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November 17, 1993

FRANCE TELECOM IS NOT YET IN A STATE WHERE IT CAN COMPETE IN DEREGULATED MARKETS, SAYS ITS PRESIDENT, MARCEL ROULET

By CBR Staff Writer

Without the addition of new shareholders under a new legal framework, France Telecom is not ready to compete in a deregulated telephony market, said company president Marcel Roulet in a private video session on the subject with company managers. Furthermore, he said, the change in ownership that is to take place does not represent such a status change, because the state will remain the primary shareholder, and that the European Community’s plan to aim for liberalisation in 1998 was causing further problems for the company. The transformation of France Telecom from a public entity to a quasi-private company (with the state still holding a majority), has sparked fear of lay-offs among its employees, causing a general strike last month. During the summer, Roulet promised to initiate a dialogue with France Telecom’s staff on the implications of the change of statute and what the company intends to do to preserve jobs in a country where unemployment is already running at around 12%. Roulet’s frank views on France Telecom’s position were excerpted in the company’s internal bulletin this month. In introduction, the president said, The decisions taken by Brussels last June [to aim for telecommunications liberalisation in 1998] will disrupt our plan of action. To assure the future and the development of the group, to maintain the quality and level of our employment, we must accelerate the implementation of our strategy and, as soon as possible, change the 1990 statute, giving France Telecom a capital structure that can be opened up to minority investors. France Telecom has been preparing for the evolution of Europe’s telephony market for the last 15 years, he said, constructing stone by stone a modern, performant enterprise, which was still limited by its public enterprise status. The first reform of that status, in 1990, gave France Telecom an operational autonomy from the state, he said. (Except, of course, for extraordinary requests to volunteer to divert large sums from its cash reserves into propping up Compagnie des Machines Bull SA and other cash-poor state-owned entities).

Complete disarray

At this point in the session, one manager asked Roulet, Why then, change the 1990 reform statute when it hasn’t even been completely implemented? The 1990 statute was a response to decisions from the 1989 European Council of Ministers, which presaged an increase in competition but the maintenance of monopolies over telephony and telecommunications infrastructure. But the Brussels authorities decided to open telephone service completely to competition in 1998. Telephone service constitutes the heart of our trade and 80% of our revenues. It’s a significant event that throws the rules of the game into complete disarray. It’s going to be a major shock for our company, he said. Another participant asked Roulet, Are we ready to face it? to which he responded that Despite all of our efforts, despite the incontestable progress we’ve already realised, I sincerely believe that, today, the response is no… Our cultural and organisational evolution has not been rapid enough. Our legal context does not give us a strategic mobility sufficient enough to fight against our competitors with comparable arms. We must, in this context, be able to act and react quickly, to take initiatives, to take risks and build alliances that touch our core business. That’s the great lesson of the British Telecommunications Plc-MCI Communications Corp alliance; two operators who succeeded in something that is not today possible for France Telecom, he said. Today, the president went on, France Telecom is appreciated essentially for its contribution to the state’s budget, its participation in an industrial policy that is often far from its business goals, and for the volume of its research and development. However, he said, now, what counts and what will count more and more, is the value of the enterprise, its market share, its [financial] results, the quality of its development strategy; in one word, its competitiveness. It was for those reasons, he

said, that he became convinced of the imperative to adapt the company’s statute to dispose of a capital and have minority shareholders other than the state. If France Telecom is not able to change its status and bring in private investors, we will soon be the only European operator without capital, he said. The exact schedule for the change in France Telecom’s status has not yet been completed, Roulet said, but the vote on should take place in the spring session of the National Assembly, with change of status on January 1 1995. He also saw no need for job cuts, since productivity was good, and it had fewer employees than BT.

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