Operation Model of France Telecom Group

      The annual report of France Telecom Group (FT) for the fiscal year 2005 shows an impressive revenue growth over the past year. As one of the world´s leading telecommunications operators based in Paris, FT focuses on the European market and provides a complete portfolio of services as well as solutions to customers around the globe. It is the biggest mobile operator in both France and Britain and is now serving 84.315 million subscribers in 19 countries. Moreover, it is the biggest provider of Internet access services in France and second in Europe, with 12.335 million subscribers in more than 10 countries. Its fixed line subscribers have amounted to 50 million in 9 countries (France included). Besides, FT boasts 5.914 million enterprise network users.

      FT is now serving a total of 125 million customers and had annual revenue of 49.038 billion euros in 2005, up 6.2% year-on-year. Figure 1 shows its relatively steady growth of annual turnovers from 2001 to 2005.

1 Brand Strategy of FT
FT is a full-service operator, integrating the traditional fixed operator with mobile and data network operators.
It owns 5 international brands. Except for the classic brand for traditional fixed services, the other 4 are Orange, Wanadoo, Equant and TP Group.  Figure 2 shows the revenues of all sectors of FT in 2005.

      As shown in Figure 2, the fixed line was still the principal revenue source of FT, although it was suffering a decline over the previous years. Moreover, personal services provided by Orange, its mobile network brand, are another major revenue source. Orange is now the largest mobile service operator in both France and Britain and has yielded significant profits for FT in recent years. The 3G service of Orange covers all of France and Poland, and its 2G service subscribers cover 19 countries around the world. In addition, Orange Wi-Fi has enabled Wi-Fi access at airports and other densely populated areas in France. Nowadays, Orange represents more than a mobile service operator. It also represents an advanced service concept. Orange has become one of Europe´s most valuable and powerful brands. It has helped FT not only achieve a big increase in sales, but also build a good international image with its global recognition.

      Wanadoo ranks first in France and second in Europe as a data network operator. Subsidiary to FT, it is a
high-speed network access operator. It provides users with all kinds of network services, bringing together the convenience of work and home life. Wanadoo also provides Wi-Fi service as Orange. Wanadoo Wi-Fi and Orange Wi-Fi are technologically the same, yet they have different target customers and demands.

      As another subsidiary of FT, Equant provides multinational businesses with globally integrated communication solutions. It is now serving 3 700 large international businesses with data transmission as well as efficient, seamless and secure commercial communication services. Its customers include 2/3 of the top 100 enterprises in the world. The secure and efficient operations of Equant itself have played a key role in helping its multinational customers choose a communication solution. Meanwhile equant has also contributed tremendously to the Group´s profitability.
TP Group, a brand of FT, targets the market in Poland. It offers diversified communication access and services in Poland. It is one of the internationalization symbols of FT.

      The 2005-2008 plan of FT has signified its resolution to transform into an integrated full-service operator, a move to extend its internationalization strategy. FT has great strengths in mobile network, fixed line, Internet and enterprise network, which are the basis of fulfilling the goal of a real integrated full-service operator. To quicken network convergence, FT decided to use its most successful international brand Orange to take over Wanadoo and other disadvantaged brands. A brand-new Orange will integrate the original Orange and Wanadoo, and offer unified mobile, Wi-Fi, and Internet high-speed access services.

2 Comparison of Operation Models between China Telecom Group and FT
FT uses its five brands to operate the mobile network, fixed network and enterprise network respectively. The brands and networks have clear division and are relatively independent of each other.
In China, China Telecom Group is an operator with corresponding market position with FT. China Telecom Group divides its operation on a geographical basis, such as Guangzhou Telecom, Shanghai Telecom and Jiangsu Telecom. The operation of these geographical branches is uniformly planned by the group.

      Both FT and China Telecom Group can learn from each other the operation experience through the analysis of brand management and development trends of FT and the comparison of service and operation models between China Telecom Group and FT.

