France Telecom Taps DSL Growth

France Telecom SA (NYSE: FTE) plans to capitalize on the rapid uptake of DSL services by selling specialist broadband-enabled devices that take advantage of new online media such as digital music and video.

The carrier has forged a partnership with Dutch vendor Royal Philips Electronics N.V. (NYSE: PHG; Amsterdam: PHI) to jointly develop, market, and sell broadband devices and services (see Philips Strikes French Deal).

Initially, though, the only item France Telecom will market to its customers is Philips's Streamium product, a streaming audio product that can be used for downloading and playing audio files, as well as listening to online audio services such as radio stations.

The partnership comes as France Telecom, along with many other European incumbent operators, is experiencing rapid uptake of its DSL services (see DSL Growth Explodes in 2003). In the three months to September 30, France Telecom added nearly 400,000 new subscribers to give it a total of 2.37 million DSL customers (see DSL Heads for 60M Users). And there's plenty of potential growth left in the French market, with DSL penetration standing at just 7.3 percent.

While selling on Philips's gear to its customers could generate a small amount of additional revenue, France Telecom's strategy should be much more long term, says Tim Johnson at broadband research house Point Topic Ltd. He believes the carrier must look at how it can exploit customer use of equipment such as the Streamium. "France Telecom should develop specific services for streaming audio users, and charge a premium for such a service. The raw Internet isn't great for high-quality audio, and it wouldn't cost [the carrier] much to help boost the quality of audio streams through broadband connections."

Enabling high-quality streaming audio would also allow France Telecom to offer premium content, such as live streaming of music and sporting events, adds Johnson.

France Telecom, which has 250 R&D staff dedicated to broadband services and technologies, did not respond to questions regarding its DSL strategy, though it has previously announced that it is to try out TV-over-DSL services in Lyon in the coming months (see FT Plans TV Over DSL).

Philips already has similar agreements with six other major European carriers -- Belgacom, British Telecommunications plc (BT) (NYSE: BTY; London: BTA), Deutsche Telekom AG (NYSE: DT), KPN Telecom NV (NYSE: KPN), Telefònica SA, and Telecom Italia SpA (NYSE: TI).

— Ray Le Maistre, International Editor, Boardwatch

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