interest held in each operator, the total number of customers, and the licenses held in each country.



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FRANCE/UNITED KINGDOM/SPAIN/POLAND

Country

Operator

Consolidated share (%)

Total number of customers of the companies controlled by France Telecom at December 31  

(in millions)

2G Licenses

3G LicensesDate of award/
Date of renewal

2008

2007

2006

France

Orange France(1)

100.0

25.2

24.2

23.3

GSM900/1800

August 2001/August 2021

United Kingdom

Orange UK

100.0

16.0

15.6

15.3

GSM1800

September 2000/December 2021

Spain

France Telecom España(2)

100.0

11.4

11.1

11.1

GSM900/1800

March 2000/April 2020

Poland

PTK Centertel(2)

100.0

14.2

14.2

12.5

GSM900/1800

December 2000/January 2023

(1)

Excluding MVNO. There were 25.6 million Orange France customers including MVNO at December 31, 2007.

(2)

Companies operating under the Orange brand.


REST OF THE WORLD

Country

Operator

Consolidated share (%)

Total number of customers of the companies controlled by France Telecom at December 31 (in millions)

2G Licenses

3G LicensesDate of award/
Date of renewal

   

2008

2007

2006

  

Belgium

Mobistar

100.0

3.5

3.3

3.1

GSM900/1800

March 2001/March 2021

Romania

Orange Romania

100.0

10.4

9.8

8.0

GSM900

March 2005/March 2020

Slovakia

Orange Slovensko

100.0

2.9

2.9

2.,7

GSM900/1800

June 2002/July 2022

Switzerland

Orange Communications S.A.

100.0

1.5

1.5

1.4

GSM1800

December 2000/December 2016

Moldova

Voxtel

100.0

1.5

1.1

0.9

GSM900

August 2008/August 2023

Egypt

Mobinil/ECMS

71.25(1)

14.3

10.8

6.6

GSM900

October 2007/October 2022

Botswana

Orange Botswana

100.0

0.7

0.5

0.4

GSM900

-

Cameroon

Orange Cameroun

100.0

2.1

2.0

1.3

GSM900

-

Ivory Coast

Orange Côte d’Ivoire

100.0

4.1

2.9

1.7

GSM900/1800

-

Madagascar

Orange Madagascar

100.0

2.0

1.3

0.6

GSM900

-

Dominican Republic

Orange Dominicana

100.0

2.4

2.0

1.5

GSM900

-

Senegal

Sonatel Mobiles

100.0

3.5

2.5

2.1

GSM900/1800

-

Mali

Ikatel

100.0

2.8

2.0

1.2

GSM900

-

Jordan

Mobilecom

100.0

1.6

1.5

1.4

GSM900

-

Mauritius

Orange Ile Maurice

40.0(2)

0.2

0.2

0.2

GSM900/1800

-

Equatorial Guinea

Orange Guinée Equatoriale

40.0(3)

0.1

0.09

0.06

GSM900/1800

-

Guinea Bissau

Orange Bissau

100.0

0.06

0.04

-

GSM900/1800

-

Guinea

Orange Guinée

100.0

0.6

0.2

-

GSM900/1800

-

Central African Republic

Orange Centrafrique

100.0

0.1

0.03

-

GSM900/1800

-

Niger

Orange Niger

100.0

0.2

-

-

GSM900/1800

-

Kenya

Telkom Kenya

100.0

0.4

-

-

GSM900/1800

-

(1)

Orange and Orascom Telecom jointly control Mobinil, which holds 51% of the operational company ECMS. Thus, pursuant to IFRS, the financial and operating data of Mobinil/ECMS are consolidated proportionately at 71.25%. The total customer base of Mobinil (100%) was 20.1 million at December 31, 2008.

(2)

France Telecom controls 40% of the operator Mauritius Telecom, which itself controls 100% of its subsidiary Orange Ile Maurice. Thus, pursuant to IFRS, the financial and operating data of Orange Ile Maurice are consolidated proportionately at 40%. The total customer base of Orange Ile Maurice was 597.500 at December 31, 2008.

(3)

France Telecom controls 40% of the operator Orange Guinée Equatoriale. Thus, pursuant to IFRS, the financial and operating data of Orange Guinée Equatoriale are consolidated proportionately at 40%. The total customer base for Orange Guinée Equatoriale was 276,000 at December 31, 2008.



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6.2.1 France

6.2.1.1 Market

The table below presents the main features of the mobile telecommunications market in France and the activities of Orange France (including, except where otherwise indicated, the French Overseas Departments):

 

2008

2007

2006

Market penetration rate in France (%)(1)

91.3

87.6

81.8

Total number of users in France (millions)(1)

58.1

55.3

51.7

Contract customers (millions)(1)

39.3

36.3

33.6

Prepaid customers (millions)(1)

18.8

19.0

18.1

Registered customers of Orange France (millions)(2)

25.2

24.2

23.3

Contract customers (millions)(2)

17.0

15.7

14.7

Prepaid customers (millions)(2)

8.2

8.5

8.6

Broadband customers (millions)(2)

11.0

7.4

3.6

Market share of Orange France (%)(2)

43.6

43.8

44.6

Coverage of the Orange France broadband network (as a % of population)(3)

99.0

98.0

96.0

(1)

Source: ARCEP.

(2)

Source: Orange France, excluding MVNO. There were 27 million Orange France customers including MVNO at December 31, 2008.

(3)

Source: Orange France, excluding French Overseas Departments.


The mobile penetration rate, based on a 2006 census, was 91.3% at December 31, 2008 (source: ARCEP), 87.6% at December 31, 2007 and 81.8% at December 31, 2006. This rate, lower than the European average, is explained by three specific features of the French market:

a low average density of 106 inhabitants per km2 and significant disparities across the country;

a penetration of fixed-line telephony that is higher than the European average;

a lower multi-equipment rate: 1.15 SIM cards per user, compared to 1.33 in Europe, which is related to the smaller share of prepaid customers, with 34% in France compared to 65% in the United Kingdom and 90% in Italy (source: AFOM 2006 and 2007).

At December 31, 2008, there were approximately 25.2 million Orange France customers (excluding MVNOs). Including MVNOs, there were 27 million Orange France customers.

As of December 31, 2008, the Orange France broadband network covered, according to its estimates, 99% of the French population (excluding French Overseas Departments).

6.2.1.2 Orange’s Products and Services

In developing its offers of products and services, Orange France now concentrates on value creation and retaining existing customers rather than the acquisition of new customers. These offers rely on the Orange brand, present in France since June 2001, which enjoys spontaneous brand recognition (95% in December 2008, according to Orange assessments).

Subscription offers

The line of subscription offers was overhauled in April 2008, with the launch of the Origami packages. This new line is firmly oriented towards unlimited use and inclusion of multimedia usage (Internet, television, messaging).



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Service Type

 

Main Features

Packages

all-inclusive, blocked when threshold is reached and refillable

Orange ZAP

Targets teenagers

Unlimited SMS in certain time frames (4:00 p.m.-8:00 p.m., 24 hours a day during school vacations, or 24/7, depending on the package)

M6 mobile by Orange

Targets the 18 to 25 age group

Unlimited evening calls from 8:00 p.m.to 8:00 a.m. and all weekend to Orange mobiles and all fixed lines

SMS and Internet can also be unlimited during these time frames, depending on the package

Origami Packages

packages that automatically include unlimited and non-voice usage

Origami zen

Simplicity-oriented

Four packages (1 to 4 hours) that can be rolled over with unlimited calls to three Orange mobile or fixed lines and 10 SMS included

Origami star

Core of the Origami offer

Unlimited time frames widened and access to multimedia usage on mobiles

Consists of five packages (1 to 6 hours)

Unlimited evening calls to all operators from 8:00 p.m. to 8:00 a.m. and weekends (or twice as much time, for 1-hour and 2-hour packages)

Unlimited SMS in the same time frame

Unlimited Internet and TV access, 24/7

Origami first

Line for businesses and heavy consumer users

Four all-inclusive packages (3-8 hours) - Unlimited mobile calls from 8:00 a.m.6:00 p.m. to Orange mobile and fixed lines

Unlimited Internet and e-mail access, 24/7

Origami jet

Four all-inclusive packages (10-30 hours)

Calls to fixed and international numbers, unlimited Internet and e-mails 24/7 and from 8:00 a.m. 6:00 p.m. unlimited calls to Orange mobiles

One free mobile every year and dedicated customer service

Orange for iPhone Packages

Orange for iPhone

Five packages (2-12 hours) specially designed for optimal use of the iPhone terminal and its services

Internet browsing, e-mail exchange and visual voice messaging are unlimited

Connection to Orange Wi-Fi hot spots included


Prepaid offers

Orange has two categories of prepaid offers, billed per second as of the first second.

Service Type

Main Features

La Mobicarte

Based on the “no bill – no subscription” principle

A large line of top-ups (eight offers ranging from 5 to 100 euros)

Up to 50 euros of bonuses included

Cheaper calling options (unlimited weekends, unlimited evenings, unlimited days)

3G and videophony access

Orange Initial

Simplest access to mobile telephony, without refilling

A subscription for7 euros/month to call and be called

A single rate of 45 euro cents/min. for all calls to fixed-line and mobile phones

Can be discontinued at any time




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Convergence offers

Orange offers various services that combine mobile usage with Internet access.

Service Type

Main Features

Internet Everywhere

Internet access from a laptop computer

Orange mobile broadband connections in 3G/3G+, GPRS/Edge and Wi-Fi on Orange’s public Wi-Fi network

Internet Everywhere Pass

Designed for occasional use

Four prepaid passes without subscriptions, from 20 min. to 6 hours

Internet Everywhere Packages

Designed for regular use: three packages with subscriptions

Adjustable 2-hour package, evening & weekend package and 24-hour package

UNIK

Mobile terminal that connects to Livebox for unlimited calling to fixed lines and all Orange mobiles

A single number, a single index

Connection to the Orange mobile network away from home without call cut-off

Connection to 30,000 Wi-Fi hot spots in metropolitan France

Net and UNIK

Access to broadband Internet and more than 60 TV stations

Unlimited calls from home to Orange mobile and fixed lines

Net Everywhere and Formule Everywhere

Launched in 2008

Combination of national Internet access with mobiles

Bundles triple-play service (Internet, TV, telephone) in the same package, accessible by the Livebox and the Internet Everywhere mobile offer


Orange France’s offers and rates are detailed on Orange’s website http://www.orange.fr (“boutique Orange” tab).

6.2.1.3 GSM and UMTS Licenses

Orange France holds a GSM license, which was renewed for a 15-year period as of March 25, 2006, and a UMTS license obtained in August 2001 for a 20-year period from the date it was granted. Moreover, in the French Overseas Departments, Orange Caraïbe operates a GSM network in Guadeloupe, Martinique and Guyana under the “Orange” brand, and in March 2008, obtained authorization to create and operate a 3G network. In December 2000, Orange Réunion launched its GSM services in Reunion Island, where it is competing with the existing operator. Orange Réunion was also granted a 3G license in March 2008.

6.2.1.4 Sales, Distribution and Customer Service

For information on the France distribution network, which sells fixed-line and mobile products and services, see Section 6.3.1.3.

6.2.1.5 Mobile Network

For information on France Telecom’s mobile network in France, see Section 8.1.

6.2.1.6 Environment

Competitive Environment

The mobile telephony market in France remained very dynamic in 2008, with an estimated customer increase of 4.9% (source: ARCEP).

Orange’s primary competitors in France are SFR and Bouygues Telecom, both operators of a mobile network and 3G licenses:

SFR, which is partially owned by Vodafone controlled by Vivendi, entered the mobile business in 1992;

Bouygues Telecom, which is controlled by Bouygues, has operated a mobile network since 1996.

In early 2009, the french Government asked ACRCEP to launch a new call for tenders for the allocation of a fourth 3G license. This call for tenders relates to the allocation of frequencies, one of which will be reserved for a new entrant.

In addition, MVNOs such as Télé 2, Virgin Mobile, NRJ Mobile, Carrefour Mobile and Auchan Telecom are doing more and more business in the French telephony market.

2008 and early 2009 were marked by the arrival of new, low-cost-oriented MVNOs: Cashstore Mobile, Simyo and Simpléo.



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The following table shows the market share of the operators present in France:

 

Year ended December 31

 

2008

2007

2006

Orange (%)

43.6

43.6

45.0

SFR (%)

33.3

33.9

34.6

Bouygues Telecom (%)

17.2

17.4

17.5

MVNO (%)

5.9

4.9

2.9

Source: Orange France.


Taking into account those MVNOs that are supported by its network, Orange’s market share was 46.8% at end of 2008, up 0.4 points compared with 2007.

Regulatory Environment

For the presentation of the French regulatory environment, see Section 6.8.

6.2.1.7 Key Events

2008 was marked by the structuring of Orange’s offers around abundance, mobile Internet and combined content:

overhaul of the subscription packages in April 2008 with the launch of the new Origami line;

reworking of the line of multimedia options around a convergence content offer (music, TV, football and movies);

summertime launch of the iPhone 3G, which is the follow-up to the iPhone 2G. The terminal has just been added to a line of multimedia terminals whose touch screen makes it easy to develop non-voice usages;

increase of mobile Internet offers from a laptop computer with a 3G+ key. The Internet Everywhere subscription offer has been adapted (adjustable package, some unlimited time frames), while a line of prepaid passes launched at the start of the year meets the needs of occasional consumers; and

launch of the Bic Phone, a simple-to-use mobile phone, sold over the counter and ready to use.

In the course of 2009, Orange France’s priorities in the mobile sector will be to:

continue to improve operational performance and cash-flow generation in keeping with the Group’s targets; and

develop the combined multimedia content offer to promote the increase of non-voice and remote Internet access.

New regulation of roaming rates in Europe is expected in 2009. It concerns voice rates, and for the first time, SMS rates. Likewise, a decrease in voice call terminations will become effective in the second half of 2009.

In the medium-term the arrival of a fourth 3G operator could change the market’s structure and increase competition.

6.2.2 Poland

6.2.2.1 Market

The table below presents the main features of the mobile telephony market in Poland and the activities of PTK Centertel, wholly owned by TP S.A., which operates under the Orange brand and is referred to below as Orange.

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Poland (%)(1)

115.5

108.9

96.5

Total number of users in Poland (millions)(1)

44.0

41.5

36.5

Active Orange customers (millions)(2)

14.2

14.2

12.5

Contract customers (millions)(2)

6.2

5.6

4.8

Prepaid customers (millions)(2)

8.0

8.6

7.7

Broadband customers (millions)(2)

4.6

2.9

0.0

Market share of Orange (%)(2)

32.2

34.1

34.1

Coverage of the Orange broadband network (as a % of the population)(2)

100.0

99.0

94.0

(1)

Source: Polish Statistics Institute.

(2)

Source: Orange.




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The mobile market in Poland is beginning to show signs of saturation, measured by a slowdown in the growth rate of active SIM cards, since operators have decided to eliminate inactive prepaid cards from their customer base. However, although a dramatic slowdown was expected, the mobile market continued to record relatively high growth in 2008. The number of mobile service users increased by 6.1%, reaching 44 million at the end of 2008, and the penetration rate of mobile telephony rose to 115.5% (up from 108.9% at the end of 2007).

The top three mobile operators lost market share to the fourth operator P4 and virtual operators. In all, they lost 2.9% of market share (from 97.8% down to 94.9% between 2007 and 2008). Following mBank mobile and myAVON, new virtual mobile network operators hit the market in 2008, including Mobilking, Carrefour Mova and Snickers Mobile. CenterNet and Mobyland, two new operators who have their own infrastructures as well as frequencies on the 1800 MHz band, have not yet started up their activities.

The 2.9% growth (source: Orange) recorded on the mobile Internet market in 2008 was a result of sales of laptop computers, which all operators added to their product portfolios. The customer base for Orange’s mobile broadband Internet access (Edge and 3G) was 352,000 at the end of 2008 (up from 223,000 at the end of 2007).

6.2.2.2 Orange’s Products and Services

Mobile Voice Services

Consumer Market

A wide range of offers based on loyalty contracts, with or without terminal subsidies, meets existing customer and new customer demand at the same time. Orange proposes prepaid (Orange PoP, Orange Go, Orange Music and Orange Free) and postpaid offers (Orange Postpaid, Orange MIX and Orange Free). Zetafon is a prepaid offer associated with a loyalty contract.

Prepaid Offers

In the prepaid segment, Orange continued its strategy of market segmentation via two principal products: POP and Go. POP is aimed at young people, whose communication needs revolve around speed and intensity of contact. These needs are met by different bundled services, in order to optimize the calling costs and the customers’ management of calling expenses. Go is for older customers who are not necessarily looking for promotional offers but who want attractive rates for clear, intuitive and easy-to-use services. In response to these customers’ needs, Orange Go has a sliding price scale as total top-ups increase. This service is the only one of its kind on the market and clearly sets Orange apart from its mobile competitors. Both products are very popular among users.

Both prepaid rate plans are also available with the Zetafon package. This is an innovative subscription package in which customers can buy their terminals at very low prices (from 1 zloty) while keeping the features of the prepaid offer (calling rates, account refill methods, etc.). This package is more and more popular with both existing users of prepaid offers and new customers.

Postpaid offers:

Orange’s postpaid offers line includes six rate plans:

Minutes included

Monthly rate

Price per minute

Number of rewards

40

25 zloty (6.0 euros)

0.59 zloty (0.14 euros)

0

60

35 zloty (8.4 euros)

0.57 zloty (0.14 euros)

1

100

55 zloty (13.2 euros)

0.55 zloty (0.13 euros)

2

140

75 zloty (18.1 euros)

0.52 zloty (0.12 euros)

3

200

100 zloty (24.1 euros)

0.50 zloty (0.12 euros)

4

400

200 zloty (48.2 euros)

0.50 zloty (0.12 euros)

4


Customers who subscribe to a plan must pay an activation fee of 50 zlotys, but can then use that amount towards services. The new line comes with duration billing and a monthly communications package (any unused portion can be rolled over for six consecutive months). Customers can use services that control their usage to reduce their calling costs.

The purpose of the offer is to cultivate customer loyalty and for the first time on the Polish market, the package available to existing customers is more advantageous than the one available to new customers (lower calling rates and more rewards).

Offers available to potential users are also very attractive: calling prices have been reduced for most networks and customers can choose from a varied line of terminals, starting at 1 zloty, provided they sign a 36-, 30-, or 24-month contract. New promotional campaigns will focus on presenting the benefits and competitive advantages of this offer.



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Small Offices and Home Offices Market

Orange is also marketing an offer that meets business needs: Orange for Business. It includes grouped services and attractive reduced rates for calls made in certain business areas and for business-to-business calls, as well as some dedicated services. The objective is to adapt this offer to the needs of the various business sectors.

Business customers can also enjoy complementary services, such as the BlackBerry (remote access to company email) or Fleet Manager (business mobile phone management).

ORANGE FOR BUSINESS RATE PLANS (ORANGE DLA FIRM)

Rate plans

Monthly rate

Number of minutes included

in the plan

Price per minute to all fixed and mobile networks

Price per SMS

Price per MMS

Orange dla Firm 40

22 zloty (5.3 euros)

40

0.55 zloty (0.13 euro)

0.16 zloty

(0.04 euros)

0.24 zloty

(0.06 euros)

Orange dla Firm 80

44 zloty (10.6 euros)

80

Orange dla Firm 160

88 zloty (21.2 euros)

160

Orange dla Firm 320

160 zloty (38.5 euros)

320

0.5 zloty (0.12 euro)

Orange dla Firm 600

300 zloty (72.2 euros)

600


Each plan is accessible even from a single activation. These plans offer a single fixed rate for all calls, across all networks. The price of calls made to Orange networks and fixed networks may be reduced by joining the Cheap Calls service.