2.1 Mobile Services
China Telecom Group lost its 2G mobile services as a result of its breaking up. Moreover, since the Chinese Government hasn´t released 3G licenses yet, 3G services cannot be launched. Although it has the Personal Handyphone System (PHS), a wireless-like network, to attract certain low-end users of mobile services, the PHS is an extension of the fixed line after all, instead of a real wireless network. Orange of FT, on the contrary, offers both 2G and 3G mobile services and based on them, it has gained fame through plenty of personalized services. For example, the Global Positioning System (GPS) service has brought considerable profits for Orange. Somehow the GPS market in China is yet immature as cars are still a luxury for most people in this country and those who drive just don´t move from city to city too often. And car leasing is not such a common thing in China. However, the GPS service will be a good Value-added Service (VAS) for China Telecom Group in the future.

2.2 Broadband Access Services
The traditional voice service is showing an inevitable trend of lowering growth rate and decreasing profit margins as a result of maturation. VASes are expected to make new growth poles in the telecom industry. While providing broadband network access, telecom operators may use their own resources superiority to launch diversified and personalized VASes, opening up new profit space.

2.2.1 Independent Operation Model
Independent operation means an operator uses its own network resources to provide telecom VASes by itself.
China Telecom Group has launched certain VASes, such as E-mailbox, videotext, and call centers. In fact, a network operator does have some advantages over service providers in some VAS fields. It´s true that network operation and management will be separated from service provisioning. However, it doesn´t necessarily mean that network operators will have to give up the service market, and won´t offer VAS anymore.

      FT also provides VASes. However, FT not only operates VASes offered by service providers, but also adopts the independent operation model to launch services. That is to say, FT has made use of its own network resources, as well as its content providers when it offers VASes.

      The network service provider Wanadoo offers high-speed broadband access services such as Maligne TV and Video on Demand (VoD) through the phone line. Users pay Wanadoo a monthly flat fee for broadband access and pay content providers for the service content. Since FT also owns these content providers, both incomes will go to FT in the end.

2.2.2 Cooperation Model
When traditional telecom operators are transforming, the division of labor is more and more based on specialization in the telecom industry. A crowd of state-owned and individually-run VAS providers have entered the market to cooperate and compete with network operators in all directions. Therefore, it is important to conduct research on service operation models in the circumstance of competition and cooperation. The cooperation model means that network operators cooperate with numerous service providers, content providers and application providers to launch value-added services and share revenues among all cooperators. This is now the most frequently used operation model. NTT DoCoMo and J-Phone of Japan, SK of Korea, and Vodafone of Britain are successful examples.
China Telecom Group has launched ChinaVnet as a platform, on which its cooperators such as service providers, content providers and application providers can use its resources, including Internet Data Center (IDC), media introduction platform, operation support system, user management, billing channels and marketing promotion channels. By ChinaVnet, China Telecom Group and its cooperators provide users with abundant Internet contents and VASes. This has proved an effective way in streamlining the value chain, sharing resources, exploiting their own particular advantages for mutual benefit and development, and ultimately implementing a win-win strategy.
In the cooperation model, network operators and service providers are dependent on each other. China Telecom Group owns no service providers, which is different from FT. Therefore, China Telecom Group has to cooperate with external service providers to launch VASes on its infrastructure network.

      As a full-service operator, FT has its own service providers. However, it is impossible to own all service providers. Therefore, it also needs to cooperate with external service providers, content providers and application providers, and deal with issues of resource sharing and profit distribution.

2.3 Enterprise Network Operation
Equant of FT deploys Virtual Private Networks (VPN) as a solution to enterprise network operation. With regard to the outsourcing of access and the maintenance of multinational and multi-provincial enterprise networks, FT is able to establish, operate, maintain, upgrade, and more importantly create enterprise networks for its enterprise clients. It offers diversified enterprise network strategies and maintenance services, including IP VPN, access/connection management, user terminal management, firewall management and other value-added telecom services, giving enterprises relief from unnecessary troubles.

