2. Changes in tariffs for 1991-1994 and international comparisons
Changes in tariffs were in line with the multi-year limit set in the contractual plan for the period 1991-1994: an annual reduction of 3% relative to changes in Gross Domestic Product (GDP) prices. This limit was flexible enough to permit the large-scale rebalancing of tariffs, which was reflected in different adjustments to different components. International comparisons are a reliable reference for assessing the level and structure of France Télécom tariffs.
2.1. Changes in tariffs for the period 1991-1994
Changes in tariffs: an explanatory note
Changes in tariffs are evaluated here for the 4-year period from 1991 to 1994 inclusive, using a fixed basket of references drawn up in 1991 in order to monitor France Télécom's tariff policy as part of the first contractual plan between the Government and the state-owned company.
These changes take into account the impact of the reform of 15 January 1994.
These assessments are given as an annual average percentage compared to changes in the consumer price index (CPI), excluding tobacco, and to Gross Domestic Product prices.
The decisions on tariffs helped ensure that the guidelines drawn up in the contractual plan for tariff policies were followed, that is, changes in tariffs were on average 3% below the changes in Gross Domestic Product prices. Given current hypotheses for price changes in Gross Domestic Product for 1994, the annual average change in tariffs was 3.04% below changes in Gross Domestic Product prices for the period 1991-1994. It was 3.15% below changes in the consumer price index (CPI).
Annual changes in tariffs relative to the two price indicators are as follows:
1991
1992
1993
1994
Average
GDP (*)
-3.2%
-2.6%
-2.6%
-3.8%
-3.04%
CPI (*)
-3.2%
-3.0%
-2.6%
-3.8%
-3.14%
(*) Consumer Price Index and Gross Domestic Product prices
As developments in prices for France Télécom services in this period were complex and differentiated, it would be useful to have a picture of these broken down by component and by economic agent. This make it possible to distinguish the developments for:
- residential and business users;
- leased lines and telephony, based on public call boxes and subscriber telephones;
- the different components of telephone service between fixed points: subscription, local calls, calls of less than 100 km, long-distance calls, international calls, and calls between the Overseas Departments and France.
The following figures show changes in prices for these different components as an annual average over the period 1991-1994, as compared with the changes in the Consumer Price Index.
- Changes in prices, by economic agent
All economic agents benefited from the changes in telecommunications tariffs: in real terms, the reduction in telecommunications expenses was 3.70% for business users and 2.10% for residential users.
- Changes in prices, by component
The main components of France Télécom's turnover all saw reductions in real prices, amounting to 2.40% for leased lines and 3.10% for telephony. It should be noted that the fall in the price of leased lines was slow and needs to be accelerated.
- Changes in prices of telephone service components
Explanatory note
The components used include the following:
- international: price of international calls
- long distance: price of national calls of more that 100 km
- < 100 km: price of communications between different charging areas less than 100 km in distance. The charge for these calls reflects the impact of setting up Extended Local Zones (the ZLE).
- local: price of calls within the same charging area. The rise in call charges reflects the change in tariff impulse frequency from 3 to 6 minutes.
- subscriptions: average price of a telephone subscription
This graph shows the rebalancing of tariffs for the components of telephone service between subscriptions and local calls on the one hand, and long-distance and <100 km calls on the other hand.
2.2. International comparisons
2.2.1. National telephone service
Two points need to be considered: progress in tariff rebalancing, and tariffs from the standpoint of geography.
Tariffs
A comparative analysis of the tariffs of European operators can be made by comparing the structure and components of tariffs.
The ratio "cost of a long-distance call to cost of a local call" is relevant for measuring how far tariffs have been brought into line with costs and how well they have adjusted for competition. Currently, the DGPT considers that a value for this ratio of between 2 and 3 corresponds to balanced, well-adapted tariffs.
The table below gives this ratio as well as the main components of telephone tariffs at the end of 1994:
Cost in FFr (excl. tax)(3)
of a 3-minute call
Ratio
long-distance to local
Monthly subscription cost in FFr (incl. tax)
local
long-distance
Germany
84
0.69
5.88
8.6
Italy
44
0.42
3.78
9
United Kingdom (BT)
107(1)
65(2)
0.79
1.96
2.5
France
45
0.615
5.83
9.5
(1) Business subscription
(2) Residential subscription
(3) For Germany, the value is calculated after deducting Value Added Tax of 15% (VAT on telephone service will be deductible starting 1 January 1996).