In November 2008, the following rate plans were launched to round out the existing line and meet the specific needs of Small Offices and Home Offices (SOHO):

 

Monthly rate

Number of minutes included

in the plan

Price per minute to the major mobile networks and

all fixed networks

Price per SMS

Price per MMS

Orange dla Firm 60

24 zloty (5.8 euros)

60

0.40 zloty (0.10 euro)

0.15 zloty

 (0.04 euros)

0.24 zloty

(0.06 euros)

Orange dla Firm 125

50 zloty (12.0 euros)

125

Orange dla Firm 250

87.5 zloty (21.1 euros)

250

0.35 zloty (0.08 euro)

Orange dla Firm 500

175 zloty (42.1 euros)

500

Orange dla Firm 1000

300 zloty (72.2 euros)

1,000

0.30 zloty (0.07 euro)


Orange’s offers and rates are detailed on its website http://www.orange.pl

The new SOHO product offers a lower average price per minute for calls made to all networks, with a monthly flat fee that can be used for voice calls, video calls, SMS or MMS. It also allows the customer to subscribe to the Business Group service to get a calling rate of 0.10 zloty per minute (before tax) with a monthly contract and activation fee reduced to 1 zloty (before tax) and calling credit.

Promotional Offers

Based on existing rate plans, several promotional campaigns were launched in 2008, including:

Cheap calls for businesses: lets the customer purchase a terminal at a low price, provided he signs a 24- or 30-month contract. If the customer subscribes to this service at the start of his contract, he receives a reduced rate of 0.10 zloty per minute (before tax) for all calls made to Orange networks and fixed networks. In addition, due to a credit for additional minutes, the number of free minutes that can be used for calls to Orange networks and fixed networks can reach up to 3,000 (for the highest rate plan);

Double benefite for businesses: this promotional offer is based on the Orange dla Firm rate plans and a Mix dla Firm offer (combination of postpaid and prepaid solutions under which the subscription includes a traffic fee and can be refilled once it has expired). Provided an Orange dla Firm loyalty contract of 80-600 minutes for 24 or 30 months is signed, the customer may purchase activation for 1 zloty for the Mix dla Firm plan with a terminal if they sign-up fora 12-month commitment. For a 24-month commitment, the offer also includes an additional terminal for 1 zloty, as well as additional minutes credit that may only be used on the Orange network (On-net);




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50% more for Orange dla Firm: this offer, based on the Orange dla Firm rate plans,allows the customer to use additional calling credits for up to 50% of the amount of the subscription throughout the promotional contract term. Additional minutes must be used exclusively for on-net voice calls;

More minutes for businesses: new promotions were launched on September 2, 2008. They offer an additional minutes as well as the discount calling service. Customers can also use their additional minutes to make calls on all networks or exclusively for on-net [voice] calls;

Unlimited calling: this offer, based on the Orange dla Firm rate plans, was launched in November. It lets the customer make free, unlimited on-net voice calls and can be activated for free for the first three months.

Mobile Data Services

The portfolio of data offers currently includes the Business Everywhere service for business customers and the Orange Free service (contract or prepaid) for residential customers.

In the mobile data segment, the principal Orange offers are as follows:

Residential Customer Services

Offers

Monthly Subscription Price

Orange Hotspot Service

Main Features

Orange Free Platinium

15 zloty (3.6 euros) for the first 4 months – 150 zloty (36.1 euros) thereafter

Included

12 Gigabits data transfer30 zloty (7.2 euros) call pack

Orange Free Premium

12 zloty (2.9 euros) for the first 4 months – 120 zloty (28.9 euros) thereafter

Included

6 Gigabits data transfer30 zloty (7.2 euros) call pack

Orange Free Standard

30 zloty (7.2 euros) for the first 4 months – 60 zloty (14.4 euros) thereafter

Optional

1 Gigabits data transfer20 Zloty (4.8 euros) call pack


Business Services

Offers

Monthly Subscription Price

Orange Hotspot Service

Main Features

Business Everywhere Platinium

12 zloty (2.9 euros) for the first 4 months – 120 zloty (28.9 euros) thereafter

Included

12 Gigabits data transfer

Business Everywhere Premium

9.9 zloty (2.4 euros) for the first 4 months – 99 zloty (23.8 euros) thereafter

Included

6 Gigabits data transfer

Business Everywhere Standard

24.5 zloty (5.9 euros) for the first 4 months – 49 zloty (11.8 euros) thereafter

Optional

1 Gigabits data transfer


6.2.2.3 Sales and Distribution

Orange provides its services via approximately 1,200 points of sale throughout Poland. The stores operate under the Orange brand, or are Orange partner stores, TP points of sale or Orange DATA partner stores (IT stores selling Orange’s data services).

In addition, Orange has markedly increased its online store, offering incentives to customers who order their products and services on the orange.pl site

6.2.2.4 Licenses and Brand

Orange currently has four licenses to supply telecommunication services:

one 15-year license (expiring in August 2012) for operating a GSM1800 digital network;

one 25-year license (expiring in December 2016) for operating a NMT450i analog network;

one 15-year license (expiring in July 2014) for provision of GSM900 services;

one UMTS license was obtained in December 2000 for 650 million euros, of which 260 million has been paid and the balance of which is split up into 18 payments beginning in 2005. This license expires in January 2023. Orange launched its UMTS services on the market in November 2005. At the end of 2008, the UMTS network covered 51.8% of the population (source: Orange), in accordance with the general licensing conditions. This coverage is scheduled to be extended gradually.



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6.2.2.5 Competitive Environment

PTK Centertel, which has been operating since 2005 under the Orange brand, began its GSM activity in 1998, two years after its competitors. Since 2006, the brand has been the leading mobile telephony network operator in Poland, both based on revenue as well as number of customers (source: Orange). The other mobile telephony network operators are PTC (majority held by Deutsche Telekom), Polkomtel (operating under the Plus brand and held by Vodafone and Polish companies) and P4 (operating under the Play brand and held by two investment funds, Novator and Tollerton). Since 2007, several MVNOs (mobile virtual network operators) launched their operations and have gained market shares. With the arrival of these new actors, the market share for existing mobile network operators dropped in 2008.

The following table shows the market share of each of the operators present in Poland:

 

Year ended December 31

 

2008

2007

2006

Orange

32.2%

34.1%

34.1%

Polkomtel

32.5%

32.4%

32.7%

PTC

30.2%

31.3%

33.3%

P4

4.6%

2.0%

-

MVNO

0.5%

0.1%

-

Source: Orange.


In July 2008, P4 (operating under the Play brand) launched mobile Internet access services via its 3G network, offering much lower rates than its competitors. The mobile Internet market, one of the latest segments, is also one of the strongest growth segments in the telecom services market.

Virtual operators belong to various market sectors, such as banking (mBank mobile), chemicals and cosmetics (myAvon), consumer goods (Snickers Mobile), distribution (Carrefour Mova) and Internet (WP mobi). The primary market actor is Mobilking (held by a private equity fund), which began in late February 2008 and has brought in more than 150,000 customers since then. Cyfrowy Polsat is also a virtual network operator, but it operates as a “full MVNO” (on the PTC network).

At the end of 2008, four principal virtual operators were using the Orange infrastructure:

Avon Mobile Sp. z o.o., which provides the myAvon service (on the market since May 2007);

Wirtualna Polska Sp. z o.o., which provides the WPMobi service (on the market since September 2007);

MNI Telecom Sp. z o.o., which manages the following brands: Simpfonia (on the market since December 2007), EZO Mobile (on the market since December 2007), Snickers mobile (on the market since April 2008), TelePin (on the market since June 2008) and Crowley Tele Mobile (on the market since September 2008);

Aster Sp. z o.o., which provides mobile services under its own brand (on the market since June 2008).

Apart from the arrival of MVNOs, a new brand, 36.6, was launched on the market by Polkomtel in June 2008. It is an innovative prepaid service on the Polish market that is primarily for young people, where the account can be refilled by listening to advertisements.

Likewise, two of the top three mobile operators in the Polish market, Polkomtel (operating under the Plus brand) and PTC (operating under the Era brand), could change brands in the coming years. For Plus, this change could result from changes to the shareholding structure of Polkomtel (buyback by Vodafone of shares held by Polish shareholders).

6.2.2.6 Regulatory Environment

For the presentation of the Polish regulatory environment concerning mobile activities, see Section 6.8.

6.2.2.7 Key Events

Products and Services

In the first half of 2008, the most important developments were the market introduction of the new Orange postpaid and mixed offers on the consumer market and the launch of promotional campaigns on the small offices and home offices market.

At the same time, the mobile data product portfolio grew in 2008 as new data communication equipment arrived: Express cards, Wi-Fi gateways and two-in-one units combining USB modems and storage features. In Poland, Orange is the only operator to offer laptop computers with a built-in 3G HSDPA card, in addition to a very attractive mobile Internet access service.



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Roaming

The number of roaming partners once again increased in 2008. At the end of December, Orange offered roaming services on 398 networks in 184 countries around the world, including GPRS roaming services on 193 networks in 78 countries and 3G roaming services on 48 networks in 29 countries. The increase in roaming service revenues has slowed due to new regulations introduced in June 2007 by the European Commission (price ceilings for calls made within European Union countries and call termination prices decreased by nearly 50%, which have not been entirely offset by the increase in traffic).

MVNO

In August 2008, Orange entered into a virtual mobile network operator service contract with CenterNet S.A.

Network

In 2008, Orange launched the rapid transmission technology HSUPA 2.0 on its network, which will enable customers to transfer data at a faster rate. HSPA technology is already available to Orange customers in large cities. At the end of December 2008, nearly half of the Polish population was covered by UMTS/HSDPA technologies.

Fixed Broadband Access Services

In 2007, PTK Centertel-Orange signed a Bitstream access service contract with TP to offer fixed broadband services to Orange’s customers. This contract is part of the crossed sales strategy of the TP group, which aims at increasing the average revenue per customer. This bitstream access offer was a hit, with 96,000 subscribers at the end of 2008.

Toward the end of 2008, Orange Freedom’s features were extended to incorporate broadband Internet access services based on the CDMA, which considerably increased the potential customer base. Indeed, CDMA technology is slated to extend to virtually all of the Polish territory. The use of this technology will considerably improve broadband Internet availability in rural and less-urbanized areas.

Fixed-line Services

Toward the end of 2008, PTK Centertel-Orange launched a fixed-line service offer based on bulk purchase of TP network access. Regarding the Orange Freedom line, the aim of this service is to improve convergence with the TP Group. This first offer, dedicated to the small offices and home offices market, covers five different rate plans and provides packages that can be used for calling fixed lines or Orange networks.

6.2.3 United Kingdom

6.2.3.1 Market

The table below presents the main features of the mobile telephony market in the United Kingdom and the activities of Orange UK:

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in the United Kingdom (%)(1)

122.4

120.9

114.6

Total number of users in the United Kingdom (millions)(1)

74.6

73.6

69.5

Active Orange UK customers (millions)(1)

16.0

15.6

15.3

Contract customers (millions)(2)

6.2

5.6

5.0

Prepaid customers (millions)(2)

9.8

10.0

10.3

Broadband customers (millions)(2)

3.3

1.8

0.9

Market share of Orange UK (%)(1)

21.2

21.3

22.0

Coverage of the Orange 3G network (as a% of population)(2)

93.0

94.0

91.0

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange UK.


In terms of number of users as of December 31, 2008, the United Kingdom was the third largest mobile telephony market in Western Europe after Germany and Italy. The number of mobile telephone users was approximately 122.4% of the population of the United Kingdom (120.9% as of December 31, 2007, and 114.6% as of December 31, 2006).

2008 was marked by a widespread reorientation of prepaid packages toward subscriber packages. This trend is due to the increasing success of offers limited exclusively to SIM cards (contracts without handsets) as well as more affordable subscription prices (contracts with handsets), prices which are now comparable to prepaid packages.

3G USB keys (for subscriber packages) were also very successful in 2008, providing download speeds comparable to ADSL from 15 GBP per month for the key-only service and a higher price for a service including a laptop computer.



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In the third quarter of 2008, O2 launched iPhone 3G, ensuring significant business in market segments where user spending is higher. In response, Orange and Vodafone launched equally sophisticated competing devices at comparable prices.

Revenues per user (ARPU) continued to decline, with contracts including more minutes and SMS.

However, the number of MVNOs increased. ASDA, IKEA, Lycatel and Lebara launched subscription-free (pay-as-you-go) services during the year in the market’s lower-end and niche segments.

6.2.3.2 Orange UK’s Products and Services

Orange UK provides two kinds of offers for consumers, as well as Orange Business Services for consumer businesses.


Offer Type

Rate Plans

Target Customers

Features

Monthly contracts

Dolphin

Heavy SMS users

Unlimited SMS

£30 (31.5 euros) top up

Flat price of 20 pence per minute for calls

£25 (26.2 euros) per month

Raccoon

Users whose calls are mostly to fixed lines

Unlimited calling to fixed lines

15 pence per minute on all networks, at any time and 10 pence per SMS

£30 (31.5 euros) per month

Canary

Users whose calls are mostly in the evening and on the weekend

Bundled calling services for evenings and weekends on all networks (volume depends on refill value)

Fixed price of 20 pence per minute for calls and 10 pence per SMS

£30 (31.5 euros) per month

Panther

Broadest plan designed for heavy users of all services

Unlimited SMS and mobile Internet access for 2 months

Voice mail

Specialized customer service

Mobile insurance

3000 free calling minutes

£75 (78.7 euros) per month

Camel

Users whose calls are mostly to foreign countries

Calls to more than 50 countries from 5 pence per minute

Fixed price of 20 pence per minute for calls in the United Kingdom and 10 pence per SMS

Pay-as-you-go offers

Without commitment

Purchase of a terminal and calling time as needed

No fixed costs

No expiration date for top-ups

No minimum commitment period

Several quick refill methods: credit cards, cash payment or payment with a magnetic swipe card at a point of sale or with some automated teller machines


Orange’s offers and rates are detailed on its website http://www.orange.co.uk

Customers who subscribe to a monthly service package may, in principle, terminate their contract with one-month advance notice, provided they have remained a subscriber for a minimum initial term (generally 18 months).

Orange Business Solutions and Orange Business Services

Business customers are served by Orange Business Solutions and Orange Business Services.

Orange Business Solutions is a fully integrated entity that can meet the mobile and fixed-line communication needs of medium and large companies and government agencies.

Orange Business Services, an entity dedicated to small businesses, is responsible for the full management of its customers. It provides a wide portfolio of business-specific products and services, particularly a flexible range of options, Orange business messaging and a series of innovative mobile services. Orange Business Services also meets the needs of small businesses by offering voice and data transmission services designed to facilitate work outside the office.



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Orange Business Services currently offers four main packages:

Offers

Target Customers

Main Features

Orange Solo

Independent Workers

Additional services like Orange Care, which quickly replaces your phone if lost, stolen or broken

Four price levels: £30 - £35 - £40 and £45 (31.5 - 36.7 - 42 and 47.2 euros), which provide access to communication times from 400-800 minutes per month, with a 50% bonus for a 24-month contract

Unlimited calls to fixed-line or unlimited SMS, depending on package chosen

A certain amount of data is sent for free for business customers who want mobile Internet and e-mail

Orange Venture

Very small directly operated businesses
(up to 5 employees)

Simple, flat-rate packages and shared communications plans

Seven price levels, from £28 to £165 (29.4 to 173.2 euros) per month. Communications times from 358 to 4420 min.

Unlimited calling among all users of the same rate plan

Contract terms revised halfway through the term to ensure the rate plan is still relevant for the customer

Orange Infinity

Heavy Users

Unlimited calls and SMS for a flat monthly rate, in order to control costs

£90 - £95 or £100 per month (94.5 - 99.7 or 105 euros) for a term of 18, 24, or 36 months

Unlimited calls and SMS in the United Kingdom

500 min. in 28 countries

Orange Care service included

Orange Momentum

Larger businesses that must operate flexibly and enable employees to work uninterrupted, as needed

Simple packages, with nine price levels for more flexibility and choices

Prices from £170 for 2,750 minutes (178.5 euros) to £3,000 for 54,000 minutes per month (3149.6 euros)

Unlimited calls and SMS between co-subscribers, for free communication between the company’s employees


6.2.3.3 Sales and Distribution

Orange UK sells its products and services via a full range of distribution channels:

Orange UK stores, which sell only Orange and France Telecom products. In 2008, the number of stores rose to 357 (up from 337 in 2007 and 322 in 2006);

non-specialty retailers, who continue to generate a significant percentage of new Orange customers;

specialized distributors and retailers, who offer Orange UK services and Orange “Pay-as-you-go” cards, as well as other products and services. In 2008, about 150 of these points of sale offered Orange UK services and products.

A specialized sales team under the responsibility of Orange UK Business Services is dedicated to the acquisition and retention of business customers.

Customers can also obtain Orange products and services and purchase accessories at the Orange UK website: http://www.orange.co.uk

6.2.3.4 Competitive Environment

In the United Kingdom, the principal competitors of Orange UK are the country’s three mobile telephony network operators: Vodafone, O2 (a wholly-owned subsidiary of Telefónica) and T-Mobile (a wholly-owned subsidiary of Deutsche Telekom). All launched their operations before Orange UK.

In addition to these three operators, Orange UK also faces competition in the UMTS market from Hutchison 3G UK Ltd, held by a consortium that is majority-owned by Hutchison Whampoa, which launched its services in March 2003 under the 3 brand.

In November 1999, a joint venture formed by the Virgin Group and Deutsche Telekom became the first virtual wireless network operator in the United Kingdom when it launched its service that operates by purchasing call time from One2One (now T-Mobile). Virgin was bought out by NTL in 2006 and is still operating under a new supply agreement with T-Mobile. Other virtual network operators are currently operating in the United Kingdom, such as Carphone Warehouse, IDT Europe, Lycatel, Lebara and Tesco Mobile (via the O2 network).



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The table below shows the market share of each of the network operators in the United Kingdom:

 

Year ended December 31

 

2008

2007

2006

Orange

21.2%

21.3%

22.0%

Vodafone

21.7%

22.2%

21.1%

O2

28.2%

27.6%

27.1%

T-Mobile

22.5%

23.5%

24.3%

3 UK

6.3%

5.4%

5.5%

Source: Informa Telecoms & Media (third quarter 2008).


6.2.3.5 Regulatory Environment

For the presentation of the British regulatory environment, see Section 6.8.3

6.2.3.6 Key Events

Key events in 2008 were as follows:

Internet Everywhere, a 3G data access plan, was launched;

in April 2008, the new Animals Pay-as-you-go rates were launched, following the success of the Animals PAYM packages;

in June 2008, Orange announced a new, customer-focused strategy with an optimized structure. Orange’s new action plan was launched with the goal of improving performance and growth in the coming years;

a new customer-service strategy was also established, with the creation of 500 direct face-to-face customer service positions in management centers and stores and, in addition, the launch of new contact options, such as instant messaging, the website and in-store points of service;

a plan to extend the retail sales distribution network was announced, to bring the number of stores to 400 as well as to create a new online shop;

in September 2008, Orange launched its laptop computer offers for mobile broadband products;

in 2009, investments will be made to improve 2G and 3G network quality coverage and a new, ultra-high-speed network will be launched to provide up to 14.4 Mbit/s.

6.2.4 Spain

6.2.4.1 Market

The table below presents the main features of the mobile telephony market in Spain and the mobile activities of France Telecom España, which operates under the Orange brand and is referred to below as Orange.

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Spain (%)(1)

112.6

108.6

104.6

Total number of users in Spain (millions)(1)

52.4

50.2

46.4

Contract customers (millions)(1)

31.9

29.4

25.4

Prepaid customers (millions)(1)

20.4

20.7

21.0

Active Orange customers (millions)(2)

11.4

11.1

11.1

Contract customers (millions)(2)

6.4

6.0

5.4

Prepaid customers (millions)(2)

4.9

5.1

5.7

Broadband customers (millions)(2)

3.3

1.6

0.4

Market share of Orange (%)(1)

20.6

22.1

23.6

Coverage of the Orange 3G network (as a% of population)(2)

83.3

82.0

73.0

(1)

Source: Spanish Regularity Authority.

(2)

Source: Orange España.


Affected by the widespread slowdown in the Spanish economy, the mobile telephony market showed signs of its first slump in Spain. Line growth dropped by nearly 3% for the first time in the third quarter 2008 and revenues recorded negative growth year-over-year.

Orange is one of the four mobile telephony operators in Spain, with Telefonica Moviles (Movistar), Vodafone, and Yoigo (a UMTS network operator that also has a national roaming agreement).



