Analysis: France seeks influence on telcos after outage

PARIS Tue Jul 10, 2012 11:19am EDT

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PARIS (Reuters) - France Telecom came under fire from government ministers flexing their muscles with a call for an audit of key national infrastructure after the company suffered a massive outage on its mobile network over the weekend.

The vocal response of the recently elected Socialist government showed how it is seeking to reassert its influence on France's telecoms sector in a period of brutal competition and looming layoffs brought on by the January arrival of ultra low-cost mobile company Iliad.

The national outage of France Telecom's mobile network lasted from Friday night to Saturday afternoon, with 28 million customers unable to make calls or send text messages.

The government said that it would undertake an audit of all operators' networks to prevent a recurrence of such incidents and also sidelined telecoms regulator ARCEP by sending Fleur Pellerin, the minister for small business and the digital economy, to France Telecom's crisis center on Saturday.

Analyst Stephane Beyazian, of Raymond James, said that the weekend's outage would cost France Telecom between 10 million and 20 million euros ($12.3 million to $24.6 million) in repairs and refunds for customers, but the longer-term impact of a heavier government hand on the sector was hard to quantify.

"We expect even more intervention going forward as the government pressures telecoms regulator ARCEP to focus less on fostering competition and more on protecting jobs," he said.

"This is likely to translate into favoring the big operators more than the low-cost challenger Iliad."

France Telecom's shares were unhurt by the outage, rising by about 1 percent on Monday, compared with a 0.4 percent decline on the broader French index and outperforming the European sector index.

JOB FOCUS

Junior minister Pellerin signaled that the government's long-term telecoms policy should not focus only on bringing down prices via more competition. "We want the issue of employment to be taken into consideration more than it has, whereas (ARCEP) has long put the emphasis on the consumer," she said.

The comment was a barely veiled dig at ARCEP's approval of a mobile license for Iliad, which launched its Free Mobile service in January at cut-rate prices and put huge pressure on existing operators France Telecom, Vivendi's SFR and Bouygues Telecom.

Iliad offers only 14 phones and two monthly plans - one at 2 euros and another at 19.99 euros.

To cope with Iliad's arrival, SFR is planning to cut costs by 450 million euros this year, while Bouygues aims to reduce costs by 300 million euros. Bouygues says that it wants to cut 556 jobs through voluntary departure schemes. Vivendi is negotiating a similar plan with its unions but has not said how many jobs will be affected.

France Telecom, in which the state is the top shareholder with 27 percent of the capital, is not planning staff cuts.

Industry Minister Arnaud Montebourg has called a meeting with the operators this week to discuss the sector and employment. He told le Monde newspaper that he planned to tell the companies: "Deal with your problems, but we want no layoffs."

Vincent Maulay, an analyst at Oddo Securities, said that the government's interest underscored the risk that France Telecom could come under increased "pressure from the state, as shareholder, to boost its network investments".

SIGNALLING STORM

France Telecom is still investigating the cause of the outage with equipment suppliers Ericsson and Alcatel-Lucent. It said on Saturday that the most likely reason was a software glitch on equipment that helps to track mobile phones and identify subscribers' details to allow calls and texts to be made. This could have led users to try their calls repeatedly, creating a flood of signaling traffic that brought down the whole network.

Such "signaling storms" are a problem across the industry. The problem is being made worse as people increasingly play video games, check email and surf the internet on smartphones and tablet computers.

Doug Suriano, chief technology officer of Tekelec, which sells hardware to manage signaling traffic, said that signaling problems are becoming more frequent because fourth-generation mobile technologies being installed by operators worldwide are more susceptible to glitches.

"4G mobile networks come with a new signaling protocol, which is more immature and prone to failures than the system the industry has been using for the past decade," he explained, adding that Japan's Docomo and Korea's KT were hit with such outages this year.

In February, the global telecoms operators association, the GSMA, announced an initiative to encourage mobile phone manufacturers and application developers to tweak their products to generate less signaling traffic and reduce the strain on networks.

(Editing by David Goodman)

(This story has been corrected to fix the title of Tekelec executive Doug Suriano in the eighteenth paragraph)

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