20041227Application.pdf

IV"""" " ~,~!!"', ",", "',--,--- " -
Ottioo of the SeeretaryRECEIVED
DEC 2 3 200~
Boise, IdahoBEFORE THE PUBLIC UTIL TIES COMMISSION OF IDAHO
Application of France Telecom Corporate
Solutions L.C. for a Certificate of
Public Convenience and Necessity to Provide
Resold Local Exchange and Toll
Services within the State of Idaho
Docket No. f/( 11/- ~tJ,CJI
APPLICATION FOR CERTIFICATION
COMES NOW France Telecom Corporate Solutions L.C. ("FTCS" or "Applicant"), by
its undersigned counsel, and respectfully requests the Idaho Public Utilities Commission
Commission ) to grant the Applicant a Certificate of Public Convenience and Necessity to
provide resold local exchange and toll services within the State of Idaho. In support of its
application, and pursuant to the Commission s Rules and Regulations FTCS submits the
following information in support hereof:
Proposed Services
Applicant is a non-facilities based reseller of local exchange and interexchange
telecommunications servIces.Applicant does not intend to own, operate or construct any
telecommunications facilities.Applicant mainly provides services to business customers.
Applicant seeks authority to provide resold local exchange and interexchange services
throughout the State of Idaho. Specifically, Applicant seeks authority to provide all forms of
local exchange telecommunications services on a resale basis within the state.Initially,
Applicant will provide Local Exchange Service, Virtual Private Network Service, Local
Dedicated Service, Integrated Services Digital Network Primary Rate Interface (ISDN-PRI).
The Applicant also plans to offer all forms of interexchange telecommunications services on a
resale basis within the state. Initially, Applicant will provide Switched Interexchange Service
WASHINGTON 384733vl
Dedicated Interexchange Service, Virtual Private Network Service, Frame Relay Service, Carrier
800 Service, Private Line Service and Travel Calling Card Service. In addition, Applicant will
provide resold commercial mobile radio services.
II.Form of Business
1. Name, Address and Form of Business
Applicant is a limited liability company organized under the laws of the State of
Delaware. Its business address and telephone number is:
France Telecom Corporate Solutions L.
2300 Corporate Park Drive
Mailstop SP0604
Herndon, VA 20171
Tel. [phone]
[phone]
Fax [phone]
Applicant is authorized to engage in any lawful commercial activity. Applicant does not
intend to have an office located within the State of Idaho. A certified copy of its certificate of
formation are attached hereto as Exhibit A. Applicant's certificate of good standing issued by
the Idaho Secretary of State of Idaho is attached hereto as Exhibit B. The name and address of
registered agent for service in Idaho is: CT Corporation System, 300 North 6th Street, Boise, ill
83702.
The names and addresses of the ten common stockholders of applicant owning the
greatest number of shares of common stock and the number of such shares owned by each, are as
follows:
See Exhibit C.
WASHINGTON 384733vl
The names and addresses of the officers and directors of applicant are:
See Exhibit D.
The name and address of any corporation, association, or similar organization
holding a 5% or greater ownership or a management interest in the applicant is: See Exhibit C.
Applicant does not have a management agreement.
Applicant does not own or control any subsidiaries.
III.Telecommunication Service
The date on which applicant proposes to begin construction or anticipates it will
begin to provide service.Applicant is a non-facilities based reseller and does not intend to
construct any facilities to provide services in Idaho. Applicant anticipates it will begin to
provide service in Idaho upon certification.
Applicant intends to provide services mainly to large business customers located
in urban areas in Idaho. Attached as Exhibit E is a description of Applicant's customer service
policies.
IV.Service Territory
Applicant intends to provide services to large business customers mainly located
in urban areas. Because Applicant does not know where all of its future customers will be
located, Applicant seeks statewide authority.
Applicant is a non-facilities based reseller. Applicant does not own or control any
telecommunications facilities.
WASHINGTON 384733vl
Applicant will likely compete with the following incumbent local exchange
corporations: Qwest and Verizon.
Financial Information
Applicant possesses adequate financial resources to provide the proposed
services. See Exhibit F.
VI.Illustrative" Tariff Filings
Applicant's proposed tariffs are attached hereto as Exhibit G.
VII.Customer contacts
Contact information for the Applicant.
(a)The name, address, and telephone number and electronic mailing addresses (if
available) of the person(s) responsible for consumer inquiries and complaints from the public is:
Charles Hartman, Tax Director
France Telecom Corporate Solutions L.
2300 Corporate Park Drive
Mailstop SP0604
Herndon, VA 20171
Tel. [phone]
Fax [phone]
Email: Charles.hartman~ftna.com
(b)A toll-free number for customer inquiries and complaints is: 866-280-3726.
WASHINGTON 384733vl
(c)The name, number and electronic mailing addresses (if available) of the person(s)
designated as a contact for the Commission Staff for resolving complaints, inquiries and matters
concerning rates and price lists or tariffs is:
Jean-Sebastien Falisse, Treasurer
France Telecom Corporate Solutions L.
2300 Corporate Park Drive
Mailstop SP0604
Herndon, VA 20171
Tel. [phone]
Fax [phone]
Email: i eansebastien. falisse~francetelecom. com
VIII.Interconnection Agreements
As a reseller, Applicant will not enter into interconnection agreements with its
underlying carriers. Applicant does not seek to purchase unbundled network elements from its
underlying carriers. Applicant intends to enter into resale agreements with Qwest and Verizon
within the next 2 years. Applicant intends to resell the services of its underlying carriers to
Applicant's customers.
IX.Compliance with Commission Rules
Applicant has reviewed the Commission rules and agrees to comply with them
Escrow Account or Security Bond
Applicant does not collect advance deposits or advance payments. Applicant also does
not provide any prepaid services.
WASHINGTON 384733vl
WHEREFORE, by the foregoing application, Applicant respectfully requests that the
Commission grant it a Certificate of Public Convenience and Necessity to provide resold local
exchange and toll services within the State of Idaho.
Respectfully submitted
w~
\:-
c.o~~
William K. Coulter
Coudert Brothers LLP
1627 I Street, N., 1ih Floor
Washington, D.C. 20006
Tel: [phone]
Fax: [phone]
Dated: December 22, 2004
WASHINGTON 384733vl
AFFIRMATION
State of Virginia:
: SSe
County of Fairfax:
Jean-Sebastien Falisse, Affiant, being duly sworn/affirmed according to law, deposes and
says that:
He is the Treasurer of France Telecom Corporate Solutions L.
That he is authorized to and does make this affidavit for said Applicant;
To the best of his information and belief, the information contained in the application are
true and correct; and
That the Applicant will comply with all applicable statutes, administrative rules and
orders of the Commission.
Jean-Sebastien Falisse, Treasurer
France Telecom Corporate Solutions L.
Sworn and subscribed before me this 1'3 7110
day of l/eGe~L,e.,..2004
SEAL
~'J
~~~
Notary Pu . c t.u r-ie
",
'2. . Th t!J lIMo.
My commission expires: :Ii l.CoY
WASHINGTON 384733vl
EXHIBIT A
PAGE
The :first State
I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF
DELAWARE, DO HEREBY CERTIFY II FRANCE TELECOM CORPORATE SOLUTIONS
C. II IS DULY FORMED UNDER THE LAWS OF THE STATE OF DELAWARE
AND IS IN GOOD STANDING AND HAS A LEGAL EXISTENCE SO FAR AS THE
RECORDS OF THIS OFFICE SHOW, AS OF THE SEVENTEENTH DAY OF
OCTOBER, A. D . 2002.
AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL TAXES HAVE
BEEN PAID TO DATE.
3461073
~~
~9f-
Harriet Smith Windsor, Secretary of State
8300 AUTHENTICATION: 2040119
020642303 DATE: 1 0 - 1 7 - 0 2
07 / ~3/2002 17: 12 FAX [phone] FRANCE rELECOM 141002
State of Delaware
Office of the Sec~etary of State PAGE
BARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STA!l'E OF
DELAWARE , DO HEREBY CERrIFY THE ATTACHED IS A i'RUE AND CORRECT
. ,.~
:, J: .. 0
, ':
, I "
, ". ..
COpy OF THE CERTIFICATE' OF FOlUG.TION OF' :'FRANCE TELECOM
c.-,
:. .'. '' ~.' , . '. ' " , ', ' . .
:. I
" ,
CORPORATE SOLUT'I:ONS , FI~ED IN ~IS OFFICE ON THE
TWENTY-EI GBTB ,DAY OF NOVEMBER, A. D. 20 at ~ AT, 9:' 3 0 0" CLOeR A. M.
, .';'
;i'
, .:' " '' '. " .
' ~ r"
:1, '
, ,. ., "
I' .,
. ,"
" O
: ,' "
". I'
: .