This table shows that the ratio of "costs of long-distance calls to costs of local calls" for France Télécom is still high when compared to that of BT, whose tariffs can be considered to be representative of tariffs on a market that is becoming competitive.
It also shows:
- that the cost of local calls is comparable to those for other operators, whereas the cost of long-distance calls is high compared to those of BT,
- that the cost of a France Télécom subscription is low, compared to those for other European operators.
It should be added that, due to the development of Extended Local Zones (ZLEs), a local call in France can reach a larger number of subscribers and a larger geographic area than in other European countries.
Tariff geography
The development of Extended Local Zones (ZLEs) in France has created one of the most advantageous systems for consumers anywhere in Europe:
Extended Local Zones
Area of country in 1000 sq. km
Number of subscribers in 1992 in millions
Average area in
sq. km
Average number of subscribers per ZLE
Germany
245
31.6
1270
130,000
Netherlands
34
6
1400
241,000
United Kingdom
244
23.7
2700
250,000
France
549
30
8000
440,000
The average cost of national telephone service
It is very difficult to make comparisons between operators for the average price of telecommunications, given the differences in consumption structures; furthermore, real data is slow to become available.
The following comparison for 1993 is based on the model used by the British regulatory authority, OFTEL, using a "residential" basket and a "business" basket that are, according to OFTEL, representative of usage in developed countries. By making a certain number of assumptions, we have updated this comparison for 1994. These comparisons are given in both exchange rates and purchasing power parity.
Business (index of 100 = United Kingdom in 1994)
In purchasing power parity
In exchange rates
United Kingdom
100.0
100
Germany (*)
95.2
132.0
France
96.0
106.7
(*) For Germany, the value is calculated after deducting Value Added Tax of 15% (VAT on telephone service will be deductible starting 1 January 1996).
Residential (index of 100 = United Kingdom in 1994)
In purchasing power parity
In exchange rates
United Kingdom
100.0
100.0
Germany
101.0
140.0
France
82.8
101.2
According to this basket, telephone charges in France compare satisfactorily with those of the main European operators, for both residential and business users. Exchange rate comparisons are limited in value due to the devaluation of the Pound Sterling and the significant upswing in the value of the Deutschemark in 1994; it seems that residential users benefit from especially competitive prices, given that comparisons using purchasing power parity are more applicable to this case.
2.2.2. International telephone service
There are no wholly satisfactory comparisons between operators for overall international telephone charges. Thus, it was decided here to use comparisons between European operators for communications to countries neighbouring France.
These comparisons are based on the standard tariff, excluding time slot variations, in French francs not including taxes per minute for calls to Europe Zone A.
Country
Operator
1994 tariffs
(index 100 = France 1994)
France
France Télécom
100
Germany (*)
Deutsche Telekom
109
United Kingdom
BT
Mercury
83
70
Italy
Telecom Italia
90
(*) For Germany, the value is calculated after deducting Value Added Tax of 15% (VAT on telephone service will be deductible starting 1 January 1996).
Despite significant reductions in 1993, France Télécom tariffs are still relatively high compared to those of, for example, BT.
2.2.3. Leased lines
The comparisons given here are from an international tariff study requested by the DGPT and France Télécom from the KPMG firm.
Six reference operators were chosen to make these comparisons: BT, France Télécom, SIP, Telefonica, DBPT and AT&T, as well as four key products: 2-wire and 4-wire analogue lines, and 64 kbit/s and 2 Mbit/s digital lines. For each product, these comparisons are based on a basket reflecting the breakdown of the France Télécom installed base.
The main conclusions of the study are as follows:
- France Télécom is in second place, after BT, for the European operators examined for 64 kbit/s and 2 Mbit/s lines, and in third place, after BT and SIP, for analogue lines;
- the difference in charges between BT and France Télécom is significant, especially for lines longer than 10 km.
3. The main developments in tariffs in 1994
3.2. Leased lines
Chapter VII