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At the end of 2008, Orange’s 2G network covered 99% and its 3G network covered 83% of the Spanish population.

6.2.4.2 Orange’s Products and Services

Residential Market

Prepaid Offers

For customers wanting prepaid plans, Orange offers a large selection of rate options (Tarjetas). The price range was recently revised to better accommodate the various needs of the market (intra and inter-network communications, peak times, off-peak times) as well as competitive offers, to avoid any competitive gap and improve Orange’s commercial intra-network communications (on-net) offers.

Customers can also enjoy several extra options to meet their needs with preferred rates: for example, calls to an Orange number billed at only 3 euro cents per minute, vouchers for SMS, or weekly promotional offers (Orange Sundays).

Orange has improved its SIM card only line by creating new rates likely to attract users that already own a handset. This strategy aims to match competitors’ products that are focused on the market’s low-cost segment.

There are many options for top-up a prepaid card: traditional scratch cards, automatic teller machines and call centers. In addition, since 2007, Orange has been developing other distribution channels for the sale of prepaid cards, specifically gas stations and newspaper stands.

Frequent purchasers of high-volume top-ups who are long-time Orange customers are offered free top-ups.

+The table below shows the principal rate offer without commitment:

Offers

Main Features

Tarjeta Hola

23 euro cents/min. for calls to Orange customers. 40 euro cents/min. for other calls and calls to fixed lines.

Tarjeta Libre

27 euro cents/min.

Tarjeta Nosotros

3 euro cents/min. for calls to Orange customers and 50 euro cents/min. for other calls and calls to fixed lines. Minimum 10 euro top-ups to qualify for these rates. Otherwise, 20 euro cents/min. for calls to Orange customers and 59 euro cents/min. for other calls and calls to fixed lines.

Tarjeta Mi tiempo libre

10 euro cents/min. from 5:00 p.m. to 8:00 a.m. 55 euro cents/min. for the rest of the day.

Minimum 10 euro Top-ups to qualify for these rates. Otherwise, 15 euro cents/min. from 5:00 p.m. to 8:00 a.m. and 59 euro cents/min. for the rest of the day.

Tarjeta Única

18 euro cents/min. Minimum 10 euro top-ups to qualify for these rates. Otherwise, 35 euro cents/min.

Tarjeta SMS

5 euro cents for SMS and 5 euro cents/min. for calls to Orange customers. 30 euro cents/min. for other national calls. Minimum 10 euro top-ups to qualify for these rates. Otherwise, 10 euro cents for SMS,

10 euro cents/min. for calls to Orange customers and 40 euro cents/min. for other national calls.


Subscriptions

Subscriptions offer customers prices lower than prepaid offers, once a minimum monthly usage is reached. Special rates are offered, for example, for off-peak hours or for the youngest customers.

As with prepaid packages, customers can enjoy lower rates for the most frequently called numbers (calls to an Orange number are only billed at 3 euro cents a minute), vouchers for SMS or other promotional possibilities.

Continuing its efforts to innovate, anticipate customer needs and avoid competitive gaps, the portfolio of offers was recently supplemented by the addition of the market’s first hybrid line, Fusion, which combines the main advantages of the prepaid and postpaid segments.

In 2008, Orange added to its Tarifa Plana line by launching:

Tarifa Plana Naveghable, combining the former Tarifa Plana offer with 24/7 mobile Internet access limited to 500 Mb per month, with special one-month free access to Orange World’s multimedia services;

Tarifa Plana Mini, which targets customers with average usage levels who want a predictable monthly bill. With a monthly package, the customer receives 300 minutes of national calling between 6:00 p.m. and 8:00 a.m.



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Moreover, Orange offers three convergence solutions to consumers in order to meet their needs, regardless of the access technology, specifically Unico, Numeros plus (economic rates for calls between a customer’shome fixed lines and personal mobiles) and Internet Everywhere. In 2008, Orange launched a new line to encourage mobile Internet use that includes a Medion mini-laptop computer with a USB modem key and an Everywhere 3G+ Internet subscription including 5 Gigabits of traffic.

The non-voice service for the residential market provides both practical and leisure services. The portfolio of Orange data services includes SMS, MMS, WAP, news alerts via SMS and MMS and other services including chat, ringtones and images, videophony, email, video games, music, Internet access, mobile television and Orange Messenger.

The main postpaid offers are as follows:


Offers

Main Features

Fusión from Orange

The user decides the amount he wants to refill. That amount is deducted from his bank account every month. The basic offer for this program is “Tarjeta Unica.” The user can choose whichever offer suits him best.

Contrato Libre

24 euro cents/min. Minimum 6 euros used each month.

Nuevo Contrato Único

17 euro cents/min. and 0 euro cents/min. for intra-network calls after the second call of the day.

Minimum 12 euros used each month.

Contrato Decreciente

16 euro cents/min. for monthly consumption of less than 50 euros; 13 euro cents/min. for monthly consumption of 50-70 euros; 9 euro cents/min. for monthly consumption of more than 70 euros.

Minimum 25 euros used each month.

Tarifa Plana Mini

0 euro cents/min. with no setup fees from 6:00 p.m. to 8:00 a.m. for up to 300 min/month.

18 euro cents/min. with setup fees for the rest of the day. Monthly subscription at 15 euros.

Tarifa Plana

0 euro cents/min. with no setup fees from 6:00 p.m. to 8:00 a.m. for up to 700 min/month.

18 euro cents/min. with setup fees for the rest of the day. Monthly subscription at 22 euros.

Tarifa Plana Plus

0 euro cents/min. with no setup fees to mobiles from 6:00 p.m. to 8:00 a.m. 0 euro cents/min.

with no setup fees, 24 hours a day, to fixed lines. 18 euro cents/min. with setup fees for all other calls. Monthly subscription at 27.90 euros.

Tarifa Plana Naveghable

0 euro cents/min. with no setup fees from 6:00 p.m. to 8:00 a.m. 18 euro cents/min. with setup fees

for the rest of the day. 500 MB of Internet traffic included. Monthly subscription at 29 euros.

Contrato Mi Tiempo Libre

7 euro cents/min. for 5 consecutive hours from 10:00 p.m. to 8:00 a.m. and weekends, to be defined

by the user. 30 euro cents/min. for all other calls. Minimum 9 euros used each month.


Orange’s offers and rates are detailed on its website http://www.movil.orange.es

Small Offices and Home Offices Market

For the small offices and home offices market, Orange adapts its offer to different needs, uses, types of calls, number of lines and other characteristics of businesses.

Customized solutions have been specifically developed for different sectors (real estate, transport) and are offered in partnership with other companies (software designers and others).

Regarding data services, email receipt is the most frequently requested service. For this purpose, a full line of terminals and technical solutions is available to meet individual customer needs. The other data services completing the portfolio are news services, videophony, Internet and Intranet access.

During 2007, Orange launched new convergence services, for example Unico para empresas, which allow customers to take advantage of economical rates on their mobile telephones when they place calls at home via their ADSL Orange access, or Business Everywhere, which allows customers connect to the Internet from their laptop computers.

Orange attaches great importance in offering innovative solutions to high-end customers, in order to anticipate expectations in the small offices and home offices market. With this in mind, the Inteligente Empresas plan was launched in 2008, which automatically offers more attractive rates as the customer increases his consumption.

Furthermore, Orange designs telecommunications solutions for large businesses, who are treated like partners and for other telecommunications operators (MVNO), who are offered wholesale rates.

Orange offers and rates are detailed on its website http://www.empresas.orange.es

6.2.4.3 Sales and Distribution

Orange España sells its products and services via a full range of distribution channels:




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1,691 Orange stores which sell only Orange products;

almost 741 specialized distributors and retailers, who offer Orange services and Orange “Pay-as-you-go” cards, as well as other products and services;

non-specialty retailers.

A specialized sales team under the responsibility of Orange España Business Services is dedicated to the acquisition and retention of business customers. Customers can also obtain Orange products and services and purchase accessories at the Orange España website: http://www.orange.es

6.2.4.4 Competitive Environment

Orange has been competing for several years with two other operators: Movistar (a subsidiary of Telefónica) and the Spanish subsidiary of Vodafone. Orange (previously “Amena”) obtained the third Spanish GSM license in June 1998 and launched its commercial activity in January 1999, thus ending a mobile telephony duopoly held until that date by Telefónica and Vodafone.

In March 2000, four UMTS licenses were awarded through competitive bidding to Amena, Telefónica Móviles España, Vodafone and Yoigo (formerly Xfera, TeliaSonera’s subsidiary in Spain). UMTS was first available on the Spanish market in 2004.

In 2006, the first MVNO appeared: Carrefour Mobile, Happy Movil-The Phone House and Euskaltel. Over the last two years, the number of MVNOs has increased with the arrival of:

Lebara Mobile, R, Dia, KPN, Mas Vida, Pepephone, Eroski, and Telecable in 2007;

Jazztel, BT, Ono, El Corte Inglés, amigophone and phoneyou in 2008.

The following table shows the market share of the operators present in Spain:

 

Year ended December 31

 

2008

2007

2006

France Telecom España (Orange)

20.6%

22.9%

23.6%

Telefonica Moviles

44.7%

45.4%

45.5%

Vodafone

31.0%

30.2%

30.7%

Yoigo

1.9%

0.5%

0.1%

MVNO

1.8%

0.9%

0.1%

Source: Spanish Regulatory Authority.


6.2.4.5 Key Events

A new management team was created in January 2008 as part of the Group’s NExT plan. Convergence of the fixed-line and mobile businesses was a priority in implementing the new organization.

In 2008, Orange España priorities were the following:

to preserve the growth dynamic subscription offers via the launch of new product offers and new, innovative convergence services (such as UNIK B2B, Business Everywhere, Internet Everywhere, Tarifa Plana Naveghable, Laptop+USB key);

to develop the customer mix to maximize growth in average revenue per use (ARPU) in data transmission;

to develop business by continuing to develop the 3G customer base and the USB modem-key service and by increasing the number of agreements with MVNOs.

Meanwhile, Orange España continues to optimize its cost structure, by means of:

continuous improvement of customer loyalty as part of the value strategy;

restructuring of distribution channels (specifically stores, franchises and the online store);

streamlining operations with customers and staff reductions.

6.2.5 Rest of the world

6.2.5.1 Belgium

Orange is present in Belgium through its subsidiary Mobistar. At December 31, 2008, Orange held 52.91% of Mobistar’s capital, with the balance held by the public since Mobistar’s initial public offering on Euronext Brussels in October 1998.

In March 2001, Mobistar obtained a 20-year UMTS license for a bid of 150 million euros. Mobistar has fulfilled its obligations in this area by implementing the technology by September 2003 and by deploying on January 1, 2008 a network covering 50% of the population.

By March 2009, it is expected to cover 85% of the population. In December 2008, UMTS coverage reached 80% of the population.



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Mobistar is the number two telecommunications operator on the Belgian market, in terms of both total market share and mobile market share.

The Belgian telecommunications market is characterized by:

strong penetration of broadband lines, 23.6% of the population at the end of 2008 (source: European Commission);

strong penetration of analog television;

mobile penetration estimated at 106.9% at the end of 2008 (source: Informa telecoms & Media).

The table below shows the main features of the mobile telecommunications market in Belgium and the activities of Mobistar:

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Belgium (%)(1)

106.9

101.3

91.4

Total number of users in Belgium (millions)(1)

11.1

10.5

9.6

Active Mobistar customers (millions)(2)

3.5

3.4

3.1

Market share of Mobistar (%)(1)

33.0

33.1

33.0

Coverage of the Mobistar network (as a% of population)(2)

99.7

99.7

99.6

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Mobistar (including MVNO, not including VOXmobile customers).


Mobistar’s Products and Services

Mobistar currently offers a broad range of both fixed-line and mobile solutions to meet the needs of the various market segments, from residential customers to major corporations. In the consumer market, Mobistar has launched a complete range of prepaid cards (Tempo Comfort, Tempo Friend, and Tempo Music) and a new range of packages. In the prepaid segment, Tempo Music, launched in February 2006, is a top-up concept that combines mobile telephony, music and multimedia, which reached 662,000 customers at December 31, 2008. In the package segment, Mobistar continues to record profits since mobile phone numbers became transferable. In addition to its mobile offers, Mobistar launched Internet Everywhere, combining a mobile USB modem with an attractive package for five euros a month and one euro per day of use. At September 30, 2008, Mobistar also had more than 46,827 Internet Everywhere customers. In July 2008, Mobistar launched Apple’s iPhone3G on the Belgian market. Three new custom “data” packages were launched to offer residential customers optimal use of all of the new iPhone 3G features.

For the business market, Mobistar has introduced a combined voice telephony product line, with One Office Voice Pack, providing substantial savings on mobile and fixed-line services and the ability to process two types of services with a single package and the same customer service department. During the fourth quarter of 2008, 60% of new SME and SOHO (Small Offices and Home Offices) customers subscribed to this combined offer. One Office Full Pack, launched in May 2008, is a global solution for the small offices and home offices market that combines fixed-line telephony, mobile telephony and Internet.

Mobistar's offers and rates are detailed on its website http://www.mobistar.be/fr

Sales and Distribution

During 2008, Mobistar continued to improve its controlled distribution channels, increasing the number of its specialized boutiques to 150 and opening an e-store on its website that allows Internet users to subscribe online to any prepaid or flat-rate offer, ADSL products and a full range of mobile terminals and data cards.

The marketing strategy is fully focused on mobile Internet, but also responds to the steady growth in traditional uses of mobile telephony, which was especially strong in 2008.

Competitive Environment

As the result of various buyouts, competition was especially tough in the 2008 mobile telephony market.

The penetration rate of mobile telephony exceeded 100% in 2008. Now there is even greater competition between operators in an increasingly regulated environment.

In 2008, mobile operators and fixed-line operators developed a very aggressive sales policy focused on bundled services (triple play, even quadruple play, combining mobile telephones, fixed-line telephones, ADSL and television). The underlying strategy for these marketing campaigns is existing customer retention, as they are the target core for most operators. The resulting price pressure indisputably benefits consumers.

Several buyouts marked 2008, causing greater vertical integration for some operators, as well as a broader market share (for example, via new distribution channels). The result is a decrease in the number of alternative actors on the market. As a result, competition was especially tough in 2008 in the small offices and home offices market.



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The following table shows the market share of the network operators present in Belgium:

 

Year ended December 31

 

2008

2007

2006

Mobistar

33.0%

33.1%

33.0%

Belgacom Mobile

43.3%

43.8%

45.1%

BASE

23.6%

23.0%

21.9%

Source: Informa Telecoms & Media (third quarter 2008).


Key Events

In 2008, Mobistar bought back its own shares for a total value of 175 million euros. In addition, Mobistar bought back 10% of the shares of its Luxembourg subsidiary VOXmobile, thereby owning it fully.

In 2008, Mobistar developed its communications, brand strategy and marketing campaigns by focusing on total mobility. A survey of its customers carried out by Mobistar in the summer of 2008 confirmed its innovative positioning and its underlying values (freedom, self-fulfillment and broad horizons).

Several promotional campaigns have boosted sales of AtHome, Internet Everywhere and TempoMusic. The iPhone3G also benefited from an innovative launch in the summer of 2008, with a special catch line in the country’s airports and major railway stations. This campaign continued until the end of the year. In the small offices and home offices segment, a radio and Web-based promotional campaign for the One Office line consolidated Mobistar’s global operator positioning in the B2B market.

6.2.5.2 Romania

Orange provides mobile telephony services in Romania through its subsidiary Orange Romania.

Orange Romania, the third mobile operator to enter the Romanian market, was formed and obtained a 15-year GSM 900 license in 1996. Orange Romania’s GSM network covered 98.8% of the population at the end of 2008.

As the result of a call for tenders, 15-year UMTS licenses were awarded to Orange Romania and Vodafone Romania (formerly Mobifon) in November 2004. Orange Romania deployed a mobile broadband network which covered 47.4% of the population at the end of 2008.

The table below presents the main features of the mobile telecommunications market in Romania and the activities of Orange Romania:

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Romania (%)(1)

119.0

102.7

81.0

Total number of users in Romania (millions)(1)

26.4

22.8

17.4

Registered customers of Orange Romania (millions)(2)

10.4

9.8

8.0

Market share of Orange Romania (%)(1)

38.6

43.0

46.1

Coverage of the Orange Romania network (2G as a% of population)(2)

98.8

96.9

96.8

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Romania.




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Orange Romania’s Products and Services

Orange Romania offers its customers a wide range of mobile telephony services and pursues its growth strategy via the launch of innovative offers:

Type of Offers

Target Customers

Main Features

Postpaid

Entry-level

Basic monthly subsciption with no minutes included from 3 euros to which a large range of options (SMS/network/national/international minutes) can be added.

Rate plan with network/non-network minutes and SMS included from 6 to 12 euros. “Flexible” rate plans allowing customers to share a monthly credit betweenvoice calls and data.

Prepaid

Entry-level/consumer

Top-ups from 4 to 25 euros.

Prepay music, which in addition to an attractive voice call rate, gives users access to a dedicated website: http://orangemusic.ro (listen to music, download, information, discounts on ringtones).

Unlimited Internet acccess

 

Wide portfolio of mobile Internet offers from 10 to 30 euros per month offering the possibility of unlimited Internet surfing (subject to certain conditions) on different time frames (evening, weekend, day). Additional possibility of acquiring a laptop computer.


Orange offers and rates are detailed on its website http://www.orange.ro

Orange Romania is one of the group’s subsidiaries that marketed Apple’s iPhone exclusively and 18,000 units were sold between August and December 2008. An overhaul of the mobile Internet offer portfolio boosted the customer base and associated revenues.

In addition, Orange had 157,000 subscribers to its Internet services at December 31, 2008. Services combining laptop computer sales and mobile Internet access were also successfully introduced.

Sales and Distribution

Orange Romania distributes its products and services in Romania via:

its own network of stores, which market Orange products exclusively. In 2008, this network grew by 25 points of sale, bringing the number to 95 (plus 6 kiosks) at year’s end;

a network of exclusive retailers of Orange Romania’s products and services. 2008 was marked by the start of an exclusive partnership with SAY, which has 87 points of sale and the end of partnerships with Proton and Vegastel (73 and 52 points of sale, respectively);

an extended network of indirect distributors who specifically market prepaid top-ups.

Orange Romania is pursuing an active policy of increasing its control of distribution by adding more of its own stores and exclusive partnerships. In addition, dedicated teams are responsible for the acquisition and retention of business customers, a segment in which Orange Romania has a leadership position. Finally, Orange Romania is also developing its online sales through its Internet portal, accessible at http://www.orange.ro.

Competitive Environment

Macroeconomically, Romania is affected by the bursting of its real estate bubble and the political instability resulting from the latest elections. There are also serious concerns about its currency, the Leu (RON), which depreciated significantly at year end, negatively impacting household purchasing power.

2008 was marked by intensified competition, mainly driven by Cosmote, which brought very aggressive offers to the market in terms of rates.

Orange Romania has the number one position in the market, but its market share in volume has still eroded somewhat due to Cosmote’s success. Even within this context, Orange Romania has managed to hold on to its good positioning, thanks to the segmentation of its products and services, which results in the resilience of its market share in terms of value.

The last two actors, Zapp (Telemobil, CDMA technology operator) and RCS/RDS (cable operator), each of which acquired a UMTS license in 2006, began to market their services in 2008 (Zapponline and Digimobil).



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The following table shows the market share of the operators present in Romania:

 

Year ended December 31

 

2008

2007

2006

Orange

38.6%

43.0%

46.1%

Vodaphone

36.0%

38.6%

44.2%

Cosmote

19.8%

15.8%

7.0%

Zapp (telemobil)

1.3%

2.7%

2.7%

RCS/RDS

4.3%

-

-

Source: Informa Telecoms & Media (third quarter 2008).


Key Events

In addition to the sharp decrease in interconnection rates, 2008 was marked by a call for tenders for a sixth GSM license. Romtelecom, the incumbent operator now controlled by Deutsche Telekom through its participation in OTE, won the bidding in September 2008 for a 1 million euro license.