3461073 8100
~~---~ ~'
~91:-
lIArna Smith Winds~ S~creury of SrAfe
AU~BENTICATION: 1469978
010601102
DATE: 11-29-01
07/2-3/2002 17: 12 FAX [phone] FRANCE TELECOM (4J 003
11/2S/2001 10: 01 FAX 202 82% %099 FRANCE TELECOM STATB OF DELAIt~
SECRZl'ARf' OF sr~DIVISION OF CORP()RAT1:ONSFILZD 09:30 AN 1.:1./28/2001
D~CoOllO2 3461073
CERTIFICATE OF FORMATION
OF'
FRANCE TELECOM CORPORATE SOLUl'IONS LL.
1. The uame ()c the I1mjted liability company is France Telecom CoJpOI1I1eSolutions LL.
2. The addres3 of its registered office in the State ofDelawarc is Corpotation
Trost Center, 1209 Orange Street. in 1be City of WihniQgton, County of NewCastle. The name of its regjstefed agent at sueh address is The
Coxporation Trust
Compeny.
IN WITNESs WHEREOF, the undersigned has executed this Certificate
ofFonnation of France Telecom Carpora.te Solutions LL,
this
;2. '3
Ik
day of November, 2001
FRANCE TELECOM P ARTICIP ATIONS
S.,. INC-
Danie1le A
Assist&lt S ecrctary
Cm - ftmn.doc
EXHIBIT B
IDSOS CERTIFICATE OF EXISTENCE Page 1 of 1
tate of Idah
II
Office of the Secretary of State
II
CERTIFICATE OF EXISTENCE
FRANCE TELECOM CORPORATE SOLUTIONS L.
File Number W -29322
, BEN YSURSA, Secretary of State of the State of Idaho, hereby certify that I am the custodian of
the limited liability company records of this State.
I FURTHER CERTIFY That the records of this office show that the above-named limited liability
company was organized under the laws of DELA WARE and filed an application for registration of
foreign limited liability company in Idaho on 18 Mar 2004.
I FURTHER CERTIFY That the limited liability company s registration has not been canceled.
Dated: 1 7 Sep 2004
.. ', '.. ,' '
SECRETARY OF STATE
Authentic Access Idaho Document ( http://www.accessidaho.org/public/portal/authenticate.htmi
Tag: b5ae5f5ff8d7 4087f39c0ge26b7 570137 e62717 c604aba257fc9934bf3dfc6d956ct235b2ada6b5d
https://www.accessidaho.org/secure/sos/corp/cert.htmi 9/17/04
te of Idah
, BEN YSURSA , Secretary of State of the State of Idaho, hereby certify that I
am the custodian of the limited liability company records of this State.
I FURTHER CERTIFY That the annexed is a full, true and complete duplicate of
the application for registration of foreign limited liability company of FRANCE
TELECOM CORPORATE SOLUTIONS , a DELAWARE limited liability company,
received and filed in this office on 18 March 2004 under the file number W 29322
including any amendments filed thereto, as appears of record in this office as of this
date.
Dated: 16 September 2004
SECRETARY OF STATE
cr( ~CrL~
EXHIBIT C
LIST OF ALL OWNERS OF APPLICANT
The direct and indirect owners of Applicant, including their contact information, is as
follows:
Applicant is 100% owned by:
FTP Holding Inc.
c/o France Telecom North America
1 71 7 K Street, NW
Suite 507
Washington, D.C. 20036-5333
Tel. [phone]
FTP Holding Inc. is 100% owned by:
FT Participations US Inc.
c/o France Telecom North America
1717 K Street, NW
Suite 507
Washington, D.C. 20036-5333
Tel. [phone]
FT Participations US Inc. is 100% owned by:
Cogecom S.
, place d' Alleray
75015 Paris
France
Cogecom S.A. is 100% owned by:
France Telecom S.
, place d' Alleray
75015 Paris
France
France Telecom S.A. is a publicly traded company on the New York Stock Exchange and
the Paris Stock Exchange. The only 10% or greater shareholder of France Telecom is the French
State.
WASHINGTON 255482vl
EXHIBIT D
List of all Officers, Directors, General Partners, Trustees and Members
of Applicant
Jean-Sebastien Falisse
Treasurer
France Telecom Corporate Solutions L.
2300 Corporate Park Drive
Mailstop SP0604
Herndon, VA 20171
Jean Nivoix
General Manager
France Telecom
Europamasse, 8-10 Boulevard de Vaugirard
75903 Paris Cedex 15
France
Bernard Perrillon
Manager
France Telecom
Europamasse, 8-10 Boulevard de Vaugirard
75903 Paris Cedex 15
France
Marc Dandelot
Manager
France Telecom Inc.
1270 Avenue of the Americas
New York, NY 10020
WASHINGTON 257334vl
EXHIBIT E
DESCRIPTION OF APPLICANT'
INTERNAL COMPLAINT RESOLUTION PROCEDURES
If a customer has a complaint, he/she may contact Applicant's customer service either in
writing or by calling the customer service toll-free number [phone], as indicated on the
bill. Customer service is available to serve customers five days a week, Monday through Friday,
and on certain Saturdays where the need is projected. The Applicant has customer service
representatives trained to resolve customer problems in a timely fashion. The complaint
resolution procedure will vary by type of complaint. When possible, customer service
representatives will try to resolve any inquiry during the initial contact with the customer.
Repair service is available 24-hours per day, 365 days per year. Customers subscribing to one or
more of the Applicant's data services are served by a group of highly trained specialists whose
expertise is data and voice communications.
Customer service representatives are trained to question the customer to determine if a
reported problem is in the customer s local access lines customer provided equipment, or a
problem with the telecommunications service provided by the Applicant.
For example, if the customer services representative determines the problem is a network
problems, it is immediately reported to the underlying carrier that maintains a 24-hour trouble
bureau. Most of the time, the underlying carrier is already aware of the problem in their network
as they continually monitor their network and are advised of problems as they develop.
If the customer is not satisfied with any aspect of the resolution of a dispute, the
Customer may contact the Applicant's Customer Service Manager. Calls which are escalated are
answered live whenever possible, however, in the event no Customer Service Manager is
immediately available, an overflow voice mailbox permits callers to leave a message. Response
time will vary, depending on the urgency of the matter.
Initial response by the Customer Service Manager will generally be made within four
hours, with a follow-up call regarding the status of the issue within 24-hours, or according to the
time commitment made to the customer. If the Customer Service Manager does not have the
information to resolve the inquiry, a subject matter expert or resource person is contacted by the
manager for further investigation or to obtain the requested information. Subsequent calls to the
customer are generally made within 48-hours, or within the time commitment made to the
customer. When the information has been obtained, the customer is contacted for resolution.
the customer is not satisfied with the Applicant's resolution of a complaint , the customer may
file an application with the applicable state public utility commission for review and disposition
of the matter.
The Applicant maintains complete and accurate records of customer complaints that
come to Customer Service. Our complaint database includes the date of the complaint, the name
and telephone number of the customer, the type of complaint, a complaint survey, the date the
complaint is resolved, and a summary of the complaint resolution. In addition, the Applicant
retains any actual complaint, complaint investigation documents, and complaint resolution. All
complaint documents are retained for a period of three years from the date of the complaint, and
the Applicant will make its complaint records available to the applicable state public utility
commission upon request.
Applicant may enter into service level agreements with specific customers with dispute
resolution provisions which vary from those listed above.
EXHIBIT F
France Telecom Corporate Solutions L.
Demonstration of Financial Capability
As a newly-fonned company, Applicant does not have any audited fmancial statements. Applicant is
majority owned and controlled by France Telecom S.A. ("France Telecom ), ore of the largest communications
companies in the world. Applicant's financial infonnation will be fully consolidated in the financial statements
of its parent company. Excerpts of France Telecom s financial filings with the Securities and Exchange
Commission are attached, including a Management Report (for the six months ended June 30, 2003 and 2004),
and consolidated audited financial statements for the last three years.
France Telecom is a leading integrated communications company which is publicly-traded on both the
Paris Stock Exchange and the New York Stock Exchange.
The attached financial documents demonstrate that France Telecom Corporate Solutions L.C. clearly
possesses the requisite financial capability to provide intrastate telecommunications services in this State.
See Consolidated Financial Statements - France Telecom, 2002, 2001 and 2000 at p. F-9 ("companies which are wholly
owned or which France Telecom controls, either directly or indirectly, are fully consolidated"
WASHINGTON 370310v2
As flied with the Securities and Exchange Commission on April 16, 2004
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR IS(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2003
TRANSITION REPORT PURSUANT TO SECTION 13 OR IS(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(gJ
Commission file no. 1-14712
FRAN CE TELECOM
Not applicable
(Translation of Registrant'
name into English)
(Exact name of Registrant as specified in its charter)
6, place d' Alleray
75505 Paris Cedex 15
France
(Address of principal executive omces)
French Republic
(Jurisdiction of incorporation
or organization)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Title of each class:Name of each exchange on which registered:
American Depositary Shares, each representing one'
Ordinary Share, nominal value €4.oo per share
Ordinary Shares, nominal value €4.oo per share
American Depositary Contingent Value Rights
Contingent Value Rights
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
* Listed, not for trading or quotation purposes, but only in connection with the registration of the American Depositary
Shares and American Depositary Contingent Value Rights pursuant to the requirements of the Securities and Exchange
Commission.
