FRANCE'S MOBILE OPERATORS FACE ALLEGATIONS OVER

UNCLAS SECTION 01 OF 02 PARIS 005750

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E.O. 12958: N/A
TAGS: ECPS ECON ETRD PGOV FR
SUBJECT: FRANCE'S MOBILE OPERATORS FACE ALLEGATIONS OVER
PRICE-FIXING; ECONOMY MINISTER UNDER SUSPICION


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1. (SBU) SUMMARY. France's three main mobile telephone
operators (Orange, SFR and Bouygues) are being investigated
by the government's Fraud Office for anticompetitive
practices. If found guilty by France's Competition Council
of a concerted effort to fix calling rates from 1997 to
2003, they could face fines of up to 10 percent of their
respective annual revenues. A decision by the Council is
expected before the end of the year, according to the August
24 issue of "Le Canard Enchaine", the French satirical and
investigative weekly that made the ongoing government
investigation public. The weekly hints at least some
involvement by former France Telecom CEO and current Economy
Minister Thierry Breton, which could spell trouble for the
minister and the government. END SUMMARY.


2. (SBU) The investigation results from an original
complaint by French consumer group UFC-Que Choisir in
February 2002. The consumer association noted that each
mobile operator had adopted "strictly identical rates." An
investigation carried out by the Economy and Finance
Ministry's Competition, Consumer Affairs and Fraud Office
(DGCCRF) documented the allegations further, according to
"Le Canard Enchaine" in its August 24 issue. In its May
2004 report, the Fraud Office found memos and minutes of
"secret regular meetings" between the three operators to
allow them to be more reactive to market changes. (Note:
Orange is owned by France Telecom, Bouygues is privately-
owned, and SFR is owned jointly by Vodafone and Vivendi.)


3. (SBU) "Le Canard" cites many of the operators'
documents which were never intended to be "communicated to
outsiders, either to ART, the French telecoms regulatory
authority or to the Economy and Finance Ministry." The
documents further point to the minutes of an October 28,
2002 meeting between the three operators, in the presence of
then- France Telecom CEO Thierry Breton. During that
meeting, the CEO of FT's mobile unit Orange allegedly
referred to the "Yalta of market share" agreed by the three
operators. An earlier note claims that Breton's predecessor
Michel Bon had given a green light to the secret agreement.


4. (SBU) Finally, according to the press reports, the
investigation carried out by the Fraud Office concluded the
(tortured?) reasoning behind the alleged collusion : to keep
financially ailing Bouygues afloat in order to prevent FT's
Orange market share from crossing the watershed 49.6 percent
mark, at which point the regulator would be required to step
in and set prices. The Fraud Office's report allegedly
quotes Thierry Breton as using this explanation in a meeting
it documents. FT allegedly feared that if Bouygues went
bankrupt, most of its customers would move to Orange.


5. (SBU) Breton, who was CEO from October 2003 to 2005,
before being named Economy and Finance Minister, shepherded
France Telecom's gradual transformation from a state-
controlled company to one where the GOF owns approximately
39 percent. Mobile operator Orange was a publicly trade
company in 2000 when France Telecom acquired it from
Vodafone, in a deal approved by European Commission
authorities. Under Breton's tenure, FT bought back all
outstanding shares of the company.


6. (U) Breton and other ministry officials categorically
deny these allegations. Breton says the facts being
investigated took place before he took over at FT, and added
that France's three mobile phone operators "would have to be
punished" should any evidence of a price-fixing agreement be
found.

COMMENT
--------------

7. (SBU) In the short-term, the allegations against Breton
could weaken the minister's personal efforts to push for tax
reform in the fall, and could distract public and press from
Prime Minister de Villepin's singular focus on employment.
If it mushrooms, a highly visible scandal involving Breton
(France's fourth Economy minister in two years) could be
politically damaging for the Chirac government. A scandal
involving one of the new government's leading ministers
would certainly provide the deeply divided Socialist Party
with one thing to agree on. (In parliament next week there
will be no lack of socialist lambasting of price fixing by
capitalist fat cats). Chirac's other rivals and their
supporters are also lining up to take political advantage of
the government's weaknesses. The knives may be even sharper
next week as much of France returns to work and school.

HOFMANN