Orange Romania will continue its policy of segmenting its offers in 2009, while pursuing its growth in the broadband mobile market, where its products and services have been very successful. At the same time, the policy of streamlining operating costs will be improved, while a level of investment will be maintained with which it can hold onto its market position.

6.2.5.3 Slovakia

Orange provides mobile services in Slovakia through its wholly-owned subsidiary Orange Slovensko. Orange Slovensko was formed in 1996 and obtained its GSM900 license the same year. In August 2001, Orange Slovensko’s license was extended to GSM1800. In addition, Orange Slovensko was awarded a UMTS license in June 2002 for a 20-year period starting on its award date.

In 2006, Orange Slovensko entered the broadband Internet mobile access market with the launch of HSDPA technology on the 3G UMTS network.

In September 2007, Orange Slovensko also carried out the commercial launch of the Triple Play services using the broadband fiber optic connection technology (up to 70 Megabits/s) from the user’s home. Thus, customers have in the same offer a fixed telephone line, IP services and television.

The table below presents the main features of the mobile telecommunications market in Slovakia and the activities of Orange Slovensko.

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Slovakia (%)(1)

103.0

106.9

89.9

Total number of users in Slovakia (millions)(1)

5.6

5.8

4.9

Active Orange Slovensko customers (millions)(2)

2.9

2.9

2.7

Market share of Orange Slovensko (%)(1)

51.4

49.2

54.9

Coverage of the Orange Slovensko network (as a% of the population)(2)

99.6

99.6

99.3

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Slovensko.


Orange Slovensko’s network coverage for 3G+ broadband mobile access (HSDPA) reaches 61% of the population.



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Orange Slovensko’s Products and Services

The mobile product line currently offered by Orange Slovensko includes the following services:


Type of Offers

Rate Plan

Target Customers

Main Features

Per-minute billing

Kontakt

Basic offer for customers looking for an inexpensive offer without additional services

Plans of 30, 70 or 100 minutes of communication

Klasik

Standard offer for customers who want more options and services

Plans of 70, 100 or 150 minutes of communication (+210, 300 or 450 minutes during non-peak hours)

Komfort

High-end offer for more demanding customers for whom price is not the determining factor in their choice

Plans of 300 or 600 minutes (+2,000 minutes during non-peak hours)

3G rate plan

3G 150-500

Offer for customers wishing to surf the net using a smartphone (iPhone or other)

Plan of 150 to 500 minutes of communication, including 100 SMS on-net and 2 Gigabits of data

Mobile Orange Internet

Start

Basic offer for customers who want an inexpensive mobile internet offer for non-intensive use

Rate of 384 kbits/s to 1.5 Megabits/s

Volume: 1.5 Gigabits

Klasik

Standard offer for customers who want higher traffic rate and volume

Rate of 384 kbits/s to 3.6 Megabits/s

Volume: 2 Gigabits

Premium

High-end offer for more demanding customers for whom price is not the determining factor in their choice

Rate of 1.46 Megabits/s to 7.2 Megabits/s

Volume: 10 Gigabits

FiberTV

Start

Basic offer for customers looking for an inexpensive fiber optic TV offer

15 channels available

Klasik

Standard offer for customers who want a more extensive package of channels

71 channels available, including 2 theme channels

Premium

High-end offer for more demanding customers for whom price is not the determining factor in their choice

102 channels available, including 6 theme channels

Fibernet

Start

Basic offer for customers looking for an inexpensive fiber optic internet offer

Rate of 512 kbits/s to 10 Megabits/s

Klasik

Standard offer for customers who want more extensive downlink and uplink speed

Rate of 1 Megabits/s to 15 Megabits/s

Premium

High-end offer for more demanding customers who want high downlink and uplink speed

Rate of 4 Megabits/s to 70 Megabits/s


Orange offers and rates are detailed on its website http://www.orange.sk

Sales and Distribution

Orange Slovensko sells its products and services in Slovakia through various distribution channels:

Orange Slovensko’s stores, which sell only Orange and France Telecom products. In 2008, there were 171 stores (including seven in direct operation and 164 under license);

sales teams attached to Orange Slovensko’s stores and specialized in door-to-door sales of FTTH products and services (information and acquisition of VIP and business customers);

specialized distributors and retailers who sell Pay-as-you-go Orange cards;

a specialized sales team under the responsibility of Orange Slovensko dedicated to the acquisition and retention of business customers;

finally, customers can also obtain Orange products and services and purchase accessories at the Orange Slovensko website: https://www.orange.sk/eshop/sk/shop.html

Competitive Environment

Orange Slovensko currently competes with two other operators, Telefonica 02 and T-Mobile (Eurotel), which is wholly-owned by Slovak Telecom, which is majority-owned by Deutsche Telekom.



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The market shares for operators in Slovakia are as follows:

 

Year ended December 31

 

2008

2007

2006

T-Mobile (Eurotel, GSM)

41.2%

40.6%

45.1%

Telefónica O2 Slovakia

7.3%

10.2%

-

Orange Slovensko

51.4%

49.2%

54.9%

Source: Informa Telecoms & Media. (third quarter 2008).


O2’s arrival on the market in 2007 altered the competitive conditions somewhat, but did not cause any major change among market leaders. In 2008, Orange Slovensko held onto its number one position in mobile telephony, with 51.4% of the market.

Orange Slovensko is also the top broadband mobile access provider, with the widest HSDPA coverage.

Key Events

2008 was marked by intensified competition in a modest-sized, highly developed market where three internationally-recognized brands are competing. In this context, Orange Slovensko has restructured to optimize its operating costs and will pursue this policy in 2009.

Although it originally focused mainly on very low rate prepaid offers, O2 has developed very competitive package offers. Nevertheless, Orange Slovensko has managed to maintain a good positioning of the value of its customer portfolio thanks to efforts in segmenting its offers, resulting in excellent resistance of its value market share value.

The strong growth in its broadband mobile customer base (up 56% compared to 2007) is encouraging for increasing revenues generated by non-voice services and the ability, therefore, to maintain a satisfactory ARPU level.

Also notable are the very encouraging results from fixed-line activity (FTTH), which are in line with expectations and should continue to grow significantly in 2009.

6.2.5.4 Switzerland

The table below presents the main features of the mobile telecommunications market in Switzerland and the activities of Orange Communications SA.

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Switzerland (%)(1)

112.8

106.4

98

Total number of users in Switzerland (millions)(1)

8.6

8.1

7.4

Active Orange customers (millions)(2)

1.5

1.5

1.4

Market share of Orange Communications SA (%)(1)

17.9

18.8

18.8

Coverage of the Orange Communications SA network (as a% of the population)(2)

99.3

99.3

99.3

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Communications SA.


Orange was the third operator to enter the Swiss market via its wholly-owned subsidiary, Orange Communications SA. In December 2000, Orange Communications SA was awarded a 15-year UMTS license at a cost of 55 million Swiss francs (approximately 35 million euros). Over the years, it has positioned the Orange brand in the Swiss telecommunications market as an alternative to the incumbent operator.

Orange Switzerland’s Products and Services

Orange Communications SA provides its residential and business customers with a full line of mobile services. In addition, in 2007 it launched a line of fixed-line broadband Internet services.



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MAIN PRODUCTS AND SERVICES

Type of Offers

 

Target Customers

Main Features

Subscriptions

Optima

Standard Customers

Abundance telephony package that automatically adjusts according to customer’s specific usage

Prima

Youth

Package automatically blocked according to chosen amount billed, with option of refilling additional amount

X-treme

Youth

Abundance package - SMS and value-added services (for example, music)

Maxima

High-end customers

Abundance telephony package 1, including value-added services (for example, concierge)

Optima and Maxima iPhone

iPhone Users

Package based on Optima and Maxima packages, including 1 Gigabit mobile Internet access

PrePaid

X-treme Prepay

Youth

Abundance package 2, including SMS and value-added services (for example, music)

Orangeclick

Standard Customers

Abundance telephony package

Businesses

Optima Business

Businesses

Abundance telephony package that automatically adjusts according to customers’ specific usage

Group Unlimited

Businesses

Unlimited mobile calls to the company’s fixed-line and mobile numbers

Universa

Heavy users of business mobile services

Abundance telephony package 3, including value-added services (for example, 1 Gigabit mobile Internet access)

Office Flex

Businesses

Mobile telephone for making calls at fixed rates

Fixed Internet

Orange ADSL and Fixtalk bundle

Standard Households

Broadband Internet access including Livebox and a fixed-line voice package

Office Team

Businesses

Fixed-line telephony package including integration of a closed group of mobile users in the company

Mobile Internet

Home Pack and Office Hub

Customers who want to subscribe to broadband Internet access or eliminate their fixed line

Service including broadband access and fixed-line calls by the mobile network (HSDPA modem)

IEW and IEW Pro

Customers who want to subscribe to mobile broadband Internet access

Service linked to laptop computers, including a set of mobile broadband packages according to customer usage (HSDPA USB modem).

Mobile and fixed-line options

Miscellaneous

All customers

Several options, including reduced roaming rates, e-mail and mobile Internet access, mobile content and promotions for students


Orange offers and rates are detailed on its website http://www1.orange.ch

Sales and Distribution

Orange Communication SA sells its products and services in Switzerland through various distribution channels:

49 Orange centers that sell only Orange products;

indirect retailers, who continue to generate a significant percentage of new customers;

a specialized sales team dedicated to the acquisition and retention of business customers;

a dedicated online store on the Orange website, where customers can obtain Orange products and services and purchase accessories: http://www.orange.ch

Competitive Environment

Orange Communications S.A. competes with other wireless network operators, including Swisscom Mobile, which is owned by the incumbent operator Swisscom and Sunrise, owned by TDC (Denmark).



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The following table shows the market share of the operators present in Switzerland:

 

Year ended December 31

 

2008

2007

2006

Swisscom

61.8%

61.8%

62.5%

TDC (Sunrise)

19.0%

18.9%

18.4%

Orange

17.9%

18.8%

18.8%

Tele2

1.3%

0.5%

0.2%

Source: Informa Telecoms & Media (third quarter 2008).


While Sunrise continues to invest in acquiring new customers by developing its package offers and high speed local loop unbundling, Orange Communications S.A. relies on the improved appeal of the Orange brand and on the experience it has acquired with its customers and is relying on the development of mobile broadband services.

Key Events

In 2008, Orange Communications S.A. added mobile broadband offers to its portfolio and launched an iPhone offer.

The economic downturn has begun to affect the Swiss economy. With lower consumer confidence, Orange is expecting its customers to be more sensitive to cost, thereby providing new opportunities with more price-conscious business and residential customers. Consequently, the number of attractive PrePay and PostPay offers and bundled offers available on the marketis expected to increase in 2009. In addition, Orange Communications S.A. and Sunrise could benefit from a higher termination risk for Swisscom, the incumbent operator.

6.2.5.5 Moldova

Orange is present in Moldova through its subsidiary Orange Moldova S.A., a subsidiary controlled by the France Telecom group, which holds a 94.3% share. Orange Moldova, formerly known as Voxtel, was formed in 1998 and obtained its license the same year. In 2003, the license was extended to GSM1800 MHz. Orange Moldova adopted the Orange brand in April 2007.

The table below presents the main features of the mobile telecommunications market in Moldova and the activities of Orange Moldova.

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Moldova (%)(1)

67.1

55.0

39.6

Total number of users in Moldova (millions)(1)

2.3

1.9

1.4

Active Orange Moldova customers (millions)(2)

1.5

1.3

0.9

Market share of Orange Moldova (%)(1)

65.6

67.5

64.4

Coverage of the Orange Moldova network (%)(2)

99.1

98.0

97.0

(1)

Source: Moldovan Regulatory Authority (third quarter 2008).

(2)

Source: Orange Moldova.




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Orange Moldova S.A.’s Products and Services

The mobile product line currently offered by Orange Moldova S.A. includes the following services:

Type of Offers

 

Target Customers

Main Features

Postpaid

Classic

Individuals and businesses

Package based on minutes

Monthly subscriptions from 50 to 840 Lei (3.5 to 58.2 euros)

Unit price reduced for the most expensive subscriptions

Same rate for on-net and off-net services

Intensiv

Individuals and businesses

Package based on amounts

Monthly subscription from 40 to 1500 Lei (2.8 to 103.9 euros)

Unit price reduced for the most expensive subscriptions

Attractive on-net services

Business

Businesses

Package based on amounts

Attractive monthly subscription

Attractive on-net services

Business nelimitat

Businesses

Package based on amounts

Unlimited on-net services during business hours

Prepaid

Standard

“On-net” service users

Attractive on-net services

Evenings and weekends

Balanced “on-net/off-net” service users, increased use during off-peak hours

Same rate for on-net and off-net services

Reduced prices for evening and weekend calls

Juno

Youth

Lower rates for calls and SMS between Juno subscribers

Free access to multimedia content

Numerous SMS bonuses

Bonuses for calls between Juno subscribers

Internet

Internet Acum

Individuals and businesses

Mobile data services only

Download speed of up to 7.2 Megabits/s

Immediate access and attractive rates

Monthly subscription


Orange offers and rates are detailed on its website http://www.orange.md

Sales, Distribution and Customer Service

Orange Moldova sells its products and services through a set of direct and indirect distribution channels:

direct channel: 17 stores owned by Orange Moldova in 2008 compared to 10 when rebranded in 2007;

indirect channel:

160 stores offering the full line of Orange products and services: 82 partner stores under the Orange brand and 87 exclusive distributors,

421 points of sale selling only prepaid cards. When Orange Moldova rebranded in 2007, there were no such points of sale,

965 other points of sale, and 1,124 tobacco stands distributing prepaid cards.

A team reporting directly to Orange Moldova’s management is in charge of business customer service.

Competitive Environment

Orange Moldova (formerly Voxtel) was the first operator to launch GSM services in Moldova in 1998. Moldcell, a TeliaSonera subsidiary through Fintur (99%), launched its GSM services in 2000.

Two new mobile telephony operators entered the market in 2007:

Moldtelecom (the incumbent fixed-line telephony operator) under the Unite brand and the CDMA450 network; and

Eventis, a GSM operator with Russian and Moldovan capital.

At the end of the third quarter of 2008, Orange Moldova held the largest market share.



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The following table shows the market share of the operators present in Moldova:

 

Year ended December 31

 

2008

2007

2006

Orange Moldova

65.6%

67.5%

64.4%

Moldcell

30.0%

29.5%

35.6%

Unite

3.7%

2.8%

-

Eventis

0.7%

0.1%

-

Source: Moldovan Regulatory Authority (third quarter 2008).


Key Events

The main events for 2008 were:

the award of the 3G license to Orange Moldova in August 2008; and

the signature of an agreement to buy out a local Internet service provider.

Outlook for 2009

The economic uncertainty in Moldova necessitates some caution with respect to growth forecasts. As such, Orange Moldova intends to continue its transformation into a diversified and fully-integrated operator and endeavor to maintain its leadership position in the mobile market despite the competition.

Operationally, Orange Moldova’s priorities are:

improving quality (of communications, of the distribution network, of customer relations);

diversifying the product portfolio (fixed-line and mobile broadband, payment methods) to increase the ARPU;

anticipating the launch of 3G services;

stimulating usage to promote increased ARPU and ensure a strong market share; and

integrating new activities and maintaining a streamlined organization.

6.2.5.6 Other controlled mobile operations outside Europe

Egypt

Orange owns 71.25% of Mobinil (Mobinil Telecommunication S.A.E.), which holds 51% of the Egyptian Company for Mobile Services (ECMS), the operational company for Mobinil brand. The remaining 28.75% of Mobinil is held by the Egyptian group Orascom Telecom, which also directly owns 20% of ECMS, whose shares are listed on the Cairo and Alexandria stock markets.

ECMS was formed in 1998 and was awarded its GSM900 license the same year. In 2007, ECMS was awarded a 15-year UMTS license for 3.7 billion Egyptian pounds (via a payment plan) and an annual percentage of 2.4% of total revenues. After 2022, this license can be renewed without additional cost for periods of five consecutive years. The 2G license that it already holds will be automatically extended for a period of nine and a half years and will thus expire on the same date as 3G license. A detailed five-year coverage plan accompanied the granting of the license and the regulatory authority (NTRA) guaranteed Mobinil that it would be granted other frequency bands, special rates that apply to its customers for communications within its network (“on-net” mode) and a new network code reserved for Mobinil.

The table below presents the main features of the mobile telecommunications market in Egypt and the activities of Mobinil.

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Egypt (%)(1)

55.0

40.6

-

Total number of users in Egypt (millions)(1)

41.3

30.1

-

Mobinil customers (millions)(2)

20.1

15.1

9.3

Market share of Mobinil (%)(1)

48.7

50.2

51.5

Coverage of the Mobinil network (%)(2)

100.0

99.0

99.0

(1)

Sources: Egyptian Regulatory Authority.

(2)

Source: Mobinil.




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Mobinil’s Products and Services

The mobile product line currently offered by Mobinil includes the following services:

Type of Offers

 

Target Customers

Main Features

Postpaid

25-900 pounds/month

Residential customers

Monthly payment, free services according to rate plans (free mobile-to-mobile minutes), free SMS, free billing consultation)

Prepaid cards

Alo

Residential customers

Easy-to-use custom services (Alohat for young customers, Alo Region for older customers, Alo Tourist for tourists)

Monthly packages

Businesses

Businesses

Custom solutions depending on customer needs and requirements


Mobinil’s offers and rates are detailed on its website http://www.mobinil.com

Sales and Distribution

Mobinil sells its products and services in Egypt through a set of distribution channels:

Mobinil-owned stores. In 2008, the number of stores rose to 33, compared to 24 in 2007;

Mobinil franchises installed in 2008;

Mobinil kiosks located in universities, which provide products and services to students;

independent kiosks which sells products like scratch cards and Alo lines from subway kiosks, train stations and ports;

specialized distributors and retailers. In 2008, about 12,000 of these points of sale offered Mobinil services and products.

Competitive Environment

ECMS (Mobinil) was the first mobile operator in Egypt. At December 30, 2008, ECMS held the largest share in this market, for prepaid offers as well as subscriptions. Vodafone Egypt entered the market in November 1998 under the name ClickGSM, and a third operator, Etisalat, entered the market in May 2007. The Egyptian market is made up mostly of prepaid offers.

The following table shows the market share of the operators present in Egypt:

 

Year ended December 31

 

2008

2007

2006

Mobinil

48.7%

50.2%

51.5%

Vodafone

42.7%

44.3%

48.5%

Etisalat

8.6%

5.5%

-

Source: Egyptian Regulatory Authority.


Key Events

The main events for 2008 were:

the deployment of Mobinil’s UMTS mobile network and the launch of the advanced 3G service line in September;

the celebration of the 20 millionth subscriber, with a 20 million subscribers promotion in all market segments;

the launch of the on-net rate, with reduced rates for communications made between Mobinil subscribers;

the launch of U-Control, a Web solution that lets business customers manage their own billing;

the launch of the iPhone 3G as well as advanced data communications offers at the technical level;

the launch of an attractive laptop computer offer bundled with a free 3G USB modem;

the extension and development of a direct-distribution network, thanks to the opening of four new stores and eight new national franchises.

Dominican Republic

Orange holds 100% of Orange Dominicana, which launched its GSM900 network in November 2000 under the Orange brand. Minority shareholders representing 14% of the capital were bought out in September 2005.



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Year ended December 31

 

2008

2007

2006

Market penetration rate in the Dominican Republic (%)(1)

66.8

57.9

-

Total number of users in the Dominican Republic (millions)(1)

6.3

5.4

4.4

Active Orange customers (millions)(2)

2.4

2.1

1.5

Market share of Orange Dominica (%)(1)

36.7

38.7

40.4

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Dominicana.


Orange Dominicana’s Products and Services

The mobile product line currently offered by Orange Dominica includes the following services:

Postpaid

Subscriptions correspond to older offers used by the majority of customers and more recent offers launched in August 2007:

Type of Offers

Subscriptions

MAX offers

FLEX offers

  

Price

Minutes included

Price per additional minute

Price

Minutes included

Price per additional minute

Older offers

Traditional

From $420 to $2,460

(302 to 1,768 euros)

From 90 min.

to 900 min.