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a reporting obligation pursuant to Section 15( d) of the Act:
None
Indicate the number of outstanding shares of each of the issuer s classes of capital or common stock as
of the close of the period covered by the annual report:
Ordinary Shares, nominal value €4.oo per share: 2,402 316,828 at December 31 , 2003
Indicate by check mark whether the Registrant (1) has flied all reports required to be flied by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (ZJ No
Indicate by check mark which financial statement item the Registrant has elected to follow:
Item 17 D Item 18 (ZJ
, ",.",.,.,..,......,-------.----..-.-----.......,.-.-
PART
Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
ADVISERS
Not applicable.
Not applicable.
Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Item 3. KEY INFORMATION
1 SELECTED FINANCIAL DATA
The following table sets forth selected consolidated financial and other operating data of France Telecom. The selected financial
data set forth below should be read in conjunction with the Consolidated Financial Statements and "Item 5. Operating and
Financial Review and Prospects" appearing elsewhere in this annual report on Form 2o-F. The selected financial data presented
below has been prepared on a basis constant with the basis of preparation used in the Consolidated Financial Statements as
described in Note 2. Prior years have been reclassifled as necessary for a consistent presentation. France Telecom
Consolidated Financial Statements are prepared in accordance with French GAAP, which differs in certain significant respects
from U.S. GAAP. See Note 33 of the Notes to the Consolidated Financial Statements for a discussion of the principal differences
between French GAAP and U.S. GAAP as they relate to France Telecom and a reconciliation of its net income and shareholders
equity to U.S. GAAP.
The selected consolidated financial data as of and for each of the five years ended December 31, 1999,2000, 2001, 2002 and 2003
are extracted or derived from the Consolidated Financial Statements, which have been audited by Ernst & Young Audit and RSM
Salustro Reydel, independent auditors, for the years ended December 31, 1999, 2000, 2001 and 2002, and which have been
audited by Ernst & Young Audit and Deloitte Touche Tohmatsu, independent auditors, for the year ended December 31, 2003.
The Consolidated Financial Statements as of and for the year ended December 31, 1999 have been translated into euro using
the fIXed exchange rate for French francs and euro on January 1, 1999.
2003
$(1)
2003
Year ended December 31,2002 2001 2000
(€ mUlions, except per share data)
1999
CONSOLIDATED STATEMENT OF INCOME
DATA
Amounts in accordance with French GAAP:
Sales of services and products
Operating income(2)
Interest expense, net!3)
Other non-operating income/(expense), net
Net income (loss) from integrated
companies
Goodwill amortization
Exceptional goodwill amortization
Net income (loss)
Basic number of shares (rounded)
Diluted number of shares (rounded)
Earnings per share/ADS:
Net income (loss) per share (basic)
Net income (loss) per share (diluted)
Dividend per share(S)
Approximate amounts in accordance with
S. GAAP:(6)
Net income (loss)
Earnings (loss) per share/ADS (basic)(4)
Earnings (loss) per share/ADS (diluted)(4)
58,101 46,121 46,630
12,035.554 808
(4,995)(3,965)(4,041)
(1.410)(1,119)(12,849)
453 710 (12,809)
(2,113)677)(2,352)
(1,432)(1,137)(5,378)
039 206 (20,736)
2,463 955 085
754 186 159
(16.75)
(16.75)
699
3.43
318 (33,556)
(26.70)
(26.70)
43,026 33,674 27,233
200 856 490
(3,847)006)(662)
(5,904)957 767
(2,316)975 965
(2,531)(1,092)(136)
(3,257)
(8,280)660 768
103 065 025
177 091 050
(6.58)
(6.58)
(19,278)131 905
(14.86)
(14.86)
- --------------
2003
$(1)
Year ended December 31,2002 2001 2000
(€ millions, except per share data)
19992003
CONSOLIDATED BALANCE SHEET DATA
Amounts in accordance with French GMP:
Intangible assets
Property, plant and equipment, net
Total assets
Short-term borrowings
Long-term debt, including current
portion
Borrowings net of available cash and
marketable securities
Shareholders' equity (deficit)
Capital stockf7)
Approximate amounts in accordance with
S. GAAP:(6)
Shareholders' equity (deficit)
CONSOLIDATED STATEMENT OF CASH
FLOWS DATA
Amounts in accordance with French GAAP:
Net cash provided by operating
activities
Purchase of property, plant, equipment
and intangible assets
Proceeds from saLe of assetsl8)
Cash paid for investment securities,
acquired businesses, net of cash and
investments in affiLiatest9)
Holdings of own shares
Issuance (repayment) of short.term
borrowings and long-term debt, net
53A04 42,392 46,086 53,152 52,338 131
38,593 30,635 36,268 728 34,623 28,964
125,766 99,833 106,587 127,358 129,585 54,055
978 570 10,490 11,365 25,165 479
60,243 47,821 60,393 56,139 38,089 14,784
55,640 44,167 68,019 63.423 60, 998 14,628
15,150 12,026 (9,951)21,087 33,157 18,903
31.421 24,942 29,511 28,843 28,843 10,727
(588)(467)(26,751)26,311411 21,678
14,263 11,839 07611,322 613 109
(6,427)
752 .
(5,102)
597
(7,943)
916
(8,553)
296
(14,313)
274
(5,001 )
150
(299)(237)(2,228)
(5,022)
(4,355)
(8,807)
(40,561 )(2,804)
(24,919)(19,781)(63)39,301 (209)514
(1) In millions. The Consolidated Financial Statements are stated in euro except for 1999, which were originally stated in French francs. The U.
dollar amounts presented in the table above have been translated solely for the convenience of the reader using the Noon Buying Rate on
December 31, 2003 of EO.7938 to $1.00.
(2) Operating income for the years ended December 31, 1999, 2000, 2001, 2002 and 2003 includes items (€238 million, E22S million, €210 million,
€199 million and €211, respectively) relating to the amortization of part of the additional provision for early retirement payments resulting
from the change in 1998 and 1999 in actuarial assumptions used in calculating such provision. See Note 22 of the Notes to the Consolidated
Financial Statements.
(3) Including interest expense on TDIRA.
(4) Earnings per ADS have been recalculated for all periods presented to reflect the 2002 stock dividend as required under U.S. GAAP, and as
discussed in Note 33 of the Notes to the Consolidated Financial Statements.
(5) In 1996, prior to France Telecom s change of status on December 31, 1996, a payment of €686 million, which was appropriated from net
income, was made to the French State. No dividend was declared after the change of status. The annual general meeting of the shareholders
for the year ended December 31, 2003 authorized a payment of EO.25 per share to shareholders this year.
(6) Amounts presented under this caption were calculated by applying the principles described in Note 33 of the Notes to the Consolidated
Financial Statements.
(7) Capital stock represents the sum of share capital and additional paid-in capitaL
(8) Includes, for 2002 and 2003, a gain from the sale of real estate of €2,SSO million and €419 million.
(9) Includes, for 2000, a cash payment of €21,693 million in connection with the acquisition of Orange plc.
OPERATING DATA
Telephones lines (standard lines and ISDN channels) at period-end (millions)(1)
ADSL lines in France at period-end (millions)
Total controlled wireless subscribers at period-end (millions)
Number of employees at period-end
(1) For the purposes of this presentation, each ISDN channel is counted as the equivalent of one standard access line.
Year ended December 31,
2003 2002 2001
49.49.40.
56.49.43.
218,523 243,573 211,554
2 EXCHANGE RATE INFORMATION
Under the provisions of the Treaty on the European Union signed at Maastricht in early 1992, a European Monetary Union
EMU") with a single European currency, the euro, was established. On May 3, 1998, European governments and central banks
announced that the following 11 member states would participate in the last stage of EMU: Austria, Belgium, Finland, France,
Germany, Ireland, Italy, Luxemburg, The Netherlands, Portugal and Spain. These countries have since been joined by other
member states. The last stage of the EMU, which fIXed exchange rates between national currencies and the European Currency
Unit, and the introduction of the euro for certain purposes, began on January 1, 1999, at which time the exchange rate between
the French franc and the euro was established at FF 6.55957 to €1.oo (or €O.1524 to FF 1.00).
Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar equivalent of the euro-
denominated prices of the shares and, as a result, will affect the market price of the ADSs in the United States. In addition,
exchange rate fluctuations will affect the U.S. dollar equivalent of any cash dividends received by holders of ADSs.
