Letter from Paris: The Phone Wars

The French have mastered the drawing room comedy. they introduced the world to cafƒ society. But when it comes to talking on the telephone, the French are strangely silent. On a daily basis, they spend half as much time on the phone as Americans. Still, for the state-owned telephone monopoly France Tƒlƒcom, the relatively taciturn French have comprised 100 percent of its business. But hold the phone. On January 1, 1998, the final elements of market deregulation set in motion by the European Commission during the late 1980s kick in-and at least one new telephone company is set to ring in the new year. Cegetel, a 1-year-old subsidiary of the French industrial conglomerate Compagnie Gƒnƒrale des Eaux, which was launched last September, is already competing with France Tƒlƒcom for the 33 million phone lines crisscrossing the country. In late August, Cegetel broke an outdoor advertising campaign in 30 French cities, supplemented by subway advertising in Paris, Lyons and Marseilles. Developed by Australie, a Paris-based Havas Advertising subsidiary, newspaper ads and two TV spots debuted in September. The entire campaign is backed by one of the largest media budgets in French history, reportedly more than $100 million, though neither Cegetel nor Australie will confirm the figure. "Most people are happy with France Tƒlƒcom. It has good service and has been lowering its prices," says Australie co-founder Jƒr™me Leclabart, who is responsible for the ad campaign. "We are not against FT, but are positioning Cegetel as an alternative." For the time being, there won't be any maudlin, tear-soaked ads ˆ la AT&T, MCI or Sprint. Nobody will be reaching out to touch anyone. In fact, the agency thought it best to keep things light. Thus, Australie is launching the campaign with simple, colorful illustrations; the TV spots feature sophisticated and surreal animation, boasting a logo featuring a happy little man and the name Cegetel. "You can choose the shape and the color of your telephone," begins one ad from the outdoor campaign. "In 1998, you can choose the company," says Leclabart. "The French are lost with all the technological changes going on around them," he adds. "So we decided that Cegetel had to emerge with a different image: modern, friendly, happy and unexpected. We didn't want to show people talking." Despite its ads' offbeat edge, Cegetel executives admit it will be tough to woo French households and businesses away from French Tƒlƒcom. "The biggest difficulty will be to show the French consumer that it's not necessary to change lines or phones to access us, just one digit in the dialing sequence," explains Benedict Donnelly, communication director for Cegetel. The simplicity of service underlines the company's aims. Donnelly claims that Cegetel's business objectives are "very modest"-20 percent of the country's domestic and international long- distance market by 2003 and approximately 10 percent of local calling business by the same date. "We will offer value to consumers and businesses on price and service. They will notice something," Donnelly predicts. Leclabart likens the company's push for customers to changing banks. "When you are happy with a bank, for example, even when a new one comes along promising better service and rates, it's not easy to convince people to change." Of course, Cegetel and Gƒnƒrale are newcomers to the traditional telephone business in France, not the telecommunications market. In 1995, Gƒnƒrale launched SFR, a cellular phone system that fell outside state monopoly regulations, a few months before France Tƒlƒcom launched its own Itineris brand. Today, SFR controls about 40 percent of the mobile-phone market, competing against France Tƒlƒcom and newcomer Bouygues. Cegetel also has Tam Tam, a booming pager franchise, that competes against Bouygues and France Tƒlƒcom. Although SFR is handled by agency rival Publicis, Donnelly promises that after January, company advertising will begin to develop a consistent image encompassing all its brands. Cross-brand promotions are also envisioned, notes Leclabart. "Our credibility will be based on demonstrating our acquired knowledge from SFR and Tam Tam," adds Pascale Giet, Cegetel advertising director. Despite some unexpected twists and turns, France Tƒlƒcom has replied to Cegetel's pitches to its customers. Though it denied that a recent series of ad campaigns was the result of Cegetel's invasion, France Tƒlƒcom has taken aim at its competition, arming itself with a reported $165 million annual media budget. Its preemptive strike this past June, however, was stymied. France Tƒlƒcom was scheduled to launch a partial privatization campaign via the Paris-based agency Alice. But a parliamentary change to a government more hostile to selling off state enterprises stopped the roughly $25 million job in its tracks-though it now appears the 33 percent sale has been green-lighted. Instead, the phone company used the reserved media space to promote its own pager system, Tatoo, and its own mobile-phone products. In September, ads promoting France Tƒlƒcom's Internet access package kicked off, as well as a major campaign announcing international rate cuts expected to reach 20 percent. "France Tƒlƒcom shouldn't be identified as some behemoth squatting on a dead market," says Gƒrard Moine, senior vice president for external relations. "We are positioning ourselves as the leader of a market which is growing." Moine predicts France Tƒlƒcom, as well as Cegetel and any other new phone operators, will benefit from the emerging open market. "The French talk just about nine minutes per day on the phone, compared with 20 minutes in the U.S.," he says. "There's a lot of capacity," though Moine maintains France Tƒlƒcom doesn't expect to lose much market share in the coming years. He suspects, however, that "some competitors will have better niche success." But which service will prevail in the telephone wars? According to one market analyst, since Cegetel will have to work harder than subsequent newcomers, it's hard to predict whether it will succeed. "The problem is that the French are not used to competition," explains Beno"t Maynard, a media analyst with Natexis Capital in Paris. "Cegetel is obliged to prepare the groundwork for everyone." But isn't it the consumer who ultimately wins when competition intensifies? Maynard isn't so sure. He believes that the early telephone battles will be over service, not price. "Cegetel has to offer cheaper prices, but it's not in their interest to lower them too much," he says, adding that the French government-which will remain the principal owner of France Tƒlƒcom even if the partial sell-off proceeds-doesn't want to see its rates drop either. Though Maynard liked the Australie ad campaign, he said it was too early to know just how aggressive Cegetel would get to convert customers. "The big questions are: What market share will they achieve, and what price are they willing to pay to get it?" Daniel Tilles can be reached at 100442.1706 compuserve.com

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Letter from Paris: The Phone Wars

Daniel Tilles

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