From $0.08 to $0.05

(0.057 to 0.035 euros)

From $290 to $1,590

(208 to 1,142 euros)

From 50 min. to 540 min.

From $0.10 to $0.05

(0.024 to 0.012 euros)

Youth

-

-

-

From $290 to $440

(208 to 316 euros)

From 50 min. to 90 min.

From $0.10 to $0.08

(0.024 to 0.019 euros)

Recent offers

Youth

From $260 to $1,150

(187 to 826 euros)

From 50 min.

to 400 min.

From $0.09 to $0.05

(0.035 to 0.064 euros)

From $270 to $1,230

(194 to 884 euros)

From 50 min. to 400 min.

From $0.09 to $0.05

(0.021 to 0.012 euros)

12-month subscription

From $335 to $2,895

(241 to 2,080 euros)

From 75 min.

to 1200 min.

From $0.07 to $0.04

(0.050 to 0.028 euros)

From $375 to $3,100

(269 to 2,227 euros)

From 75 min. to 1200 min.

From $0.08 to $0.04

(0.019 to 0.009 euros)

18-month subscription

From $320 to $2,825

(230 to 2,030 euros)

From $345 to $2,950

(248 to 2,120 euros)

From $0.08 to $0.04

(0.019 to 0.009 euros)


Prepaid

Prepaid Card

Calling costs per minute

 

To Orange Subscribers

(On-net)

National

To favorite numbers

from 12:00 a.m. to 7:00 a.m.

Peak hours

$6.00 (4.3 euros)

$7.80 (5.6 euros)

-

Off-peak hours

$4.80 (3.4 euros)

$6.60 (4.7 euros)

$0.06 (0.4 euros)


Sales, distribution and customer service

Orange Dominicana sells its products through the following distribution channels:

stores belonging to Orange Dominicana that offer the full line of products and services, including service activation, after-sales service, repair services and B2B services;

exclusive franchises that represent more than 90% of the total distribution channel and enable Orange Dominica to be present almost everywhere in the country;

13 points of service that are franchised stores authorized to provide Orange services to customers; and

independent distributors for refilling cards.



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Competitive Environment

The following table shows the market share of the operators present in the Dominican Republic:

 

Year ended December 31

 

2008

2007

2006

Trilogy (formerly All America Cables & Radio)

6.3%

6.6%

-

Claro (formerly America Movil)

49.9%

46.3%

59.6%

Orange

36.7%

38.7%

40.4%

Tricom

7.2%

8.4%

-

Source: Informa Telecoms & Media (third quarter 2008).


Botswana

Orange owns a 53.68% share in Orange Botswana, which launched its GSM900 network in June 1998 under the name Vista Cellular. Since March 2003, Orange Botswana has operated under the “Orange” brand.

The table below presents the main features of the Botswana market and Orange’s position in that market:

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Botswana (%)(1)

96.0

81.6

63.2

Total number of users in Botswana (millions)(1)

1.6

1.3

1.0

Orange customers (millions)(2)

0.7

0.6

0.4

Contract customers (millions)(2)

0.01

0.01

-

Prepaid customers (millions)(2)

0.7

0.5

-

Market share of Orange (%)(1)

41.8

41.0

42.1

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Botswana.


Orange Botswana offers the following mobile products and services:

Type of Offer

 

Main Features

Prepaid

20 pula Card (1.9 euros)

Refill from 10 to 500 pula (1 to 47.5 euros)

Postpaid with package

Easy Talk

10 SMS + 40 min. included

Talk 130

10 SMS + 130 min. included

Talk 275

10 SMS + 275 min. included

Orange 160

10 free SMS

Postpaid without package

Orange 80

10 free SMS


Orange Botswana’s offers and rates are detailed on its website http://www.orange.co.bw/offers/offers.php

Orange Botswana distributes its products and services via a network of nine of its own sales offices and several hundred Orange points of sale spread throughout the country.

In the mobile market in Botswana, Orange is in second position with a 41.8% market share behind MASCOM (source: Informa Telecoms & Media).

Cameroon

The France Telecom Group holds 99.5% of the capital of Orange Cameroun, which launched its GSM900 service in January 2000 under the Mobilis name. Since June 2002, Orange Cameroun has operated under the “Orange” brand. The strategy is to improve operating efficiency and increase the market share by extending network coverage and improving distribution.



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The table below presents the main features of the Cameroon market and Orange’s position in that market:

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Cameroon (%)(1)

29.3

24.1

17.9

Total number of users in Cameroon (millions)(1)

5.3

4.3

3.1

Orange customers (millions)(2)

2.1

2.0

1.4

Contract customers (millions)(2)

0.04

0.4

-

Prepaid customers (millions)(2)

2.1

2.0

1.4

Market share of Orange (%)(1)

37.7

43.6

43.1

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Cameroun.


Orange Cameroun offers the following mobile products and services:

Type of Offer

 

Features

Postpaid with package

Mix perso 8

Mix perso 16

Mix perso 32

Mix perso 64

Subscription services from 8,000 to 64,000 CFAF (12.2 to 97.5 euros)

Prepaid

Joker

Refills from 1,000 to 25,000 CFAF (1.5 to 38.1 euros)


Orange Cameroun’s offers and rates are detailed on its website http://www.orange.cm

Orange Cameroun distributes its products and services via a network of seven of its own sales offices and several hundred points of sale.

In the mobile market in Cameroon, Orange is in second position with a 37.7% market share behind MTN (source: Informa Telecoms & Media). Orange Cameroun continues to increase its market share.

Ivory Coast

Orange owns an 85% share in Orange Côte d’Ivoire, which began operating its GSM900 network in 1996 under the Ivoiris brand. Since January 2002, Orange Côte d’Ivoire has operated under a GSM900/1800 license. Since May 2002, Orange Côte d’Ivoire has been operating in Ivory Coast under the “Orange” brand. The strategy is to develop integrated offers and convergence services. The multi-equipment service is growing.

The table below presents the main features of the Ivory Coast market and Orange’s position in that market:

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Ivory Coast (%)(1)

52.8

36.5

22.9

Total number of users in Ivory Coast (millions)(1)

9.7

6.6

4.0

Orange customers (millions)(2)

4.1

2.9

1.7

Contract customers (millions)(2)

0.04

0.03

-

Prepaid customers (millions)(2)

4.1

2.8

-

Market share of Orange (%)(1)

38.9

38.4

43.0

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Côte d’Ivoire.




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In its market, Orange Côte d’Ivoire offers the following mobile products and services:

Type of Offers

 

Main Features

Prepaid

Carte SIM

Refills from 1,000 CFAF to 100,000 CFAF (1.5 to 152.4 euros):

traditional refills, scratch cards, non-paper refills, e-refill, youth offer

Postpaid with package

Package: 12,500

Subscription ranges from 12,500 to 100,000 CFAF (19 to 152.4 euros)

Package: 25,000

Package: 50,000

Package: 100,000


Orange Côte d’Ivoire’s offers and rates are detailed on its website: http://www.orange.ci

Orange Côte d’Ivoire distributes its products and services via its network of 40 sales offices and franchised distribution networks.

In the mobile market in Ivory Coast, characterized by a high multi-equipment rate in SIM cards, Orange Côte d’Ivoire is in first position, with a market share of 38.9%, ahead of MTN, Moov (an Etisalat subsidiary), Koz from the Comium Group and GreenN (a new market entrant belonging to the LAP green Group) (source: Informa Telecoms & Media). Orange Côte d’Ivoire, the leader in terms of customer acquisition and service quality, continues to increase its market share.

Jordan

Orange is present in Jordan through its subsidiary Orange Jordan (formerly MobileCom), a wholly-owned subsidiary of Jordan Telecom, itself 51% owned by France Telecom. Orange Jordan was formed in 2000 and obtained its GSM license the same year. Orange Jordan was the second GSM operator to enter the mobile telephony market in Jordan, five years after Fastlink (a company owned by MTC). Since September 2007, Orange Jordan has operated under the “Orange” brand.

The table below presents the main features of the Jordanian market and Orange’s position in that market:

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Jordan (%)(1)

84.0

83.0

69.6

Total number of users in Jordan (millions)(1)

5.2

5.1

4.2

Orange customers (millions)(2)

1.6

1.5

1.4

Contract customers (millions)(2)

0.1

0.1

-

Prepaid customers (millions)(2)

1.5

1.4

-

Market share of Orange (%)(1)

29.5

31.4

33.6

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Jordan.


Orange Jordan offers the following mobile products and services:

Type of Offers

 

Main Features

Prepaid

Friends offers

Keefo

Mumtaz

star

A7l

Refills from 5 to 32 dinars (from 5 to 32.4 euros).

Three refill modes: scratch cards, electronic, e-payment.

Postpaid

Plus

Package from 8.5 to 62 Jordanian dinars (9.2 to 67.2 euros).

Club

Package: from 9 to 80 Jordanian dinars (9.7 to 86.7 euros).

Talk unlimited

Package at 16 dinars (17.3 euros) with unlimited to three Orange numbers.

Hybrid

Smart

Blocked account package from 10 to 50 dinars (10.8 to 54.0 euros)


Orange Jordan’s offers and rates are detailed on its website: http://www.orange.jo



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Orange Jordan distributes its products and services via a network of 46 sales offices and an indirect sales network of nine main wholesale retailers. In addition, a franchised distribution network is being established.

In the Jordanian mobile market, Orange is in second position with a 29.5% market share behind Zain (MTC-Kuwait Group) and ahead of UMNIAH (Batelco-Bahrain Group) (source: Informa Telecoms & Media).

Senegal

Orange Senegal (formerly Sonatel Mobiles SA), a wholly-owned subsidiary of Sonatel SA, of which France Telecom owns 42.3% of the capital, was formed in 1999 and took over the GSM license awarded to Sonatel SA in 1996. Since November 2006, Orange Senegal has operated under the Orange brand. Orange Senegal competes with Sentel, a subsidiary of the Millicom International group. In 2007 the Senegalese regulatory authority awarded a new mobile license to Sudatel, which has not yet opened its network. The strategy is to build customer loyalty, specifically in the high-ARPU segments and improve service quality.

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Senegal (%)(1)

39.7

29.5

24.6

Total number of users in Senegal (millions)(1)

5.0

3.6

3.0

Orange customers (millions)(2)

3.5

2.5

2.1

Contract customers (millions)(2)

0.04

0.03

-

Prepaid customers (millions)(2)

3.5

2.4

-

Market share of Orange (%)(1)

63.6

69.2

70.0

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Sénégal.


Orange Senegal offers the following mobile products and services:

Type of Offers

 

Main Features

Prepaid

SIM card 2500

Refills from 1,000 to 25,000 CFAF (1.5 to 38.1 euros)

3 refill modes: scratch cards, electronic, e-payment

Postpaid

Terranga

Package at 7,867 CFAF (12 euros)

 

Mobile package: from 2 to 60 hours

Package from 9,360 to 230,000 CFAF (14.3 to 350.5 euros)


Orange Senegal’s offers and rates are detailed on its website http://www.orange.sn

Orange Senegal distributes its products and services via its network of 39 sales offices.

In the Senegalese mobile market, Orange is in second position with a 63.6% market share behind Tigo, a Millicom group subsidiary (source: Informa Telecoms & Media).

Mali

Ikatel SA, in which Sonatel SA owns a 70.2% share, began operating commercially in 2003 following a license granted in 2002 by the government of Mali for fixed-line, mobile and Internet activities. Since November 2006, Orange Mali has operated under the Orange brand. Ikatel’s strategy is to develop its coverage and increase the mobile penetration rate.

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Mali (%)(1)

26.6

20.0

11.9

Total number of users in Mali (millions)(1)

3.3

2.4

1.4

Orange customers (millions)(2)

2.8

2.03

1.2

Prepaid customers (millions)(2)

2.8

2.03

1.2

Market share of Orange (%)(1)

77.4

78.0

82.7

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Mali.




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Orange Mali offers the following mobile products and services:

Type of Offers

 

Main Features

Prepaid

SIM card 2000

Per-second billing after the first second

Refill from 1,000 to 25,000 CFAF (1.5 to 38.1 euros)

Postpaid

Pro “User comfort at a better price”

Subscription at 5,000 CFAF (7.6 euros) and pricing per minute

Unlimited calling credit for simplified use everywhere in Mali and while traveling abroad

Detailed monthly bill for all communications

Per-second billing

More advantageous communication rates than prepaid services


Orange Mali’s offers and rates are detailed on its website http://www.orangemali.com

Orange Mali distributes its products and services via a direct network of seven sales offices and an indirect network of 20 wholesale partners. In addition, the franchised distribution network has 35 stores.

In the Malian mobile market, Orange is in first position, with an 77.4% market share ahead of Malitel, a subsidiary of Sotelma, the incumbent operator (source: Informa Telecoms & Media).

Madagascar

Orange Madagascar, formed in 1997, is a telecommunications operator in which France Telecom indirectly holds 65.3% of the capital, via Telsa and Miaraka.

The table below presents the main features of the Malagasy market and Orange’s position in that market:

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Madagascar (%)(1)

17.8

10.7

5.3

Total number of users in Madagascar (millions)(1)

3.5

2.1

1.0

Orange customers (millions)(2)

2.0

1.3

0.6

Contract customers (millions)(2)

-

-

-

Prepaid customers (millions)(2)

1.9

1.3

0.6

Market share of share (%)(1)

51.3

58.5

64.3

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Madagascar.


Orange Madagascar offers the following mobile products and services:

Type of Offers

 

Main Features

Prepaid

SIM card 3500

Per-second billing as of the first second

Refills from 2,000 to 100,000 Ariary (0.8 to 38.4 euros)

Package

Orange Groupe illimité

Packages available from 1 to 8 hours

Postpaid

Orange max:

- Premier 60 min.

- Active 120 min.

- Intense 240 min.

- VIP 540 min.

Subscriptions available from 45,000 to 129,000 Ariary (17.3 to 49.5 euros)

Unikall (no term subscription)

10,000 Ariary (3.8 euros)


Orange Madagascar’s offers and rates are detailed on its website http://www.orange.mg/particulier/offre/orange-postpaye.htm



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Orange Madagascar distributes its products and services via a network of 11 sales offices and several hundred points of sale.

In the mobile market in Madagascar, Orange is in first position with a 51.3% market share ahead of Telma (incumbent operator) and Celtel (Zain subsidiary) (source: Informa Telecoms & Media).

Mauritius

Cellplus Mobile Communications Ltd, formed in March 1996, is a wholly-owned subsidiary of Mauritius Telecom, which is 40% controlled by France Telecom. Cellplus Mobile Communications Ltd was the second operator to enter the mobile telephony market in Mauritius after seven years of the exclusive presence of Emtel (a joint company formed by Millicom and a local company). Cellplus Mobile Communications Ltd obtained a GSM license and started its commercial operations in October 1996. The company is expanding its services on the GSM900 MHz and GSM1800 MHz bandwidths and has offered GPRS service since December 2004. In April 2008, CellPlus became Orange Ile Maurice under the Orange brand.

The table below presents the main features of the Mauritian market and Orange’s position in that market:

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Mauritius (%)(1)

77.7

70.4

61.0

Total number of users in Mauritius (millions)(1)

1.0

0.9

0.8

Orange customers (millions)(2)

0.6

0.6

0.5

Contract customers (millions)(2)

0.1

-

-

Prepaid customers (millions)(2)

0.5

-

-

Market share of Orange (%)(1)

57.6

59.7

63.1

(1)

Source: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Ile Maurice.


Orange Ile Maurice offers the following mobile products and services:

Type of Offers

 

Main Features

Prepaid

Cartes SIM - 200 MUR (4.7 euros)

- Youth Classic Pack

- Fashion Pack

- Music Pack

- Pro Pack

Refills possible by: scratch cards, selected banks, SMS, E-Voucher, E-Transfer

Postpaid – Subscription without package

Post Pay 125

Post Pay 200

Post Pay 300

Price per minute varies according to offer type


Orange Ile Maurice’s offers and rates are detailed on its website: http://www.orange.mu/mobile/postpay.php

Orange Ile Maurice distributes its products and services via a network of 20 sales offices.

In the mobile market in Mauritius, Orange is in first position with a 57.6% market share ahead of EMTEL (Currimjee Jeewanjee Group) and MTML (Mahanagar Telephone Mauritius) (source: Informa Telecoms & Media).

Equatorial Guinea

GETESA, Equatorial Guinea’s incumbent operator (40% held by the France Telecom group and 60% by the government), became Orange Guinée Equatoriale in November 2006. Since the Law of November 2005, there has been no monopoly, in the legal sense for fixed-line, mobile and Internet communications services. At December 31, 2008, Orange Guinée Equatoriale had 276,000 mobile customers, representing approximately 110,400 active customers for the Orange share. The launch of a second HITS operator in Equatorial Guinea is expected in early 2009.

Central African Republic

Orange Centrafrique, a wholly-owned subsidiary of the France Telecom group, opened its GSM service at the beginning of December 2007. At December 31, 2008, Orange Centrafrique had approximately 126,000 customers and held the top market share ahead of five competitors (source: Orange Centrafrique).



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Guinea

At December 31, 2008, Orange Guinée (Conakry) had approximately 617,000 customers and held the second position in the market, ahead of five competitors (source: Orange Guinée). At December 31, 2008, Orange Bissau had approximately 60,000 customers.

New business development

Niger

France Telecom holds 80% of Orange Niger. In November 2007, the France Telecom Group acquired a comprehensive license (fixed-line, mobile and Internet) in Niger. Orange Niger had 166,000 customers at end 2008 and was in third position with a 10% market share behind Zain Niger and Moov’ and ahead of Sahelcom (source: Orange Niger).

Kenya

On December 21, 2007, the France Telecom group, through Orange East Africa, 78.5% owned by Orange Participations and 21.5% by the Alcazar financial group, acquired 51% of Telkom Kenya, Kenya’s incumbent operator (fixed-line, mobile and Internet operator). Orange is now the commercial brand used for all mobile, broadband and fixed-line services. In September 2008, Orange launched the first GSM mobile services, and at December 31, 2008, Orange Kenya had approximately 360,000 mobile customers. Nationwide deployment should cover all major cities before the end of 2009, providing access to these services for 50% of the population.

Uganda

In October 2008, France Telecom and Hits Telecom Uganda formed Orange Uganda Ltd to provide telecommunication services in Uganda under the Orange brand. Orange Uganda Ltd, 53% controlled by France Telecom will benefit from the license acquired by Hits Telecom Uganda as well as its GSM network and its main telecommunications equipment. With a rapidly growing population of around 30 million inhabitants and a market penetration rate of approximately 25% in the third quarter of 2008 (source: Informa Telecoms & Media), Orange Uganda has a very positive growth outlook.

Orange Uganda Ltd launched its mobile telecommunication services in Uganda in March 2009 with a range of offers including per-minute and per-second rates for national calls, attractive rates for international calls and an exclusive auto callback service.

6.2.5.7 Mobile activities: other shareholdings

Austria

Orange owns a 35% share in ONE GmbH, through a consortium with Mid Europa Partners, which purchased the company in October 2007. ONE was granted the third Austrian mobile license in 1997 and a 20-year UMTS license on November 20, 2000. The ONE brand was replaced by the Orange brand on September 22, 2008.

At September 30, 2008, Orange Austria’s GSM network covered 98.6% of the population. At end 2008, Orange Austria had two million active customers and held a market share of about 19.5%.

The main features of the mobile telecommunications market in Austria and the position of Orange Austria in this market are as follows:

 

Year ended December 31

 

2008

2007

2006

Market penetration rate in Austria (%)(1)

125.7

119.2

-

Total number of users in Austria (millions)(1)

10.3

9.8

9.2

Orange Austria customers (millions)(2)

2.0

2.0

2.0

Market share of Orange Austria (%)(1)

19.8

20.8

21.7

(1)

Sources: Informa Telecoms & Media (third quarter 2008).

(2)

Source: Orange Austria.




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Orange Austria’s Products and Services

Orange Austria offers its customers a large range of mobile communication services, in the form of telephone subscriptions including call and SMS (Hallo Europa) packages, mobile Internet packages and packages designed for businesses (Business-pool) as well as subscriptions without packages.