The following table sets forth, for the periods and dates indicated, certain information concerning the Noon Buying Rate in New
York City for cable transfers for foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York
expressed in U.S. dollars per €1.oo. Such rates are provided solely for the convenience of the reader and are not necessarily the
rates used by France Telecom in the preparation of the Consolidated Financial Statements included elsewhere in this annual
report on Form 2a-F. No representation is made that the euro could have been, or could be, converted into U.S. dollars at the
rates indicated below or at any other rate.
Year/period Average
S. dollars per €1.end rate rate!1)High Low
Yearly amounts
1999 $1.$1.$1.$1.
2000 $0.$0.$1.$0.
2001 $0.$0.$0.$0.
2002 $1.$0.$1.$0.
2003 $1.$1.$1.$1.
Monthly amounts
October 2003 $1.$1.$1.18 $1.
November 2003 $1.$1.$1.$1.
December 2003 $1.$1.$1.$1.
January 2004 $1.$1.$1.$1.
February 2004 $1.$1.$1.$1.
March 2004 $1.$1.$1.$1.
April 2004 (through April 14)$1.$1.$1.$1.
(1) The average of the Noon Buying Rates on the last business d~y of each month during the relevant period.
For information regarding the effects of currency fluctuations on France Telecom s results, see "Item 5. Operating and Financial
Review and Prospects - 5.1 Activity and Operating Profitability of the Group
3 RISK FACTORS
In addition to the other information contained in this annual report on Form 2a-F, prospective investors should carefully
consider the risks described below before making any investment decisions. These risks, or one of these risks, could have a
negative effect on the business, the financial situation, or the results of operations of France Telecom. Moreover, additional
risks not currently known to France Telecom, or that France Telecom currently deems immateria~ may also impair its business
operations. France Telecom s business, financial condition or results of operations could be materially adversely affected by any
of these risks and investors could lose all or part of their investment.
The risks described below concern:
. Risk factors relating to France Telecom s business (see "- 3.3.1 Risk Factors Relating to France Telecom s Business
. Risk factors relating to the telecommunications ' and wireless industries (see 3.2 Risk Factors Relating to the
Telecommunications and Wireless Industries
. Risks factors relating to financial markets (see "- 3.3 Risk Factors Relating to Financial Markets"); and
. Risk factors relating to legal proceedings (see 4 Risk Factors Relating to Legal Proceedings
Risks related to France Telecom, the telecommunications industry and financial markets are described below in each of the
categories by order of decreasing importance, according to France Telecom s current assessment. The occurrence of new
external or internal events may lead France Telecom to modify this order of importance in the future.
1 RISK FACTORS RELATING TO FRANCE TELECOM S BUSINESS
France Telecom may not be able to reduce its debt. If it is unable to reduce its indebtedness, France Telecom s cash flow may
be insufficient to meet its financing needs and its ability to invest in the development of its business may be reduced.
During the period from 1999 to 2002, France Telecom ~chieved strong external growth at a cost of €1oo billion, of which 80%
was paid in cash. This led to a major increase of its net consolidated financial debt, which went from €14.6 billion at the end of
1999 to €68.0 billion at the end of 2002.
The major priority of the "Ambition FT 200S" Plan, launched in December 2002, is to reduce France Telecom s indebtedness
through an increase in capita~ undertaken on April1S, 2003 for close to €15 billion and through its operational performance
improvement program called "TOP". These two elements, for the most part, allowed France Telecom to reduce its net
consolidated financial debt to €44.2 billion at December 31, 2003.
Nevertheless, in the future, France Telecom may not be able to generate sufficient cash flow to further reduce its indebtedness.
This situation could result from negative factors such as. the following:
. competition or decisions made by regulatory authorities that have the effect of reducing prices or revenues;
. the slowdown of the current growth in terms of business volume (wireless activities, data base services, Internet services);
. the decrease in business volume of older sectors (a tendency that is already being experienced in fIXed line telephony);
. obstacles to the efforts to achieve savings in terms of operating expenses before amortization and depreciation and in terms
of investments in tangible and intangible assets;
. the necessity, due to competition or technological advancement or changes in regulations, to incur operational or investment
expenses that are greater than those planned.
If France Telecom does not succeed in reducing its indebtedness, its cash flow may be insufflcient to meet its fmancing needs,
including meeting scheduled repayments of its debt.
Furthermore, France Telecom s financing agreements contain a certain number of financial covenants (see Note 20 and Note
20.4 of the Notes to the Consolidated Financial Statements). If France Telecom fails to meet its obligations arising from its
financing agreements or other payment obligations, its creditors may require early repayment. Many of France Telecom
financing agreements and its outstanding securities include cross-default and cross-acceleration provisions pursuant to which a
payment default or acceleration, or a failure to respect a financial covenant, may result in the acceleration of all or a significant
part of France Telecom s debt and an inability to draw upon its credit lines. France Telecom s high level of debt, its obligations
to maintain certain financial ratios and its other obligations may limit its ability to borrow additional funds and invest in the
development of its business.
............... . ......-.-.-.................
"."""""n........
The "TOP" Program may not achieve the expected results, which could have a material adverse impact on France Telecom
financial condition and results of operations.
The 'lOP" operational performance improvement program strives to achieve optimal levels of performance for each of its
activities and generate more than €15 billion in net cash' flow over the period from 2003 to 2005.
The results of the "TOP" Program in 2003 are discussed in "Item 5. Operating and Financial Review and Prospects - 5.1.2.
Results of the 'TOP' Operational Improvements Program
In particular, the "TOP" Program allowed France Telecom to generate approximately €6.4 billion in free cash flow excluding
asset disposals (for a calculation of free cash flow excluding asset disposals and a description of the manner in which France
Telecom uses it, see "Item 5. Operating and Financial Review and Prospects - 5.4.2 Liquidity" and "Item 5. Operating and
Financial Review and Prospects - 5.9 Non-GAAP Financial Measures and Financial Glossary"). France Telecom s management
uses free cash flow excluding asset disposals to analyte its abillty to generate net cash available for debt repayment in the
context of the "TOP" Program. Operating expenses before depreciation and amortization decreased, on a comparable basis,
from €30.3 billion in 2002 to €28.8 billion in 2003, representing a decrease of close to €1.5 billion. Investments in tangible and
intangible assets (excluding acquisitions of licenses) decreased, on a comparable basis, from €6.95 billion in 2002 to €5.1 billion
in 2003, representing a decrease of close to €1.9 billion.
In the future, the goals of this program may not be achieved or may be delayed, which would have a material impact on the
financial condition and results of operations of France Telecom. France Telecom may encounter difficulties in the
implementation of the program. For example, reorganization costs may be greater than expected (from €BOO million to
billion), especially in cases of withdrawals from certain' markets (for example, the withdrawal of Orange from the Swedish
market).
Furthermore, the implementation of the 'lOP" Program could lead to unexpected results. For example, investments in tangible
and intangible assets, and more generally, the investments made in growth sectors, may be insuffLCient to maintain the Group
status as a leader, to improve networks and to develop and promote new and existing services, especially in the highly
competitive sectors of wireless and Internet services.
France Telecom may not be able to successfuUy integrate the companies that it has acquired or to achieve planned synergies.
During 2003, France Telecom continued to pursue its integration of Equant and TP Group. France Telecom may:
. have difficulty integrating the operations and personnel of the acquired entities;
. fail to successfully incorporate networks or acquired technology into its network and product offerings;
. fail to generate anticipated synergies;
. fail to maintain uniform standards, controls, procedures and policies; or
. fail to maintain satisfactory employee relations with acquired entities as a result of changes in management and ownership.
Any major difficulties related to the integration of these entities or other businesses acquired by France Telecom could have an
adverse effect on its business, financial condition and results of operations.
France Telecom faces risks relating to certain subsidiaries and joint ventures in which it shares control or does not hold a
controlling interest.
In some of the Group s activities, especially in the "Orange" and "Other International" segments, France Telecom holds a non.
controlling interest. Under the governing documents or agreements for certain of these entities, certain key matters such as the
approval of business plans and decisions as to the timing and amount of distributions require the agreement of France
Telecom s partners, and in some cases, decisions regarding these matters may be made without France Telecom s approval
There is a risk of disagreement or deadlock or a risk that decisions contrary to the interests of France Telecom will be made. For
example, following the difficulties encountered with MobUCom, France Telecom was obliged to depreciate the total amount of
its investment in MobilCom in 2002.
The consolidated subsidiaries that may be impacted by the risks described above are either proportionately consolidated (as
the case of control exercised with one or more other shareholder(s)) or consolidated according to the equity method (see
Note 32 of the Notes to the Consolidated Financial Statements).
Companies that are consolidated proportionately mainly include ECM5 (Mobinil), a subsidiary of Orange in Egypt, which is
consolidated at 71.25%, as well as operators in Mauritius (Mauritius Telecom) and Jordan (JTC), in which France Telecom has a
40% controlling interest in each.
