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The general public in France, which has a 95% recognition rate of the brand ´ minitel ª, thinks of the word as referring almost generically to on-line services.' In April of 1997, there were 6.3 million minitel receivers installed in French homes and businesses, as well as 1.3 million micro-computers using emulation software enabling the use of the computer as if it were a minitel box. In all, minitel is accessible to some 17 million people, which correspond to about 30% of France's population.1

In May 1994, an international minitel directory assistance service (SIRIEL) was launched involving telephone subscribers in France, Germany, Belgium, Spain, Portugal, Switzerland and the United States. The directory assistance service may be consulted in French, English, German, Italian and Spanish. Since November 1996, minitel users can access the web (3615 - minitelnet), and web surfers can, since February 1997, consult the minitel (http://www.pageszoom.com).

With the introduction of higher speed minitel boxes (9,600 bauds, 14,400 bauds and a promised 28,00 bauds), the border between the minitel and the web is gradually disappearing.

The minitel directory assistance service, which substitutes for telephone information operators, currently gets some 4.5 million inquiries a day. This traffic has attracted some 170,000 advertisers, which pay some $ 100 million a year for spots.

The minitel also offers the equivalent of some 25,000 sites proposing a wide range of on-line services (banking, transportation reservations and information, mail order marketing, weather reports, classified ads, business services).

The minitel generates for France Telecom annual sales of more than 7 billion francs, about 40% which are passed through to the service providers.

The minitel is used in France about 50/50 for business and for personal purposes.

The minitel, which was launched nation-wide in France in 1984, is a characteristically French development. Its history reflects both the impatience of a late arriver and the potential force, for better as well as for ill, of the State in the development of new technologies.

Telephone services were primitive in France well into the 1970s with penetration rates hobbling at around 15%. But by the mid 1980s on-line services in France were arguably the most advanced in the world precisely because of the availability of the minitel.

After the Second World War in France, the State Plan played a considerable role in the allocation of resources not so much by virtue of its legal effect as the fact that the State controlled large segments of industry, including in particular telecommunications and late broadcasting.' At first the Plan neglected telecommunications. For instance in 1976, when I moved Paris, in the very center of Paris there was a several week wait to get a telephone line. Elsewhere in the city and in the outskirts, the waiting periods were much longer. At the same date, access to telephone lines was much readier in the United States, Canada and Hong Kong.

But once the French Government discovered the importance of telecommunications and lifted its development to the level of a national goal, the country catapulted itself to a world leadership position.

As part of France's early commitment to on-line services, the State-owned monopoly France Telecom invested massively in minitel sets which for the first 15 years were given away to users as a means to induce them to use the minitel (the total capital equipment investment was at the time estimated to be some 6 billion Francs which might well correspond to F 30 billion in current Francs. If the equipment had not been given away, it is doubtful that the minitel would have been adopted by the public. The early growth stage of the minitel illustrates a classic crosssubsidization by a monopoly of its excessive profits from restricted activities (telephone services) to an emerging segment akin to a public good in that it could never achieve a critical mass without huge investment in the network infrastructure, after which marginal costs fall drastically and new entrants could destroy the unprotected operator of the infrastructure. In support of this thesis, it might be mentioned that once the minitel had become known internationally, efforts were made in other countries to promote a similar service, notably in the United States (Tîme Inc., Scripps-Howard). These efforts failed miserably. The explanation is considered to lie in the refusal of potential users to invest in a strange piece of equipment giving access to few services and other users at the outset.


What is the difference between minitel and the web? Minitel sites lack the attractive graphics of the web. In other words, they will look underdeveloped compared with web sites. Basically, then, the operator of a minitel site that wants to go onto the internet will usually develop its internet site from scratch to take advantage of all the graphic and audiovisual functions of the web which are not possible on the minitel.

The minitel might be situated on a plane with large intranets or extranets, but specialized by country (France) rather than by some other center of interest (news reports, financial information and/or opera , etc.).