Sales and Distribution

Orange Austria sells its products and services in Austria through various distribution channels:

50 Orange Austria stores that sell only Orange products;

40 partner stores that sell only Orange products and services;

approximately 800 indirect points of sale, including several that only sell mobile telephony products and services.

Customers can also obtain Orange products and services and purchase accessories at the Orange Austria website: http://www.orange.at

Competitive Environment

Orange Austria was the third operator to enter the Austrian market. At the end of 2008, Orange Austria held the third largest market share, in terms of both volume and value, behind A1 Mobilkom (subsidiary of the incumbent Austrian operator Telekom Austria) and T-Mobile (which bought out the number four operator tele.ring in 2006). 3 (Drei), which is wholly owned by Hutchison Wampoa, is the smallest actor in the market, with a 5% market share.

Austria is generally considered one of the most competitive markets in Europe, with one of the highest penetration rates in mobile telephony. The country also has a very dynamic mobile broadband market.

The table below presents the market shares of network operators in Austria:

 

Year ended December 31

 

2008

2007

2006

A1 Mobilkom

42.2%

40.5%

39.3%

T-Mobile Austria

32.3%

33.5%

34.4%

Orange Austria (formerly One)

19.8%

20.8%

21.7%

3 (Drei)

5.7%

5.2%

4.6%

Source: Informa Telecoms & Media (third quarter 2008).


The slight decline in Orange Austria’s market share in 2008 was mainly due to Tele2’s withdrawal from the market, a MVNO which was hosted on the One network. Eety (an MVNO specializing in ethnic customers of the Orange Austria network) did not experience significant development in 2008.

Red Bull Mobile is the second largest active MVNO in Austria, hosted on the Mobilkom/A1 network.

Key Events

The ONE brand was replaced by the Orange brand on September 22, 2008. The Orange brand was successfully adopted and it soon became very popular and widely recognized.

The new offers launched under the Orange brand aimed at illustrating Orange Austria’s international dimension and the new packages included bundled calling services, both national and international (to European Union countries).

With the Orange Group’s support, Orange Austria launched a digital videocast offer allowing customers to benefit from mobile television during the 2008 European Cup soccer tournament. Orange Austria also began to offer Blackberrys and iPhones to its customers.

In 2008, Orange Austria’s management undertook an extensive overhaul of its activities that resulted in improved performance.

Portugal

France Telecom is present on the Portuguese mobile market through its 20% shareholding in the capital of Sonaecom. In December 2000, Sonaecom acquired a UMTS license for 100 million euros. This license was awarded for a period of 15 years.

In the third quarter of 2008, Sonaecom had approximately 2.4 million registered customers (compared to 2.27 million at December 31, 2007 and 2 million at December 31, 2006) (source: Informa Telecoms & Media).

At December 31, 2008, based on its own estimates, the Sonaecom network covered, approximately 99% of the Portuguese population. At the end of the third quarter of 2008, Sonaecom’s 3G network covered approximately 81% of the Portuguese population.

Orange Sonaecom’s Products and Services

Sonaecom offers a wide range of mobile communications services to residential and business customers in Portugal, including fixed-line telephony, data transmission and a broad range of mobile solutions, roaming services and wholesale services for third parties. With its convergence fixed-mobile offer Optimus Home, its sector-leading broadband mobile access Kangur, and its entry-level service Rede4, Sonaecom has consolidated its position in the mobile telephony sector in Portugal.



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Sales and Distribution

Sonaecom, which operates under the Optimus brand, sells its products and services in Portugal through various distribution channels:

42 Optimus stores at the end of 2008;

non-specialized retailers;

specialized distributors and retailers who sell various Optimus products and services.

Customers can also obtain products and services and purchase accessories at the Optimus website: http://www.optimus.pt

Specialized sales and customer support teams, reporting to Sonaecom’s B2B unit, are responsible for acquiring and retaining large businesses and institutions.

In addition, Sonaecom has created a division specialized in sales and services to SME and SOHO (“Optimus Negócios”).

Competitive Environment

Sonaecom was the third operator to enter the Portuguese market and is number three in terms of market share.

The table below presents the market shares of network operators in Portugal:

 

Year ended December 31

 

2008

2007

2006

TMN

47.5%

47.7%

47.9%

Vodafone

35.5%

35.0%

34.9%

Sonaecom

17.0%

17.3%

17.3%

Source: Informa Telecoms & Media (third quarter 2008).


Key Events

The main events for 2008 were:

the announcement of a three-year plan to develop FTTH fiber and invest in a Next-Generation Network, which will make it possible to cover 25% of the Portuguese population;

the renewal of the strategic partnership agreement with France Telecom for three years;

share buyback resulting in Sonaecom holding 1.62% of its own capital at the end of 2008;

Sonaecom’s merger with Telemilénio Sociedade Unipessoal, Lda. (formerly Tele2 Portugal) which became effective in January 2009.

6.3     HOME COMMUNICATION SERVICES

The Home Communication Services (HCS) segment brings together the fixed-line telecommunication activities (fixed-line telephony, Internet services, services to operators) in France, Poland and the Rest of the world. It recorded revenues of 22.9 billion euros in 2008 before intra-group eliminations. At December 31, 2008, France Telecom had 46.8 million fixed lines and 13.8 million Internet customers, including 12.7 million broadband customers.


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6.3.1 France

6.3.1.1 Market

The total number of fixed-line access for the consumer market in France continues to grow (up 2.1% in 2008):


 

Year ended December 31

 

2008

2007

2006

Total number of fixed-line consumer telephone lines (millions)

28.7

28.1

27.7

Growth rates (%)

2.1

1.5

0.8

Number of retail-billed Orange consumer fixed-lines (millions)

21.8

23.0

25.5

Number of wholesale-billed Orange fixed-lines (millions)

7.0

5.2

2.3

Source: Orange France.


This growth of the overall market is due to the increase in broadband access, particularly ADSL, for which the rate is slowing, but remains dynamic. In this segment, Orange’s market share has stabilized at about 49%:

CHANGES TO THE ADSL ACCESS MARKET


 

Year ended December 31

 

2008

2007

2006

Total number of ADSL lines (millions)(1)

16.8

14.8

12

Number of Orange ADSL lines (millions)(2)

8.3

7.3

5.9

Market share of Orange (%)(2)

49.4

49.4

49.3

(1)

Source: ARCEP, Markets Observatory.

(2)

Source: Orange France.


With the development of broadband access and the commercialization of multiplay boxes, such as Orange’s Livebox, the market is also impacted by the growth of multi-service offers (IP and/or Telephony over IP and/or Television). Telephony over IP is particularly well-developed in France and with 5.8 million customers, Orange is the largest European provider of VoIP.


 

Year ended December 31

(in thousands)

2008

2007

2006

Total number of IP TV customers(1)

5,643

4,534

2,596

Voice under IP access on xDSL without subscription to Orange’s telephone network(1)

7,410

5,467

2,431

Installed base of Liveboxes leased from Orange(2)

6,544

5,209

3,437

Number of Orange’s VoIP customers(2)

5,774

4,102

2,081

Number of Orange’s IP TV customers(2)

1,909

1,149

577

(1)

Source: ARCEP, Markets Observatory.

(2)

Source: Orange France.


6.3.1.2 Orange’s Products and Services

The range of services corresponding to the Home segment in France is made up of:

traditional fixed-line telephony services and other consumer services;

on-line, Internet access and multimedia services;

advertising-management and Internet portal business;

content-related activities;

services to operators.

Traditional Fixed-line Telephony Services

France Telecom’s traditional fixed-line telephone services provide access to the network, local and long-distance telephone calling services throughout France, and international calls. In addition, France Telecom offers its fixed-line telephony subscribers a broad range of value-added services.

Calling services prices are subject to regulation. In this context, ARCEP has requested a decrease in call termination prices which will occur in July 2009.



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Type of Offers

Main Features

Network Connection

No minimum subscription period (since June 1, 2008) for a residential line,

Connection of the line (charged at 55 euros),

Technical house call if necessary,

Reduction of the price of a subscription to the Optimale range as part of the Welcome Pack.

Subscriptions

Main line Consumer

Line maintenance and restoration guaranteed under 48 hours during business days,

Publication in the directory,

Free access to customer service (1014) and after-sales service (1013),

Numerous services included (identity of last caller, auto callback, 3-way calling, voice messaging, detailed consumption monitoring, detailed bill, selective access to certain numbers, caller ID hiding – either continuous or call-by-call –, registration on the Liste Orange or the Liste Rouge),

Cost of 16 euros per month.

Professionals Contract Pro Services

Guaranteed continuous service,

Dedicated customer assistance and service,

Eight services included and a choice of three services from a group of services

(for example: caller ID, call forwarding, call waiting, and enhanced voice messaging).

Communications

Consumer

Charged either by units according to their duration or by a fixed fee,

For telephone communications charged by the unit, the price includes a fixed amount (connection charge), and a variable amount charged per second,

The portion charged by time is based on a price that varies by call destination, with the application of a standard rate and a reduced rate depending on the time of day.

Professionals

Communication packages specially adapted to the requirements of professional customers and usable on all of their lines:

Forfaits pro (1, 3 and 5 hour packages),

Plan pro (per-minute billing),

Illimité pro (unlimited calls to fixed lines in France, and different packages for calls to mobiles in France and to fixed lines and mobiles in Europe and North America).

“All inclusive” packages (subscription + communication) the Optimales line

Consumer

Subscription to the telephone line,

Choice of communications package:

Optimale 2 heures (3 hours to fixed-line telephones in France),

Optimale 3 heures (3 hours to fixed-line and mobile telephones in France, Europe, North America),

Optimale Illimité (unlimited calls to fixed-lines in France and Europe and to fixed-line and mobiles in North America),

Optimale découverte Internet (with broadband Internet access, ADSL TV and a 2-hour package for fixed-line lines in France),

Services included: caller ID, “Atout partout”, 15 SMS/month to fixed-lines and mobile telephones in France, call waiting, call transfer and enhanced voice messaging.

Professionals

Packages adapted to the specific requirements of professionals (line-restoration guarantee, permanence of service in case of breakdown, dedicated customer service):

Optimales pro,

Optimale pro illimité,

Optimale Internet et téléphone pro,

Optimale Everywhere pro.

Value-added services

Additional services charged separately or included in the different subscription packages:

Stop Secret, Call Waiting and Call Transfer (on fixed-line or mobiles), Caller ID and Number Display, Voice Messaging and Enhanced Voice Messaging, 3-way Calling, Message Packages (for sending SMS), France Telecom Card, Auto Callback (automatic callback of busy number) and 3131 (identification of the number of last caller when absent), Continuous caller ID hiding and Call-by-call caller ID hiding, Liste Orange (deletion of contact details in marketing files), Liste Chamois (deletion of contact details in France Telecom’s printed and electronic directories) and Liste Rouge (deletion of contact details in directories and files), Adjustable Call Selection (temporarily locks the line) and Ongoing Call Selection, Téléséjour (service for seasonal rentals).

Direct debit, detailed billing, Internet billing, telephone consumption monitoring and telephone bill payment service,

3000 (contact with Orange’s offices by telephone 24/7, with free calls from a fixed line).

Directory services

Administration of the directory database containing records of Orange subscribers

Provision of the database to suppliers of directory services and publishers of directories who request it (subject to subscribers’ wishes concerning protection of their details)

Commercialization of the database for various purposes, particularly direct marketing, file enhancement and for emergency services (emergency medical services, fire brigade, police)

Editorial responsibility for alphabetically-ordered directory media: the Annuaire® (white pages printed by each French département) and the 3611 alphabetical search directory.

In addition, France Telecom provides, under the Universal Service Directive, a universal directory (printed and electronic) and a universal directory-information service.




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For more information on the details of offers and prices applied, visit Orange’s website http://www.orange.fr

Other Consumer Services

Public phone and card services

With the growth in mobile telephones, the public telephone business and card services are steadily declining, leading France Telecom to gradually reduce its pool of public telephones. However, France Telecom maintains a pool of public telephones under the Universal Service Directive.

Numerous means of payment are available: prepaid card, refillable card, bank card, France Telecom card, Moneo card and prepaid cards with codes, such as the “Ticket Téléphone”. Competition regarding the latter is very strong, particularly for international destinations.

Information services

In the context of market deregulation, France Telecom, backed by its experience in the directory-information business, offers a full range of telephone information services, organized into multi-channel voice and Web formats (http://www.118712.fr and http://www.orange.fr, “directories” section).


Types of Service

Main Features

118 710

Financing by advertising

Portal for related services: weather, horoscope, Allociné, and taxi reservations

Voice-recognition and synthesis technology

Available from fixed lines or mobiles

118 711

Universal directory-information service

Basic services accessible from fixed-line or mobile telephones

118 712

Operator-assisted services, available 24/7 (fixed-line and mobile telephones), telephone number and postal address

Reverse searches

Connection with the other party and confirmation by SMS

118 700

International operator-assisted information services, from fixed-line and Orange mobile telephones


On-line, Internet-access and Multimedia Services

France Telecom was a pioneer in on-line services with the Télétel network (Minitel). Access by Minitel has now become marginal as Internet use has become generalized. The Télétel kiosk model, which enabled the growth of online services, will be extended to the Internet with the Internet+ kiosk.

Orange now offers a complete range of Internet access, multimedia and communication services accessible via ADSL. Changes in these offers are in line with a strategy of convergence within the context of continually expanding customer equipment (fixed-line telephony, broadband Internet, television, mobile).

Internet and multimedia

Since June 1, 2006, France Telecom has grouped the Orange, Wanadoo and MaLigne TV brands under the single Orange brand in France.

The primary objective of the Group is to promote “higher speeds” to its customers so that they can access more services and multimedia content.



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The table below presents Orange’s offers:


Types of Offers

Main Features

Narrowband Internet

Narrowband packages

Narrowband Internet access on analog telephone lines, while keeping the Orange subscription, with or without subscription to a fixed period

25 hours, 30 hours, or unlimited packages

Broadband Internet excluding ADSL

Broadband Internet by satellite

For customers in zones not covered by ADSL option to access Orange’s TV by satellite since July 2008

Broadband offer

For customers in zones covered but not eligible for ADSL, a service based on re-ADSL technology

Broadband Internet access at 512 k

Internet telephony as part of the 512 k + telephone option

Broadband Internet ADSL

Découverte Internet

No subscription for a fixed period or termination fees

Broadband Internet access of 1 or 8 Mbit/s. Access to digital-quality television

Related services (mailboxes of 1GB, Anti-spam plus, parental control)

Formule

Broadband Internet access (up to 18 Mbit/s) while keeping the Orange telephone subscription

Access to digital-quality television, with 60 channels included and a Video on Demand catalogue. Internet telephony (unlimited calls to fixed-lines in metropolitan France)

Related services (1 GB mailboxes, Anti-spam plus, parental control)

Net

Naked ADSL packages (without subscription to the Orange telephone line)

Broadband Internet access (up to 18 MB), access to digital-quality television

Internet telephony and associated services identical to those of the Formule package

Formule Everywhere

Service identical to the Formule package offer plus 2 hours of roaming Internet access in 3G+

Net Everywhere

Service identical to the Net offer plus 2 hours of roaming Internet access in 3G+

Fiber-optic broadband access

La Fibre

Very high speed service on the fiber optic network (FTTH) installed in Paris and in large cities

Internet access up to 100 MB, digital-quality television and unlimited telephone calls to fixed lines in France

Options

Narrowband

Security

Communication

TV

Transfers

On-line games

Music

Range of options offered in addition to the various access packages and charged separately


For more details on the ranges and prices, visit Orange’s website http://ww.orange.fr

These offers are accessible from the Livebox, a gateway connected to the fixed telephone socket allowing broadband connection for various types of domestic terminals, via several communication interfaces: Wi-Fi, Ethernet, and Bluetooth. It allows ADSL access to be shared between several domestic terminals connected wirelessly or by cable: computers, telephones, televisions, games consoles. It is offered on a rental basis for 3 euros per month VAT included.

Additionally, with the Unik mobile telephone, it is possible to connect to the Livebox for unlimited calls to fixed lines and all Orange mobile telephones from home, with a single number and a single address book. Outside the home, it connects seamlessly to Orange’s mobile network. The convergent Net & Unik offer is a mobile Orange contract including broadband ADSL Internet access, television, and unlimited calls to fixed lines and all Orange mobile telephones.

Lastly, since August 2008, Orange has been offering a range of laptop computers (including “netbooks”) available with an optional broadband subscription or the Internet Everywhere package.

For professional customers, the Internet offer is built around a package including ADSL access and IP telephony to fixed-line telephones in metropolitan France (and television on demand, if eligible). This plan is also enhanced with email addresses that can be customized with the name of the company and that are secured by using an anti-virus and an anti-spam software. Installation of the Livebox Pro is included in the price of the offer.

The Livebox Pro allows the broadband connection to be shared; it provides for quick exchange in case of malfunction. It is offered on a rental basis for 5 euros per month excluding VAT and has an enlarged bandwidth and a Wi-Fi access function that is compatible with the roaming offers.



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Internet Portals and the Advertising-Management Business

Since May 2007, the “orange.fr” Internet portal has offered a set of services that can be accessed from laptop computers or mobiles.

“orange.fr” is not only the most visited access provider operated Internet portal in France, but also the most visited general portal. Its audience reached 20.8 million unique visitors in December 2008 (source: Nielsen/NetRatings – sample group France – All connection locations - Internet applications included). 61.2% of Internet users visited the Orange.fr Internet portal at least once in December, which ranks it third in terms of audiences in France after Google and its search engine and after Microsoft with its MSN/Windows Live instant messaging service.

Orange complements its web presence with the Voila.fr portal, which had 8.4 million unique visitors in December 2008, thus reaching 24.6% of Internet users, in particular through its search engine. This search engine, which has its own website since the launch in May 2008 of “lemoteur.fr”, had more than 1.4 billion requests during 2008, an increase of 8% compared to 2007 volumes.

In March 2008, France Telecom acquired Cityvox, which assists Internet users in choosing outings and leisure activities across France through its various sites Cityvox.fr, Cinefil.com, Spectacles.fr, Concert.fr, and WebCity.fr since November 2008.

The valuation of these audiences is derived via three essential income sources:

on-line advertising, with an advertising-management business run by Orange Advertising Network;

sponsored links on the Orange search engine “Voila”;

pay content services, with everyday services (horoscope, meeting services, classified ads, music, ringtone and logo downloads) and entertainment services (Video On Demand and downloads of games).

E-merchant

The e-merchant business, offering cultural and high-tech products, will be sold. In February 2009, France Telecom e-Commerce, a subsidiary of the France Telecom Group, concluded a contract to sell the websites Topachat.com and Clust.com.

Content-Related Activities

The development of the Group’s range of content services on all of its networks (fixed-line, mobile, Internet) in France and abroad, for which the Content division is responsible, relies on partnership agreements and rights acquisition relating to cinema, music, games, sports and information. France Telecom works to offer the most attractive and the richest content possible as a result of its association with diverse partners such as Arte, France Télévisions, Warner and Sony.

All content services platforms implemented by the Group include technical protection measures and tools for digital rights management, which ensure the integrity of the works and fair compensation for the copyright holders. In addition, France Telecom participates actively in content security through its subsidiary, Viaccess.

The main components of the content that is offered are:

the games website http://www.goa.com;

high-definition Video On Demand (VOD) on Orange TV;

pay-per-view bundles on Orange TV (“mes chaînes thématiques”, “mes chaînes cinés”, “mes chaînes chinoises”, “mes chaînes arabes”, “mes chaînes HD”, “mes chaînes jeunesses”, “la chaîne XXL”);

agreements to broadcast films and TV series through Video On Demand (VOD) and Subscription Video On Demand (SVOD):

agreements in France with Paramount and Gaumont Studios to broadcast through VOD new films or those in their catalogues and with Disney to broadcast TV series through SVOD,

multi-territory agreements with MGM Studios to broadcast in France, the United Kingdom, Spain and Poland, new films or those in the catalogue through VOD; with Entertainment Rights studios to broadcast through VOD animated cartoon films in the United Kingdom and Poland; with Granada Studios to broadcast in France and Poland, TV series (through SVOD) and films (through VOD);

investment in cinematographic rights, co-production and acquisition of French and European films via STUDIO 37;

music packages through VOD and SVOD;

broadcasting of public-service channels (Rewind TV service).