Companies that are consolidated by the equity method (see Note 11 of the Notes to the Consolidated Financial Statements)
mainly include the operating subsidiaries of BITCOITA Orange, a subsidiary of Orange in Thailand controlled at 49%, and
------.-.--.'.""'_0.-0__--
-.---'--. '-."---'---_.
0._..._- ....-. '-_0._- -.. -._0'_- .-. -_0___------'-'----
Radianz, a subsidiary of Equant controlled at 49%. At December 31,2003, following an additional depreciation, the book value of
the securities of BITCO was brought to zero. Moreover, France Telecom has a 36% interest in the share capital of Tower
Participations following its withdrawal from TDF and a 20% interest in the share capital of Bluebird Participations France
following its withdrawal from Eutelsat.
Finally, France Telecom has non~onsolidated holdings (see Note 12 of the Notes to the Consolidated Financial Statements) that
could be impacted by the risks mentioned above, in particular, Orange s interests in the share capital of ONE (17.5%, Austria)
and Optimus (20%, Portugal). France Telecom fully depreciated at December 31, 2003 the value of its 27% interest in the share
capital of Noos (Cable television, France).
In some cases, strategic or joint venture partners may choose not to continue their partnership. In addition, France Telecom
arrangements with its joint venture partners may expose France Telecom to requirements for additional financing, or additional
capital expenditure or investment requirements or obligations to buy or sell holdings. See Note 28 of the Notes to the
Consolidated Financial Statements.
These factors could impact France Telecom s ability to pursue its stated strategies with respect to those entities or have a
material adverse effect on its results of operations or financial condition.
The high cost of UMTS licenses, and investments and expenses necessary for the success of this technology, could adversely
affect France Telecom s business, financial condition and results of operations.
At December 31, 2003, France Telecom had paid over €8 billion to acquire UMTS licenses in Europe (excluding minority
interests, notably MobilCom). Under the terms of these licenses, France Telecom has agreed to make significant investments in
its networks in order to offer new products and services. If France Telecom decided not to pursue UMTS development in certain
countries, or if it was unable to meet the costs, it may incur significant costs, including revocation of the licenses, relating to its
withdrawal from these markets.
For example, if Orange cannot fulfill the conditions under its UMTS licenses or obtain their modification, the licenses may be
revoked and Orange may be liable for damages to the state that awarded the licenses, or to its partners in UMTS development
in these countries, as well as to its creditors or its suppliers. All of these risks could have a significant negative impact on France
Telecom s financial condition and results of operations.
In addition, once its UMTS network has been launched, the costs related to the development and marketing of new products are
difficult to estimate and may be very high, in particular to promote demand for UMTS services or to subsidize UMTxompatible
handsets.
France Telecom cannot be certain that the demand for UMTS products and services will justify the related high costs. low
demand, or demand with weak growth, for UMTS products and services in markets where France Telecom offers them would
adversely affect its results of operations. The level of demand for UMTS products and services may be adversely affected by the
failure of prior preliminary launches by France Telecom s competitors or by the launch of alternative technologies. France
Telecom will need to offset the high purchase costs of the licenses, network capital expenditures and the related amortization
costs with increased revenues from customers. Furthermore, any delay in the provision of UMTS products and services resulting
from problems with suppliers of components of the UMTS network, the roll out of the network, the unavailability of products
compatible with UMTS services, the inability to comply with the requirements of UMTS licenses or any other factor may
adversely affect revenues from UMTS services or the date from which such revenues are generated. If, in the future, France
Telecom s current estimates relating to future cash flow generated under the UMTS licenses are not met, France Telecom
revenues could be adversely affected, and France Telecom could be required to significantly depreciate the value of its UMTS
licenses and related assets recorded in its financial statements.
To the extent that France Telecom expects to generate signifICant cash flows from its wireless telephony subsidiaries, such as
Orange and PTK Centertel, the failure by these activities to generate sufficient revenues could render France Telecom unable to
meet its financing needs related to the development of UMTS or its other activities. Its financial condition and results of
operations may be adversely affected.
For more information relating to the cost and value of UMTS licenses, see "Item S. Operating and Financial Review and
Prospects - 5.1 Orange Segment -Investments in Tangible and Intangible Assets"
France Telecom recorded significant goodwill following the acquisitions it made between 1999 and 2002. Accelerated
amortization of this goodwill may be required, which could have a material negative impact on France Telecom s results.
France Telecom recorded significant goodwill in connection with its acquisitions since 1999, particularly for the acquisitions of
Orange, Equant and TP Group. Goodwill amounted to approximately €26 billion at December 31, 2003. Pursuant to French
generally accepted accounting principles, goodwill is amortized over a period determined at the time the goodwill is recorded.
The value of goodwill is reassessed annually and, when events and circumstances indicate that a decrease in value may occur,
France Telecom depreciates this goodwil~ particularly in the case of events and circumstances that include lasting material
adverse changes affecting the economic environment or affecting the assumptions and objectives that were used at the time
the acquisition. For example, France Telecom depreciated its investments in Equant and in certain subsidiaries of Orange and
Wanadoo in 2002 and 2003. France Telecom cannot guarantee that new events or unfavorable circumstances win not take place
that would lead France Telecom to reassess the value of its goodwill and record additional signifLCant exceptional amortization,
which could have a material adverse effect on France Telecom s revenues.
For further information relating to the exceptional amortization of goodwil~ see "Item S. Operating and Financial Review and
Prospects - 5.8 Goodwill Amortization
France Telecom s technical infrastructure is vulnerable to damage or interruptions caused by floods, storms, fires, power
outages, war, intentional acts and other similar events. Technical network and information technology system failures may
result in reduced user traffic, reduced revenue and harm to France Telecom s reputation.
The occurrence of a natural disaster, such as the major storms in December 1999 that affected service in France at the
beginning of 2000, or the flooding in southern France in 2002, and other unanticipated problems at France Telecom s facilities or
any other damage to or failure of its network could result in interruptions in its service. In 2000, such damages amounted to
approximately €150 million. In certain circumstances, France Telecom has no insurance for damages to its aerial lines and must
itself finance these costs. Information technology system (hardware or software) failures, human error or computer viruses
could also affect the quality of its services and cause temporary service interruptions. While the risk cannot be quantified, such
events could result in customer dissatisfaction and reduced traffic and revenues for France Telecom.
France Telecom will be obligated to adopt new accounting standards in 2005 that may have a material impact on its accounts
and may render a comparison between financiaL periods more difficult.
In June 2002, the European Union adopted new regulations requiring aU listed EU companies, including France Telecom, to
apply International Financial Reporting Standards ("I FRS") (previously known as International Accounting Standards or "IAS") in
their financial statements from January 1, 2005.
The IFRS norms may have a material impact on important items in the accounts and balance sheet of France Telecom. For
further information on the impact of IFRS norms, see "Item 5. Operating and Financial Review and Prospects - 5.
Implementation of IFRS (International Financial Reporting Standards) within the France Telecom Group
The value of France Telecom s international investments in telecommunications companies outside Western Europe may be
materiaUy affected by politica~ economic and legal developments in these countries.
France Telecom has made a significant number of inves~ments in telecommunications operators in countries in Eastern Europe,
the Middle East, the Caribbean, Latin America, Asia and Africa, particularly with respect to its activities in the "Orange" and
Other International" segments.
The political, economic and legal systems of the countries in these regions of the world (as, for example, in the Ivory Coast) may
evoLve in an unpredictable manner. Political or economic upheaval or changes in laws may negatively affect the operations of
companies in which France Telecom has invested, and may impair the value of these investments.
The downgrading of France Telecom s debt ratings in 2001 and in 2002 by rating agencies increased the cost of its debt.
Despite the ratings increases in December 2002, in 2003 and in 2004, the downgrading of its debt rating could limit its ability
to borrow and may increase the cost of access to financial markets.
In October 2001, the rating agencies that evaluate France Telecom s debt downgraded their ratings on France Telecom s short.
and long-term debt. Standard & Poor's Ratings Services, or s&P's, lowered its rating on France Telecom s long-term debt from A.
to BBB+, with a negative outlook, and downgraded France Telecom s short-term debt rating from A1 to A2. Moody's Investors
Service, or Moody's, lowered its rating of France Telecom s long-term debt from A3 to Baa1, with a negative outlook, and
downgraded its rating of France Telecom s short-term debt from P1 to P2. Fitch Ibca downgraded its rating of France Telecom
long-term debt from A- to BBB+ with a negative outlook, and lowered the rating of its short-term debt from F1 to F2. After the
publication of France Telecom s annual accounts in March 2002, S&P's and Moody's placed their respective BBB+ and Baa1
ratings of France TeLecom s Long-term debt, on review for downgrade; similarLy, Fitch Ibca placed its F2 rating of France
Telecom s short-term debt on review for downgrade beginning March 2002. On May 13, 2002, Moody's also placed France
Telecom s short-term debt under review.