      China Telecom Group, however, provides only enterprise network access without maintaining the networks. This means it remains an infrastructure network operator and gives up a large part of revenues to outsourcing contractors. In fact, it doesn´t have to because it has the potential to offer maintenance and more services besides enterprise network access. Figure 3 shows simple enterprise network architecture. As for enterprise network services, Equant offers network access between branches of a multinational enterprise client, as well as internal network access, operation, update and maintenance. It provides multinational enterprises with a total solution to all-around communications. However, the enterprise network services offered by China Telecom Group only cover the access part shown in Figure 3 and the rest maintenance and operation work are all left to enterprises themselves.

2.4 Capital Operations
In a share-holding model, a telecom operator holds shares of another telecom operator by way of share controlling, equity participation, joint venture, and cooperative business operation. A long and stable cooperation is expected from this model to reduce investment risks, expand service categories, gain new growth points and economic effects, and thereby enhance its overall competitiveness and risk resistance capacity.

      FT has a special brand in Poland, TP Group. The acquisition placed by FT made it a controlling shareholder of Poland Telecom. FT now provides almost all telecom services within Poland just like it does in France. FT made this endeavor to prove itself as an ambitious world telecom player — or a European one at least. China Telecom Group has owned a mass of users outside China for point-to-point Internet access, although it has no new brands in foreign countries like FT does. Therefore, going international is simply a sooner-or-later issue for China Telecom Group.

3 Experience for Reference
China Telecom Group is the biggest fixed-line operator in China. It has the market basis and technology competence for transforming itself into a comprehensive full-service operator. However, lacking of a license for mobile services has hindered its transformation.

      Although China Telecom Group has a successful PHS service now, the service is at best the extension of fixed-line services. The PHS service can never take the place of real mobile service as none of its billing system, mobility and QoS is comparable to the latter. But once the Chinese government releases 3G licenses, it´s believed that China Telecom Group will have its own mobile network and provide mobile services. Although it will take time, China Telecom Group has everything to become an integrated full-service telecom operator in the long run.

      As for the enterprise network, China Telecom Group may draw experience from FT to provide network operation,maintenance and upgrade services rather than access/connection alone. Enterprise network will hopefully make another revenue engine in the telecom market of China as all multinational and multi-provincial businesses would need secure, fast and efficient networks to support their day-to-day operations.

      A big difference between FT and China Telecom Group is the brand strategy. While FT owns a handful of brands, China Telecom Group has no other brand but "China Telecom". Both strategies have pros and cons but whatever is good as long as it brings good profit. The real problem for China Telecom Group would be content provisioning. Without its own content providers, China Telecom Group often has conflicts of profit sharing with external content providers. Moreover, it is unable to generate higher economic returns only with high-speed broadband access service. However, China Telecom Group is expected to discover an appropriate solution in the near future.

      The cooperation model is now widely accepted in the global telecom industry and will remain the mainstay model for VAS provisioning for years to come. Deeper and wider cooperation is now booming between network operators and VAS providers in China. Equipment vendors will be the next prospective cooperators to develop though. New feasible cooperation models that are suitable for the practical situation in China are expected to improve relationship between network operators with other parties on the industrial value chain[1].

      Internationalization of the telecom industry is unpreventable. FT has proved this inevitability by exploring the Polish market to supplement the satiated French market. The Chinese market has also matured in the past 10 years. To adapt to this situation and based on a mutual understanding regarding this trend, China Telecom Group is now cooperating as well as competing with FT. The cooperation may start with the exchange of R&D staff. No matter FT or China Telecom Group has an urgent requirement on internationalization, and is paying more attention to broad overseas markets.

      Telecom operators are aiming at integrated full-service operators, and cooperation between international telecom operators is the trend of the times. The development of telecom operators is based on R&D, while ceaseless service development and innovation is the cornerstone of the continued existence of telecom operators.

Reference
[1] 韦乐平. 电信网的技术转型和下一代网的发展思考[J]. 通信管理与技术, 2004(3):1-4, 15.

Manuscript received: 2006-03-02