Services to Operators

Relations with International Operators

Payment agreements signed by operators for international communications ensure that France Telecom will be paid a fee by operators using its network for their international calls to France and that France Telecom will pay fees to use the networks of other operators for calls made from France.



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Interconnection Services

French telecommunication regulations require that France Telecom provide the interconnection of its public switched telephone network with other operators for outgoing traffic from the France Telecom network or incoming traffic from the networks of competing operators.

This area of activity is regulated by ARCEP. The call volumes exchanged between France Telecom and the other operators are valued using rates approved by ARCEP.

Unbundling and the Wholesale Market

France Telecom rents out broadband access to third parties on the wholesale market. This access is then marketed by alternative operators on the retail broadband, small offices and home offices market and residential market.

Since the introduction by France Telecom in 2006 of a wholesale sales offer for subscriptions to telephone service and a wholesale offer for naked ADSL, the other operators have been able to propose offers which include line subscriptions.

6.3.1.3 Resources and Means Used

Sales, Distribution and Customer Service

In the area of sales, distribution and customer service, the sales department of the French Operations division is responsible for customer relations for all Group products and services intended for consumers, small offices and home offices and small and medium businesses.

The Networks, Operators and Information System division distributes France Telecom products and services to other telecommunication service providers and operators.

Consumer products are sold through a variety of channels, in particular:

a network of 660 France Telecom stores at the end of 2008 (684 at the end of 2007 and 709 at the end of 2006) distributed throughout France;

the France Telecom telephone customer contact centers, specialized in remote sales and customer relations and responsible for managing customer accounts;

a unified customer service around the call number 3900, which provides after-sales service and remote assistance for the fixed-line and Internet products. The 1013/1015 number is now reserved for calls related to the Universal Service Directive. Customers can also benefit from on site technical services and an offer to assist them in their use of France Telecom products and services (installation, assistance);

self-service channels via a voice portal (call number 3000) and the Internet portal (since October 2008, the website “francetelecom.fr” has been integrated within the “Orange.fr” website). This Internet portal allows customers to discover the Internet, broadband multimedia and mobile offers provided by France Telecom and to order them directly online. The Internet portal also allows customers to track their Internet and mobile bills and to find information that facilitates their use of the products so that they can configure their equipment and correct certain problems on line.

Fixed-line Network

For the presentation of the fixed-line network in France, see Chapter 8.1 – Networks.

6.3.1.4 Business Environment

Competitive Environment

2008 was marked by new consolidation transactions, while the competition remained concentrated on broadband, with the continuation of the development of triple play convergence offers (telephony, Internet, television) and the development of content offers.

Consolidation in the Fixed-Line Market

Market consolidation, which began in 2007, continued in 2008 with the purchase of Alice by Iliad (Free) and the takeover of Neuf Cegetel by SFR. However, two new access providers appeared: DartyBox and Bouygues Telecom.

Since the purchase of Noos by Numericâble in 2006, only one cable operator is left in the French market. At the end of 2008, France Telecom’s leading competitors in the entire consumer fixed-line market were SFR-Neuf Cegetel, Free and Numéricâble.

Concentration of Broadband Competition

Broadband represented 93% of Internet subscriptions at the end of the second quarter of 2008 and DSL lines represented 94.9% of the broadband accesses (source: ARCEP, Market Observatory at September 30, 2008).

The leading Internet service providers, as well as the network operators, chose to invest in their infrastructures in order to migrate towards unbundling.



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At September 30, 2008, the unbundled zones covered 74% of the population.


 

Year ended December 31

 

2008

2007

2006

Number of distribution frames available for unbundling

3,668

2,956

1,789

Number of unbundled lines (thousands) (partially and fully)

6,332

5,187

3,940

Number of fully unbundled lines (thousands)

4,939

3,624

2,120

Source: ARCEP, Unbundling Indicators (third quarter 2008).


Full unbundling allows alternative operators and Internet service providers to provide their customers with a single bill including the telephone line subscription, telephone calls and broadband services (Internet access, television via ADSL and VoIP).

In the traditional voice market, there was a decline in the number of subscriptions with carrier selection, both on a per-call basis and with pre-selection, down 26% between June 2007 and June 2008 (source: ARCEP, Market Observatory), which was tied to the growth in VoIP. VoIP grew strongly in 2008, with France Telecom’s rivals gradually leading their customers to “all IP” offers built around full unbundling and naked ADSL. Changes in voice over IP communications are as follows:


 

Year ended December 31

 

2008

2007

2006

VoIP Communications (in % of total volume of communications)

44.2

38

34

Source: ARCEP, Market Observatory (third quarter 2008).


Most of the players have a “triple play” offer (Internet, telephony, television): Free, Neuf Cegetel, Numéricâble. In 2008, the retailer Darty introduced an ADSL offer with a triple play option, using the Completel network.

Fixed-line and mobile convergence offers appeared in 2006 with: Unik, the convergent GSM/Wi-Fi telephone from France Telecom, the Wi-Fi modem from Free adapted to allow telephony over Wi-Fi with a hybrid telephone, Twin, and the hybrid telephone from Neuf Cegetel over GSM and Wi-Fi. They continued their development in 2007, improving the range of Unik terminals and with the introduction of Net & Unik by France Telecom. Convergence is also illustrated by the option of having the same audio-visual content on different media (television, mobile telephone or computer).

The first investments in optical fiber (FTTx) were launched at the beginning of 2007 by France Telecom, Iliad and Neuf Cegetel. The first meeting of the Very High Speed Committee took place at the end of 2008, with the signature of an agreement for the installation of optical fiber in France and the launch of tests covering mutualization.

Optical fiber will enable higher speed and new value-added services.

Operator Market Share

With respect to the switched telephone network, France Telecom’s main competitors in the consumer market are Tele2 and Neuf Cégétel (two independent brands which form part of the same group, SFR).

France Telecom’s market share, measured by traffic using its networks, grew in 2008 to reach about 74%.


 

Year ended December 31

 

2008

2007

2006

Consumer Market Share of France Telecom

74.2%

71.9%

68.6%

Source: Orange France, all destinations, public switched phone network (voice).


Concerning broadband Internet, France Telecom confirmed its first place position with the success of the Livebox and its multi-service offers.



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The market share of the various broadband operators at September 30, 2008 was as follows:


France Telecom

Free / Alice

SFR/Neuf Cegetel

Numericâble

Other

46.0%

18.0 %

21.0%

5.0%

2.1%

Source: Orange France.


As of December 31, 2008, France Telecom’s ADSL market share was 49.4% (source: Orange France).

Internet Portals

According to the Internet Advertising Observatory in 2008 and a study carried out by CapGemini Consulting at the request of the Syndicat des Régies Internet (a group of 13 main players in web advertising), the French market for online communication represented 2 billion euros in 2008, up by 23% compared to 2007.

Of this volume, search (sale of sponsored links) represented 800 million euros, display (sale of banner advertising) represented 510 million euros, directories represented 420 million euros, and mobiles represented 20 million euros. Growth in 2008 was driven mainly by search, with an increase of 35% in income compared to 2007, while display increased by 10%, with a significant increase in performance-based offers (offers by click) and new formats and offers packages (special operations, videos, behavioral targeting).

In this area, Orange Advertising Network holds a very strong position due to the excellent reputation of the Group’s websites (orange.fr, voila.fr, cityvox.fr) and the ability to propose multi-screen offers on television and mobiles.

Orange continues to improve its status as an advertising manager for third-party websites and markets advertising for sites such as Meetic, AutoPlus and LeGuide. At the end of 2008, about fifteen third-party sites redirected more than 24 million Internet users, namely 70% of reach, all locations and Internet applications included (source: Nielsen NetRatings, France sample group), which positions it as the second largest online advertising manager in terms of audience and revenue.

In 2008, Orange increased its advertising revenues by 35%, by maintaining its market share in display, by significantly increasing its advertising revenue in new areas such as mobiles and TV and as a result of the large increase in its search revenue related to marketing key words on its search engine.

Regulatory Environment

For the presentation of the regulatory environment in France, see Section 6.8.2.

6.3.1.5 Key Events

The key events that took place in 2008 in the Home segment in France were:

introduction in metropolitan France of the Davantage shared loyalty program (grouping on a single reward points account all fixed-line, mobile or Internet Davantage accounts belonging to a customer, so that the customer benefits from gifts or negotiated benefits);

introduction of the Relocation Pack (offer combining activation fees, number retention or announcement of new number for 6 months and e-cards announcing relocation);

extension of unlimited VoIP calls to 63 international destinations;

introduction of PCs (laptop computers and Netbook) with special offers on triple play;

introduction of the Livebox mini (a more powerful model, to provide better support for multi-play offers, but also easier to install with the automated association or easy pairing functionality and a new customer interface);

enhancement of the content offered via ADSL and satellite:

introduction of the Orange Football television bundle, an option for 6 euros per month VAT included, available on the Internet, mobiles, television (Orange TV) and satellite,

introduction of Orange Cinéma Séries (a bundle of five channels dedicated to films and series, offering real-time transmission and VOD) available on PC via Internet or on Orange TV, an option for 12 euros per month VAT included,

introduction of download music offers (flat-rate subscription packages): Music Max and Music Hits through partnerships with major music companies (Warner, BMG, Sony, Universal),

significant extension of the Video On Demand (VOD) catalogue, which has gone from 1,800 videos at the end of 2007 to more than 4,300 videos at the end of 2008 (adult catalogue, cinema content, free VOD with sport content, addition of films from M6’s SND catalogue),

France Television delinearized programs,

availability of Digital Terrestrial Television channels.

In 2009, the Home in France’s strategic priorities will cover:

improved customer loyalty programs;




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improved quality and increased customer satisfaction;

development of a new “optimale” range of offers and other new offers oriented more towards usage than speed;

enhancement of the portfolio of services aimed at urban targets (triple play offers with extra services) and at young people;

enhancement of the content of existing offers and their availability for satellite packages and the development of multi-access (for example, the SVOD on laptop computers).

6.3.2 Poland

6.3.2.1 Market

The rate of fixed-line telephony penetration in Poland continued to drop, going from 77% at the end of 2007 to 74.4% at the end of 2008 (source: Polish Office of Statistics).

With the expansion of convergencee services, the competition intensified in the Polish market in 2008:

cable-television operators extended the range of their fixed services in the voice and Internet segments;

the mobile operators introduced new residential offers and lowered their prices to increase their market share at the expense of providers of fixed-line telephony services;

the process of substitution of fixed-line telephony by mobile telephony continued, reducing the number of fixed-line customers of the TP Group and the other local fixed-line access providers. Furthermore, the growth in penetration rates of mobile services and the increasing popularity of mobile technologies strongly contributed to the migration of voice traffic to mobile networks;

the volume of wholesale subscription sales continued to grow and the first product lines based on local loop unbundling appeared.

Fixed-Line Voice Services

2008

2007

2006

Total number of fixed lines in Poland

10,625

10,909

11,450

Polish market penetration rate – fixed lines (in % of households)

74.0

77.0

81.7

TP Group market share (TP + PTK Centertel) (%)

84.2

87.2

88.5

Source: TP Group.


According to TP Group estimates, the fixed-line broadband market grew by 13.4% in 2008 in terms of access lines (a significant slowdown compared to the rate of 23.9% in 2007) and by 17.2% in value. However, with a low rate of penetration of broadband services, the Polish market, in which the TP Group is well positioned, still has great potential for growth.

Broadband Services

2008

2007

2006

Total number of broadband lines in Poland

5,540

4,884

3,943

Polish market penetration rate – broadband lines (in % of population)

14.5

12.8

10.3

TP Group consumer market share (TP SA+ PTK Centertel) (%)

39.6

41.4

43.4

Source: TP Group.


6.3.2.2 TP Group's Products and Services

In 2008, the TP Group continued its strategy of compensating for the drop in income from fixed-line telephony services by growing income from Internet services.

The TP Group offers a range of fixed-line telephony services that includes local, long-distance and international calls, calls from fixed-line telephones to mobiles, and narrowband and broadband Internet. In December 2008, the TP Group managed 8.9 million subscriber lines and had 2.4 million customers in the broadband Internet segment. Furthermore, PTK Centertel, the mobile subsidiary of the TP Group, offers fixed-line telephony services under the Orange brand.

Fixed-Line Telephony Services

Since 2004, the TP Group has developed a varied range of telephony packages in order to stabilize income from fixed-line telephony. Each of these packages includes a certain number of local and long-distance minutes, which may be used 24 hours a day, and an extra offset of minutes that may be used during evenings and weekends. The price per minute for local and long-distance calls outside the subscription contract depends on each pricing plan.



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In 2008, the main fixed-line telephony contracts were as follows:

Pricing Plans

Minutes Included in Monthly Subscription

Monthly Price (zloty)

tp 60

60

50 (12 euros)

tp 300

300

70 (16.8 euros)

tp 1200

1,200

90 (21.7 euros)

tp 2000

2,000

109 (26.2 euros)


In September 2008, the following pricing plans were introduced in the market:

Pricing Plans

Minutes Included in Monthly Subscription

Monthly Price (zloty)

tp doMowy 60

60 at any time or 120 during off-peak hours

50 (12 euros)

tp doMowy 300

300 at any time or 600 during off-peak hours

70 (16.8 euros)

tp doMowy 1200

1,200 at any time or unlimited during off-peak hours

90 (21.7 euros)


The TP Group also offers value-added services, which may be used in combination with other pricing plans:

TP Chosen Hours: unlimited calls every day during the hours chosen;

TP Contract 30 Mobile Minutes: contract of 30 minutes per month for calls from fixed lines to mobiles;

TP Chosen Numbers: monthly contract including calls to one to five numbers on any fixed-line network;

TP Limited Calls: monthly contract including a 50% reduction on local calls, national long-distance calls and calls from fixed lines to mobiles.

Internet Services

In the first half of 2008, TP Group concentrated on developing and marketing the triple play package, including the following digital services: broadband Internet access, Voice over IP (VoIP) and television with Video On Demand (VOD).

Broadband Internet Access

In 2008, the main neostrada tp contracts available for residential customers were as follows:

Bandwidth

Monthly Price for a 24-Month Contract (zloty)

Monthly Television Option

(30 free channels)

Main Features

256 kbit/s

42 (10.1 euros)

none

Free anti-virus software (McAfee)

Color printer or memory card reader for each on-line order

Livebox tp included

512 kbit/s

54 (13.0 euros)

+5.9 zloty

1 Mbit/s

64 (15.4 euros)

+5.9 zloty

2 Mbit/s

89 (21.4 euros)

+0.9 zloty

6 Mbit/s

119 (28.6 euros)

none


In the broadband Internet access segment, the promotional offers were the following:

limited-price neostrada tp plus the neostrada tp hourly billing offer;

promotional packages combining Internet access with anti-virus software (neostrada tp – integrated security and secured neostrada tp), which have allowed TP Group to promote security standards for its services;

neostrada tp - Internet for all: a promotional package including the Livebox and security package.

These promotional packages have had great success in the market.

The prices of 24-month contracts have been reduced to the same price as the 12-month contracts to stimulate longer-term contract sales. They have also been combined with offers for attractive electronic equipment items (printer, digital camera) and have allowed the company to retain more than 70% of existing customers and more than 50% of new customers in 2008.

Numerous other promotions have combined offers at attractive prices (games console, laptop computer, Microsoft Office) with the purchase of a neostrada tp contract.



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Voice over IP

In 2008, TP Group continued development of VoIP which are offered under the brands tp Internet telephon and neofon tp:

tp Internet telephon lets customers use the VoIP service in the same way as with an ordinary fixed-line telephone. To do this, the tp Internet telephon customer connects to their Livebox via a standard analog telephone. In September 2008, Siemens introduced the IP C470 to complement to the neofon tp service, allowing connection to any type of broadband Internet modem;

neofon tp allows connection to a world-wide VoIP service, with any type of Internet connection, using a computer with a VoIP application. In practice, neofon tp customers can call the Polish fixed networks from abroad, for the price of a local call in Poland.

On August 1, 2008, three value-added services were added to the tp Internet telephon offer:

Services

Main Features

International Traffic Package

Aimed at customers who frequently call Germany, the United Kingdom, Ireland, Canada and the United StatesIncludes 120 or 240 min. from 0.07 zloty per min.

Mobile Traffic Package

Includes 50 min. at 0.40 zloty or 100 min. at 0.38 zloty

Borderless Package

Allows calls to be made to European Union countries, Canada, the United States and Australia, from 0.05 zloty per min.


The above packages were introduced on September 1, 2008 for 5, 20 or 40 zlotys. They allow neofon tp and tp Internet telephon customers to make national calls while benefiting from an additional discount of between 17% and 50% compared to Voice over IP communication prices. The total subscription price may be set off against the price of low-cost calls. Furthermore, for each year they use the communications service, customers receive an additional reduction in the price of their calls.

TP Group is also trying to increase the attractiveness of its VoIP services by adding innovative functionalities. In 2008, neofon tp customers enjoyed free video connections and voice messaging over IP (communicator SPIK).

In 2009, the TP Group intendsto consolidate its different VoIP services and increase the average usage minutes and revenue per customer.

Television Services

The range of television services was improved in 2008:

extension of the bundle of channels (more than 80 available) and Video On Demand (VOD) (more than 1,500 titles) have enhanced the triple play offer. On-demand services, initially prepaid with scratch cards, were integrated into the bills for the triple play service in 2008;

TP Group introduced its first television channel, Orange Sport, which covers Polish-league football matches (more than 20 hours of live transmission per week), NBA basketball matches, Swedish league speedway races and ATP tennis tournaments. The channel also offers several sports information services. In addition, certain programs may be watched over the Internet and on Orange mobile telephones, and all the matches shown by Orange Sport are available on the VOD service;

satellite television was launched in the fourth quarter of 2008, allowing the TP Group to cover 100% of the population with its digital television services. Furthermore, the customers of this service have access to more than 200 non-encrypted channels via the Hot Bird satellite;

neostrada with television was introduced to the market at a competitive price. This is a 24-month contract for neostrada tp, with speeds of 512 kbit/s, 1 Mbit/s and 2 Mbit/s, an additional option of 30 channels of Polish and foreign television via satellite, plus the option of purchasing the Orange Sport channel.

Data Transmission Services

In the data segment, TP Group offers IP-VPN in collaboration with Orange Business Services (OBS). The IP-VPN service, based on MPLS (MultiProtocol Label Switching) technology, is a fully-managed advanced service aiming at supplying a reliable, economical and flexible network infrastructure for the transmission of voice data and video. Supported by the international experience of OBS, TP Group’s offer quickly established itself as one of the most sophisticated technological products on the Polish market and large customers in all business sectors have adopted the service.

In 2008, TP Group continued to extend its portfolio of data-transmission services. The key developments include:

the IP-VPN service. New options were introduced and among them, a SHDSL access that can reach 8 Mbit/s. In addition, IP-VPN service users can subscribe to the IP PABX service, which allows voice transmission to be managed with the IP protocol;

a new service, IP-VPN protection, enhancing the security of remote locations for customers;




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a television broadcasting service at points of sale for remotely accessing multimedia content on televisions or LCD screens, from several locations across the entire country.

6.3.2.3 Sales and Distribution

In 2008, TP Group continued its strategy of balancing customer acquisition offers and customer retention offers.

For Internet service customers, the company increased contact with customers whose broadband contracts were about to expire to encourage them to subscribe to promotional offers and extend their contracts. TP Group’s approach is focused on value-added services that increase customer satisfaction and retention in order to maintain a high ARPU. TP Group’s distribution networks include direct sales points, telephone sales centers and on-line sales sites. After restructuring its direct-sales network, which was not fulfilling the commercial criteria necessary for efficiently attracting customers and providing good after-sales service, the sales points were relocated to shopping centers and made easily identifiable and easy to access. By positioning stores in the most popular shopping centers, TP Group has increased revenue.

Telephone sales (proactive or incoming) are handled by TP Group’s call center, which operates under the Blue Line brand. An easy-to-remember number (9393) provides access to all sales and after-sales services. The process is highly automated with the main customer care functions provided by interactive voice response. Lastly, customers can use TP Group’s website (http://www.tp.pl) to obtain information on the company’s products and services and place an order, regardless of whether they are subscribers. Generally, customers ordering online orders receive additional advantages (price reductions or gifts).