On June 24, 2002, Moody's downgraded its rating of France Telecom s long-term debt from Baa1 to Baa3 and downgraded France
TeLecom s short-term debt rating from P2 to P3, with a negative outLook for the long-term debt On June 25, 2002, S&P'
downgraded France Telecom s long-term debt rating from BBB+ to BBB and downgraded France Telecom s short-term debt
rating from A2 to A3. S&P's also put France Telecom s long-term rating on review, with a negative outlook. On July 5, 2002, Fitch
lbea downgraded its rating of France Telecom s long-term debt to BBB., with a stable outlook, and lowered its rating of France
Telecom s short-term debt from F2 to F3. On July 12, 2002, S&P's again downgraded its rating of France Telecom s long-term
debt from BBB to BBB-, with a stable outlook.
These ratings downgrades have limited France Telecom s access to financial markets while it faces significant debt repayments
in 2003, 2004 and 2005. According to the rating agencies, the downgrading of France Telecom s ratings and their placement
under review is due to doubts about France Telecom s ability to execute its debt reduction plan, due to both the deterioration of
market conditions in the telecommunications sector and the diffLCulties encountered by France Telecom in carrying out its asset
disposal program. The rating agencies have also expressed concern about the possible assumption by France Telecom of
MobilCom s debt In this regard, France Telecom recently completed, in 2003, the transactions contemplated by the
Settlement Agreement with MobilCom (see Note 22.3 and Note 26 of the Notes to the Consolidated Financial Statements).
On December 5, 2002, after the announcement related to the launch of the "Ambition FT 2005" Plan (see "Item 4. Information
on France Telecom - 4.1 'Ambition FT 2005' Plan ) Fitch Ibca amended its outlook on France Telecom s long.term debt from
stable to positive and S&P's confirmed its rating of France Telecom s long.term debt at BBB- with a stable outlook. On December
2002, Moody's also confirmed France Telecom s long-term debt rating at Baa3 with a stable outlook. On May 14, 2003, S&P's
increased its rating on France Telecom s long-term debt from BBB- to BBB with a positive outlook and its rating on short-term
debt from A'3 to A-2. On August 7, 2003, Fitch IBCA increased its rating on France Telecom s long-term debt from BBB- with a
positive outlook to BBB with a positive outlook. On September 23, 2003, Moody's increased its outlook on the long.term debt
placed at Baa) from stable to positive, then on December 5, 2003, placed it under positive review. On February 18, 2004, S&P'
increased its rating on France Telecom s long-term debt to BBB+ with a positive outlook. On February 19, 2004, Fitch lbea
increased its rating on France Telecom s long-term debt to BBB+ with a positive outlook. On March 3, 2004, Moody's increased
its rating on France Telecom long.term debt to Baa2 with a positive outlook and its short-term rating to P2, with a stable
outlook.
France Telecom cannot guarantee that the rating agencies will not further downgrade its credit ratings, particularly if the TOP
Program does not produce the expected results or if France Telecom is unable to reduce its indebtedness.
A significant portion of the debt (€17.1 billion outstanding at the end of 2003) includes step-up provisions, or provisions that will
lead to the amendment of the coupons or margins should the ratings of France Telecom change. The deterioration in the ratings
of France Telecom in June and July of 2002 led to an increase in coupon bonds starting September 2002 for bonds denominated
in U.S. dollars or in pounds sterling, and starting in February and March of 2003 for the other bonds (annual bonds). This can be
explained by the impact of the deterioration in the ratings of France Telecom that occurred in 2002 on interest expense which
was approximately €40 minion in 2002, compared to €164 minion in 2003.
Furthermore, France Telecom S.A.'s securitization programs require, where applicable, a rating above BB-
France Telecom cannot guarantee that it win succeed in applying the measures adopted to reinforce or maintain its credit
ratings. It also cannot guarantee that the rating agencies will deem the undertaken measures sufficient In addition, factors
outside France Telecom s control, including factors relating to the telecommunications industry or specific countries or regions
in which it operates, may affect the rating agencies' assessment of France Telecom s credit profiie.
For information purposes, France Telecom believes that a decrease of one notch in its long-term debt rating by S&P's and Moody's
would automatically increase its annual interest expense by approximately €90 minion, based on its current level of indebtedness,
and would also adversely affect its ability to access, and the conditions under which it accesses, the financial markets.
In addition, in the event of a ratings downgrade, certain derivatives contracts and certain contracts related to lease transactions
with distinct third parties may be terminated or require the posting of collateral. France Telecom has already been required to
post collateral for certain of these contracts.
2 RISK FACTORS RELATING TO THE TELECOMMUNICATIONS AND WIRELESS INDUSTRIES
The profound and permanent transformation of the telecommunications industry could render existing technology obsolete.
A defLCiency in France Telecom s response to technologic:.al advancement could lead to the loss of customers or market share
in the sectors in which France Telecom operates and could have an impact on its revenues and results of operations.
The telecommunications industry has experienced profound changes in recent years, and France Telecom believes that these
changes will continue. If France Telecom fails to rapidly adapt its business to meet the developments of the
telecommunications industry, it may be unable to compete effectively and its business activities, financial condition and results
of operations may suffer. France Telecom may be unable to appropriately anticipate the demand for certain technologies or
may not be in a position to acquire or finance the necessary licenses and intellectual property rights in time. Further, new
technologies that France Telecom chooses to develop may lead to significant costs and may not be as successful as planned. As
a result, France Telecom may lose customers or market share or may be obligated to undertake substantial expenditures to
maintain its customers.
The intense competition of the telecommunications industry in Europe may strain France Telecom s resources.
France Telecom faces intense competition in all areas of its business.
In the fIXed line telephony business in France, which has been open to competition since January 1, 1998, France Telecom faces
competition that has created a dramatic reduction in rates, as well as a reduction in its market share from 1998 through 2001. In
addition, competition in the markets for regional and tocal calls is intensifying. The recent regulatory changes, such as the
unbundling of its local loop, the preselection of operators, number portability and main distribution frame access, have
increased the ease with which its customers can use the services of other telecommunications carriers instead of France
Telecom s services. In the local call sector principally, with the introduction of carrier preselection at the beginning of 2002,
France Telecom lost approximately 25% of its market share at December 31,2002. France Telecom expects a further decrease of
its market share and continued decreases of rates in the fIXed line services in France, where it currently enjoys the greatest
market share. In addition, according to France Telecom, an increasing proportion of calls that would previously have been made
over the fIXed line network are now being made on mobile telephones, a process known as Hfixed-wireless substitution . The
level of competition is significantly influenced by decisions of the ART, which could make decisions that would lead to further
declines in rates in the fIXed line telephony business. For further information regarding competition and regulatory decisions
that could affect the level of competition, see Hltem 4. Information on France Telecom - 4.3 Fixed Line, Distribution,
Networks, Large Customers and OperatorsH and Hltem 4. Information on France Telecom -4.12.2 French Regulations
In addition, restructuring by certain competitors and overcapacity in the international transmissions sector could materially
affect France Telecom s results in the international transmissions business. If these conditions continue, they could negatively
impact France Telecom s results in this market In the data transmissions market, Equant and Transpac, both subsidiaries of
France Telecom, face intense competition. The success of the France Telecom group in this market will depend on the ability of
Equant and Transpac to compete with the other large telecommunications operators, intellectual property and data specialists
and new entrants in this market, including operators from competing networks and suppliers of Internet services or other value
added services. France Telecom believes that the number of competitors, the vertical and horizontal concentration of this
activity, the pressure on rates and the competition in terms of market share could increase in the future.
In the wireless telecommunications business, France Telecom faces intense competition in all of its principal markets (particularlyin France and the United Kingdom) from existing and new market participants. In certain countries, France Telecom must
compete with new non-traditional operators that offer wireless communications services without maintaining their own networks
(known as mobile virtual network operators). Although competition based on handset subsidies has diminished in France and the
United Kingdom, competition based on rates, subscription options offered, coverage and service quality remains intense. As these
markets have become increasingly saturated, the focus of competition is starting to shift from customer acquisition to customer
retention, which could lead to higher expenses for customer loyalty initiatives. Rates for wireless communications have been
declining over the past several years and may continue to decline in France Telecom s principal markets.
France Telecom also faces competition in the market for Internet and multimedia services, particularly in France. The Internet
access market is experiencing increased competition and shifting usage patterns which exert a pressure that may be influenced
by regulation, particularly in France. There are few substantial barriers to entry in the Internet industry and connection costs for
users and customers are low. As a result, France Telecom s most significant competitors in this segment may be new entrants
such as the French postal service that would not be burdened by the costs of modernizing older equipment It may be very
expensive for France Telecom to upgrade its networks, products and technology in order to continue to compete effectively
with other competitors. Wanadoo faces competition in the printed directories market from editors that offer regional directories
in France. Online directories remain highly competitive with many market participants.
Competition in any or all of France Telecom s lines of business could lead to:
. price erosion for France Telecom s products and services;
. an inability to increase market share or a loss of market share;
. loss of existing or prospective customers and greater difficulty in retaining existing customers;
. more rapid deployment of new technologies and obsolescence of existing technologies;
. the increase of costs related to investments in new technologies that are necessary to retain customers and market share;
. increased pressure on France Telecom s profit margins, preventing it from maintaining or improving its current level of
operational profitability; and
. difficulties repaying the debt it incurred to finance its acquisitions and strategic and technological investments if it cannot
generate revenues and an adequate gross margin of internal financing.
If growth in the Internet and wireless businesses slows, France Telecom s revenues may not grow as rapidly as in the past and
may even decrease, which in turn coutd adversely affect its profitability.
In recent years, France Telecom s revenues, at a constant exchange rate, have grown in large part because of rapid expansion in
its Internet and wireless communications businesses, in line with growth in the Internet and wireless markets in Europe. If these
markets do not continue to expand, particularly in France and the United Kingdom, France Telecom s revenue may not grow or
may even slow, which in turn could affect its financial condition and results of operations, in particular if the revenues of the
Fixed Line, Distribution, Networks, Large Customers and Operators" segment were to decrease.
Despite the current trend towards deregulation in France and other European countries, France Telecom continues to operate
in highly regulated markets in which its flexibility to manage its business is limited.
France Telecom must comply with an extensive range of requirements that regulate and supervise the licensing, construction
and operation of its fixed line, wireless and Internet networks and the provision of its products and services. It must also
cooperate with agencies or other governmental authorities that regulate and supervise the allocation of frequency spectrum
and that oversee the general competitiveness ofthe telecommunications market. Furthermore, France Telecom faces a number
of regulatory constraints as a result of its dominant position in the fixed line telecommunications market in France, including
certain obligations that lead to significant costs. For example, France Telecom is required to provide interconnection services
other operators on terms that must be approved by the regulatory authority. France Telecom is also required to have its rates
for fIXed line voice telephony services approved by the regulatory authority prior to implementation. France Telecom believes
that, in general, it fulfills the requirements imposed by the applicable regulations, but it cannot predict the opinion of regulatory
or judicial authorities, who could be asked to review or have already been asked to review France Telecom s compliance.
Like other operators, France Telecom s activities and operating income may be impacted significantly by legislative, regulatory and
governmental changes and, in particular, by decisions made by regulatory authorities and competition authorities in relation to:
. granting, modifying and renewing licenses (see "Item 5. Operating and Financial Review and Prospects - 5.1 Orange
. Segment - Investments in Tangible and Intangible Assets" for further information on the renewal of the GSM license in
France);
. rates or the possibility of extending activities to new markets;
. network accessibility to virtual network operators and other service providers; or
. access to third party networks.
Such decisions could significantly impact results of operations.
The following can be cited as examples of risks related to regulatory changes or decisions: the conditions for the renewal
Orange France s GSM license and Wanadoo s obligation to submit to the European Commission accounting information related
to its broadband offers.
Regarding the first point, the GSM license granted to Orange France for a period of 15 years, from March 25, 1991, expires in
March 2006. In compliance with the terms of the license, the conditions for renewing the license, like those for SFR, were
defmed in March 2004. The new conditions approved by the French government provide for a 1% fee per year on the revenues
of wireless operators, in addition to a fee of €25 million per year. The wireless operators have agreed to continue to reduce the
price of SMS text messages and will work in close cooperation with the French State, local authorities and the regulatory
authority to complete the rural area coverage program and ensure 100% wireless telephony coverage for all French towns and
villages. In other countries where it operates, France Telecom cannot foresee the new conditions that will be applicable within
the framework of GSM licenses following their renewal, and in particular, cannot dismiss the possibility that the cost to the
operator may be significantly higher than the current cost of the license fees.
Regarding the second point, within the framework of a July 2003 decision by the European Commission (see Note 29 of the
Notes to the Consolidated Financial Statements) imposing a fine of (10.4 million on Wanadoo France for having abused its
dominant position in the retail market for broadband Internet access by practicing predatory pricing between 2001 and October
2002 (Wanadoo filed an appeal against this decision), the European Commission has required that Wanadoo France furnish it
with its operational accounts related to its broadband offers until 2006, in order to enable the Commission to verify that
Wanadoo France is not engaging in predatory pricing.
Furthermore, licenses are required in most countries to provide telecommunications services and operate networks. These
licenses frequently impose requirements regarding the way the operator conducts its business, including, in particular,
minimum service requirements, roll out completion deadlines, and network quality and coverage.
Failure to meet these requirements could result in fines or other sanctions, including, ultimately, revocation of the licenses.
Alleged health risks of wireless communications devices could lead to decreased wireless communications usage or increased
difficulty in obtaining sites for base stations or Utigation, that may have adverse effects on the results of operations of France
Telecom.
In France, by decree dated May 3, 2002, the Health Ministry required wireless operators to provide their customers with
recommendations on the use of mobile telephones and information on the remaining uncertainties relating to potential health
risks. In addition, Orange signed charters of good conduct relating to the installation of transmitter sites with other operators
and certain municipalities in France. On January 21, 2003, the ART published a scientific study regarding the health risks
associated with wireless telephone transmitter sites and mobile telephones. The results of this study, ordered by the French
National Institute for Industrial Environment and RiSks (the Institut national pour I'enllironnement industriel et des risques,
Ineris"), confirmed the conclusions of an independent report published in 2001, which found that "no study has been able to
conclude that exposure to radio-frequency fualds emitted by mobile telephones or their base stations have had a harmful
influence on health". In total, at least four scientific studies with the same conclusions, including the one mentioned above,
were published in 2003.
In the United Kingdom, a study on wireless telecommunications health issues conducted by the Independent Expert Group on
Mobile Phones, known as the Stewart Report, reported that to date, there is no evidence that suggests that wireless phone
technologies pose a health risk for the general public. The Department of Health in the United Kingdom has nevertheless
required that information be made available to customers so that they can make their own informed choices about how to use
mobile phones. In the United Kingdom, Orange and other wireless network operators are promoting in-depth scientific research
into wireless technology through joint fmancing of a program with the government of the United Kingdom. The published
scientific studies concluded that no long-term health risks exist
While to date France Telecom is not aware of any substantiation of health risks associated with wireless communication
devices, actual or perceived health risks may adversely affect France Telecom s results of operations or financial condition
through a reduction in the number of customers, reduced usage per customer, exposure to potential litigation or other liability.
In the event that future evidence is considered to show that health risks exist, the use of mobile phones could be subject to
regulations which, for example, could limit emission levels from handsets or transmitter sites. Such regulations could have an
adverse effect on France Telecom s operations and results of operations,
3 RISK FACTORS RELATING TO FINANCIAL MARKETS
France Telecom s business may be affected by fluctuations in exchange rates.
A significant portion of France Telecom s revenues and expenses are accounted for in currencies other than the euro. Over the
course of 2002 and 2003, the main currencies for which France Telecom was exposed to exchange rate risk were the pound
sterling, the Polish zloty and the U.S. dollar. Where appropriate, France Telecom enters into derivative instruments to hedge
underlying exposures to changes in exchange rates, but France Telecom cannot guarantee that these derivative transactions win
effectively or totally hedge its risks. To the extent that France Telecom has not entered into derivative instruments to cover a
portion of this risk, or if its strategy of using these instruments is not successful, France Telecom s cash flow and revenues may
be affected. Derivative instruments are described in Note 20 of the Notes to the Consolidated Financial Statements.
For consolidation purposes, the balance sheets of France Telecom s consolidated foreign subsidiaries are converted into euro
using the exchange rate at the end of the period, and their income statements and cash flow charts are converted using the
average exchange rate for the period. The impact of such a conversion on the balance sheet and shareholders' equity may be
significant. From one period to another, fluctuations in the average exchange rate relating to a particular currency may
significantly affect the reported revenues as well as the expenses incurred in such currency, as reflected in France Telecom
income statement, which could significantly affect its r~sults of operations. For example, in 2003, the impact of fluctuations in
the exchange rate on France Telecom s revenues was approximately €2 billion.
France Telecom s business may be affected by fluctuations in the fmancial markets, including changes in interest rates.
In the ordinary course of its business, France Telecom is exposed to financial market risks, including changes in interest rates.
Where appropriate, France Telecom enters into derivative instruments to hedge underlying exposures to changes in interest
rates. The derivative instruments used by France Telecom are described in Note 20 of the Notes to the Consolidated Financial
Statements. France Telecom s exposure to market risks is described in "Item 11. Quantitative and Qualitative Disclosures about
Market Risk -11.1 Exposure to Market Risks and Financial Instruments"
Risk factors relating to the volatility of France Telecom s shares.
France Telecom SA's share prices may fluctuate due to a number of factors, including:
. a change in France Telecom s credit rating, or level of indebtedness or sales of assets;
. changes in recommendations made by financial analysts with respect to France Telecom;
. changes in analysts' forecasts regarding the markets in which France Telecom operates;
. an announcement by France Telecom or one of its competitors regarding strategic partnerships, results of operations, changes
in its capital structure or other important changes in activity;
. the recruitment or departure of key employees; and
. general stock market fluctuations.
Following the exchange offer for Orange shares completed in 2003, France Telecom held none of its own shares at
December 31, 2003.
In addition, the share prices of France Telecom s listed subsidiaries, Wanadoo, Equant and TP S.A., may fluctuate. This could
impact the financial condition of France Telecom or its share price.
Future sales by the French State of its shares in France Telecom may impact France Telecom s share price.
At December 31, 2003, the French State held, directly or indirectly, through the intermediary, ERAP, approximately 54.5% of the
share capital of France Telecom. Until January 2004, the French State had the legal obligation to hold more than SO% of theshare capital of France Telecom. However, French law no. 2003-1365 of December 31, 2003, relating to the public
telecommunications service and to France Telecom, allows the French State to transfer its holding to private investors. If the
French State decides to reduce its holding in the share capital of France Telecom, such a sale or even the perception of potential
sales could impact France Telecom s share price.
The price of France Telecom s ADSs and the U.s. dollar value of any dividends wUl be affected by fluctuations in the U.s.
dollar/euro exchange rate.
The ADSs are quoted in U.S. dollars. Fluctuations in the exchange rate between the euro and the U.S. dollar are likely to affect
the market price of the ADSs. For example, because France Telecom s financial statements are reported in euro, a decline in the
value of the euro against the U.S. dollar would reduce France Telecom s earnings as reported in U.S. dollars. This could adversely
affect the price at which the ADSs trade on the U.S. securities markets. Any dividend that France Telecom might pay in thefuture would be denominated in euro. A decline in the value of the euro against the U.S. dollar would reduce the U.S. dollar
equivalent of any such dividend.
Holders of ADSs may face disadvantages compared to holders of France Telecom s shares when attempting to exercise voting
rights. Holders of shares wishing to exercise their voting rights must block their shares for at least five days prior to the
shareholders' meeting pursuant to French law.
In order to vote at shareholders' meetings, ADS holders who are not registered on the books of the depositary are required to
transfer their ADSs for a certain number of days before a shareholders' meeting into a blocked account established for that
purpose by the depositary. Any ADS transferred to this blocked account will not be available for transfer during that time. ADS
holders who are registered on the books of the depositary must give instructions to the depositary not to transfer their ADSs
during this period before the shareholders' meeting. ApS holders must therefore receive voting materials from the depositary
sufficiently in advance in order to make these transfers or give these instructions. There can be no guarantee that ADS holders
will receive voting materials in time to instruct the depositary to vote. Also, the depositary is not responsible for failing to carry
out voting instructions or for the manner of carrying out voting instructions. It is possible that ADS holders, or persons who hold
their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote at all
In order to participate in any general meeting, a holder of shares held in registered form must have its shares registered in its
name in a shareholder account maintained by France Telecom or on France Telecom s behalf by an agent appointed by France
Telecom by 3:00 p.m. (Paris time) the day before the meeting. A holder of bearer shares must obtain a certificate (certificat
immobilisation) from the accredited intermediary with whom the holder has deposited its shares, and the certificate must state
that the shares are not transferable until the time fiXed for the meeting. The holder must deposit this certificate at the place
specified in the notice of the meeting by 3:00 p.m. (Paris time) the day before the meeting.
Preemptive rights may be unavailable to holders of France Telecom s ADSs.
Holders of France Telecom s ADSs or U.S. resident shareholders may be unable to exercise preemptive rights granted to France
Telecom s shareholders, in which case holders of France Telecom s ADSs could be substantially diluted. Under French law,
whenever France Telecom issues new shares for payment in cash or in kind, France Telecom is usually required to grant
preemptive rights to its shareholders. However, holders of France Telecom s ADSs or U.S. resident shareholders may not be able
to exercise these preemptive rights to acquire shares unless both the rights and the shares are registered under the Securities
Act of 1933 or an exemption from registration is available.
If the depositary is unable to sell rights that are not .exercised or not distributed or if the sale is not lawful or reasonably
practicable, it will allow the rights to lapse, in which case no value will be given for these rights.
3.4 RISK FACTORS RELATING TO LEGAL PROCEEDINGS
France Telecom is involved in several investigations or legal proceedings that are more fully described in Note 29 of the Notes to
the Consolidated Financial Statements. France Telecom s position as the leading operator and provider of networks and
telecommunications services in France and one of the leading telecommunications operators in the world subjects it to the
scrutiny of its competitors and French and European competition authorities. In addition, France Telecom is regularly involved
in legal disputes with competitors as a result of its leading positions in the fixed and wireless telecommunications markets in
which it operates. With the exception of the proceedings set forth in Note 29 of the Notes to the Consolidated Financial
Statements, France Telecom believes that none of these proceedings, taken by itself, would have a material adverse effect on
the financial condition or results of operations of the Group.
2 RESULTS OF THE TOP OPERATIONAL IMPROVEMENTS PROGRAM
The following table shows the reductions achieved in operating expenses before depreciation and amortization and before
amortization of actuarial adjustments in the early retirement plan roperating expenses before depredation and amortization
or "aPEX"; see "- 5.9 Non-GAAP Financial Measures and Financial Glossary - Financial Glossary'") and investments in tangible
and intangible assets (excluding UMTS/GSM licenses) ("(APEX") between 2002 and 2003, in the context of the implementation
of the TOP Program.
(€ millions)Year ended December 31,Variations
2003 2002 2002
historical
200312002 200312002
historical
OPEX(2)
CAPEX
Operating income before depreciation
and amortization less CAPEX
Changes in working capital (trade)O)
(28,818)
086
on a
comparable
basis(')
(unaudited)
(30,305)
950
(31,713)
7M1
on a
comparable
basis
(unaudited)
487
864)
895
(2,355)
12,217
(1,278)
355 7A75
(992)
863 742
(1) The calculation, using figures on a historical basis, of figures on a comparable basis is set forth above and below,
(2) OPEX is equal to the sum of costs of goods and services sold, selling, general and administrative expenses and research and development
expenses, as presented by destination on the income statement These expenses are also followed on the basis of type of expense, as detailed
below.
(3) Changes in working capital (trade) is discussed below, See --:; 5.4.2.Net Cash Provided by Operating Activities
TOP projects crossed from the launch stage to the roll-out stage. After priority given to projects delivering rapid results in the
first quarter of 2003, the gradual restructuring of principal procedures delivered its flfst results and is being integrated at all
levels of the organization to improve operating performance in a continuing manner.
The results achieved from the TOP Program during 2003 exceeded targets. These results should permit the acceleration of debt
reduction for the Group, while reinforcing its growth.
France Telecom affirms its goal to generate more than €15 billion of free cash flow over the period 2003-2005, through the TOP
Program. In 2003, France Telecom generated more ' than €6.4 billion in free cash flow excluding asset disposals (see
- 5.2 Liquidity"), compared to an initial goal of more than €3 billion raised to more than €4 billion excluding asset disposals.
. Changes in operating expenses before depreciation and amortization
See "- 5.2 From Revenues to Operating Income Before Depreciation and Amortization - Operating Expenses Before
Depreciation and Amortization Excluding Personnel Costs"
Operating expenses before depreciation and amortization by type of expense is an alternative presentation to operating
expenses as they are presented on the income statement by destination (cost of services and products sold, selling, general and
administrative expenses and research and development expenses) - see Note 5 of the Notes to the Consolidated Financial
Statements for information regarding how these presentations inter-relate. Following the implementation of the FT Ambition
Plan 2005 plan, management follows Group operating expenses before depreciation and amortization by type of expense. As a
result, the discussion of Group 2003 and 2002 results focuses on operating expenses before depreciation and amortization by
type of expense, while the discussion by segment focuses on operating expenses before depreciation and amortization by
destination.
Between 2002 and 2003, operating expenses before depreciation and amortization decreased €2,895 million.
On a comparable basis, the gains recorded for operating expenses before depreciation and amortization for the same period
were approximately €1,487 million.
In 2003, operating expenses before depreciation and amortization amounted to approximately €28.8 billion, compared to €30.
billion in 2002 on a comparable basis, or approximately"62.5% of revenues compared to approximately 67.9% for the year earlier
period, an improvement of over 5 points.
106
EXHIBIT G
---~.__
--L'~
._-~~-~~~
~ A R. I
~~
P A G E.s.~
SEE
--=--~.~-~.." ---~. -~ ~~-
CASE FILE
-------=",.------~_.---_.
,--'-'_J~,"-'~~ '0._'
-- =--
_n_---WC
~~ ~~-~-" ,- -~" -- ---".~.~... "-'~" ."=""
-". v.
- .~-~ ". - ~ ..'- .---- -----~--- - ---------- ,,~~--~-----~----~-~--~=~---" ~~~-----