France Telecom has now made the minitel accessible from the web. the service is called Wanadoo (www.wanadoo.com). It was launched in May 1996. One year later, it had attracted some 35,000 subscribers, which are divided about 50/50 between business and personal users. An interesting feature of Wanadoo's subscriber base is that some 60% are beginners with the internet. France Telecom's ambition for wanadoo by the end of the year 1997 is 100,000 subscribers. The total cost to the user (subscription plus utilization) is high compared with competitors, prices especially for regular users.

Now on the receiving end, the minitel receiver has no memory.

In short, the minitel receiver is dumb, compared with a multimedia computer. As a result, much more interesting, value laden activities can be carried out on the internet more easily trough a computer than on the minitel. In this respect one might expect that the minitel is doomed to disappear faced with the onslaught, of the internet. While not being in fundamental disagreement with this I would add the following qualifications.

First, the revolution that is internet compared with minitel,

is just part of a much more significant process, the revolution of the internet into a truly multidimensional media combining telephone and audiovisual communications. In this context, the minitel is just another box destined to disappear in favor of products better adapted to the uses that will be made of digital means of communication in the future. So minitel's problem is the same as that of any other multimedia box vendor. Indeed minitel may even have a major advantage in so far is it does have 7 million subscribers which it will have first shot at bringing into the digital revolution. As a matter of fact, the operators of minitel sites are optimistic about the prospects of the minitel in the near term (3 years) and are planning to further develop their minitel sites. They consider that their experience operating minitel sites will be an advantage when setting up on the internet. 75% of the minitel sÏte operators either have on or have in process a web site.

Secondly, the evolution is not uniformly toward ever smarter

boxes to interface between the household and the outside world. In particular, one trend is toward a relatively dumb TV set top box that would also allow access to the internet. Such equipment is already on sale and companies in this line are attracting considerable interest (witness Microsoft's purchase of Web TV for some $ 425million, not to mention the projects of Oracle, Sony, etc.). Faced with the challenge of the internet, France Telecom might consider running a revised minitel box up against the TV/internet boxes (after all France Telecom is also heavily committed in cable and

satellite television)

Of course, France Telecom could also abandon its commitment to ownership of minitel boxes and leave this market to others. In any case, the opening of the telecommunications equipment sector to competition will reduce the margins of the sector to barely attractive levels especially for a relatively "fat" France Telecom.

In a word, the minitel box as such will no doubt disappear but so will most other current formats Interfacing

the electronic world.


The French multimedia industry is now well placed to profit

from the digital revolution.

In terms of infrastructure, France is one of the only

countries In world with a fully digital electronic switching

system (including 90% using time-division technology). France is the fourth largest market for telecommunications equipment and the fifth largest for telecommunications services.

France's early accession to on-line services through the

minitel is on balance an asset not a liability. At least 25,000 minitel service providers are ready candidates for the launching of a substantial corpus of French language sites. The French public is accustomed to on-line communications. Once the computer becomes more available in French households, it may be expected that the French internet population will grow by leaps and bounds,

especially since most computers now sold in French stores are

equipped with built-in modems.

French creative talent in the arts and design on the one hand

and in mathematics and computer programming on the other hand

encourage an optimistic outlook for the development of the content of multimedia products. Of course everyone in the room will recognize the name of Samuel Morse, an American, who invented in 10837 the electric telegraph, but it was a Frenchman, Claude Chappe, who, in 1792, invented the optical telegraph! A rather more actual reference might be the 6,000 French software firms that have propelled their country into a European leadership position in this sector.

France Telecom ranks fourth in the world in telephone services. Alcatel is sixth in the world in the production of telecommunications equipment. On the audiovisual front, Canal + is the world's second largest pay television service. And France remains one of the only OECD countries where locally produced films attract a substantial share of the viewing public (about 30%). Thomson Multimedia occupies the world leadership role in high-end television receivers and has recently scored a major victory through its RCA unit in the United States. With the successful launch of Direct TV, Thomson Multimedia is placing millions of its decoder boxes.

A further competitive advantage of French industry might well be its mastery of the smart card technology which is widely used in France and is probably the most effective system of access control and party identification. The inventor of the smart card is a Parisian, and the industrial pioneers are French, Schlumberger, and Gem Plus for instance. In fact, France Telecom has already created two services for on-line sales relying on smart cards for utility and tax bills; and Facitel which is used for the payment of everyday consumer goods (travel tickets, insurance, books, CDs). France Telecom estimates that the French market for this service could in the near future reach 3,000,000 smart card readers among households and businesses in France.

Finally, the French government is taking a positive view of such efforts including the provision of financial support for multimedia projects. Recently the President of France has committed the country to providing internet access throughout the public schools system.

Ultimately though, as in other countries, the most strategic decisions are made by the telecom operator, more or less subjugated to the control and the will of public regulators and/or owners. In the on-line services market, certainly in France, and I think elsewhere as well, there seems to be little doubt that the channel leader or captain is the telecom operator. With its large capitalization, is installed plant and established customer base and experience in the sales promotion methods and payment collection systems adapted to small accounts, the telecom operator's strategies determine the context in which other economic operators will decide their initiatives. It is therefore useful, in the French context, to pay special attention to France Telecom when assessing the prospects of the local on-line service market.

France Telecom has in recent years discharged annual cash flows of some 40 billion Francs most of which is reinvested in fixed assets.

Of course France Telecom's principal competitive advantages are the same as those of most other national telcos: ownership of the installed plant, dominance on its national market for telecommunications services, including those for emerging segments such as wireless or audiovisual transmissions (cable and satellite), good brand recognition on the national level and, at least in the case of France Telecom, the international level.

In the new globally competitive environment, France Telecom is reinforced by its alliance with Deutsche Telecom and Sprint covering business clients. A cross shareholding in each other's capital remains a prospect for France Telecom and Deutsche Telecom, but in the meantime the fruits of the alliance should be especially significant internationally, on the internet, in teleconferencing and in wireless communications.

Still even on its home market, France Telecom has competitors with clout, not just foreign entrants (MCI, EDS, British Telecom) but local mastodontes of French business. For instance, in France's most rapidly growing segment of the telecommunications market (wireless), France Telecom has been facing off with Générale des Eaux (a diversified public services multinational, major cable operator and licensee of one the 3 national wireless networks) and Bouygues (a world leading construction company and owner of France's leading national broadcast television station).

Yet, notwithstanding its vociferous claims to the contrary, it is hard to imagine France Telecom not finding ways to cross subsidize its relatively strong segments in favor of emerging markets foreclosing opportunities for start-ups. For instance, France Telecom's local rates on telephone calls placed in France have fallen as on an asymptotic curve approaching stabilization at January 1, 1998 when the deregulation of telecommunications infrastructure and services comes into effect in the European Union and under the GATT auspices. France Telecom boasts of being the first internet access provider to offer a single price for connecting anywhere in France. France Telecom has also invested the internet such as by the creation of internet access and value added content providers (Wanadoo) and a content production unit (VTCOM). One cannot help but wonder if France Telecom's monopoly inheritance is not being abused in the process.2

The stock market appears bullish on France Telecom as the success of its recent issue attests. In particular, the initial public offering of some 20% of France Telecom's stock was oversubscribed at the individual investor level by 2.9 times. At the time of issue, the reference price was F 182 but, in heavy trading (2 billion francs-worth of shares in 1/4 of an hour), the price rose 17% to F 214. The public offering raised some $ 6 billion and rocketed France Telecom to the number one position on the French stock markets in terms of market capitalization (F 220 billion just ahead of Elf Acquitaine). In France, the issue attracted a record number of individual investors (3.8 million). After the placements with the public of 75 million shares, with professionals of 115 million shares and employees of 21 million shares, the State will retain some 62-63% of the capital.

At the same time, the French manifest contrarian attitudes toward computer use in the home as well as toward consumption of audiovisual programs by cable or satellite.4

France is Europe's second largest information technology market and the fourth largest computer market in the world. France's national champion in computer hardware is Bull. Bull ranks only second on its national market, after IBM, and even at that, its sales are rather doped by French government purchases. The French computer hardware industry has never played a world leadership role. But the Bull-Zenith-Packard Bell alliance might change this situation. Also computer sales trends in France for the last few weeks have showed a very promising surge in home use.

As regards the audiovisual sector, one partial and persuasive explanation for the relative underdevelopment in France is the lack of French language programming to attract viewers to the multichannel environments. In the film and television businesses, the costs of producing programs are so high that productions in French have difficulty reaching a critical mass of audience, even at the world level. Outside of France, the number of people speaking French as a native tongue or second language is apparently going down, as English extends inexorably its coverage. Currently, French is spoken as a principal language by some 155 million people (2.5% of the world's population). Perhaps as many as another 350 million people can speak some French. While this number is much less than English or Chinese, the francophone peoples are relatively well organized on the international level. For instance, the recent meeting of chiefs of 47 francophone States held in Vietnam decided the appointment of a permanent Secretary General for their organization (the former UN Secretary general, Mr. Boutros Boutros Ghali).

Still, the trend of development of the French language throughout the world will not easily be reversed. On the other hand, multimedia products, such as CDs, the internet and digital television will all make multilingual communications less expensive and more attractive. In that sense the French language interest might best be served by promotion of open communications rather than the rather defensive attitude adopted by the French Government during the GATT Uruguay Round of negotiations in seeking to keep the television sector and the new media out of the GATT freedom of trade movement.


As regards the legal aspects of the internet in France, there is a great deal of debate but in the end very little constraining legislation with respect to the provision of services on the internet.

From the point of view of a foreigner, it is not clear what scope of jurisdiction the various French authorities will seek to exercise, nor even necessarily which authorities will be competent with respect to on-line services. The basic principle of French law. is that telephony is subject to the Telecommunications Regulatory Authority (Autorité de Régulation des Télécommunications) and audiovisual activities are subject to the Audiovisual Superior Commission (Conseil Supérieur de l'Audiovisuel). What distinguishes

telephony from audiovisual services is the degree of openness of the communication (telephony = one on one or close thereto, audiovisual = broadcasting or similar thereto, and presumably somewhere in between we find the internet). None of the French regulatory authorities appear to have followed such few foreign counterparts as have limited offshore promotion of activities that are restricted if performed in France. As an example, there are currently no laws or regulations restricting the offer to, and trading on behalf of, French residents of foreign securities by offshore brokers. (on the contrary, in the UK a foreign internet broker's site is considered in and of itself an advertisement of securities if it can be accessed by internet users in the UK and accordingly the foreign broker's site and related activities are subject to UK rules on registration of securities and securities firms.)

As regards the use of the French language, so far the widest claim. to jurisdiction would cover only sites domiciled on servers in France. At the beginning of 1997, an action was brought against an American University site domiciled in France, which was presented in English only. The action claimed that the site violated a French law requiring that all foreign languages advertisements include a French translation. For reasons not related to the substance of the action, it failed. Nevertheless, the issue is likely to reappear in some other context in the future.

Domain names may be protected in France with France NIC (http://brunner.cnam.fr/Network/Internet-access/fr-nic.html)

under circumstances similar to those applied by foreign national domain name depositaries. Issues regarding the relationship between domain name registration and trademark or service mark registration have not been commented upon by the French courts. But my personal expectation would be that a trademark registration in France, or extended in a timely fashion to France from a country in a treaty with France providing a period of priority for registration in

other member countries, would preva-J-1 over a subsequent, and even a prior, domain name registration, whether in France or elsewhere. As France is a rather fervent partisan of the first to register school in matters of trademarks, foreign site operators May want to consider registering their site names as trademarks in France in order to avoid preemptive trademark registrations of their site names by unscrupulous operators in France.

As regards the application of traditional copyright laws to multimedia projects, the same problems as encountered elsewhere also arise in France. Particularly thorny problems; arise in the context of movie contracts predating the digital revolution: for instance, when such contracts transfer or license "audiovisual retransmissions", does this language cover broadcasting over the internet? There is little doubt on the other hand that placing of copyrighted information on an internet site domiciled in France would be a violation of French criminal laws. Citations of sites (such as through links) however would be permitted under French copyright laws (the citation exception) provided there were no misappropriation or distortion of the copyrighted material.

France has not so far sought to control violations of French laws from a foreign internet sites. For instance, in the case of the publication on the internet of the book by President Mitterand's fourteen-year secret battle with cancer, its loading onto a server located in France could be stopped, but when the contents were immediately relayed by offshore sites, no recourse was sought against such operators by the French authorities. Similarly, when foreign sites began publicizing, in contradiction with French laws, opinion polls too close to the day of elections held in France, no coercive or punitive measures were attempted against the operators of the foreign sites.

Continuing our examination of important points of the French regulatory framework from the viewpoint of a foreign internet service provider, mention should be made of a peculiar twist to French and indeed European tax laws. European Union countries apply a value-added tax, the international implications of which are subject to EU directives. The international implications of taxation of income (including corporate) are generally subject to OECD model convention principles. Internet service providers operating from sites domiciled on servers located within France will almost certainly be subject to the French VAT and income taxation regimes. The difficulty arises in connection with sites domiciled on servers outside France but carrying on business with users located in France. As regards income taxation, such activities would probably escape French taxation but in certain circumstances (when the offshore site's customer is a French consumer for instance), the foreign site operator is under French law obligated to add to its price the amount of the French VAT (20.6%) and appoint a fiscal representative in France to file its declarations to the French tax authorities. Whether such instructions will be widely followed in fact by foreign operators remains to be seen but the opportunities for tax avoidance are pretty obvious and almost irresistible.

On the matter of respect of freedom of expression on the one hand and respect of basic morals on the other, France's norms strike a peculiar balance. In cases of violation of state secrets and individual privacy laws, the French courts, often the criminal courts, order the cessation of the violation (such as by causing infringing passages in a book to be stricken) whereas some other nations' courts would be more likely allow the distribution as a protection of free speech but sanction the violation by the payment of compensatory damages. France has a long experience in on-line pornography with the so-called "telephone rose" (pink telephone) message services contributing much impetus to the early growth of the minitel in France. In a recent case, a dating service was accused of running a prostitution ring in so far as it might be proved that many of the women and the male customers of the service subsequently, in the end, had sexual relations in exchange for money. The minitel site operator's claim of ignorance of the outcome of the connections realized via its minitel service would probably not be a defense.


By way of summary, the minitel is a typically French story. It began as a State-sponsored attempt to accomplish a technological leap from telecommunications retardation to world leadership. The minitel could not have succeeded without massive government financial commitment to the dissemination, free of charge, of minitel boxes. While many observers are asking whether the minitel can survive in the age of the internet, the important issues are rather: who is going to find the magic box that best interfaces with the electronic world and what kind of instrument will it be? The answer is complicated by the need to time rapidly progressing engineering specifications with difficult to foresee consumer demand. In the end, the answer to the riddle may well be in the Far East where there remain the world's most promising consumer markets, where leadership in industrial performance has long been admired by American and European competitors, where there has been spawned a plethora of world renowned brands, around which may be mobilized massive financial and impressive human resources.

1 In the glossary of France Telecom ´- minitel ª actually refers only to the box from which users access a variety of on-line services.

2 It might be argued that France Telecom really did not have to join the fray in competition with private start-ups (such as Infonie, a branch of Infogrammes, a leading French multimedia content producer). France Telecom does not manufacture its own equipment.