6.3.2.4 Competitive Environment

Fixed-line Telephony Services

The competitive pressure within the fixed-line telephony market has intensified in the local access segment, particularly with respect to residential consumers.

At the end of 2008, TP Group’s market share was as follows:

 

December 31, 2008

December 31, 2007

Total traffic

77.7%

78.5%

of which domestic long distance calls 

74.5%

75.2%

of which calls from fixed to mobile 

78.9%

79.1%

of which international calls

66.7%

67.9%

of which local calls

78.9%

79.7%

Source: TP Group. Share of traffic based on the TP Group’s network (residential segment and small offices and home offices segment).


Competition results from two main factors, namely the move from fixed lines to mobiles and the development of the wholesale market, while the local loop unbundling is also becoming more important.

The move from fixed-line to mobile is particularly intense in Central and Eastern European countries because the penetration of the fixed-line network is lower than in Western European countries. This move depends mainly on:

the relative penetration rates of fixed lines and mobiles,

the relationship between mobile and fixed-line prices,

the development within the market of fixed-line service offers included in mobile offers, and on customers’ preference for mobile/fixed-line telephony/Internet convergence packages. At the moment, fixed-line services appear as a value-added service component added to mobile and Internet services, rather than the inverse. The Voice over IP service, activated over a broadband line as if it were an ordinary fixed line, is particularly popular.

A wholesale line rental offer based on TP Group’s network was introduced in 2006. In 2008, Tele2, GTS Energis, Telefonia Dialog, Premium Internet (subsidiary of Netia), PTC, eTelko, Exatel, MNI, Polkomtel, Długie Rozmowy, eTel, Multimedia Polska, Multimedia Południe, Multimedia Zachód, Mediatel, Telekomunikacja Kolejowa and Netia were the main wholesale line rental customers. TP Group’s orders increased to an average of 43,000 wholesale line rental per month in 2008.

Unbundling of the local loop is limited to locations where the alternative operators could obtain higher profits by migrating their services, based on wholesale sale of subscriptions and bitstream access, to unbundled lines. LUPRO, WDM Computers and Netia were the first operators to offer services based on local loop unbundling. At the end of 2008, 1,634 of TP Group’s lines were unbundled.

Internet and Data-Transmission Services

With a market share of 39.6% (by volume) in December 2008, TP Group is the largest supplier of Internet services in Poland, both to residential customers and businesses (source: TP Group).



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TP Group is still subject to strong competitive pressure from cable-television operators, whose overall market share in the broadband sector is estimated at 25% by volume for 2008 (source: TP Group).

Since 2006, TP Group has marketed bitstream access (access to the local loop via a network node) as an option to subscribers of its wholesale service offer. GTS Energis was the first operator to resell this service, closely followed by Netia and Tele2. Bitstream access developed in 2007 and 2008 and at the end of 2008 TP Group had signed contracts with 21 companies. At the end of 2008, TP Group had 348,000 active bitstream access lines. The main customers are Netia (194,000 lines), PTK Centertel (96,000 lines) and Tele2 (Groupe Netia – 34,000 lines). The companies who signed bitstream access contracts attracted about 216,000 new customers in 2008, or a market share of 7% by volume at the end of 2008 (source: TP Group).

The broadband market continued to consolidate in 2008. Several small local access providers were acquired by larger-scale players, such as Netia and Multimedia Polska.

Since 2008, the operators in Poland have also offered services based on access to local loop unbundling. The market share of these unbundled lines is currently small but is expected to grow.

6.3.2.5 Regulatory Environment

For the presentation of the regulatory environment in Poland, see Section 6.8.4.

6.3.2.6 Key Events

Fixed-line Telephony Services

In 2008, TP Group actively worked to limit erosion of its residential customer base by introducing new pricing plans, offering value-added services and intensifying sales of fixed broadband Internet access services. In particular, the introduction of new pricing plans called doMowdy contributed to limiting the erosion of the TP Group’s market share for all types of traffic.

Internet Services

With ADSL coverage at 100% of TP Group’s fixed-line subscribers at the end of 2008, broadband services have high potential for growth. The number of customers with the Neostrada 1 Mbit/s service option increased by approximately 70% in the fourth quarter of 2008. At the end of December 2008, 512 kbit/s and greater options represented approximately 95% of Neostrada customers. Promotional offers related to Internet access subscription were warmly welcomed by the market.

Television Services

In this area, the TP Group’s initiatives in 2008 were based on innovation and value rather than on price (television on DSL and triple play offers associated with pay-per-view channels, Neostrada package plus television, television by satellite, and the introduction of Orange Sport).

6.3.3 United Kingdom

6.3.3.1 Market

In the United Kingdom, the total number of fixed broadband connections stood at 17 million in the third quarter of 2008 (the majority of which were ADSL and nearly 1.5 million of which corresponded to business lines). Fixed broadband connections thus represented 94% of the total of fixed Internet connections (source: ONS report on Internet Connectivity).

Nevertheless, in the third quarter of 2008, a clear slowdown was seen in connection volumes compared to the previous year, due to the deterioration of the consumer economy in the United Kingdom.

Unbundling continued to grow, driven by the migration of customers of the BT Wholesale service (IPStream) towards local loop unbundling. The number of unbundled lines thus went from 3.2 million to more than 5 million in September 2008 (source: Enders Analysis, Broadband market in the United Kingdom, third quarter 2008).

Lastly, combined “multi-play” packages have become the market standard. They combine broadband with call packages and (depending on the operator) with the fixed-line subscriptions, TV services and mobile offers (particularly mobile broadband).

6.3.3.2 Line of Products and Services Offered by Orange UK

In 2006, France Telecom combined its Business activities (represented by Equant) and its Internet business (represented by Wanadoo) under the Orange brand. Consequently, the Orange brand, extended to non-mobile business, now covers an extensive range of services. Orange UK can use its dual presence in the mobile and Internet markets to develop combined offers.

Orange UK focuses on unbundled packages offers (available from 946 unbundled switches on December 31, 2008 compared to 702 on December 31, 2007).



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Orange UK offers residential customers the following range of broadband Internet access services in the form of monthly subscriptions:

Type of Offers

Target Customers

Main Features

Home Starter

Young singles or couples (young children)

Speeds up to 8 Megabits/s, limited to 10 Gigabits per month, a wireless router and evening and weekend telephone calls from home to fixed lines in the United Kingdom

Home Select

Young singles or couples. Mobile users who do not need residential telephone services

Speeds up to 8 Megabits/s, unlimited use, a Livebox wireless router and free calls at any time to fixed lines in the United Kingdom and up to 30 international destinations via a second line

Home Max

Families

Speeds up to 8 Megabits/s, unlimited use, a Livebox wireless router, a residential telephone subscription, evening and weekend telephone calls from home to fixed lines in the United Kingdom and free calls at any time to fixed lines in the United Kingdom and up to 30 international destinations via a second line


For other customers who want narrowband Internet access, or who are not eligible for broadband, Orange UK offers a “Pay-as-you-go” package and narrowband unlimited access contracts.

Convergence packages for mobiles and the Internet were introduced in 2006 through the Free Starter broadband package for customers subscribing to an 18-month mobile contract for a minimum price of 30 GBP per month (31.5 euros).

In 2008, the range of convergence offers was enhanced with:

an offer for customers subscribing to an Orange mobile package to benefit from free broadband access (and the option to subsequently move up to enhanced offers with higher speeds);

a new offer combining residential broadband and mobile broadband.

The table below shows the distribution of Orange UK’s Internet customer base by type of offer:

 

Year ended December 31

(in thousands of subscribers)

2008

2007

2006

Narrowband

122

310

663

Broadband

1,000

1,138

1,063

TOTAL

1,122

1,448

1,726

Source: Orange UK.


6.3.3.3 Sales and Distribution

In the United Kingdom, Orange UK has a large distribution network made up of Orange stores, and Carphone Warehouse and Phones 4 U retailers.

Orange’s stores sell Orange products exclusively. In 2008, the number of stores rose to 357 (compared to 336 in 2007 and 323 in 2006).

In addition, distributors, as well as specialized and non-specialized retailers offer various types of services from Orange and the Orange Pay-as-you-go cards, together with other products and services.

A specialized sales team under the responsibility of Orange Business Services UKis dedicated to the acquisition and retention of business customers.

Customers can also obtain Orange products and services and purchase accessories at the Orange UK website: http://www.orange.co.uk

6.3.3.4 Competitive Environment

Orange UK’s main competitors in the broadband market are BT Retail, Virgin Media, TalkTalk (held by the Carphone Warehouse group), BSkyB, O2 and Tiscali.

In 2008, BSkyB continued its development and overtook Tiscali, becoming the fourth largest broadband provider in the third quarter. Tiscali was engaged in negotiations with competitors (including BSkyB) regarding the sale of its assets in the United Kingdom during 2008.

In July 2008, BT announced plans to develop its fiber optic network in the United Kingdom. BT plans to concentrate mainly on FTTC (Fiber To The Cabinet) and plans to cover up to 40% of households by 2012. The network will be open to third-party access providers, at a wholesale price commensurate with revenues made by Ofcom for a “Next Generation Access”.



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In December 2008, Virgin Media introduced a 50 Mbit/s broadband service. This initiative illustrates the trend towards the development of offers at ever-higher speeds as a result of the significant increase in broadband traffic related to the success of the iPlayer platform and other similar content services.

At the end of September 2008, the respective market shares held by the main players in the United Kingdom fixed broadband market were as follows:

 

Year ended December 31

 

2008

2007

2006

BT

26.8%

27.0%

24.4%

Virgin Media

22.8%

23.5%

25.2%

Carphone Warehouse

16.4%

16.5%

16.4%

BskyB

10.7%

7.8%

1.7%

Tiscali

10.4%

11.6%

10.8%

Orange UK

6.0%

7.2%

8.1%

O2

1.6%

-

-

Source: Enders Analysis, Broadband market in the United Kingdom (third quarter 2008).


6.3.3.5 Regulatory environment

For the presentation of the regulatory environment in the United Kingdom, see Section 6.8.3.

6.3.3.6 Key Events

At the end of 2008, Ofcom began a consultation process concerning BT’s Openreach division’s pricing schedule over the next four years. The products covered by this consultation process include the partial and full local loop unbundling (Shared Metallic Path Facility and Metallic Path Facility) and the wholesale subscription offers, which operators purchase from the division. On September 30, 2008, Orange announced important improvements to its broadband network in the United Kingdom, with a new line making 8 MB the standard for its broadband service and residential broadband at 8 MB offered free to mobile customers who are on monthly billing. On November 25, 2008, Orange announced the introduction of a new broadband offer which gives customers easier access to online content, both at home and when traveling. For only 20 GBP (21 euros) a month, the residential and mobile broadband offer guarantees customers the best broadband connectivity from their homes and when traveling. For July 2009, Orange UK plans to offer ADSL2+ with a maximum speed of 20 MB, together with an update to a residential offer that will extend the portfolio of residential and mobile broadband offers.

6.3.4 Spain

6.3.4.1 Market

The table below presents the main features of the broadband market in Spain and the ADSL activities of France Telecom España, which operates under the brands Orange and ya.com.

 

Year ended December 31

 

2008

2007

2006

Broadband penetration rate(1)

19.9%

18%

14.9%

Total number of Orange broadband lines (millions)(1)

9.0

8.0

6.7

Including Telefonica DSL

5.1

4.5

3.7

Including others DSL

2.1

1.9

1.5

Including cable

1.8

1.6

1.4

Total number of Orange ADSL lines (thousands)(2)

1.16

1.18

0.64

Including Bitstream (Giga)

0.30

0.38

0.35

Including Unbundled (LLU)

0.86

0.79

0.47

Total number of IPTV Orange clients (thousands)(2)

87.3

54.9

9.8

Total number of VoIP Orange (thousands)(2)

313.1

98.8

0

(1)

Source: Spanish Regulatory Authority, November 2008.

(2)

Source: Orange.




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6.3.4.2 Orange’s Line of Products and Services

In Spain, France Telecom España markets narrowband Internet services and broadband services on ADSL.

With its two commercial brands Orange and Ya.com, France Telecom España offers services based on unbundling and is now focusing on fully unbundled services and on developing convergence offers.

Taking advantage of its position as a fixed-line operator and Internet service, IP television and mobile telephony provider, France Telecom España proposes offers that combine all of these services, for example:

Since 2007, Orange has been offering Todo en uno (All in one) in the unbundled zones, which for 34.95 euros, provides all of the following services that allow customers to terminate their relationship with the incumbent operator: line rental, maximum speed on ADSL, free calls 24 hours a day on all national fixed lines by VoIP, 50 television channels on IP, VOD.

The Todo en uno offer is complemented by a range of options to meet different customers’ expectations:

ADSL at 6 Mbit/s with 24-hour calling to national fixed lines, IP television and VOD, for 24.95 euros in unbundled zones;

ADSL at 1 Mbit/s with 24-hour calling to national fixed lines, for 20 euros in unbundled zones;

ADSL at 3 Mbit/s with 24-hour calling to national fixed lines, for 36 euros in zones that are not unbundled.

This offer can also be supplemented by several value added services and by mobile convergence services such as Numéros plus, which offers reduced communication rates between a fixed line and selected mobile telephones.

Detailed and up-to-date information on broadband offers is available on the website http://Internet.orange.es.

6.3.4.3 Sales and Distribution

For the presentation of Orange Spain’s sales, distribution networks and customer services, see the corresponding Section in Chapter 6.2.4.3.

6.3.4.4 Competitive Environment

Competition in Spain is intense and double play (voice and Internet) offers are standard for most operators which is putting downward pressure on prices. The major operators in the market (Telefonica, Orange, Jazztel, Ya.com and the cable operators) all offer triple play services.

In November 2008, 96% of Internet customers in Spain had a broadband connection, including 80% on ADSL access. Only 22.5% of these ADSL lines were unbundled (source: Spanish Regulatory Authority).

In 2008 Orange and Jazztel introduced a fully unbundled subscription service.

In November 2008, the respective market shares held by the main players in the broadband Internet market in Spain were as follows: (1)

 

2008

2007

2006

Telefonica

56.9%

56.2%

55.6%

Cable operators

19.6%

20.8%

20.2%

France Telecom España(2)

12.8%

13.9%

14.8%

Other

10.6%

9.1%

9.4%

(1)

Source: Spanish Regulatory Authority.

(2)

Including the brands Orange and Ya.com, respectively 7.8% and 5.3%.


6.3.4.5 Regulatory Environment

For a presentation of the regulatory environment in Spain, see Chapter 6.8.5 - Regulation.

6.3.4.6 Key Events

In 2008, France Telecom España’s fixed-line telephony and Internet priorities were focused on the following areas:

improving the supply of the triple play offer;

developing the unbundling strategy with the deployment of new main distribution frames;

the introduction of new convergence offers and the development of new offers for content and VOD.


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6.3.5 Rest of the World

6.3.5.1 Outside Europe

Latin America

France Telecom no longer maintains shareholdings in fixed-line operators in Latin America:

the 25% shareholding that France Telecom indirectly held in Intelig, a fixed-line telephony operator in Brazil, for long-distance national and international calls, was divested in September 2008;

the shareholding that France Telecom held in Régie T in Mexico was divested in December 2008.

Asia and Pacific

In this region, France Telecom:

divested FCR-NC (international communications teleport) in 2008 and the 50% that it held in OFFRATEL in New Caledonia;

provided financial, technical and managerial assistance to VNPT, the Vietnamese fixed-line telephony operator as part of a project to install 540,000 new lines to the East of Ho Chi Minh City in 2008;

holds 50% of Vanuatu Telecom Ltd. This shareholding will likely be sold.

Middle East and Africa

Ivory Coast

France Telecom holds a 51% controlling interest in Côte d’Ivoire Telcom, the incumbent telecommunications operator in the Ivory Coast. CI Telcom supplies fixed-line telephony services, broadband and wholesale services, where it holds a dominant position.

Number of CI Telecom lines

 

Year ended December 31

(in thousands)

2008

2007

2006

Fixed telephone lines

279

250

270

ADSL lines

40

21

10

Narrowband lines

4

1

3

TOTAL

323

272

283


CI Telcom offers fixed-line telephony services through two offers:

Fidélis, a prepaid offer, providing attractive prices and bonuses;

Ligne Intense, a subscription offer providing free calls from 8:00 p.m.-7:00 a.m. to other CI Telcom fixed lines.

CI Telcom also offers ADSL services via its subsidiary CI2M. The range of ADSL speeds available goes from 128 to 2 Mbit/s on download. CI Telcom’s Internet market share is 82% (source: CI Telcom).

The offers and rates charged are detailed on CI Telcom’s website http://www.citelecom.ci/.

Senegal

France Telecom holds 42.3% of the capital of Sonatel, the incumbent telecommunications operator in Senegal, which provides fixed communication services, broadband and wholesale.

Number of Sonatel lines

 

Year ended December 31

(in thousands)

2008

2007

2006

Fixed telephone lines

241

270

283

ADSL lines

53

38

28

TOTAL

294

308

311




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The fixed-line telephony service offers consist of blocked packages with different levels of communication credit, which may be refilled using bank cards.

The broadband offers concern speeds of 512 kbit/s, 1 Mbit/s and 10 Mbit/s for businesses.

For more information on these offers, visit Sonatel’s website http://www.orange.sn/

Jordan

France Telecom holds 51% of the capital of Jordan Telecom Company, which supplies fixed-line telephony and Internet services. Jordan Telecom Company has been listed on the Amman Stock Exchange since October 2002 and has been operating under the Orange brand since August 2007.

Number of Jordan Telecom lines

 

Year ended December 31

(in thousands)

2008

2007

2006

Fixed telephone lines

520

565

619

ADSL lines

98

59

29

TOTAL

657

624

648


Jordan Telecom offers various telephony and data services and is marketing cards for international calls and blocked contracts. In addition, Jordan Telecom offers a wide range of broadband services, going from 128 kbit/s to 8 Mbit/s.

Jordan Telecom’s offers and rates are detailed on its website http://orange.jo/home.php.

Mauritius

France Telecom indirectly holds 40% of Mauritius Telecom, the incumbent operator in Mauritius.

Number of Mauritius Telecom lines

 

Year ended December 31

(in thousands)

2008

2007

2006

Fixed telephone lines

375

378

395

TV lines on DSL

31

-

-

ADSL lines

15

12

10

TOTAL

421

390

405


Mauritius Telecom offers various voice and data services and is marketing cards for international calls and blocked contracts. In addition, Mauritius Telecom is marketing broadband ADSL offers (from 128 to 512 kbit/s), and a Multiplay TV package over the Internet (MyT).

Mauritius Telecom’s offers and rates are detailed on its website http://www.orange.mu/Internet/adsl.php

Kenya

France Telecom Group acquired 51% of Telkom Kenya on December 21, 2007. Telkom Kenya is the incumbent operator in Kenya, which has supplemented its fixed-line and Internet business with mobile activities introduced in 2008. At December 31, 2008, Telkom Kenya had approximately 489,000 fixed telephone lines and about 7,000 ADSL lines. Telkom Kenya offers a wide range of integrated services ranging from fixed to mobile to broadband.

Telkom Kenya’s offers and rates are detailed on its website http://www.telkom.co.ke/telkom-kenya-about-us.html


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6.4     ENTERPRISE COMMUNICATION SERVICES

The “Enterprise Communication Services” (ECS) segment combines business solutions and communication services dedicated to French companies and global business services to companies marketed under the Orange Business Services brand. The ECS segment in 2008 generated revenues of 7.8 billion euros before intra-group eliminations.

This segment is made up of the following entities:

ECS and its subsidiaries: Etrali, Setib, CVF, Expertel Consulting, Almerys, Néoclès, Silicomp, GTL, EGT, Solicia, Data & Mobile;

Business-Customer Distribution;

Orange Business Solutions (mobiles).

All of these entities, as well as the subsidiaries of France Telecom dedicated to this segment, market their products and services under the Orange Business Services brand.

The ECS business is built around three strategic goals: