Numericable-SFR (formerly Numericable Group) Limited liability

Transcription

Numericable-SFR
(formerly Numericable Group)
Limited liability corporation (société anonyme) with share capital of €486,939,225
Registered office:
1 square Béla Bartók
75015 Paris, France
2014 REGISTRATION DOCUMENT
In accordance with Article 212-13 of the AMF General Regulations, the French version of this
Registration Document was filed with the Autorité des Marchés Financiers (the “AMF”) on April 30,
2015 under number R.15-031. The Registration Document may be used in support of a financial
transaction if supplemented by a transaction note that has received approval from the AMF. It was
prepared by the issuer and is binding on its signatories.
In accordance with the provisions of Article L. 621-8-1-I of the French Financial and Monetary Code,
the document was filed after the AMF had verified that it was complete and comprehensible and that
the information it contained was consistent. This does not imply any authentication by the AMF of the
accounting and financial information presented.
Copies of this document are available free of charge from Numericable-SFR, 1 Square Béla Bartók,
75015 Paris, France. This document is also available on the Numericable-SFR website
(www.numericable-sfr.com) and AMF website (www.amf-france.org).
NOTE
In this Registration Document, the terms “Company” and “Numericable-SFR” mean NumericableSFR. The terms “Group” and “Groupe Numericable-SFR” mean Numericable-SFR together with its
consolidated subsidiaries. The term “Numericable Group” means Numericable Group, “Groupe
Numericable” means Numericable Group together with its consolidated subsidiaries, and “SFR” and
“Groupe SFR” mean Société française du radiotéléphone and its subsidiaries.
This Registration Document presents the consolidated financial statements of the Group under
International Financial Reporting Standards (“IFRS”) as adopted in the European Union for the fiscal
year ended December 31, 2014.
Unless otherwise indicated, the Group’s financial information presented herein is based on the
consolidated financial statements.
Forward-looking statements
This Registration Document contains statements regarding the prospects and growth strategies of the
Group. These statements are sometimes identified by the use of the future or conditional tense, or by
the use of forward-looking statements such as “considers,” “plans,” “thinks,” “aims,” “expects,”
“intends,” “should,” “seeks,” “estimates,” “believes,” “wishes” and “might,” or, if applicable, the
negative form of such terms, or any other similar expression or variant. Such information is not
historical in nature and should not be interpreted as a guarantee of future performance. It is based on
data, assumptions and estimates that the Group considers reasonable. It is subject to change or
modification based on uncertainties linked in particular to the economic, financial, competitive and
regulatory environment. It is contained in several sections of this Registration Document and includes
statements relating to the Group’s intentions, estimates and targets with respect to its market, strategy,
growth, results of operations, financial position and liquidity. The forward-looking statements
contained in this Registration Document were correct at the time of writing. In the absence of any
applicable legal or regulatory requirement, the Group expressly disclaims any obligation to release
any updates to the forward-looking statements contained in this Registration Document, whether to
reflect any change in its expectations or any change in the events, conditions or circumstances on
which such forward-looking statements are based. The Group operates in a competitive and rapidly
changing environment. Consequently, it may be unable to anticipate all risks, uncertainties or other
factors that could affect its business, their potential impact on its business, or the extent to which the
occurrence of a risk or combination of risks could have significantly different results from those set
out in any forward-looking statements. Please note that forward-looking statements are no guarantee
of actual results.
Information on the market and competition
This Registration Document contains, particularly in Section 6 “Business overview,” information
about the Group’s markets and its competitive position. Some of this information comes from
research conducted by outside sources. This publicly available information, which the Company
believes to be reliable, has not been verified by an independent expert. As such, the Company cannot
guarantee that a third party using different methods to collect, analyze or calculate market data would
arrive at the same results. Unless otherwise indicated, the information contained in this Registration
Document relating to market share and the size of relevant markets is based on the Group’s estimates
and is provided for illustrative purposes only.
Risk factors
Investors should carefully consider the risk factors described in Section 4 (“Risk factorsˮ) of this
Registration Document. The occurrence of any or all of these risks could have a negative impact on
the Group’s business, image, results of operations, financial position or prospects. Furthermore,
additional risks that have not yet been identified or that are not considered material by the Group as of
the filing date of this Registration Document could have adverse effects.
Glossary
A glossary defining certain technical terms and abbreviations used in this Registration Document can
be found in the Glossary in Annex I.
TABLE OF CONTENTS
1.
Persons responsible for the Registration Document ...................................................... 1
1.1
1.2
1.3
2.
Name and position of the person responsible for the Registration Document .......................... 1
Declaration by the person responsible for the Registration Document ..................................... 1
Name and position of the person responsible for financial information ................................... 2
Persons responsible for auditing the financial statements ............................................ 3
2.1
2.2
Principal Statutory Auditors ...................................................................................................... 3
Substitute Statutory Auditors .................................................................................................... 3
3.
Selected financial information and other data ............................................................... 4
4.
RISK FACTORS............................................................................................................. 10
4.1
4.2
4.3
4.4
4.5
4.6
5.
RISKS RELATING TO THE BUSINESS SECTOR AND MARKETS OF THE
GROUP ................................................................................................................................... 10
RISKS RELATING TO THE GROUP’S BUSINESS ACTIVITIES ..................................... 15
RISKS RELATING TO THE FINANCIAL STRUCTURE AND PROFILE OF THE
GROUP ................................................................................................................................... 27
REGULATORY AND LEGAL RISKS .................................................................................. 30
MARKET RISKS .................................................................................................................... 43
RISK MANAGEMENT AND INSURANCE......................................................................... 49
Information about the Group ........................................................................................ 56
5.1
5.2
6.
History and recent developments ............................................................................................ 56
Investments.............................................................................................................................. 62
Business overview ........................................................................................................... 65
6.1
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
6.10
6.11
6.12
7.
General Presentation................................................................................................................ 65
Presentation of the sector and market ...................................................................................... 66
Strengths and competitive advantages of the Group ............................................................... 81
Group strategy ......................................................................................................................... 86
Description of the Group’s operations .................................................................................... 90
Group network....................................................................................................................... 125
Technology and infrastructure............................................................................................... 135
Seasonal nature of the business activities.............................................................................. 143
Suppliers ................................................................................................................................ 143
Dependency ........................................................................................................................... 145
Competitors ........................................................................................................................... 145
Telecommunications regulations ........................................................................................... 149
Organizational chart..................................................................................................... 180
7.1
7.2
8.
Simplified organizational chart of the Group ........................................................................ 180
Subsidiaries and equity investments...................................................................................... 180
Property, plant and equipment.................................................................................... 185
8.1
8.2
Significant existing or planned property, plant and equipment ............................................. 185
Environment and sustainable development ........................................................................... 187
Analysis of the Group’s results of operations............................................................. 188
9.
9.1
9.2
9.3
9.4
General presentation .............................................................................................................. 188
Analysis of the Group’s income statement for the fiscal years ended December 31,
2013 and 2014 ....................................................................................................................... 197
2013 and 2014 pro forma results ........................................................................................... 202
Analysis of Numericable’s income statement for the nine months ended September 30,
2013 and 2014 ....................................................................................................................... 204
i
9.5
9.6
10.
Review of the results of the Combined SFR Group for the nine months ended
September 30, 2013 and 2014 ............................................................................................... 204
Analysis of SFR’s income statement for the fiscal year ended December 31, 2013 ............. 218
Cash and capital of the Group ..................................................................................... 219
10.1
10.2
10.3
10.4
10.5
11.
General presentation .............................................................................................................. 219
Financial resources ................................................................................................................ 220
Presentation and analysis of the main categories of use of the Group’s cash ....................... 240
Cash flows ............................................................................................................................. 241
Liquidity and capital resources of the Combined SFR Group............................................... 244
Research and development, patents and licenses ....................................................... 252
11.1
11.2
11.3
12.
Research and development .................................................................................................... 252
Intellectual property .............................................................................................................. 252
Licenses, usage rights and other intangible assets................................................................. 252
Trends and outlook ....................................................................................................... 254
12.1
12.2
12.3
Business trends ...................................................................................................................... 254
Outlook .................................................................................................................................. 254
Long-term outlook................................................................................................................. 254
13.
Profit forecasts or estimates ......................................................................................... 255
14.
Administrative, management and supervisory bodies and executive
management .................................................................................................................. 256
14.1
14.2
14.3
15.
Composition of management and supervisory bodies ........................................................... 256
Founders of the Company ..................................................................................................... 265
Conflicts of interest ............................................................................................................... 265
Executive compensation and benefits.......................................................................... 267
15.1
15.2
16.
Compensation and benefits of executives and corporate officers ......................................... 267
Amounts accrued or recorded by the Company or its subsidiaries for the payment of
pensions, retirement or other benefits ................................................................................... 272
Operation of administrative and management bodies............................................... 273
16.1
16.2
16.3
16.4
16.5
17.
Offices of members of administrative and management bodies............................................ 273
Information on the service contracts linking members of the administrative and
management bodies to the Company or to any of its subsidiaries......................................... 273
Committees of the Board of Directors................................................................................... 273
Corporate governance statement ........................................................................................... 279
Internal control ...................................................................................................................... 280
Employees ...................................................................................................................... 281
17.1
17.2
17.3
18.
Introduction ........................................................................................................................... 281
Shares and stock subscription or purchase options held by members of the Board of
Directors and of the Management Team and certain employees of the Group ..................... 286
Mandatory and optional employee profit-sharing agreements .............................................. 295
Principal shareholders .................................................................................................. 298
18.1
18.2
18.3
18.4
18.5
19.
ShareholdERS ....................................................................................................................... 298
Shareholders’ voting rights ................................................................................................... 300
Control structure .................................................................................................................... 300
Agreements that could lead to a change in control ................................................................ 307
Factors likely to have an impact in the event of a public offering ........................................ 307
Related party transactions ........................................................................................... 310
19.1
Transactions with the Altice group........................................................................................ 310
19.2
Transactions with Vivendi..................................................................................................... 313
Financial information about the Group’s assets and liabilities, financial
position, and results of operations ............................................................................... 317
20.
20.1
20.2
20.3
20.4
20.5
20.6
20.7
20.8
21.
Annual financial statements .................................................................................................. 317
Statutory Auditors’ fees......................................................................................................... 317
Interim and other financial information ................................................................................ 318
Date of the most recent financial information ....................................................................... 319
Company results over the past five years .............................................................................. 319
Dividend policy ..................................................................................................................... 319
Litigation and arbitration ....................................................................................................... 320
Significant changes in THE financial or trading position ..................................................... 331
Additional information ................................................................................................. 333
21.1
21.2
22.
Share capital .......................................................................................................................... 333
Charter and Articles of Association ...................................................................................... 340
Major contracts ............................................................................................................. 352
22.1
22.2
22.3
22.4
22.5
22.6
22.7
Telecom contracts.................................................................................................................. 352
Purchase contracts ................................................................................................................. 352
Infrastructure and network agreements ................................................................................. 353
White Label contracts ............................................................................................................ 357
MVNO contracts ................................................................................................................... 358
Intellectual property .............................................................................................................. 358
Contracts connected with the financing of the SFR Acquisition........................................... 358
23.
Third-party disclosures, expert statements and declarations of interest ................. 359
24.
Publicly available documents ....................................................................................... 360
25.
Information on equity interests ................................................................................... 361
APPENDIX I –
APPENDIX II –
APPENDIX III –
APPENDIX IV –
APPENDIX V –
APPENDIX VI –
APPENDIX VII –
APPENDIX VIII –
APPENDIX IX –
APPENDIX X –
GLOSSARY ............................................................................................................
ANNUAL CONSOLIDATED FINANCIAL STATEMENTS ...............................
STATUTORY AUDITORS’ REPORT ON THE ANNUAL
CONSOLIDATED FINANCIAL STATEMENTS .................................................
COMBINED FINANCIAL STATEMENTS OF SFR, SIG 50 AND THEIR
SUBSIDIARIES FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2014 .........................................................................................................................
STATUTORY AUDITORS’ REVIEW REPORT ON THE COMBINED
FINANCIAL STATEMENTS OF SFR, SIG 50 AND THEIR
SUBSIDIARIES FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2014 .........................................................................................................................
ANNUAL FINANCIAL STATEMENTS..………………………..........................
STATUTORY AUDITORS’ REPORT ON THE ANNUAL FINANCIAL
STATEMENTS...………………….…………………...............………………….
CHAIRMAN’S REPORT ON CORPORATE GOVERNANCE AND THE
INTERNAL CONTROL AND RISK MANAGEMENT PROCEDURES
INTRODUCED BY THE GROUP AND STATUTORY AUDITORS’
REPORT PREPARED IN ACCORDANCE WITH ARTICLE L. 225-235 OF
THE FRENCH COMMERCIAL CODE ON THE CHAIRMAN’S REPORT .......
CROSS-REFERENCE TABLE FOR THE ANNUAL FINANCIAL
REPORT ..................................................................................................................
CROSS-REFERENCE TABLE FOR THE MANAGEMENT REPORT
REQUIRED BY ARTICLES L. 225-100 ET SEQ. OF THE FRENCH
COMMERCIAL CODE ..........................................................................................
1.
PERSONS RESPONSIBLE FOR THE REGISTRATION DOCUMENT
1.1
NAME AND POSITION OF THE PERSON RESPONSIBLE
FOR THE REGISTRATION DOCUMENT
Eric Denoyer, CEO of Numericable-SFR.
1.2
DECLARATION BY THE PERSON RESPONSIBLE FOR THE REGISTRATION
DOCUMENT
“I certify, having taken all reasonable care to that effect, that the information contained in this
Registration Document is, to my knowledge, in accordance with the facts and contains no omission
likely to affect its import.
I certify that, to my knowledge, the financial statements have been prepared in accordance with
applicable accounting standards and provide a true and fair view of the assets, financial position and
results of operations of the Company and all of its consolidated subsidiaries, and that the information
contained in the management report and identified in the cross-reference table in Appendix X of this
Registration Document fairly presents the development of the business, results of operations and
financial position of the Company and its consolidated subsidiaries, as well as a description of the
main risks and uncertainties they face.
I have obtained a completion letter from the Statutory Auditors stating that they have verified the
information relating to the financial position and financial statements included in this Registration
Document and that they have read the entire Registration Document.
The Statutory Auditors’ report on the consolidated financial statements for the fiscal year ended
December 31, 2014, in Appendix III of this Registration Document, contains neither reservations nor
observations.
The Statutory Auditors’ report on the annual financial statements for the fiscal year ended December
31, 2014, in Appendix VII of this Registration Document, contains the following observation:
“Concerning the information disclosed in accordance with Article L. 225-102-1 of the French
Commercial Code on compensation and benefits received by corporate officers and on commitments
made to them, we have verified its consistency with the financial statements, or with the underlying
information used to prepare these financial statements and, where applicable, with the information
obtained by your company from companies controlling your company or controlled by it. Based on
this work, the accuracy and fair presentation of this information elicits the following observation:
This information does not include the amount of compensation and benefits paid and commitments
made by companies that control the Company within the meaning of Article L. 233-16 of the French
Commercial Code, since, as stated in the Management Report, such compensation is not paid in
respect of positions held within or on behalf of Numericable-SFR S.A.”
The Statutory Auditors’ review report on the condensed interim consolidated financial statements for
the nine months ended September 30, 2014, contained in Appendix II of the Registration Document
update filed with the AMF under No. D.14-0803-A01 on October 28, 2014, contains an observation in
relation to Notes 2.1, 2.3 and 2.4 to the financial statements. These notes set out the terms and
conditions of the agreement with Vivendi regarding the acquisition of SFR and the financing
arrangements for that acquisition.
The Statutory Auditors’ report on the consolidated financial statements for the fiscal year ended
December 31, 2013, contained in Appendix III of the Registration Document filed with the AMF under
No. R.14-0063 on October 10, 2014, contains an observation relating to the following notes:

Notes 1.2 “Basis of preparation of the consolidated financial statements” and 1.3
“Comparative information” describe respectively the accounting treatment of the initial
contributions to the Group and their impact on the preparation and presentation of the
consolidated financial statements and the comparative information; 
Notes 4.1.2 “IPO and capital increase” and 4.1.6 “Refinancing of senior debt” describe the
initial public offering and the refinancing operations that took place at the end of 2013 and
their impact on the going concern assumptions applied to the Group, as described in Note 1.5
“Going concern assumption”;

Notes 1.3 “Comparative information” and 2.1 “Accounting principles governing the
preparation of the consolidated financial statements” describe the change in accounting
method resulting from the first-time adoption of the revised IAS 19 “Employee Benefits.”
Deloitte & Associés’ audit report on the combined financial statements for the fiscal years ended
December 31, 2012, 2011 and 2010, contained in Section 20.1.2 of the Base Document registered
with the AMF under No. I.13-0043 on September 18, 2013, contains an observation relating to the
following notes:

The basis of preparation indicated in Note 1.4, which describes, mainly in the section entitled
“Combination basis,” the accounting method used for the combination of the two Groups
placed under common control, in the absence of specific provisions in that regard and in
accordance with IFRS as adopted by the European Union;

Note 1.6, which describes the elements that the Company’s management relied upon when
assessing the combined Group’s ability to meet its cash flow requirements in 2013 and the
going concern assumption for the preparation of the Combined Financial Statements.”
Furthermore, KPMG Audit’s review report on the condensed interim combined financial statements
of SFR, SIG 50 and their subsidiaries for the nine months ended September 30, 2014, contained in
Appendix IV of this Registration Document, contains an observation relating to the “Basis of
preparation” note, which describes the context, scope of combination and conventions applied to
prepare the combined financial statements.”
Paris, April 30, 2015
Eric Denoyer
CEO
1.3
NAME AND POSITION OF THE PERSON RESPONSIBLE FOR FINANCIAL
INFORMATION
Thierry Lemaître
Group CFO
12 rue Jean-Philippe Rameau, 93634 La Plaine Saint Denis Cedex
Tel: +33 (0)1.85.06.00.00
2
2.
PERSONS RESPONSIBLE FOR AUDITING THE FINANCIAL STATEMENTS
2.1
PRINCIPAL STATUTORY AUDITORS
Deloitte & Associés
Represented by Christophe Saubiez
185 avenue Charles de Gaulle, 92524 Neuilly-sur-Seine
Deloitte & Associates is a member of Compagnie Régionale des Commissaires aux Comptes de
Versailles.
Deloitte & Associés was named as Statutory Auditor in the Company’s Charter and Articles of
Association dated August 2, 2013 for a period of six years, until the close of the Shareholders’
Meeting called to approve the financial statements for the fiscal year ending December 31, 2018.
KPMG Audit, Division of KPMG S.A.
Represented by Grégoire Menou
1 cours Valmy – 92923 Paris La Défense Cedex
KPMG S.A. is a member of Compagnie Régionale des Commissaires aux Comptes de Versailles.
KMPG Audit, Division of KPMG S.A., was appointed as Statutory Auditor at the Shareholders’
Meeting of September 6, 2013 for a period of six years, until the close of the Shareholders’ Meeting
called to approve the financial statements for the fiscal year ending December 31, 2018.
2.2
SUBSTITUTE STATUTORY AUDITORS
BEAS
Represented by José-Luis Garcia
7-9 Villa Houssay, 92200 Neuilly-sur-Seine
BEAS is a member of Compagnie Régionale des Commissaires aux Comptes de Versailles.
KPMG Audit ID S.A.S.
Represented by Jean-Paul Vellutini
Immeuble Le Palatin - 3 cours du Triangle – 92939 Paris La Défense Cedex
KPMG Audit ID S.A.S. is a member of Compagnie Régionale des Commissaires aux Comptes de
Versailles.
3
3.
SELECTED FINANCIAL INFORMATION AND OTHER DATA
The following table presents selected financial information and other data as of the dates and for the
periods indicated below.
The selected financial information as of and for the fiscal years ended December 31, 2013 and 2014
was taken from the Group’s consolidated financial statements in Section 20.1.1 “Consolidated
financial statements of the Group” of this Registration Document. The consolidated financial
statements were prepared in accordance with IFRS as adopted by the European Union. They were
audited by the Statutory Auditors Deloitte & Associés and KPMG Audit. The Statutory Auditors’
report on the consolidated financial statements at December 31, 2014 can be found in Section 20.1.2
“Statutory Auditors’ report on the consolidated financial statements of the Group.” The Group
consolidated financial statements, prepared under IFRS, for the fiscal year ended December 31, 2013
and the corresponding Statutory Auditors’ report on the consolidated financial statements for the
fiscal year ended December 31, 2013 can be found in Appendices II and III of the Registration
Document dated October 10, 2014, filed with the AMF under number R.14-063.
The selected financial information as of and for the fiscal year ended December 31, 2012 was taken
from the Group’s combined financial statements in Section 20.1 “Combined Financial Statements of
the Group” of the Company’s Base Document filed on September 18, 2013 with the AMF under
number I.13-043. The combined financial statements were prepared in accordance with IFRS as
adopted by the European Union. They were audited by the Statutory Auditor Deloitte & Associés. The
Statutory Auditor’s report on the combined financial statements for the years ended December 2012,
2011 and 2010 can be found in Section 20.1 “Combined annual financial statements of the Group” of
the Company’s Base Document filed on September 18, 2013 with the AMF under number I.13-043.
The information in this section should be read together with (i) the Group’s consolidated financial
statements for 2014, contained in Section 20.1.1 “Consolidated financial statements of the Group” of
this Registration Document, (ii) the Group’s consolidated financial statements for the fiscal year
ended December 31, 2013, contained in Appendix II of the Registration Document dated October 10,
2014 and filed with the AMF under number R.14-063, (iii) the Group’s combined financial statements
for the fiscal years ended 2012, 2011 and 2010, contained in Section 20.1 “Combined annual financial
statements of the Group” of the Company’s Base Document filed on September 18, 2013 with the
AMF under number I.13-043, (iv) the Group’s analysis of its results of operations presented in
Section 9 “Analysis of the Group’s results of operations” of this Registration Document, and (v) the
Group’s analysis of its liquidity and capital resources presented in Section 10 “Liquidity and capital
resources of the Group” of this Registration Document.
Consolidated financial information
Income statement data
Fiscal year ended December 31
2012
(in € millions)
2013
Revenues ..............................................................................
1,302.4
1,314.2
Revenues generated by the B2C segment(1) ...........................
750.9
774.2
Revenues generated by the B2B segment(1) ...........................
323.2
309.7
Revenues generated by the wholesale
segment(1) ..............................................................................
228.4
230.4
Earnings
before
interest,
taxes,
depreciation and amortization (EBITDA).........................
592.3
560.1
EBITDA margin rate .............................................................
45.5%
44.3%
Depreciation, amortization and impairment ..........................
(291.7)
(304.0)
EBIT .....................................................................................
300.5
256.0
Net interest and other income ............................................
(211.4)
(323.6)
Corporate income tax ............................................................
(2.5)
132.8
Share in net income (loss) of associates ................................
(0.2)
(0.5)
4
2014(2)
2,169.7
1,408.6
463.9
297.2
569.1
26.2%
(460.9)
108.1
(599.7)
312.9
(3.6)
Income statement data
2012
(in € millions)
Net income (loss) from continuing
operations .............................................................................
86.4
Net income (loss) attributable to owners of
the entity...............................................................................
86.4
(1)
(2)
2013
2014(2)
64.7
(175.1)
64.7
(175.6)
Segment revenues are presented after intercompany eliminations. Revenues before intercompany eliminations (in accordance with
Note 7 to the Group’s consolidated financial statements) form the basis of the analysis of results by segment in Section 9 “Analysis of
the Group’s results of operations” of this Registration Document. See Section 9.1.1 “Introduction” for an explanation of this approach
and a reconciliation of the figures.
Includes one month (December 2014) of SFR results.
At December 31
Statement of financial position data
2012
(in € millions)
Goodwill ................................................................................
1,458.7
Other intangible assets ...........................................................
326.2
Property, plant and equipment ...............................................
1,389.9
Investments in associates .......................................................
3.4
Other non-current financial assets .........................................
6.8
Deferred tax assets
0
Total non-current assets ......................................................
3,185.0
Inventories .............................................................................
45.6
Trade receivables ...................................................................
417.4
Other current financial assets.................................................
4.0
Tax receivables ......................................................................
0.0
Cash and cash equivalents .....................................................
8.0
Restricted cash
Total current assets .............................................................
475.0
Assets held for sale ................................................................
Total assets ...........................................................................
3,660.0
Equity attributable to the owners of the
entity .....................................................................................
(287.4)
Non-controlling interests
Non-current financial liabilities .............................................
2,926.3
Non-current liabilities .........................................................
3,101.6
Current liabilities.................................................................
845.8
Total equity and liabilities ..................................................
3,660.0
2013
2014
1,483.6
307.4
1,464.8
2.9
7.3
132.7
3,398.6
49.6
402.9
4.0
3.4
101.4
561.3
3,959.8
12,935.0
4,196.1
5,896.7
130.0
1,049.0
633.6
24,840.4
255.6
2,812.2
7.9
251.6
546.0
3,873.7
28,714.1
253.4
2,701.9
2,878.1
828.1
3,959.8
7,964.5
10
13,349.4
14,301.6
6,437.9
28,714.1
For the fiscal year ended December
31
Cash flow statement data
2012
(in € millions)
Net cash flow provided by operating
activities ..........................................................................
531
Net cash flow used by investing
activities ..........................................................................
(285)
Net cash flow provided (used) by
(278)
financing activities ..........................................................
Total net increase (decrease) in cash and
(33)
cash equivalents ................................................................
5
2013
2014
570
1,135
(343)
(13,758)
(134)
13,068
93
445
For the fiscal year ended December
31
Other financial data
2012
(in € millions)
EBITDA(1) ............................................................................
592.3
Adjusted EBITDA(2)............................................................
620.9
Adjusted EBITDA margin rate(2).......................................
47.7%
Capital expenditures(3) ........................................................
285.6
2013
560.1
615.9
46.9%
319.8
2014
569
706
32.5%
557.1
_____________________________________________
(1)
(2)
(3)
EBITDA corresponds to earnings before interest, taxes, depreciation and amortization. Although EBITDA should not be
considered a substitute measure for EBIT and net cash provided by operating activities, the Group believes that it provides
useful information regarding the Group’s ability to meet future debt service requirements.
Unaudited. Adjusted EBITDA is equal to EBITDA (i.e., to earnings before interest, taxes, depreciation and amortization),
adjusted for certain items as reflected in the table below. The Group believes that this measure is useful to readers of its
financial statements as it provides them with a measure of EBIT which excludes certain items that the Group considers to be
outside its recurring operating activities or that are non-cash, making trends more easily observable and providing
information regarding the Group’s EBIT and cash-flow generation that allows investors to identify trends in its financial
performance. It should not be considered as a substitute measure for EBIT and may not be comparable to similarly titled
measures used by other companies. The following table provides a reconciliation of adjusted EBITDA to EBITDA.
Corresponds to acquisitions of property, plant and equipment and intangible assets, net of subsidies.
For the fiscal year ended December 31
(in € millions)
2012
EBITDA ...............................................................................
592.3
Advisory fees relating to debt refinancing(a)..........................
7.4
Expenses relating to the acquisition of SFR
and Virgin
Restructuring costs(b) .............................................................
2.5
Other non-recurring costs ......................................................
0.6
Exceptional income/charge from France
Telecom-Orange or Free(c) ................................................0.1
CVAE(d).................................................................................
11.9
Accelerated depreciation of fixed assets(e).............................
5.2
Penalties(f) .........................................................................1.0
…
Stock-option cost............................................................... …
Adjusted EBITDA ...............................................................
620.9
2013
2014
560.1
4.9
569.1
1.1
1.4
11.3
60.6
9.8
18.5
7.2
12.7
14.7
3.6
615.9
16.2
22.1
8.8
706.3
_____________________________________________
(a)
(b)
(c)
(d)
(e)
(f)
Fees paid in connection with the Group’s refinancing transactions (recognized in other operating expenses).
Restructuring costs incurred in connection with the Group’s acquisitions (recognized in purchases and subcontracting
services and personnel expenses).
Amount received from France Telecom-Orange, corresponding to payment of damages following a ruling of the Paris
Commercial Court against France Telecom-Orange on restrictive trade practices in the ADSL market in 2001 and 2002
(recognized in other operating income). Exceptional charge recognized in 2013 for the €6 million penalty relating to the
dispute with Free.
The business value added contribution (Cotisation sur la Valeur Ajoutée des Entreprises, or CVAE) is restated to the extent
that some of the Group’s competitors classify this tax, assessed on value added, as an income tax in the sense of IAS 12.
Additional depreciation recognized when writing off assets.
Penalties paid to SFR due to a delay in the deployment of vertical fiber networks under a fiber deployment agreement
entered into in 2008 (recognized in purchases and subcontracting services).
6
Condensed consolidated pro forma financial information
The condensed pro forma income statement for the 12 months ended December 31, 2014 presents the
impact of the acquisitions of SFR Group (SFR SA, SIG 50 and their subsidiaries, including Telindus,
acquired by SFR Group on April 30, 2014) and the Virgin Mobile Group (Omer Telecom Limited and
its subsidiaries) and the associated financing, as if such Transactions (the Acquisitions, the financing
of the Acquisitions and the refinancing transactions connected with the acquisitions) had occurred on
January 1, 2014.
impact of the acquisition of SFR Group (SFR SA, SIG 50 and their subsidiaries, excluding Telindus,
acquired by SFR Group on April 30, 2014) and the associated financing and refinancing transactions,
except for the Virgin Mobile acquisition, which is not a material transaction within the meaning of the
European Prospectus Directive, as if such transactions had occurred on January 1, 2013.
As a result of Virgin Mobile and Telindus not being included in the 2013 pro forma income statement,
its comparability with the 2014 pro forma income statement is limited.
Data from the condensed consolidated
pro forma income statement
Fiscal year ended
December 31, 2013(1)
(in € millions)
Revenues ..............................................................................
11,472
Revenues generated by the B2C segment ..............................
7,929
Revenues generated by the B2B segment ..............................
2,124
Revenues generated by the wholesale
segment .................................................................................
1,419
Operating expenses ...............................................................
(10,214)
Operating income ................................................................
1,258
Net interest and other income ............................................
(908)
Income tax income (expense) ................................................
(175)
Share in net income (loss) of associates ................................(12)
Net income (loss) ..................................................................161
Attributable to non-controlling interests................................155
Attributable to owners of the entity ....................................... 6
Fiscal year ended
December 31, 2014
11,436
7,888
2,223
1,325
(10,795)
641
(783)
150
(14)
(6)
9
(15)
(in € millions)
2013
Numericable
Group
2013
Numericable
Group pro
forma1
EBIT .....................................................................................
256
Depreciation, amortization and
impairment ............................................................................
304
SFR and Virgin Mobile acquisition
costs(a)....................................................................................
Restructuring costs(b) .............................................................
1
Other non-recurring costs(c) ...................................................
24
Costs relating to stock option plans(d) ....................................
4
Accelerated depreciation of fixed
assets(e) ..................................................................................
15
CVAE(f) .................................................................................
13
Other income/expenses(g) ......................................................
Adjusted EBITDA ...............................................................
616
December 2014
Numericable
SFR
December 2014
Numericable
SFR pro forma
1,258
108
641
1,965
461
1,948
94
23
31
61
10
20
9
61
52
216
13
15
65
7
3,549
22
16
706
54
72
43
3,100
(a) Costs relating to the acquisition of SFR and Virgin Mobile.
1
Figures taken from Note 7 “Condensed consolidated pro forma financial information at December 31, 2013” to the condensed consolidated
pro forma interim financial information as of June 30, 2014.
7
(b) In 2013, these restructuring costs included restructuring costs incurred by Numericable in connection with the acquisition of Altitude
Telecom by Numericable Group and restructuring costs for the voluntary redundancy plan proposed by SFR and introduced in 2012 (see
Note 4.2 of SFR’s combined financial statements as of December 31, 2013). In 2014, these restructuring costs included settlement payments
and other costs relating to strategic workforce planning (Gestion Prévisionnelle de l’Emploi et des Compétences, or GPEC).
(c) In 2013, these costs consisted of advisory fees relating to refinancing transactions carried out by Numericable Group (€4.9 million);
provisions/costs associated with tax and social security audits (€11.3 million); an exceptional charge of €1.1 million for legal costs paid in
connection with the litigation against France Telecom before the International Chamber of Commerce; an exceptional charge of €6.1 million
corresponding to penalties relating to the legal proceedings with Free; and a (non-cash) loss of €14.7 million resulting from (i) the
accelerated depreciation of set-top boxes and routers that were returned damaged or were simply not returned by subscribers, and (ii) the net
carrying amount of assets transferred to local authorities following the withdrawal from the public service contract. In 2014, these costs
included costs relating to tax audits notified during the year, as well as advisory fees relating to refinancing transactions conducted by
Numericable-SFR. Costs relating to non-recurring litigation incurred by SFR for the 11 months ended November 30, 2014.
(d) Expenses relating to IFRS 2.
(e) Additional depreciation recognized when writing off assets.
(f) The business value added contribution (Cotisation sur la Valeur Ajoutée des Entreprises, or CVAE) is restated to the extent that some of
the Group’s competitors classify this tax, assessed on value added, as an income tax in the sense of IAS 12.
(g) These include €2 million of other operating income and €10 million of other operating expenses, as described in Note 4.2 of SFR’s
combined financial statements at December 31, 2013.
The amounts of CAPEX and EBITDA-CAPEX, restated to reflect the additional contributions from
Virgin and Telindus, assuming they were acquired on January 1, 2013, amounted to €1,930 million
and €1,555 million at December 31, 2013, and €1,781 million and €1,319 million at December 31,
2014, respectively.
The following table presents the Group’s operating data: (i) pro forma as of and for the fiscal year
ended December 31, 2013; (ii) pro forma for the fiscal year ended December 31, 2014 (monthly
ARPU for 2014), and (iii) actual as of December 31, 2014 (for data at December 31, 2014). Pro forma
operating data for the fiscal years ended December 31, 2014 and December 31, 2013 are intended to
present these operating data as if the acquisitions of SFR Group (SFR SA, SIG 50 and their
subsidiaries, including Telindus, acquired by SFR Group on April 30, 2014) and the Virgin Mobile
Group (Omer Telecom Limited and its subsidiaries) occurred on January 1, 2014 and January 1, 2013,
respectively. For more information, see Sections 6.5.1.1 and 6.5.2.1 “General presentation” of this
Registration Document.
Operating data
As of and for the fiscal year ended
(in thousands)
2013
2014
B2C operating data
Footprint(1)
Homes passed(2) ...............................................................
9,940 (4)
Of which fiber connections .......................................
5,196 (5)
10,394
6,451
17,036
Mobile subscribers ..........................................................
Of which post-paid ....................................................
13,257
Of which pre-paid .....................................................
3,780
Fixed-line subscribers......................................................
6,582
Of which ADSL ........................................................
5,102
Of which FTTB and FTTH .......................................
1,480
16,238
13,004
3,234
6,577
5,030
1,547
Monthly ARPU(3)
23.9
29.0
Of which pre-paid .....................................................
8.0
Fixed-line subscribers......................................................
34.3
Of which ADSL ........................................................
32.6
Of which FTTH .........................................................
34.7
Of which FTTB .........................................................
41.3
22.5
26.6
7.4
34.1
32.6
28.5
41.0
8
(1)
(2)
(3)
(4)
(5)
B2B operating data
Post-paid fixed-line subscribers ......................................
6,190
Of which M2M .........................................................
3,615
6,701
4,225
Operating data for the fixed
wholesale segment
White-label end users......................................................
974
Of which fiber ...........................................................
363
1,007
364
Operating data relating to the Group’s footprint and penetration are presented as of the end of the period concerned.
A home is considered “passed” if it can be connected to the distribution system without further extension of the network.
ARPU operating data are presented in euros per month (excluding VAT) for the periods indicated and do not reflect ARPU from
white label end users or bulk subscribers.
Excluding SFR Group homes passed.
Excluding SFR Group fiber connections.
9
4.
RISK FACTORS
Investors are invited to take into consideration all of the information contained in this Registration
Document, including the risk factors described in this section. These risks are, as of the date of the
filing of the Registration Document, the ones that the Group believes, if they materialize, could have a
material adverse effect on its business, its results of operations, its financial position or its outlook.
The attention of investors is drawn to the fact that other risks may exist that are not identified as of
the date of the filing of the Registration Document, or the materialization of which is not, as of that
same date, considered likely to have a material adverse effect on the Group’s business, results of
operations, financial position or outlook.
4.1
4.1.1
RISKS RELATING TO THE BUSINESS SECTOR AND MARKETS OF THE GROUP
The Group operates in a competitive sector and the competition could have a
material adverse effect on its business.
The Group faces significant competition. While the nature and level of competition to which the
Group is subject vary according to the products and services that it offers, such competition has a
general effect on the prices, marketing, products, network coverage, characteristics of services, and
customer service. In the long term, the financial performance of the Group is primarily dependent on
its ability to continue to create, design, procure, and market new products and services as well as to
maintain acceptance by the market of its existing and new products and services. The main competitor
of the Group on its markets overall is Orange, the long-standing telecommunications operator in
France, which is availed of significant financial resources. Bouygues Telecom and Iliad (Free) are
also major competitors of the Group on the B2C market. On the premium pay-TV market Groupe
Canal+ products are available throughout the French territory via satellite, cable, and DTT and DSL
technologies. On the B2B market, in addition to Orange and Bouygues Telecom, the Group also
competes with international telecommunications operators such as Colt, Verizon, AT&T, and BT,
which offer to the multinationals access to their international networks while the Group’s network has
a national scope along with competitors of local scope.
Furthermore, the development of new technologies and new telecommunications services has favored
the emergence on the telecommunications market of new players who are suppliers of services or of
content, such as search engines, instant messenger services, VoIP (“Voice over Internet Protocol”), or
even suppliers of terminals and of Operating Systems (“OS”), whose services are already competing
and could compete even more against the products of telecommunications operators. These new
players deriving from sectors that are either unregulated or are subject to other regulations (including
internet players such as Yahoo, Google, Microsoft, Amazon, Skype, Apple, YouTube, or players in
audiovisual) have emerged as competitors of the Group in terms of content offering. These new
players could inject themselves between telecommunications operators and the end customer,
exposing the Group to a risk of degradation or loss of the relationship with the end customer, in an
environment where this relationship is generating value. In addition, such providers of services or
content could directly offer their services to end consumers, resorting to telecommunications
operators only for providing access. The Group and other telecommunications operators thus risk no
longer being the direct interface for customers and risk becoming mere service providers.
The rapid success achieved in the retransmission of audiovisual programs via telecommunications
networks, the lack of innovation, and the obligation of internet access providers to adhere to the
principle of network neutrality, implying equal treatment for all flows of data on the internet and
prohibiting a telecommunications operator from blocking or restricting internet content, could lead to
penetration by other providers of content and of services as well as to network saturation, thus
depressing the revenues and margins of operators like the Group, all the while requiring them to
increase their investments in order to remain competitive and meet network usage demands in terms
of data and bandwidth, which could have a material adverse impact on the business of the Group, its
financial position, or its operating income. In this context, even while the Group strives to maintain
10
the quality of its relationships with its customers and to develop offerings integrating new products or
services, the entry of new players could affect the positioning of the Group on the value chain. The
Group thus could be exposed to loss of market share (both on the B2C market as well as on the B2B
market) and/or to loss of a portion of the value generated by services and content to the benefit of
such new players.
In addition, the B2B market is based on the assumption of a growing demand for B2B data services. If
the demand for B2B data services (such as cloud services, hosting, and IP VPN) generally does not
continue to increase as expected, there would be increased impact from the competition.
Some of the Group’s competitors also use platforms that are different from those of the Group to
provide competing products and services. Advances in mass electronics and communications
technology as well as changes in the structure of the offering of information, communications, and
entertainment services are constantly arising and it is very difficult to predict their impact. The
technical development of existing platforms and the creation of platforms based on new emerging
technologies, depending on the success they may encounter and the ability of the Group to develop
products and services using its network, pose a threat to the competitive position of the Group in the
long term. The extent of the competition that will actually use such alternative technologies, as averse
to the Group’s network, may not be known for several years. Market concentrations may result from
mergers or acquisitions or the sharing of some network equipment (as is the case in Central Europe
and Africa), making the Group’s competitors more competitive and increasing the competitive
pressure on the Group.
In sum, the Group’s current and future competitors are likely to offer even more services to a
customer base that is wider or at prices that are lower than those of the Group, which would lead the
Group to lose subscribers and would require it to lower its prices or would be likely to have a material
adverse impact on the margin generated by its services.
High levels of competition on the Group’s markets may have a material adverse effect on its ability to
attract new customers and retain existing customers and may lead to a higher churn rate, more
pressure on prices and a reduction in margins.
Such consequences could have a significant negative effect on the business of the Group, its financial
position and its results of operations.
4.1.2
The deployment of fiber optic networks and/or VDSL2 by competitors of the Group
could reduce and ultimately eliminate the gap between the speed and the power of
the fiber optic/cable network of the Group compared to the DSL networks of its
main competitors.
The Group considers that one of its major competitive advantages is the power and speed of its fiber
optic/cable network. As of December 31, 2014, the Group’s network included more than 6.4 million
households equipped with fiber optics (100Mbit/s and higher) of a total number of homes eligible for
very-high-speed (100Mbit/s and higher) of 7.8 million according to ARCEP (Wholesale market high
and very-high-speed broadband observatory, March 5, 2015).
However, the competitors of the Group could deploy fiber and/or VDSL2 networks enabling
download speeds and bandwidths that could rival those reached by the Group’s network, and thus
more or less strongly reduce the Group’s competitive advantage. The Group’s main DSL competitors
(Orange, Free, and Bouygues Telecom) have begun to introduce FTTH networks to increase and
harmonize their network speed. On March 17, 2015, Orange launched its strategic plan for 2020 and
announced that it would invest more than €15 billion in its networks between 2015 and 2018. With
regard to very-high-speed fixed broadband, Orange has the objective of tripling its investments in
fiber between now and 2020 and of going from 3.6 million connectable households at the end of 2014
to 12 million in 2018 and 20 million in 2022 (source: Orange press release).
11
In compliance with the Economic Modernization Law of August 4, 2008 and the conditions
established by ARCEP (Decision 2009-1106 of December 22, 2009 and Decision 2010-1312 of
December 14, 2010), other operators may obtain access to the infrastructure deployed by an operator,
even through joint projects for financing, for their own very-high-speed broadband products. All of
the DSL operators have announced various agreements on sharing the deployment of FTTH in given
areas. For example, Orange and Free entered into a contract in July 2013 providing for the
deployment by Free of a fiber network using the infrastructure of Orange in about 20 French cities.
This agreement is of a non-exclusive nature and allows open access for all competing operators. In
addition, in February 2013 the government announced a FTTH deployment plan (for which cable
technology is not eligible) of €20 billion (invested by private operators and local authorities) and the
objective of providing very-high-speed internet access to 50% of the population between now and
2017 and to the entire territory in 2022. The government will provide a subsidy package of 3.3 billion
euro, partly from funding from the Investments for the Future Program managed by the Office of the
General Commissioner of Investment under the 2015 Budget Act. Various communities have already
agreed on subsidies to network operators for installing FTTH connections. Such subsidies are likely to
be pursued in French geographical departments such as Hauts-de-Seine, or even the cities Amiens and
Louvain, for example, as public-private partnerships have already been entered into encouraging such
investments. Considering the support from the government and municipalities, FTTH deployment by
Group’s competitors could accelerate and the share of FTTH on the high-speed internet market could
grow significantly. As of December 2014 France had a total of 935,000 very-high-speed FTTH
internet subscriptions, that is, up 67% in one year (source: ARCEP, Retail market high and very-highspeed broadband observatory, March 5, 2015). The total number of homes eligible for very-highspeed products (greater than or equal to 30 Mbit/s), all technologies combined, totaled about 13.3
million homes as of December 31, 2014; 4,064,000 were eligible for FTTH very-high-speed fiber
optics, representing an increase of 12% over one quarter and 37% over one year (source: ARCEP,
Wholesale market high and very-high-speed broadband observatory, March 5, 2015).
VDSL2 technology has also been implemented by competitors of the Group in some places. See
Section 6.2.1.2(b) “Main Distribution Platforms - DSL, VDSL2, fiber optics and cable” in this
Registration Document. Deployment of VDSL2 only requires the adding VDSL2 cards in the already
deployed DSLAMs and does not involve physical intervention at the subscriber’s premises.
Moreover, the deployment of this technology has accelerated since October 2014 given the favorable
opinion of the copper experts committee that has allowed the marketing, starting from that date, of
VDSL2 in indirect distribution on all lines from an MDF on Orange’s local copper loop. As of
December 31, 2014, about 4.9 million homes were eligible for VDSL2 (source: ARCEP, Wholesale
market high and very-high-speed broadband observatory, March 5, 2015).
If the competitors of the Group continue to deploy or significantly increase their fiber optic networks
they could be able to compete with the Group in terms of the offering of high-speed internet and
television services of a quality and speed greater than or equal to those of the Group, thus potentially
eliminating the Group’s current competitive advantage, increasing the pressure weighing upon prices
and margins and leading the Group to make significant investments in order to match the services
they offer. Deployment of VDSL2 and/or fiber optic networks by competitors also represents a risk
for the B2B segment of the Group, particularly with regard to medium-sized, small-to-medium-sized,
and very small-sized businesses to which the Group’s DSL/fiber optic network also represents an
advantage at present. Although the Group is preparing for this deployment by investing in and
improving its product range and content, such a deployment could have a material adverse effect on
the Group’s business, financial position and results of operations.
4.1.3
Prolonged weakness or deterioration in macroeconomic conditions in France could
have a negative effect on the Group’s business, financial position and results of
operations.
The Group has made all of its revenues in France. It is therefore highly dependent on the economic
trends in France.
12
The French economy has recently experienced weak growth, or recession, and even though the
forecasts show slight increases, growth remains fragile, with the French government estimating that
the GDP of France has increased only by 0.4% in 2014 and should increase by 1.2% in 2015 (source:
Banque de France; IMF, April 2015). Poor performance by the French economy, particularly due to a
possible resurgence of the euro zone debt crisis, could have a direct negative impact on consumer
spending habits and on businesses in relation to products and their usage levels. Such poor
performance could (i) make it more difficult for the Group to capture new subscribers and customers,
(ii) increase the likelihood that some subscribers or customers of the Group might reduce the level of
subscribed services or terminate their subscriptions, and (iii) make it more difficult for the Group to
keep its ARPU or its B2B prices at current levels. In particular, a significant portion of the total
revenue of the Group on the B2C market is generated by premium products. Considering that
spending by consumers is affected during times of economic uncertainty, they may consider that such
premium products are not essential or do not display a good quality/price ratio and, therefore, they
may opt for the non-premium offerings of the Group or less costly offerings from its competitors, or
may even terminate or decide not to renew their subscriptions. Even if the impact on the B2B segment
is more limited than on the B2C segment, the Group also faces the risk that, during periods of
macroeconomic recession, companies may reduce their demand for services or negotiate increasingly
lower prices.
4.1.4
Future growth in the Group’s revenues depends in part on the market’s acceptance
of the introduction of new products and innovations in its products.
In general, the telecommunications industry is characterized by frequent introduction of new products
and services on the market or by modernization of existing services and products in connection with
new technologies as well as with changes in usage patterns and in the needs and priorities of
consumers. In the long term, the financial results of the Group are largely dependent on its ability to
continue to create, design, procure, and market new products and services as well as to maintain
acceptance by the market of its existing and new products and services. The Group constantly
assesses its products and services in order to develop new offerings and improve the functionality of
its current offerings. In May 2012, the Group launched “LaBox,” which it considers to be one of the
most powerful and interactive decoders on the French market. LaBox has had great success among
consumers, the Group having equipped its subscribers with more than 460,825 units as of December
31, 2014. In November 2014, SFR launched “Box Fibre” with “TV Power” by Numericable, relying
on Numericable’s LaBox to offer a convergent product between very-high-speed mobile and fixed.
However, no guarantee can be given as to the continued success of LaBox and of Box Fibre with TV
Power by Numericable with the customers of the Group. Lacking that, or if the Group is not
successful in introducing it or experiences a significant delay in introducing new products and
services on the market in the future, or if its new products and services are not accepted by its
customers, there could be an adverse effect on its business and operating income.
In addition, the Group may be led to bear additional costs for marketing and customer service in order
to retain existing customers and attract them to the new products or services that it may offer, as well
as for responding to advertising pressure exerted by its competitors and their potentially more
extensive marketing campaigns, which could have an adverse effect on the Group’s margins.
4.1.5
The reputation and financial position of the Group may be affected by problems
with the quality of products.
Many products and services of the Group are manufactured and/or maintained using complex, precise
technological processes. Such complex products may contain defects or experience failures during
their initial introduction onto the market or when new versions or improved versions are marketed.
Despite the testing procedures implemented, the Group cannot guarantee that its new products will be
faultless after their launch. Such circumstance could result in lost or delayed acceptance of the
Group’s products by the market, increased costs of customer service, delayed revenue generation or
lost revenue, defective products eliminated from inventories and replacement costs, or could
13
undermine the reputation of the Group with its customers and the industry. Any such defect could also
require a software solution to cure the defect but that may reduce the performance of the product.
The Group has to add new technologies in order to adapt to the constant technological evolution of
telecommunications services and products. Such new technologies could ultimately prove to be
difficult to implement and could have a negative impact on the quality of the products and services of
the Group. A failure to master the technologies thus integrated or any failure in the products and
services of the Group could threaten its reputation and cause a slowdown or stoppage in the marketing
of these products and services, an increase in customer service costs, as well as costs in the
replacement and removal of the defective products. In addition, any loss of consumer confidence in
the Group could lead to a significant decline in the sales of its other products. Furthermore, the Group
may encounter difficulties in identifying the users of defective products. As a result, it could bear
significant costs in order to implement the modifications and correct the defects in its products. Issues
such as these could have a material adverse effect on the Group’s results of operations.
4.1.6
The Group might not be able to respond appropriately to technological
developments.
To remain competitive, the Group must continue to increase and improve the functionality,
availability, and characteristics of its network, particularly by improving its bandwidth capacity and
its 4G coverage to meet the growing demand for the services that require very-high-speed. In general,
the telecommunications industry is facing challenges that particularly relate to:
▪ rapid, significant technological evolution;
▪ frequent improvement of existing products or services resulting from the emergence of new
technologies; and
▪ the establishment of new industry practices and standards that make the current systems and
technologies in the business obsolete.
While the Group tries to keep a step ahead, closely pursuing technological change and investing in it
in order to be able to implement such change, it is difficult to forecast the effect that technical
innovations will have on the Group’s business. The Group has to be able to continue adapting to rapid
changes in technologies, consumption patterns, and customer demand. In particular, lacking dedicated
research and development activities, the Group has to be able to identify, aggregate and offer
innovative products and services that are differentiated from those of its competitors, particularly by
stressing the quality of the services associated with the products offered. To that end, the Group
maintains a constant watch on innovations and services in order to constantly improve the offerings
that it proposes to its customers. The responsiveness of the Group in integrating such innovations is an
essential condition to its remaining competitive with its competitors. The Group cannot, however,
guarantee that it will be able to anticipate and identify the services and products that meet the
expectations of its customers or prospects, or that it will be able to adapt its existing products and
services to the new technologies. The Group may not succeed in the marketing of such products and
services in the time required. In addition, the Group may incur significant expenses in order to refresh
its offering of products and services, or to promote it. Moreover, the Group cannot guarantee that the
offerings of products and the features of services that have been developed will experience the success
expected or that they will enable the Group to achieve its objectives.
4.1.7
The Group cannot exclude the possibility that there may be risk or litigation in the
event of defective software or a claim by a third party as to software ownership.
Open-source software (or “free software”) can be defined as software distributed under an open
licensing regimen (for example, of the GNU GPL (General Public License) type), generally governed
by the following principles: on the one hand, free of charge and open for use, study, modification, and
distribution of the software and of the developments deriving from it and, on the other hand, a
requirement that developments based on the software be subject to the same license. Accordingly, (i)
14
no contractual warranty is granted to the benefit of users and (ii) developments based on open-source
software must be disclosed and are to be used freely by third parties.
The Group could not, therefore, benefit from any contractual remedy in the event of defective opensource software and cannot discard the possibility of the risk of a third-party claim to ownership of
developments based on open-source software or a demand for disclosure of the source code of such
software.
Under this type of license, modified versions of the “free” software or developments integrating
“free” software may have to be subject to the same “free” license and be freely accessible and usable
by third parties under the same conditions as “free” software. As a result, the Group would bear the
risks in the event of defects or infringement actions involving this type of software. Moreover, use by
the Group of such software could have an impact on the ownership of software developed by the
Group on that basis, particularly in terms of exclusivity and the licensing, use, or integration of such
“free” software components that may involve the full or partial applicability of the “free” software
regimen. This situation could have a material adverse effect on the Group’s business, financial
position, results of operations or outlook.
Furthermore, “patent trolls” (that is, “patent hunters,” also referred to as “non-practicing entities”)
have as their core business the acquisition of patents and the granting of licenses, doing so without
any activity in producing goods or in providing services.
The Group cannot exclude the possibility of risk from contentious claims from patent trolls, which
could curb the level of innovation of the Group, forcing it to invest in research and development in
order to work around the patents held by patent trolls and/or could have financial consequences if
licenses or settlements are entered into with patent trolls or in the event of an adverse outcome from
litigation with such entities.
4.2
4.2.1
RISKS RELATING TO THE GROUP’S BUSINESS ACTIVITIES
The Group might not be able to effectively implement or adapt its business strategy
following the acquisitions.
The Group has based its strategy, particularly its decision to acquire SFR and Virgin Mobile, on its
vision of the market, especially the importance of very-high-speed fiber and mobile networks and of
fixed-mobile convergence. However, the Group is evolving in a market affected by economic,
competitive and regulatory instability and the Group must regularly adapt its business model to take
into account market changes such as the development of specific pricing policies, the adaptation of its
structural costs, the streamlining of its operational organization, and the adaptation of its sales
strategy. If the measures taken by the Group do not meet the demands, expectations, or habits of the
consumer, it will have an adverse effect on the return on investments made, on financial targets, on
market share, and on revenues generated. Consequently, any development of the Group’s business
strategy that proves not to be sufficiently adapted to the actual trends and to the demands,
expectations, or habits of the consumer in the telecommunications market may have a material
adverse effect on its business, financial position and results of operations.
4.2.2
Integrating SFR into the Group could result in operational difficulties and other
adverse consequences.
The integration of SFR and to a lesser extent Virgin Mobile into the Group could create operational
difficulties and unforeseen expenses and could give rise to significant administrative, financial, and
managerial challenges involving the activity of the Group. Such challenges include:
15
•
profitable integration at the heart of the Group’s current business, including matters
involving network infrastructure, information and financial control systems, marketing,
brand exploitation, customer service, and products and service offerings;
•
legal, regulatory, contractual, labor, or other difficulties resulting from the acquisition that
have not been foreseen or disclosed;
•
integration of differing team management and corporate cultures;
•
retention and/or renewal of material contracts with business partners, suppliers, and
certain B2B customers; and
•
retention, recruitment, and training of key personnel, including the management teams of
the entities acquired.
Moreover, the guarantees of liabilities granted by Vivendi in the context of the acquisition of SFR are
limited and the Group cannot therefore guarantee, in particular, that they would cover all liabilities
with respect to SFR that may appear after the acquisition or liabilities known as of that date but that
may worsen later.
The inability of the Group to effectively integrate SFR and Virgin Mobile into the Group could have a
material adverse effect on the financial position of the Group and its results of operations.
Moreover, prior to the acquisition, SFR functioned as an entity of the Vivendi group. As such, SFR
was benefiting from the operational and support systems of the Vivendi group, including support in
technology, the back office, accounting, and other systems. The support agreement entered into with
Vivendi provided that the amount for services furnished by Vivendi was to be billed to SFR on the
basis of 0.1% of SFR’s consolidated revenue (excluding Maroc Telecom and excluding revenues
arising from the sale of equipment). As a result, the Group could incur additional costs in connection
with these systems and other costs that SFR may incur as a result of its departure from the Vivendi
group. SFR also benefited from the financing and, partially, from the insurance policies of the
Vivendi group, which the Group has had to replace. Lastly, integration of the acquired companies has
required and continues to require much time and attention on the part of the management of the
Group, at the expense of time and attention devoted to the management of the ongoing business of the
Group.
4.2.3
The synergies expected from the acquisition of SFR Group might not materialize.
With the acquisition of SFR Group, the Group expects to benefit from certain synergies. The Group
may not achieve some or all of the synergies expected from these acquisitions. Among the synergies
that the Group currently expects are opportunities to offer the products and respective offerings of
Numericable Group and SFR to the existing customers of the Group, network synergies, and other
operational synergies. The synergies expected as a result of the acquisition of SFR by the Group are
subject to a certain number of assumptions regarding the timetable, the execution, and the costs
associated with the achievement of the synergies. These assumptions are inherently uncertain and are
subject to various significant uncertainties and risks in economic, business, and competitive terms.
One cannot be certain that these assumptions will prove correct and, therefore, the total amount of the
synergies that the Group will actually achieve and/or their timing of execution may differ significantly
from (and may be significantly lower than) the synergies currently expected and estimated by the
Group. Moreover, the Group could bear significant costs arising from the integration of SFR and in
order to achieve the expected synergies. The Group might not achieve a successful integration of
some or all of these activities, as currently anticipated, which could have a material adverse effect on
the Group’s activities.
16
4.2.4
Pro forma financial data might not be representative of future performance.
The financial statements included in this Registration Document include a condensed pro forma
income statement for the 12 months ended December 31, 2014 aimed at presenting the impact of the
Acquisitions of SFR Group (SFR SA, SIG 50, and their subsidiaries, including Telindus, acquired by
SFR Group on April 30, 2014) and of Virgin Mobile Group (Omer Telecom Limited and its
subsidiaries) as well as the associated financing as if the transactions (acquisitions, financing of
acquisitions, and refinancing transactions connected with the acquisitions) had occurred on January 1,
2014. This financial information is based on estimates and assumptions and does not reflect the
outcome that actually would have been achieved if the aforementioned transactions had occurred on
the date planned or during the periods considered, nor the future performance. The pro forma financial
information does not reflect the impact of any events other than those discussed in Note 38
“Condensed consolidated pro forma financial information” in the Notes to the audited consolidated
financial information. The future results of operations of the Group could therefore differ significantly
from the pro forma financial information.
Moreover, this Registration Document contains pro forma financial information for the fiscal year
ended December 31, 2013 prepared under the assumption of consolidation of SFR Group on January
1, 2013. This pro forma financial information does not reflect the impact of the acquisitions of
Telindus and of Virgin Mobile, which affects its comparability with the pro forma information for the
fiscal year ended December 31, 2014.
4.2.5
The rate of customer termination, or risk of customer termination, could have an
adverse effect on the business of the Group.
The churn rate measures the number of customers who end their subscriptions for one or more of the
products or services of the Group. The churn rate results primarily from the influences of the
contractual term, the competition and price increases. In the fixed-line segment, relocations and
mortality are also important factors. In the mobile segment, the churn rates are higher and are
particularly influenced by increased competition. The churn rate could also increase if the Group is
not able to provide satisfactory services on its network or if it modifies the types of services that it
offers in a given region. In addition, the churn rate also stands out when there is an interruption in the
supply of services resulting from non-payment by customers. For example, any interruption in the
services of the Group, including the elimination or unavailability of programs in fixed or coverage
problems in the mobile network, which may not be within the Group’s control, or other problems
involving customer service, could contribute to increasing the churn rate. Moreover, the Group
outsources many customer service functions to subcontractors whose performance is less under its
control than if it performed the tasks itself. In addition, the churn rate involving the White Label
business of the Group could increase for reasons beyond the Group’s control (as it is not involved in
customer service or customer retention) (as the acquisition of the telecommunications business of
Darty by Bouygues Telecom in July 2012 has already led to and will continue to lead to a reduction in
Darty’s White Label DSL customer base, a reduction expected to continue over the long term (see
Section 6.5.3.2.4 “White Label (DSL)” of this Registration Document). Lastly, the Group continues to
provide analog television services to its subscribers, but expects that the number of subscribers to
these services will continue to decline. Any increase in the churn rate could have a material adverse
effect on the Group’s revenues and an even more material impact on its margins due to the nature of
the Group’s business, which generates fixed costs.
The B2B segment is also experiencing a “pricing churn rate” (that is, price reductions negotiated by
an existing customer). Large corporate customers, in particular, are very informed and often
commercially aggressive when they seek to renegotiate the price of their contracts, resulting in
pressure on margins.
17
4.2.6
The pressure exerted on customer service could have a material adverse effect on the
business of the Group.
The number of contacts managed by the Group’s customer service offices could vary considerably
over time. The launching of new product offerings could put significant pressure on their customer
service. Increased pressure on these functions is associated with a declining degree of consumer
satisfaction.
For example, on the B2B market and the wholesale market of the Group, customers demand that
services be extremely reliable and that they be restored very quickly in the event of failure. Penalties
are often due if the criteria of service quality and/or expected recovery times are not met. In addition,
installation of the products can prove to be complex and to require specialized knowledge and costly
equipment, and service problems and delays may lead to both penalties and to the potential loss of a
customer. In that regard, the Group relies on its key personnel experienced in customer relationships
to manage all customer requests or problems, and the loss of such employees may lead to a loss of
customers.
Moreover, in the past the Group has encountered significant levels of dissatisfaction on the part of its
customers due to operational difficulties both on the B2C segment as well as on the B2B segment. On
the B2C segment, these levels of dissatisfaction derived mainly from the operational difficulties
resulting from the integration of the activities of various cable operators acquired by Numericable
Group in 2005 and 2006. The Group believes that the satisfaction level of its customers is currently
high. However, no guarantee can be given as to maintaining this level of satisfaction in the future.
Improvements in customer service may prove to be necessary to achieve the desired level of growth
and if the Group fails to make these improvements and achieve such growth difficulties could arise in
the future involving customer service which could damage its reputation, contribute to an increase in
the churn rate, and/or limit or slow down future growth.
4.2.7
The Group has no guaranteed access to content and is dependent on its relations and
cooperation with content providers and broadcasters.
In the B2C segment, the success of the Group depends, among other things, on the quality and variety
of the content that it offers to its subscribers. The Group does not produce its own content and is
dependent on broadcasters for its programming. In order to offer programs broadcast on the Group’s
network, the Group has entered into distribution agreements with public and private broadcasters for
the transmission of analog and digital signals, both free and pay. The Group depends on broadcasters
for the supply of programs to attract subscribers. Program suppliers may be availed considerable
power to renegotiate the prices charged by the Group for the distribution of their products and the
license fees that are paid to them. The term of these distribution agreements varies between one and
four years. For example, as indicated in Section 19.2 of this Registration Document, certain
agreements with Canal+ expire in 2015, 2016, and 2017. The Group may not be able to renegotiate
these distribution agreements on terms as favorable as those of the current agreements, which could
result in a decline in the revenue generated by the distribution agreements or an increase in the
Group’s costs deriving from broadcaster licenses. Furthermore, content providers and broadcasters
may choose to broadcast their programming through other dissemination platforms such as the
CanalSat satellite platform or TNT broadcasting, or to enter into exclusive distribution agreements
with other distributors, which may limit the competitive advantage of the Group as the sole provider
of bundled offerings of content similar to what is offered by CanalSat without additional cost.
The Group intends to negotiate new contracts to expand its TV services beyond the cable channel
packages that it currently distributes and thus improve its existing range of program offerings. The
rights attached to a large selection of premium and/or high-definition (HD) content are, however,
already held by competing distributors and to the extent that these competitors obtain exclusives for
program broadcasting, the availability of new programs for the Group could prove limited. In
18
addition, as long as the Group continues to develop its video-on-demand (VOD) and other interactive
services, its ability to acquire programs for its free VOD offerings (replay), VOD by subscription, and
one-time VOD will become more and more crucial and will depend on the ability of the Group to
maintain a relationship and cooperation with content providers and broadcasters, for both standarddefinition (SD) as well as HD content.
If the Group cannot obtain and keep competitive programs at attractive prices on its networks,
demand for its television services could decline, thus limiting its ability to maintain or increase the
revenue deriving from these services. A loss of programs or an inability to ensure the availability of
premium content under favorable terms could have a material adverse effect on the business activities
of the Group, its financial position and its results of operations.
4.2.8
The Group relies on third parties to provide services to its customers and to perform
its business activities. Any delay or failure by such third parties in providing services
or products, any increase in the prices charged to the Group, or any decision not to
renew their contracts with the Group could lead to delays or interruptions in the
activities of the Group, which could damage the reputation of the Group and result
in the loss of revenue and/or of customers.
The Group maintains important relationships with several suppliers of hardware, software, and
services that it uses to operate its network and its systems and to provide customer service. In many
cases the Group has made significant investments in the equipment or software of a particular
supplier, which makes it more difficult to rapidly change its procurements or maintenance services if
its original supplier refuses to offer it favorable prices or ceases to produce equipment or provide
services that the Group requires.
The Group utilizes suppliers of equipment and software, including suppliers of TV decoders,
conditional access system suppliers, as well as suppliers of high-speed routers and mobile terminals.
The Group also has work done by a certain number of subcontractors to maintain its network, manage
its call centers, and supply, install, and maintain the terminals set up at private homes and at the
premises of B2B customers. Although the Group works with a limited number of subcontractors, who
are carefully selected and supervised, it cannot guarantee the quality of the services or that these
services will comply with the quality and safety standards imposed by the Group or required by other
contracting parties. If there are defects in the equipment or software or the services involving these
products, or if the tasks of the subcontractors of the Group are not performed properly, it may be
difficult or even impossible to make claim against the suppliers or subcontractors, particularly if the
warranties provided for in the contracts entered into with suppliers or subcontractors are not as
extensive as those contained in the contracts entered into between the Group and its customers in
certain specific cases or if these suppliers or subcontractors are insolvent or have suspended
payments. These difficulties could undermine relations between the Group and its customers, as well
as the reputation of the brand.
Like many companies in the telecommunications industry, the Group is also dependent on some of its
competitors. Although the Group is committed to diversifying its commercial relations with its
competitors, a risk of dependence exists in this regard. In particular, the Group depends on Orange for
a portion of its network infrastructure and on Canal+ Group, with which the Group has entered into a
number of contracts for the supply of content. See Section 22 “Major contracts” of this Registration
Document. The Group might not be able to renew these contracts or to renew them under favorable
terms.
The Group cannot guarantee rapid acquisition of the equipment, software, and services necessary for
its business under competitive terms and in appropriate quantities. If any of these risks materializes
technical problems could arise, the Group’s reputation could be impaired, customers could be lost,
and there could be a material adverse effect on the business activities of the Group, its financial
19
position and its results of operations. See also Section 6.10 “Dependency” of this Registration
Document.
4.2.9
The continuity of the Group’s services strongly depends on the proper functioning of
its IT infrastructure and any failure of this infrastructure could have a material
adverse effect on the business of the Group, its financial position and its results of
operations.
The reliability and quality (both in terms of service as well as availability) of its information systems
and networks, particularly for the mobile and fixed businesses, are key components of the Group’s
business activities, the continuity of its services and the confidence of its customers. More
specifically, the information systems used by the store network, the website, and the customer service
of the Group, which, in particular, enable product and service sales and subscriptions as well as
customer accounts management, could significantly disrupt the Group’s business if they become
unavailable.
A flood, fire, or other natural disaster, or an act of terrorism, a power failure, or other catastrophe
affecting a portion of the Group’s network could have a material adverse impact on its business and
its relations with customers. Measures with the aim of remedying such disasters, safety and security
measures, or measures for protecting service continuity that have been undertaken or may be
undertaken in the future by the Group, as well as the effects thereof on the performance of its
network, could be insufficient to avoid generating losses. The Group is insured against operating
losses up to a capped amount. Any disaster or other damage affecting the network of the Group could
result in significant uninsured losses. The Group’s network may be subjected to disruptions and to
significant technological problems, and such difficulties could escalate over time.
In addition, the Group’s business depends on certain crucial systems, particularly its network
operations center and its billing and customer service systems. In particular, the support for a large
number of systems critical to the network of the Group is located at a relatively limited number of
sites. While the Group may be availed of highly developed backup systems, the risk that these
systems may not be sufficient to handle a spike in activity cannot be ruled out, which could lead to a
slowdown or unavailability of IT systems for a period of time and, when involving the B2B customers
of the Group, to financial penalties.
Furthermore, the technical projects of the Group that are in progress, involving both information
systems and networks, and the plans for migrations planned in the short and medium terms for certain
pieces of mobile network equipment, may generate an increased risk of failures of networks and
information systems. In particular, the quality of the networks could be impacted by the deployment
of the fourth generation (4G) network as well as by the concurrent work of renovating the second
(2G) and third (3G) generation networks, requiring, among other things, frequent technical
interventions. Such work could also generate breakdowns or interruptions in services for the
customers of the Group.
Furthermore, the development of the resources used by consumers (for example, videoconferencing,
telepresence, and cloud computing for B2B customers), of connected objects, and of new terminals
(smartphones, tablets, etc.) may generate risks of saturating the networks due to the large volumes of
data that such resources generate or promote. The end-of-year period is an extremely sensitive sales
period. A major failure of the information systems or of any component of the chain of production
and logistics during that period would have negative consequences on revenues. To prevent this type
of risk, the Group avoids intervening on the network and information systems during this period of the
year (starting in mid-November).
Although the Group follows an IT policy aimed at making its infrastructures secure, no guarantee can
be given that the servers and the network of the Group will not be damaged by mechanical or
electronic breakdowns, computer viruses, cyber-attacks, or other similar disruptions. Moreover,
20
unforeseen problems could disrupt the Group’s IT systems. No guarantee can be given that the
security system, security policy, backup systems, physical access security and physical access
protection, management of users, and existing emergency plans within the Group will be sufficient to
avoid a loss of data, to neutralize a cyber-attack, or to reduce the downtime of the network. Long-term
or repeated disruptions of or damage to the network and technical systems that prevent, interrupt,
delay, or make it more difficult for the Group to make products and services available to its customers
could severely impair the reputation of the Group, cause a loss of customers and a decline in revenues,
and require repairs and lead to actions for the payment of damages. If any one or all of these risks
materialize, there could be a material adverse effect on the business of the Group, its financial
position and its results of operations.
4.2.10
The Group’s business requires significant investment expenditures.
The Group’s business demands significant investment expenditures. In particular, the Group bears
significant investment expenses for the deployment of new technologies such as 4G (for the purchase
of frequencies and the deployment of network infrastructures) for its mobile operations and fiber
optics (for the deployment of the infrastructure) for its fixed operations. The Group plans to continue
to modernize and expand the scope of its fiber network to reach 12 million fiber connections by the
end of 2017 and 15 million fiber connections by the end of 2020. The Group also continues to invest
in improving the quality of its mobile network and expanding its 4G network.
In addition, the Group is required to adhere to certain commitments to the coverage and deployment
of the network under its mobile licenses, which also requires it to make significant and constant large
investments. Moreover, the Group may acquire new frequencies granted by ARCEP and local
administrative authorities in the coming years, particularly 700 MHz frequencies, in order to improve
the quality of its mobile offerings and defend its competitive positioning. These frequencies are often
auctioned and can be expensive to acquire, especially because of the limited availability of spectrum.
Considering how the market and technologies are evolving as well as the development of frequency
offers, the Group could be required to incur further significant expenses before having profited from
expenses incurred previously. If market demand declines for these services the ability of the Group to
cover its investments in new frequencies, networks and infrastructure could also be limited.
Furthermore, new usages and the use of multiple applications increase the bandwidth requirements,
which could lead to a saturation of the networks and require telecommunications operators to make
additional investments to increase the capacity of their infrastructures. The structure of the French
telecommunications market does not allow telecommunications operators to pass along their
investment costs to the end consumer in the proportion of the volume of data consumed. Accordingly,
telecommunications operators may not benefit from the revenues drawn from the growing demand for
content even though bearing the costs of such demand through their investments in infrastructure.
The Group is also bound by certain obligations of access and/or coverage for its fiber and/or mobile
network, particularly under its mobile licenses, such as obligations to allow roaming or sharing of
networks in certain deployment zones. The conditions for the implementation of these obligations
may be regulated and some prices are regulated, such as roaming rates, within the European Union.
Given such constraints, the Group may not be able to operate its network under economically
favorable conditions, which could affect the profitability of its investments.
A lack of sufficient resources and margins or an inability to obtain financing under favorable
conditions could have an adverse effect on the ability of the Group to maintain the quality of its
network, of its products, and of its services, as well as on its ability to deploy and expand its network
coverage, which could impact the competitive positioning of the Group on the French market and its
growth in the long term. In addition, the Group cannot guarantee that the investments made,
especially in 4G or optical fiber, will be profitable and/or that the associated services will achieve the
commercial success expected.
21
Moreover, the Group’s loan agreements limit its ability to make investments. See Section 10.2.2
“Financial liabilities” of this Registration Document. It cannot be guaranteed that the Group will
continue to have sufficient resources to maintain the quality of its network and of its other products
and services, and to expand its network coverage, key elements for the growth of the Group over the
long term. Unforeseen investment expenses, an inability to finance them at an acceptable cost or even
an inability to make profitable investments could have a material adverse effect on the business of the
Group, its outlook, financial position or results of operations.
4.2.11
The revenues deriving from certain of the Group’s services are declining and the
Group may not be able to offset this decline.
The Group continues to provide analog television services to its subscribers but expects that the
number of subscribers to these services will continue to decline. In addition, subscribers of the analog
television services of the Group, at the time of their transition to a digital television service, may
decide to change providers of television services.
The Group also expects that its White Label DSL business with Bouygues Telecom (previously with
Darty) will continue to decline. Bouygues Telecom acquired the Darty telecom business in July 2012.
Under the terms of the agreement entered into with Bouygues Telecom a certain number of customers
have been migrated to the Bouygues Telecom network in 2012 (having been only partially unbundled
on the Group’s network, these customers may be completely unbundled on the Bouygues network),
but the remaining customers will not be transferred automatically to the Bouygues Telecom DSL
network. Following upon that acquisition Bouygues Telecom is attracting new subscribers to its own
DSL network and the churn rate at Darty is causing a reduction in revenue on the Group’s DSL
network. The Group expects that these trends will continue.
On the mobile telephony market, the revenues of SFR Group in recent years have suffered from a
decline in prices for mobile telephony caused by the extremely competitive market and the lower
pricing rates required by ARCEP. These price declines are not fully offset by the reduction in costs.
The price competition could continue and even intensify, and regulators could continue to impose
even lower rates, which could have a material adverse effect on the Group’s business, financial
position and results of operations.
If the loss of revenue and of profitability from a decline in such activities is not offset by growth in
the revenue and profitability generated by other activities of the Group, there could be a material
adverse effect on its results of operations and its financial position.
4.2.12
Data loss, data theft, unauthorized access, and piracy could have a material adverse
effect on the reputation and business of the Group, as well as on its accountability,
including criminal liability.
The Group’s operations depend on the security and reliability of their information technology
systems. The technologies used to enable unauthorized access, to disable or impair service, or to
sabotage systems change frequently and are often not recognized until they have been launched
against their target. As a result, the Group may not be able to anticipate and implement efficient and
effective countermeasures in time.
If third parties attempt or succeed in threatening any of the Group’s information technology systems
or in breaching its information technology systems, they may be able to divert confidential
information, to bring about interruptions in the Group’s activities, to access services of the Group
without having paid, to damage its computers, or to otherwise impair its reputation or its activities.
While the Group is continuing to invest in measures aimed at protecting its networks, any
unauthorized access to its cable television service could cause a decline in revenue and any inability
to respond to security threats could have consequences within the context the Group’s agreements
with content providers, which could have a material adverse effect on the Group’s business, its results
22
of operations and its financial position. Moreover, as a provider of electronic communications
services, the Group may be held responsible for the loss, dissemination, or adulteration of the data of
its customers or of a broader population, or for the storage conditions of the data that are carried on its
networks or stored on its infrastructures. Under such circumstances, the Group may be held
responsible, or may be subjected to litigation, having to pay damages or fines, or suffering negative
publicity, which could have a material adverse effect on its business, results of operations and
financial position.
4.2.13
The risks connected with the environment and exposure to telecommunications
electromagnetic fields are subjects of public opinion concern.
The Group operates several facilities classified by the government as ICPE (installation classée pour
la protection de l’environnement) in mainland France, particularly as its data centers. The Group
remains attentive to the environmental risks that might arise or be discovered in the future and it has
adopted programs aimed at ensuring compliance with the regulations applicable on the subject.
The Group operates within a context of public opinion concern about the possible health effects of
electromagnetic waves (emissions of radio frequencies through relay antennas, emissions of radio
frequencies through mobile terminals, Wi-Fi, etc.). Such concerns are expressed in numerous
countries and arise in the context of the deployment of a fourth-generation network (4G) by mobile
operators.
The World Health Organization (WHO) has indicated, in Fact sheet No. 193 of June 2011, that “to
date, it has never been established that a mobile telephone could be the origin of a harmful effect on
health.” However, certain studies report long-term health effects in connection with the use of radio
equipment, particularly mobile phones. In May 2011, the International Agency for Research on
Cancer (IARC), under the aegis of WHO, classified the electromagnetic fields of radiofrequencies
particularly associated with the use of wireless telephones as “possibly carcinogenic to humans.”
Furthermore, in May 2014 a French study (a study by the Institute for Public Health, Epidemiology,
and Development of Bordeaux – ISPED) referred to an increased risk of developing brain tumors.
Several reports (such as Grenelle Waves (2009), 2012 BioInitiative Report, the updated opinion and
report from the National Agency for Sanitary Safety of Food, Environment, and Labor (ANSES) in
October 2013, and the recommendations of the Sobriety Mission at the end of 2013) have been
published on the effects of electromagnetic fields on human health.
Government agencies and health authorities have established various precautionary usage measures
aimed at reducing exposure to mobile telephone fields. Certain countries, including France, have also
adopted regulations establishing maximum amounts of exposure for the public.
As a precaution, the Group recommends in its general conditions of subscription, following the
example provided by health authorities, that exposure to electromagnetic fields emitted by the
subscriber’s mobile telephone be limited by taking easily implemented action. In addition, new
publications, whether scientific or issued by government agencies and health authorities, are being
monitored by a dedicated team within the Group for the purpose of identifying actions to implement
involving subsequent publications.
Future publications, whether scientific or deriving from government agencies and health authorities,
that establish a direct link between the use of a mobile telephone and health problems could lead to
some legislative and regulatory developments likely to result in the dismantling of antennas and a
reduction in site density, thus generating additional costs for the Group. Moreover, such developments
could result, in particular, in a reduction in the use of Wi-Fi networks and mobile telecommunications
services, as well as increasing the number of disputes by multiples, especially if a harmful effect may
happen to be scientifically established someday.
23
On June 26, 2014, the French Senate adopted, on first reading, a draft law “on Sobriety,
Transparency, and Consultation on Exposure to Electromagnetic Waves” after the adoption of a
preliminary version of the text by the National Assembly the previous January. On February 10, 2015,
Law 2015-136 of February 9 on Sobriety, Transparency, Information, and Consultation on Exposure
to Electromagnetic Waves was enacted. The implementing decree provided for in Article L. 34-9-1 of
the French Code for Postal and Electronic Communications (CPCE) has not yet been published. The
Group considers that, in particular, these provisions could, on the one hand, lead to making the
procedures for setting up relay antennas more complex and, on the other hand, hinder their creation.
The fears generated by the potential health risks connected with electromagnetic waves could also
lead third parties to act against the Group by, for example, bringing actions demanding the withdrawal
of antennas or towers, which could affect the Group’s conducting of operations and the deployment of
the network, and could have a material adverse effect on the Group’s business, financial position and
results of operations.
4.2.14
Possible labor conflicts could disrupt the activities of the Group, affect its image or
make the operation of its facilities more costly.
As of December 31, 2014, the Group had 10,591 employees, some of whom are union members. The
Group may have to negotiate at length with unions and works councils, and may suffer strikes, labor
conflicts, work stoppages and other labor action, and may also encounter difficulties in attracting and
keeping staff due to local or general strikes. Strikes and other labor action, as well as the negotiating
of new collective bargaining agreements or wage negotiations, could disrupt the activities of the
Group and have a material adverse effect on the Group’s business, financial position and results of
operations.
In addition, the Group is active on very competitive markets that are constantly evolving, thus
requiring its constant pursuit of adaptation, anticipation, and the adoption of new measures to preserve
its competitiveness and its efficiency. This entails regular changes in organizations, which requires
adaptation on the part of the human resources involved. In particular, this process demands an ability
to mobilize skills and motivate and orient teams toward the objectives of the Group. As a result, in
such instance the activities of the Group may sometimes be affected by a deterioration of the labor
relations with its employees, staff representative bodies or labor unions. In 2014 the negotiations
carried out by SFR with the representative labor organizations resulted in fifteen collective bargaining
agreements signed by most of the organizations, but the possibility of difficulties in reaching
collective bargaining agreements in the future cannot be excluded.
In this context, certain Group structures have to consult their staff representative bodies, or will have
to do so, in order to successfully execute its current and future projects, which is likely to slow down
the performance of certain operations.
The Group also faces the risk of strikes called by employees of its main suppliers of equipment or
services, as well as its facility providers, the latter generally organized in regional unions, which could
lead to interruptions in the services of Group. Although the Group pays particular attention to its labor
relations, the Group cannot guarantee that labor conflicts of difficulties in keeping its staff will not
have a material adverse effect on its business and, potentially, its results of operations and its financial
position.
4.2.15
The Group faces risks relating to its strategy of pursuing external growth
opportunities.
The Group considers that the television, high-speed broadband and fixed-line and mobile telephony
industries in France are likely to experience a phase of consolidation. The Group’s strategy, as set
forth upon the occasion of the initial listing of the Company on the securities exchange, included the
pursuit of external growth opportunities. In this regard, the Group has already undertaken very
24
significant acquisition projects that position it as one of the players in the consolidation of these
markets in France. In particular, on November 27, 2014 and December 5, 2014 the Group acquired
SFR and Virgin Mobile, respectively. The acquisitions or combinations pursued by the Group could
give rise to significant changes. The success of this strategy of pursuing strategic opportunities
through selective acquisitions or other combinations depends on the ability of the Group to identify
the appropriate targets, audit the target appropriately, negotiate favorable terms, and lastly carry out
these transactions and integrate the new acquisitions. In addition, future consolidations in the sectors
where the Group operates will reduce opportunities for acquisitions or combinations. The Group
believes that some of its competitors are implementing similar acquisition strategies. These
competitors may be availed of greater financial resources to make investments or they may be able to
accept less favorable terms than the Group, thus depriving it of opportunities and reducing the number
of potential targets. The implementation of this acquisition strategy could increase the level of
indebtedness of the Group. Furthermore, the possibility of the Group’s making acquisitions is limited
by its financing agreements. See Section 10.2.2 “Financial liabilities” of this Registration Document.
In the event that acquisitions are carried out, no assurance can be given as to the ability of the Group
to retain the customer base of the acquired businesses, to generate the expected cash flows or margins,
or to realize the benefits expected from such acquisitions, including in terms of growth or synergies.
In most cases, the acquisitions involve the integration of a business previously operated independently
with different operational systems. The Group may not be able to successfully integrate the entities
acquired, or their integration could require investments greater than expected, and the Group could
incur obligations or risks, particularly in terms of customer base, workforce, suppliers or involving
regulatory authorities, or could be required to make commitments or accept conditions in the context
of authorization by the appropriate authorities for such acquisitions, which could affect its results of
operations.
In addition, the acquired companies may have entered into agreements, such as shareholder
agreements, joint venture agreements, contracts with their suppliers or customers, or agreements with
content providers or broadcasters that may be terminated by the contract counterparties in the event of
change in control or where the terms are likely to be modified in such case. Accordingly, the Group
cannot provide any assurance that such contracts will not be terminated or renegotiated, as the case
may be, and that the transition will be carried out without affecting such contracts.
In general, the process of integrating businesses may be detrimental to the activities of the Group and
may have a material adverse effect on its results of operations. If the Group is not able to implement
its acquisition strategy or successfully integrate the businesses acquired, its own business and growth
could be affected.
4.2.16
The possible inability of the Group to protect its image, reputation and brand could
have a material adverse effect on its business.
The brands under which the Group sells its products and services, including “Numericable,” “La
Box,” “Completel,” “SFR,” “RED,” “Formules Carrées,” “SFR La Carte,” and related brands are
brands that are recognized in France.
These brands have been developed through extensive marketing campaigns, internet promotions and
customer contacts and the use of dedicated distribution networks and sales force. The Group’s success
depends on its ability to maintain and improve the image and the reputation of its existing products
and services and to develop a positive reputation and image for its new products and services. Any
issues regarding (i) the quality, reliability and the quality/price ratio of its products and services, (ii)
the quality of its call centers or (iii) its ability to provide the level of service announced could have a
material adverse effect on the image and reputation of the products and services of the Group. An
event or series of events that significantly threatens the reputation of one or more of the Group’s
brands or of one or more of the Group’s products could have a material adverse effect on the value of
such brand or such product and on the revenue that it generates. Restoring the image and the
25
reputation of the products and services of the Group could be expensive and may not always be
possible.
The Group relies on copyright, trademark and patent laws to establish and protect its intellectual
property rights, but no guarantee can be given that the measures it has taken or measures it intends to
take in the future will be sufficient to avoid infringement of its intellectual property rights. Bad
publicity, a lawsuit or other factors could significantly diminish the value of the Group’s brand, which
could lead to a decline in consumer demand and have a material adverse effect on the business, results
of operations and financial position of the Group.
4.2.17
Changes in the assumptions used to determine the book value of certain assets,
particularly circumstances deriving from an unfavorable market environment,
could cause such assets to lose value, especially intangible assets such as goodwill.
The acquisitions of SFR and Virgin Mobile, in particular, resulted in the Group’s
posting of significant provisional goodwill, which could then be subject to
impairments in the event of adverse events in connection with the underlying
assumptions concerning the results of operations and cash flows of the acquired
businesses.
In compliance with IFRS, upon each financial statement ending date the Group examines the book
value of its tangible and intangible assets (excluding goodwill, the value of which is reviewed
annually or whenever changes in circumstances indicate that its book value may not be recoverable)
to determine whether or not there is an indication that the book value of such assets may not be
recoverable from their continued use. If the case arises, the recoverable amount of the asset (or of the
cash-generating unit) is reviewed in order to determine the amount of the write-down. The
recoverable amount is the higher of the following two amounts: net sale price (fair value after
deduction of selling costs) and value in use.
In the context of assessing value in use, estimated future cash flows are discounted by using a pre-tax
discount rate that reflects current market assessments of the time value of money and the specific risks
connected with the asset (or with the cash-generating unit). If the net realizable value of the asset (or
cash-generating unit) is estimated at a value lower than its book value, a write-down is posted. A
write-down is immediately recognized as a charge to operating income on the income statement.
Goodwill represents the difference between the amounts paid by the Group in the context of the
acquisition of its subsidiaries and other businesses and the fair value of their net assets as of the
acquisition date, when the latter is less than the amounts paid. Goodwill has been allocated to the
B2C, B2B and wholesale business (cash-generating units) level. Goodwill is measured in order to
determine the existence of an impairment, annually or when changes in circumstances indicate that its
book value may not be recoverable. The recoverable amounts of cash-generating units are determined
on the basis of calculations of value in use, which depend on certain key assumptions, particularly
projected subscribers, revenue, costs, and investment expenditures (including the level of
modernization of the infrastructure of the network) by the management team over five-year periods. If
the projections of the management team change, the estimation of the recoverable amount of the
goodwill or of the asset could decline significantly and result in a loss of value. Although a writedown does not affect the cash flows posted, a decline in the estimated recoverable amount and the
associated accounting charge against the income statement could have a material adverse effect on the
operating income and financial position of the Group. As of December 31, 2014, significant amounts
of goodwill and other intangible assets had been posted on the Group’s consolidated balance sheet
(€12.9 billion for goodwill and €4.2 billion for other intangible assets as of December 31, 2014).
Thus, the acquisitions of SFR and Virgin Mobile resulted in the posting by the Group of significant
provisional goodwill. This goodwill is posted on the basis of the excess of the acquisition cost of SFR
Group and of Virgin Mobile over the fair value of the net assets as of the acquisition date. As of
December 31, 2014, provisional goodwill of €11.4 billion was posted as a result of completion of the
acquisition of SFR and provisional goodwill of €312 million was posted as a result of completion of
26
the acquisition of Virgin Mobile. Taking into account the completion date of acquisitions, the
consolidated financial statements as of December 31, 2014 were prepared using the provisional
amounts for certain assets acquired and liabilities assumed for which the PPA process was not able to
be completed. The final allocations will be made on the basis of certain measurements and other
analyses done by outside specialists. Consequently, the goodwill in the acquisitions of SFR and
Virgin Mobile is provisional and will be reviewed based on the final evaluation of the fair value of the
assets acquired and liabilities assumed.
Although no impairment involving goodwill was posted in 2012, 2013, or 2014, no guarantee can be
given as to the absence of a significant write-down in the future, especially if market conditions
happen to deteriorate. See Notes 2, 14, 15, and 17 to the consolidated financial statements of the
Group for fiscal year 2014 appearing in Section 20.1.1 “Consolidated financial statements of the
Group” of this Registration Document.
In addition, with regard to these acquisitions, when the amount of goodwill is finalized, certain
identifiable assets acquired, such as licenses, registered trademarks, and customer bases will reach the
end of their useful lives and will be amortized. Thus, the future results of the activities of the Group
may be materially affected by the amortization of expenses involving the acquisition of such
identifiable assets.
4.2.18
The loss of certain employees and key executives could be detrimental to the
business of the Group.
The Group benefits from the work of experienced employees, both administrative and operational,
who have a thorough knowledge of its business, particularly the members of its Executive Committee
that has led the Group for several years, and in the B2B segment, which is characterized by complex
facilities and the importance of customer relations. There can be no guarantee that the Group will
succeed in keeping such employees or that it will recruit and train adequate replacements without
excessive cost and delay. Consequently, the loss of any such key employees could lead to significant
disruptions in the commercial activities of the Group which could have a material adverse effect on its
results of operations.
4.3
RISKS RELATING TO THE FINANCIAL STRUCTURE AND PROFILE OF THE
GROUP
4.3.1
The significant indebtedness of the Group may affect its ability to finance its
operations and its overall financial position.
The Group currently has a substantial amount of debt. As of December 31, 2014, the total amount of
financial liabilities of the Group amounted to €13.6 billion, after the May 2014 financing and
refinancing transactions. See Section 10.2.2 “Financial liabilities” of this Registration Document. The
Group’s significant indebtedness entails negative consequences, including:

requiring the Group to devote a significant portion of its cash flow deriving from its
operations to the repayment of its debt, thus reducing the availability of the Group’s cash
flows for financing internal growth using working capital and investments and for other
general business requirements;

increasing the vulnerability of the Group to a business slowdown or to economic or industrial
circumstances;

limiting the ability of the Group to compete;

limiting the Group’s flexibility in planning for or reacting to changes in its business and its
sector;
27

limiting the ability of the Group to make investments in its growth, especially those aimed at
modernizing its network; and

in particular, limiting the Group’s ability to borrow additional funds in the future and to
increase the costs of such additional financing, especially due to restrictive clauses in our
current debt agreements.
These risks could have a material adverse effect on the ability of the Group to repay its debts, as well
as on its business, results of operations and financial position.
4.3.2
Despite the high level of indebtedness of the Group, the Group will be able to take
on a significant amount of additional debt, which could exacerbate the risks
associated with the Group’s substantial debt.
The Group’s debt agreements restrict but do not prohibit the Group from taking on additional debt.
The Group may refinance its debt and it can increase its consolidated debt within the context of its
activities, particularly in order to finance acquisitions, to finance early repayment penalties, if any,
within the framework of refinancing existing debt, to finance distributions to its shareholders, or with
the aim of financing the Group’s business in general. If the Group takes on additional debt over and
above the Group’s current consolidated debt, the pertinent risks to which the Group is currently
exposed will intensify.
4.3.3
As a holding company, the Company depends on the ability of its operating
subsidiaries to generate profits and ensure the servicing of its debts. Any decline in
their profits could have a material adverse effect on the Group’s financial flexibility.
The Company is a holding company that does business indirectly through operating subsidiaries (see
Section 7.1 “Simplified organizational chart of the Group” of this Registration Document). The
Group’s operating subsidiaries hold its assets, and nearly all of the profits and cash flows of the Group
are allocated to them. If the profits of these operating subsidiaries happened to fall, the profits and
cash flows of the Group would be affected and the subsidiaries involved may not be able to meet their
obligations, particularly their debts, or to pay dividends to the Company. The cash flows of the
Company mainly derive from the receipt of dividends and interest, and repayment by its subsidiaries
of intra-group loans. The ability of the operating subsidiaries of the Group to make these payments
depends on economic and commercial considerations, as well as on any legal constraints that may be
applicable, as the case may be. In particular, the distribution of dividends by the Group is subject to
compliance with certain restrictions, including a financial ratio. Any decline in profits or an
impossibility or inability on the part of the Group’s subsidiaries to make payments to the other
subsidiaries of the Group could have a material adverse effect on the Group’s ability to ensure the
servicing of their debts and to meet its other obligations, which could have a material adverse effect
on the business, results of operations and financial position of the Group.
4.3.4
The Group may not be able to generate sufficient cash flows to meet its obligations
in terms of servicing its debt.
The ability of the Group to ensure the servicing of its debt and to finance its operations in progress
will depend on its ability to generate cash flows. The ability of the Group to generate cash flows and
finance its expenses of investment, operations in progress, and obligations in terms of servicing its
debt depends on numerous factors, including:
•
its future operating performance;
•
the demand and price levels for its current and projected products and services;
28
•
its ability to maintain the level of technical capacity required on its networks and the
subscriber equipment and other pertinent equipment connected to the Group’s networks;
•
its ability to successfully introduce new products and services;
•
its ability to reduce the churn rate;
•
the general economic conditions and other circumstances affecting consumer spending;
•
competition;
•
sufficient distributable reserves, in accordance with applicable law;
•
the outcome of certain disputes in which it is involved; and
•
legal, tax and regulatory developments affecting the Group’s business.
Some of these factors are beyond the control of the Group. If the Group is not able to generate
sufficient cash flows it might not be able to repay its debt, to increase its business, to respond to
competitive challenges, or to finance its other cash and capital requirements, including investment
expenditures. If the Group is not able to meet its obligations in terms of debt servicing, it might have
to sell off assets, attempt to restructure or refinance its existing debt or seek additional financing in the
form of debt or equity. The Group may not be able to do so, or to do so in a satisfactory manner.
4.3.5
Restrictive clauses and the pertinent covenants relating to the debt securities of the
Group could limit its ability to pursue its activities and any breach by the Group
could constitute default and have a material adverse effect on the financial position,
results of operations and the Group’s ability to continue as a going concern.
Debt securities issued by the Group contain restrictive clauses and covenants that, among other things,
limit the ability of the Group to:

contract or guarantee any additional debt, subject to a Consolidated Net Debt Leverage
Ratio (the ratio is 4.0/1.0 for total debt and 3.25/1.0 for senior secured debt) (see the
definition in Section 10.2.2 “Financial liabilities” of this Registration Document);

make investments (including a stake in joint ventures) or other payments subject to
restrictions (including dividends - see Section 20.6 “Dividend policy” of this Registration
Document for a description of the scope of this restriction and its exceptions);

dispose of assets other than in the normal course of business, and of equity securities of
subsidiaries;

enter into certain transactions with its affiliates;

carry out merger or consolidation transactions;

carry out an early repurchase or redemption of equity securities or of subordinated debt,
or issue shares in subsidiaries;

enter into agreements limiting the ability of its subsidiaries to pay it dividends or repay
intragroup loans and advances; and

create additional pledges or security interests.
29
The restrictions referred to above could affect the ability of the Group to do its business and could
limit its ability to react according to market conditions, or even to take advantage of potential
commercial opportunities that may arise. For example, these restrictions could affect the ability of the
Group to finance its business, to make strategic acquisitions, investments or alliances, and to
restructure its organization or finance its capital requirements. Moreover, the ability of the Group to
comply with these restrictive clauses can be affected by events beyond its control, such as economic
conditions and the circumstances in finance and the industry. A breach by the Group of any one of its
commitments or restrictions could lead to default under the terms of one or more of its debt securities
and, if not remedied or waived, could result in making the loan immediately payable and thus
ancillary defaults under other debt agreements. This could lead to execution on security interests held
by creditors and/or the bankruptcy or liquidation of the Group.
4.3.6
Negative changes in the Group’s rating could have a material adverse impact on its
financial position.
A rating decline could have an adverse impact on the ability of the Group to obtain financing from
financial institutions and to retain the confidence of investors and banks, and could increase the cost
of financing of the Group by increasing the interest rates at which the Group could be refinanced in
the future or the interest rates at which the Group is able to refinance its existing debt or take on new
debt.
4.4
4.4.1
REGULATORY AND LEGAL RISKS
The Group operates in a highly regulated industry. Complying with regulations may
increase its costs or restrict its activities and, on the other hand, non-compliance
could result in penalties. Future regulatory changes could have a material adverse
effect on its business.
The Group’s business is subject to significant regulation and to oversight by various regulatory bodies
at national and European levels. See Section 5.1.5 “History and recent developments of the Group”
for a description of the Commitments made by the Company within the framework of the SFR
Acquisition and Section 6.12 “Telecommunications regulations” of this Registration Document. Such
regulation and oversight have a strong influence on the manner in which the Group conducts its
activities. Adherence to the laws and regulations in force, and those to come, may increase the
overhead and operating expenses of the Group, limit its ability to implement price increases, affect its
ability to launch new services, force it to change its marketing approach and its sales practices and/or
more generally reduce or limit its revenue.
Regulations applicable to the Group include price control rules (for fixed-line terminations and
roaming charges), quality of service standards, distribution requirements for certain programs,
requirements on network access for competitors and content providers, and programming content
restrictions.
The telecommunications industry in Europe is subject to strict asymmetrical regulations on the market
segments – primarily wholesale markets – where certain distortions of competition and players in a
dominant position have been identified.
The Group is not considered by ARCEP to be an operator deemed to have significant influence on a
relevant market, except on the market for call termination on its network, like all other operators.
Nevertheless, it cannot be guaranteed that the Group, in the future, will not be identified by ARCEP
as an operator deemed to exercise significant power on one or more relevant markets, nor that ARCEP
will not therefore impose additional regulatory obligations in this regard. For example, the possibility
cannot be excluded that, in the future, particularly in the context of a boom in FTTH networks, the
Group may be required to grant competitors some access to its fiber optic network, under conditions
to be determined.
30
In accordance with the decisions adopted in summer 2011, applicable until summer 2014, regarding
the regulation of high-speed and very-high-speed markets, ARCEP has identified Orange as the only
operator deemed to exercise significant influence over the fixed telephony market, and has imposed
specific obligations upon it involving access to its infrastructures (unbundling the local copper loop
and access to infrastructures).
In 2013, ARCEP launched new market analyses of the following markets: “the wholesale market for
offerings of access to physical infrastructures constituting the local wired loop” and “the wholesale
market for offerings of high and very-high-speed access delivered at the sub-national level,” which
includes access to a non-physical or virtual network, encompassing “bitstream” access to a fixed site,
as well as “the capacity services market.” After launching a public consultation on November 27,
2013, ARCEP published three decisions on June 26, 2014 determining the asymmetric regulation for
the period from mid-2014 to mid-2017 for the three markets mentioned above, which were forwarded
to the European Commission. This parallel review of the three markets enhances the consistency
between, on the one hand, the regulatory obligations applicable to wholesale offerings that are
referred to as “mass” ones considering that they are mainly meant for mass consumption and, on the
other hand, those relating to wholesale offerings specifically meant to meet the needs of businesses.
Under the terms of these three decisions, ARCEP has identified Orange as the only operator deemed
to exercise significant influence over these markets and has imposed specific obligations upon it,
particularly to accede to reasonable requests for access, to provide access under non-discriminatory
conditions, and price control.
Although the Group monitors and keeps a watch on the regulations to which it is subject, the weight
of the regulatory burden on telecommunications operators, including the Group, may change and may
lead to the application of different obligations in their regard involving the level of ownership of
direct access networks and the level of market power that may be more or less significant to or
constrictive upon certain operators by virtue of changes in the technology used for providing services.
If the Group becomes subject to regulations relatively more constrictive than its competitors, which is
currently not the case, this could have a material adverse effect on its business, results of operations or
financial position.
Furthermore, as a telecommunications operator and a distributor of television services, the Group is
subject to special taxes, particularly those described in Section 6.12.3 “Tax treatment” of this
Registration Document. The burden of such taxes could increase in the future due to changes in
legislation. In addition, the Group cannot guarantee that additional taxes will not be instituted in the
telecommunications industry.
4.4.2
The legal status of the Group network is complex and, in some cases, is subject to
renewals or challenges.
Numericable Group network
The Group’s telecommunications network is essentially composed of the physical infrastructure
(conduits, network head-ends, and switches) in which telecommunications (mainly cable) equipment
is placed. The components of the network of Numericable Group are subject to different legal
regimens. Because the physical infrastructure of Numericable Group is not built on its own premises
(but rather on public or private property), the Group has entered into concessions, rights-of-way,
leases, or even indefeasible rights of use (“IRUs”) with the owners of the land. In certain cases the
Group is also availed of the use of telecommunications equipment leased from third parties.
Networks using the conduits of Orange
Orange has granted Numericable Group several IRUs on its infrastructure (primarily conduits). These
IRUs, which were agreed to on various dates, were granted to Numericable Group for a term of 20
years each, and the renewal of the first of them will have to be negotiated between the parties in 2019.
31
The Group cannot guarantee that these IRUs will be renewed or that they will be renewed under
commercially acceptable terms. If Orange does not renew these IRUs, the Group will have to demand
that Orange make the conduits available to it in accordance with the regulations, which could
nevertheless lead to differing financial conditions. For a description of the IRUs of the Group granted
by Orange, see 22.3.1.1 “Indefeasible rights of use (“IRUs”) of Orange” in this Registration
Document. The network using Orange conduits represents 55% of the total network of Numericable
Group. Orange could also grant IRUs on its infrastructure to certain competitors of the Group, thus
strengthening the competitive pressure on the Group’s markets (see Section 4.1.1 “The Group
operates in a competitive sector and the competition could have a material adverse effect on its
business” in this Registration Document) and accentuating the processes implemented by Orange in
order to access its infrastructure.
The New Deal Plan (Plan Nouvelle Donne) networks
Numericable Group is also availed of rights of occupancy and exploitation under concessions granted
by the New Deal Plan (Law on Freedom of Communications of September 30, 1986). Networks
participating in the New Deal Plan account for 38% of the entire network of the Group. No model
contract exists within the framework of the New Deal Plan and, consequently, some level of
uncertainty could exist as to the ownership of networks under certain long-term contracts entered into
with local authorities, especially when such contracts include a returnable assets clause. Numericable
Group has signed approximately 500 contracts for networks under the New Deal Plan.
In this context, Law 2004-669 of July 9, 2004, transposing the 2002 European Community directives
referred to as the “2002 Telecoms Package” into French law, has set forth an obligation to comply
with the agreements by terminating exclusive rights for the establishment and/or use of the networks.
In order to clarify the conditions for complying with the agreements currently in force with public
players (mainly local authorities), in May 2010 Numericable Group proposed to ARCEP a plan for
the novation of its agreements, as follows: ownership of the civil engineering components (that is, the
conduits) pertains to the local authorities, while ownership of all of the existing cabling and
telecommunications equipment expressly pertains to Numericable Group by means of a transfer
process.
This plan resulted in the finalizing of settlement agreements (i) covering the aforementioned items,
(ii) including an agreement for occupancy of public property encompassing a non-exclusive right on
the part of Numericable Group to use the conduits that have become the property of local authorities
in accordance with the terms of the mentioned new agreements, along with its own
telecommunications equipment. One of the main characteristics of these new agreements is that the
right of Numericable Group to use these conduits is not exclusive, and that its competitors can install
their own equipment there.
These new agreements, while complying with the plan enacted by ARCEP, could be challenged with
regard to certain of their methods, as the case may be.
Although Numericable Group has signed nearly 29 agreements with various local authorities, it
cannot be guaranteed that Numericable Group will be able to implement this type of agreement with
all of the authorities involved. Numericable Group is still in negotiations on implementing the
proposal that it has made to certain local authorities. If Numericable Group is unable to negotiate such
agreements with local authorities, the provisions of the non-renegotiated agreements in force would
continue to apply, and the possibility cannot be excluded that Numericable Group may be subjected to
claims or appeals from local authorities, its competitors, and national and/or European administrative
authorities. In addition, upon expiration of the existing agreements incorporating the concept of
returnable assets (that is, approximately half of the New Deal contracts of Numericable Group) that
are not renegotiated or extended, the local authority would be transferred the ownership of all or part
of the network, either free of charge or for payment, under the terms of the agreements involved. In
32
order to continue to operate its business in this zone, Numericable Group would then have to either
install all or part of a new network in the local authorities’ civil engineering installations that have
been categorized as returnable assets for the payment of a fee to the local authority or to lease a
network from another operator, or the network that has thus reverted to the local authority.
Furthermore, the conditions under which Numericable Group negotiated the arrangement of certain of
these contracts during the years from 2003 to 2006, negotiations carried out on bases not comparable
to those enacted by ARCEP in 2010, have led the European Commission to indicate, on July 17, 2013,
that it decided to open an in-depth investigation in order to determine whether the transfer of public
cable infrastructures during that period by several French local authorities to Numericable had been in
compliance with the European Union government aid rules. In announcing the opening of this indepth investigation, the European Commission indicated that it believes that the sale of public assets
to a private company without proper compensation gives the latter an economic advantage not
enjoyed by its competitors, and that it therefore constitutes government aid within the meaning of the
rules of the European Union and that the free-of-charge transfer of the cable networks and ducts by 33
French municipalities to Numericable, they have argued, confers a benefit of this type and, as such, is
government aid. The European Commission has expressed doubts about the compatibility of the
alleged aid with the rules of the European Union. The European Commission’s decision of July 17,
2013 was published in the Official Journal of the European Union on September 17, 2013. Since then,
discussions have continued within the framework of this process both in terms of comments from
third parties as well as those from the parties to the proceedings as to the allegation of the existence of
aid and its extent, with the Group firmly challenging the existence of any government aid. As
mentioned in Note 34.2 to the 2014 consolidated financial statements, the Company made no
provision relating to that process in these statements.
Other networks
A limited portion of Numericable Group’s current network (7%) is governed by legal agreements
such as long-term public property leases, tenancy agreements (that is, a type of operating concession
by which Numericable Group leases an entire network), or public property occupancy agreements
(under which Numericable Group installs the network equipment necessary in certain public
locations, with no transfer of ownership occurring under this type of agreement).
These agreements are signed with local authorities, mainly municipalities, for terms ranging from 10
to 30 years. In compliance with Articles L. 2122-2 and L. 2122-3 of the General Code of Property of
Public Entities, local authorities can terminate these public property occupancy agreements at any
time, as long as they can prove that such action is in the public interest.
Upon expiration of these agreements, Numericable Group must, depending on the contractual
provisions, (i) return all networks to the local authorities, in some cases in exchange for payment by
the local authorities of an amount equal to the market value of the network and in some cases without
payment, (ii) withdraw all networks, at its own expense or at the expense of the local authorities, (iii)
transfer the network to other operators, upon approval from the local authorities, or (iv) buy back the
network. In compliance with the law applicable to such agreements, upon expiration of the long-term
leases the network reverts to the local authorities.
Royalties are generally paid once a year and vary depending on the size of the network, the number of
users connected to the network and, if applicable, the extent of the deployment of its own network by
the Group in public locations.
If Numericable Group loses the status of operator on a part of its network, if it is unable to operate it
under favorable operational or commercial conditions, or if it has to give access to its network to its
competitors under economically unsatisfactory conditions, this could have a material adverse effect on
its business, its results of operations and its financial position.
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SFR Group network
The legal status of the SFR network is complex and the network is mainly governed by public law,
which could affect the stability of SFR’s rights.
SFR’s telecommunications network is essentially composed of the physical infrastructure (conduits,
network head-ends, switches and radio frequency stations) in which telecommunications (mainly
cable) equipment is installed. These components of SFR’s network are subject to different legal
regimens. As SFR does not own certain land where such physical infrastructures are located and
infrastructure is established on public or private property, it has entered into concessions, rights-ofway, leases or even indefeasible rights of use (IRUs) with the owners of the land.
In order to establish a substantial part of its telecommunications network and of its wireless network,
SFR has thus entered into public property occupancy agreements with public entities or holds public
property occupancy permits. Under these agreements or permits, SFR may install its network
equipment along roads, highways, railways or canals, for example. No transfer of ownership takes
place within this framework.
Such agreements are entered into for terms that vary greatly, from 3 to 25 years, and the agreements
with the shortest terms generally provide for tacit renewal. SFR’s occupancy of public property, as is
the case for all occupants of public property, is always precarious and, by nature, involves an
agreement made on a personal basis. The public entities with which SFR has entered into these
agreements or that have issued permits to it can thus at any time terminate these public property
occupancy agreements for misconduct or for reasons of public interest and some of the agreements
even exclude any compensation in such case.
SFR does not have any right to renewal of such agreements. If SFR fails to obtain such renewal, the
company involved would be obliged, upon expiration of these agreements, (i) to return the site to its
original condition upon the demand of the manager or owner of the public property involved (ii) and
to transfer to the latter, in certain cases for the payment of compensation and in certain cases free of
charge, ownership of the facilities established on the property involved.
If SFR loses all or part of the rights relating to its network, it could have a material adverse effect on
the business, financial position, results of operations or outlook of the Group.
4.4.3
The Group faces risks arising from the outcome of various legal, administrative, or
regulatory proceedings.
In the normal course of business the Group becomes party to litigation and other legal proceedings,
including administrative and regulatory proceedings, and thus could be subjected to investigations and
audits. Some of the proceedings against the Group may involve claims for considerable amounts and
may require that the general management of the Group devote time to addressing such issues, to the
detriment of managing the Group. Such proceedings may result in substantial damages and/or may
impair the reputation of the Group, which may result in a decline in the demand for the services of the
Group, which could have a material adverse effect on its business. The outcome of these proceedings
and claims could have a material adverse effect on its financial position, its results of operations or its
cash flows during the years when such disputes are decided or the sums possibly involved in them are
paid. The Group may also be exposed to proceedings that could involve its independent distributor
partners, as other telecommunications operators are so exposed.
The Group is currently involved in certain disputes and proceedings described in Section 20.7
“Litigation and arbitration” in this Registration Document. Any increase in the frequency or size of
such claims could have a material adverse effect on the profitability and cash flows of the Group and
could have a material adverse effect on its business, results of operations and financial position.
34
4.4.4
Tax disputes and audits, adverse decisions by tax authorities or changes in tax
treaties, laws, regulations or the interpretations thereof could have a material
adverse effect on the results of operations and cash flows of the Group.
The Group has structured its commercial and financial activities in compliance with various
regulatory obligations to which it is subject, as well as in line with its commercial and financial
objectives. To the extent that the laws and regulations of the various countries in which the Group or
the Group’s companies are located or operate do not establish clear or definitive positions, the tax
treatment applied to its activities or its intra-group reorganizations is sometimes based on
interpretations of French or foreign tax regulations. The Group cannot guarantee that such
interpretations will not be called into question by the competent tax administrations, which could have
a material adverse effect on the financial position or results of operations of the Group. More
generally, any breach of the tax regulations and laws of the countries in which the Group or the
Group’s companies are located or operate could result in adjustments or the payment of late fees, fines
or penalties. In addition, tax laws and regulations could change and could be subjected to changes in
their interpretation and in the application thereof. In particular, in the current macroeconomic
environment, governmental authorities could decide to increase tax rates, to eliminate existing tax
exemptions, to expand tax bases, or to introduce new taxes. As a result, the Group could undergo an
increase in its tax burden if tax rates rise or if legislation or the interpretation thereof by the
administration changes.
NC Numericable and the companies merged into it historically provide (or provided, as the case may
be) independent television services for which the VAT rate of 10% applicable to television services in
France was in practice, a rate lower than the standard 20% VAT applicable to fixed and mobile
telephony and broadband internet services. It is noted that since January 1, 2011, the intermediate
VAT rate actually has no longer been applicable to television services distributed in a single offering
that, for a lump-sum price, includes access to an electronic communications network except when the
television services distribution rights have been acquired in full or in part for remuneration by the
services provider. In such case the intermediate rate is applicable to the pertinent portion of the
subscription. Until December 31, 2014 this portion had been equal, at the choice of the distributor,
either to the sums paid by the user for the acquisition of the aforementioned rights or to the price at
which the services pertaining to such rights are actually distributed by such distributor in a television
services offering distinct from access to an electronic communications network.
NC Numericable has applied the provisions of Article 279 b octies of the General Tax Code,
considering that it fulfills the conditions for applying the intermediate rate to the television services
offered within the framework of a multi-play offering up to December 31, 2014.
However, NC Numericable cannot ignore the possibility that the tax administration may not share the
analysis adopted and challenge, in full or in part, the basis for the intermediate VAT rate, which could
have adverse effects on its results of operations and financial position.
Since January 1, 2015, new rules (described in Section 6.12.3.3 “VAT rules applicable to television
services” below) are applicable that will have a negative impact on the Revenues pertaining to the
television services of the Group as well as on its gross margin and its EBITDA in the same
proportions.
In addition, the Group is exposed to the risk of a further increase in the VAT and might not be able to
pass along such increase, in full or in part, through subscription prices, and this would then have a
negative impact on ARPU. Furthermore, any partial or total passing along of a possible increase
would expose the Group to a risk of an increased churn rate on the part of its subscribers and could
limit the recruitment of new subscribers. Such a development would be likely to have a material
adverse effect on the business, financial position, results of operations or outlook of the Group.
In addition, the Group has been subjected to tax audits involving several of its members since 2005.
35
NC Numericable, Completel and Ypso
The main allegation for adjustment involves the methods of calculating the VAT on multi-play
offerings in the 2006-2011 period (for a description see Section 20.7.1 “Tax audits” of this
Registration Document). This adjustment allegation has been fully provisioned for the amounts
notified in the 2006-2011 period (excluding penalties of 40%).
The Group received tax audit notices in 2014 for fiscal years 2010 (corporate income tax), 2011 and
2012 for NC Numericable, Numericable, and Est Videocommunication. These audits, which are still
underway, resulted in the submission on December 26, 2014 of adjustment proposals relating mainly
to the VAT on multi-play offerings, despite the change in the rules on January 1, 2011 supporting the
Group’s practices in this regard. The Group is contesting all of the reassessments planned.
An additional provision of €19.8 million was allocated as of 12/31/2014 to cover all of the
reassessments planned for 2011 (VAT, additional taxes, and late fees).
As of December 31, 2014, the total amount of provisions for risk of tax reassessment for NC
Numericable, Completel and Ypso amounted to €54 million, of which €44 million involves
adjustments of VAT on multi-play offerings for the 2006-2011 period and €10 million involves
corporate income tax adjustments relating to the deduction of expenses for services over fiscal years
2009 to 2011. For comparison, the total amount of provisions for tax reassessment risk amounted to
€36.3 million as of December 31, 2013.
SFR
In a proposed adjustment received on December 23, 2014, the tax authorities contested the merger of
Vivendi Telecom International (VTI) and SFR dated December 12, 2011 and therefore intend to
challenge SFR’s inclusion in the same tax consolidation group as Vivendi for fiscal year 2011,
leading to a corporation income tax adjustment of €711 million (principal) plus late fees and
surcharges amounting to €663 million, for a total proposed adjustment of €1,374 million.
Under the agreement signed on February 27, 2015 between Vivendi, Altice France and NumericableSFR, Vivendi agreed to repay to SFR any taxes and levies charged to SFR for fiscal year 2011 that
SFR had paid to Vivendi at the time, subject to a maximum €711 million, if the 2011 merger of SFR
and VTI is ruled invalid in tax terms.
Vivendi, Numericable-SFR, and SFR believe that they are availed of serious legal grounds to defend
the transaction and will cooperate to invoke the right to SFR’s tax consolidation.
In the context of the tax audits for fiscal years 2009 and 2010, the amount of the €6 million in
provisions was maintained at the fiscal year-end, mainly to cover an adjustment on research tax
credits generated by the company during those fiscal years.
Lastly, a provision of €8.4 million was allocated in 2011 for this audit to cover the proposed
adjustments to the foreign tax credit, which are also being challenged by the company.
Omea Telecom
In the context of the various tax audits relating to fiscal years 2009 to 2012, the company has been
reassessed with regard to the tax on electronic communications operators and the corporate income
tax involving the principles for associating mobile telephone sales to its distributors.
All of these reassessments have been challenged by the company, which has begun litigation
procedures.
The amount of these reassessments has been provisioned on the accounts at the level of €5 million as
of December 31, 2014.
36
The provisions posted by each company constitute Management’s best estimate of the risk deemed
probable, but the outcome of these tax issues could differ from the provisioned amount, which could
have a material adverse effect on the cash flows, business, financial position, and results of operations
of the Group for any period involved. For more information, see Section 20.7.1 “Tax audits” of this
4.4.5
French tax rules could limit the ability of the Group to deduct interest for tax
purposes, which would be likely to reduce the net cash position of the Group.
Articles 212 bis and 223 B bis of the General Tax Code, created by Article 23 of Law 2012-1509 on
Finance for 2013, limit the portion of net financial expenses that can be deducted from corporate
income tax, subject to certain conditions and exceptions, to 75% for fiscal years beginning on or after
January 1, 2014.
This limitation deprived the Group of the ability to deduct about €62 million in 2013 and deprived the
Group of the ability to deduct about €152 million in 2014 (on the basis of the rules in force and the
information available as of the date of this document).
In addition, pursuant to French rules on undercapitalization, the deduction of interest paid on loans
granted by a related party and, subject to certain exceptions, on loans granted by third parties but
guaranteed by a related party is authorized under certain conditions but subject to limitations in
accordance with the rules of Article 212 of the General Tax Code.
The impact of these rules on the ability of the Group to effectively take a tax deduction for the interest
paid on loans could increase the tax burden upon the Group and thus have a material adverse effect on
its results and financial position.
4.4.6
The future results of operations of the Group, French tax rules, tax audits or
litigation and possible intra-group reorganizations could limit the ability of the
Group to make use of its tax losses and could thus reduce its net cash position.
The Group is availed of significant tax losses (described in Note 13.3 to the consolidated financial
statements of the Group for fiscal year 2014 appearing in Section 20.1.1 “Consolidated financial
statements of the Group” of this Registration Document).
The ability to effectively make use of such losses will depend on a combination of factors, including
(i) the ability to earn tax profits and the degree of matching between the level of such profits realized
and the level of the losses, (ii) the general limitation under the terms of which the percentage of tax
losses that can be carried forward and used to offset the portion of taxable profit exceeding €1 million
at 50% for fiscal years ending from December 31, 2012 as well as certain more specific restrictions on
the use of certain categories of losses, (iii) the consequences of present or future tax disputes or
audits, and (iv) possible changes in applicable laws and regulations. For more information on this
issue, see Section 9.1.5.12 “Corporate income tax” and Section 5.1.5 “History and recent
developments of the Group” of this Registration Document.
The impact of these factors could increase the tax burden upon the Group and thus have a material
adverse effect on its cash position, the effective tax rate, the financial position and the results of
operations of the Group.
4.4.7
The introduction into French law of a class action open to consumer protection
associations could increase the exposure of the Group to material litigation
As from October 1, 2014 French law allows consumers to join a class action brought by a consumer
protection association in order to obtain compensation for property damage suffered by virtue of the
activity of consumption. Considering the B2C activities of the Group, in the event of a challenge by
37
consumers pertaining to the products or services offered by the Group, the Group could be faced, as
could all operators in the industry, with possible class actions joining numerous customers desiring to
obtain compensation for possible harm. Under such circumstance, if possible practices and detriments
are proven or even merely alleged the Group could face significant amounts in claims. Moreover,
such actions could undermine the reputation of the Group.
4.4.8
The Group is subject to requirements in terms of protection of confidentiality and
data security
Within the context of its business activities, the Group must collect and process personal data. The
French Data Protection Law of January 6, 1978 imposes obligations on whoever is responsible for the
processing of data (that is, the entity that determines the purposes of the data processing and the
procedures for processing the data) involving the personal data and information of individuals, the
obtaining of their consent (especially for the use of cookies), and the formalities of disclosing and
transferring data outside of the European Union. Any breach of these obligations may lead to criminal
and financial penalties against the Group and damage its reputation. The French Data Protection Law
also requires that providers of electronic communications accessible to the public, such as the Group,
give notice of any breach in security. Violation of these obligations could lead to legal action against
the Group. In addition, the draft European regulation of January 25, 2012 on the protection of
personal data was approved by the European Parliament on March 12, 2014. This regulation will have
an impact on the procedures and implementation of the processing of personal data by the Group and
will significantly increase the penalties that could be imposed upon the Group if the new rules are not
adhered to. The proposed regulation should be adopted by 2016, but no precise timetable for the
adoption of this draft regulation has been established. Changes to the regulation that applies to the
processing of personal data are likely to have a material adverse effect on the Group’s business,
financial position and results of operations.
The development of data hosting activities for various customers will increase the risk of the Group
becoming liable in terms of protection and security. This is even more so the case considering that the
Group does business in the hosting of data relating to the health of individuals subject to
authorization, which subjects it to the specific obligations provided for by the Public Health Code
such as obtaining and maintaining authorization. If the Group breaches its obligations or fails to
adhere to the requirements applicable to personal data processing, it may be subjected to criminal and
financial penalties likely to have a material adverse impact on the Group’s business, financial position
and results of operations.
In addition, the Group has taken measures to ensure the reliability of its security and personal data
protection systems as well as to reduce the risks that may be caused by a breach of the personal data
or security that it handles. The Group has therefore implemented specific resources dedicated to the
protection of data, along with an internal process that fulfills the obligation of notifying the French
Data Protection Agency, CNIL, about any security breach involving personal data. Despite the
measures adopted by the Group to protect the confidentiality and security of data, there remains the
risk of possible attacks or breaches of data processing systems, which could give rise to penalties and
damage its reputation. The Group could be compelled to bear additional costs in order to protect itself
against these risks or to mitigate the consequences thereof, which could in turn have a material
adverse impact on its business, financial position, results of operations or outlook. Furthermore, any
loss of confidence on the part of the customers of the Group as a result of such events could lead to a
significant decline in sales and have a material adverse impact on the Group’s business, financial
position and results of operations.
38
4.4.9
The Group is dependent upon its intellectual property rights, which might not be
adequately protected.
The Group holds a sizeable and diversified portfolio of trademarks, patents, designs and patterns, and
domain names. The Group’s operations are based to a large extent on its intellectual property rights
and the Group pursues an active policy of protecting and managing them.
The Group holds (in full ownership or by license) registered trademarks and patents as well as
applications for trademarks and patents in the European Union, particularly in France, as well as
outside the European territory (including in the United States, Japan and China). Like any party filing
intellectual property rights, the Group could experience difficulties in obtaining intellectual property
rights due to possible prior art or conditions relating to the registration of the relevant documentation.
Furthermore, the Group cannot guarantee that filings made for obtaining intellectual property rights
will result in the issuance thereof, particularly in the case of dispute by third parties in the context of
opposition or nullification of rights proceedings. The rights obtained could also prove insufficient to
ensure adequate protection or a competitive advantage, such as exclusivity of exploitation.
The Group may depend on its employees or third parties regarding the ownership of certain
intellectual property rights. The Group has developed a policy concerning inventions and creations
made by its employees and corporate officers in the performance of their duties that provides for a
transfer of rights to the Group accompanied by additional remuneration. Certain contractual
provisions providing for the transfer of the intellectual property rights to the employer could,
however, prove to be insufficient to fulfill the formalities required by mandatory provisions of
applicable law and therefore the effective transfer of such rights to the Group could be disputed by its
employees under certain circumstances. Furthermore, certain intellectual property rights used by the
Group may have been developed jointly and held in co-ownership with third parties, which implies a
risk of dependency on the other co-owners. This risk of dependency could also involve certain patents
based on technologies belonging to third parties.
Certain essential intellectual property rights exploited by the Group within the context of its
operations are and/or could be held, however, by third parties that have granted the Group a license
the terms of which limit the Group’s exploitation rights and a breach of which could lead to
significant litigation, particularly with respect to software. In particular, certain licensing agreements
contain clauses that could put an end to the exploitation of the rights involved in the event of a change
in control affecting the Group.
Despite the Group’s efforts to protect its intellectual property rights, third parties could attempt to
infringe upon them. The Group might have difficulty effectively protecting its rights and preventing
unauthorized uses thereof, particularly in foreign countries, and this could generate significant costs.
The Group could also find itself sued for infringement of the intellectual property rights of third
parties, which could result in its being ordered to cease exploitation and in a judgment against it for
the resulting damages. Indeed, the telecommunications industry is characterized by a high
concentration of intellectual property rights, which increases by multiples the risk of litigation
resulting from the activities of the Group upon the grounds of prior rights of third parties. Thus, just
like its competitors and other companies doing business in fields requiring technological expertise, the
Group is particularly exposed to the risk of proceedings initiated by patent trolls or a Non-Practicing
Entity (NPE). Such entities are in business mainly or even solely to acquire or hold patents that they
do not themselves exploit. They offer licenses on patents that they hold and seek cross-licenses. As
the case may be, they may bring suit for infringement upon such patents to obtain compensation. Such
litigation generally involves very significant amounts, thus posing a significant risk to the Group. This
could require the Group to enter into licensing agreements for certain technologies essential to its
activities, particularly as regards the patents essential to 3G and 4G technology.
39
An inability on the part of the Group to succeed in effectively protecting certain important elements of
its intellectual property rights and of its technology could have a material adverse effect on the
activities, financial position, results of operations or outlook of the Group. For more information
about “free” software and the associated risks, see Section 4.1.7 “The Group cannot exclude the
possibility of risk or litigation in the event of defective software or claims by a third party to
ownership of software” of this Registration Document.
4.4.10
The Group might not be able to obtain, retain or renew the licenses and
authorizations necessary for performance of its activities.
Some activities of the Group depend on obtaining or renewing licenses issued by regulatory
authorities, particularly ARCEP in the telecommunications field and CSA (Conseil supérieur de
l’audiovisuel, the French broadcasting regulator) in the audiovisual field.
The procedure for obtaining or renewing such licenses can be lengthy and complex. In addition, these
licenses may not be able to be obtained or renewed. If the Group fails to obtain or retain, in a timely
manner, the licenses necessary for performing, continuing or developing its activities, its ability to
achieve its strategic objectives could be subjected to alteration.
The acquisition of licenses also represents a high cost, the timing of which varies depending on when
the frequencies involved are auctioned. Furthermore, this cost could rise due to strong competitive
pressure in the telecommunications field. Thus, the auctioning of the 700 MHz frequency band in
which telecommunications operators may participate at the end of 2015 would be likely to generate
significant expenses for the Group. In addition, the Group may fail to be awarded the desired use
licenses, which could have an adverse effect on the Group’s business, financial position, results of
operations or outlook.
Moreover, under the licenses allocated to the Group’s subsidiaries, the latter have committed
themselves to complying with certain obligations (population coverage, sharing in some areas,
roaming allowance). The Group is required to deploy a third (3G) and fourth (4G) generation radio
network adhering to certain rates of coverage for the metropolitan population according to a given
timetable. Within the framework of its fourth-generation (4G) licenses, if certain conditions are met,
the Group will eventually have to allow Free Mobile roaming on a portion of its 4G network. The
Group will also have to provide coverage, in conjunction with other 800 MHz band holders and under
its 2G license, for the city centers identified under the “white zones” plan, and accede to reasonable
requests for sharing in a priority deployment zone. The Group will also have to accede to reasonable
requests to allow MVNOs throughout its very-high-speed mobile network open to the public in
Metropolitan France. A failure to adhere to any one of these commitments could put the Group at risk
under its regulatory obligations and possibly expose it to penalties (fines, total or partial suspension or
withdrawal of license). This could have a material adverse effect on the Group’s business, financial
position, results of operations or outlook of the Group.
4.4.11
The Group’s business activities and their development depend on the ability of the
Group to enter into and maintain joint arrangements with other players in the
telecommunications field.
Sharing Agreement between Bouygues Telecom and SFR
On January 31, 2014, Bouygues Telecom and SFR entered into an agreement to share a portion of
their mobile networks. This agreement aimed to allow the two operators to offer their respective
customers better geographic coverage and better quality of service, while optimizing costs and
investments made in this context.
The first deliveries of cellular plans occurred on April 30, 2014. It was at that time that each operator
first became aware of the deployment plans and technical characteristics of its partner’s sites. The
40
French Competition Authority had prohibited the exchange of technical information prior to the
signing of the agreement, and the engineering guidelines had been established on the basis of
assumptions that proved to be incorrect in some cases. The discussions that followed upon the initial
deliveries of cellular plans led on October 24, 2014 to adaptation of the agreement and, more
specifically, of some engineering choices that had been made at the time when the initial agreement
was signed. The target date for completing the network was shifted ahead one year, from the end of
2017 to the end of 2018, to account for the time needed to make these adjustments in the target
network engineering.
The Group could be exposed to various risks related to the implementation of the Sharing Agreement.
The agreement organizes the deployment of the shared network between two operators. Any delay in
its implementation may affect the ability of the Group to achieve the aforementioned objectives of
geographic coverage and quality of service. The implementation of the joint arrangement will also
require significant investment expenditures.
The Group will be dependent upon Bouygues Telecom for the part of its network that it is to be
responsible for operating. In particular, it will not be availed of any direct operational control over the
portion of the network managed by Bouygues Telecom that is to be shared. Therefore, the Group will
not be able to control the quality of the network provided to the customers involved or to steer the
implementation of the work or corrective measures necessary in the event of defect. In addition, the
Group will be exposed to the risk of failure on the part of Bouygues Telecom.
The joint arrangement implemented could also fail to generate the expected synergies, especially in
terms of geographic coverage or quality of service.
In the event of partial or total cessation and/or failure of the joint arrangement, the Group would have
to redeploy a network in the zones covered up to that time by the Sharing Agreement so as to maintain
its geographic coverage and the quality of its services. Such redeployment could represent a major
expense for the Group. Moreover, the Group cannot guarantee that it will be able, in such a scenario,
to implement coverage equivalent to that enjoyed by customers under the Sharing Agreement.
The competent authorities may, in the future, make decisions jeopardizing the overall economics
and/or validity of the Sharing Agreement.
Finally, third parties may also seek to have access to the shared network and take action against the
Group and its partner. On April 29, 2014, Orange raised issue with the French Competition Authority
with regard to the Sharing Agreement, alleging that it constituted an anti-competitive practice.
Investigations on the merits are currently underway. For more information on these proceedings,
please refer to Section 20.7.17 “Orange versus SFR and Bouygues Telecom (Sharing Agreement)” of
this Registration Document. This agreement sets forth the commitments made following the October
27, 2014 decision of the French Competition Authority that authorized the SFR Acquisition (see
Section 5.1.5 “History and recent developments of the Group” of this Registration Document).
Contract connected with the GSM-R mobile telecommunications network
The Group holds a 30% minority stake in the company Synérail, which has entered into an agreement
for a joint agreement with Réseau Ferré de France for the design, construction, deployment, operation,
maintenance and financing of the GSM-R mobile telecommunications network. The GSM-R project
aims to set up a private telecommunications network dedicated to the needs of professionals in rail
transport. It enables a European network to be created having a single communications system that is
compatible and harmonized among the rail networks, replacing the existing national radio systems.
This contract, with a term of 15 years starting March 24, 2010 and for a total amount of €1 billion,
provides for the gradual deployment of this network. The Group is also involved as service provider
in the operating phase of the GSM-R network. Delays in deployment caused by the Group or an
41
inability to achieve the targets provided for in the contract could put the Group at risk under its
contractual obligations to its key partners.
The occurrence of any one of the eventualities described above could have a material adverse effect
on the Group’s business, financial position, results of operations or outlook.
4.4.12
Risks specific to the national distribution network
The Group distributes its products and services meant for the general public and businesses directly or
indirectly through its national distribution network. Within the framework of B2C activity, such
distribution occurs mainly under the brand “Espace SFR,” Numericable. For indirect distribution of
SFR services the Group relies on independent partners, which include the companies SFD and Cinq
sur Cinq, in which it directly or indirectly holds minority stakes.
The telecommunications market is characterized by rapid change in the habits and needs of customers.
Therefore, the Group is committed to adapting its distribution network accordingly in order to respond
to new market characteristics. This evolution of the distribution network involves regular adaptation
of indirect distribution and thus on the part of all of its independent partners. However, some of them
might not have the ability or might not wish to implement the necessary adaptations.
In addition, the Group is encountering disputes of significant amount deriving from former or current
partners, particularly demands to re-characterize agreements for joint arrangements as commercial
agent agreements, to obtain compensation due to breakdowns in commercial relations, and to invoke
the status of management employee, as well as demands from their own employees for recognition of
the Group’s status as employer and for application of the employment status applicable inside of the
contractual SFR ESU (see Section 20.7.20 “Litigation over distribution in independent networks
(Consumer Market and SFR Business Team)” of this Registration Document).
Although the Group has already implemented a policy of adapting its contractual instrumentalities to
forestall these risks and is following a policy of custom-tailored protection, it cannot however
guarantee that such demands will not become more generalized and that the legal and factual
arguments developed by the Group to oppose such claims will find favorable responses from the
courts. In particular, the Group could be forced to apply SFR employment status outside of the current
contractual ESU.
These changes could have an adverse impact on the current organization of the Group’s distribution
and force the Group to adapt it; more generally, these developments could have a material adverse
effect on the Group’s business, financial position, results of operations or outlook.
4.4.13
The European Union could continue to impose reductions in roaming charges for
the use of mobile phones within the EEA.
In recent years the European Union has urged mobile operators to reduce roaming charges for the use
of mobile phones within the EU. Under EU Regulation 531/2012 of June 13, 2012 on roaming on
public mobile telephony networks within the EU, the wholesale and retail prices for roaming services
provided by mobile operators are subject to a pricing framework. Further declines in roaming rates
could be imposed by the EU in the coming years. In this regard, on April 3, 2014 the European
Parliament adopted its position on the draft “sole electronic communications market” regulation
developed by the European Commission, providing for the elimination of retail roaming charges
within the EU starting in December 2015 and consultation on the desirability of changing wholesale
roaming rates.
These rate declines and regulatory changes could have a material adverse effect on the Group’s
business, financial position, results of operations or outlook.
42
4.5
MARKET RISKS
4.5.1
Currency risk
The Group is exposed to fluctuations in currency exchange rates. Revenue is posted in euro but since
the Refinancing Operations carried out in the first half of 2014 the Group has become exposed to
currency risks within the context of its financing activities. In particular, in May 2014 the Group took
on debt in US dollars (that is, a portion of the Term Loans of the Group (the Term Loans that were
used to refinance the Group’s debt, the “Refi Term Loans,” and the Term Loans the sums of which
were put into an escrow account until the completion of the acquisition of SFR, the “Non-Refi Term
Loans”) and certain tranches of the New Senior Secured Notes (see Section 10.2.2 “Financial
liabilities” of this Registration Document and Note 31 to the financial statements as of December 31,
2014)).
Given that the financial statements of the Group are presented in euro, the Group has to convert its
debts into euro using the exchange rate then applicable. As a result, fluctuation in the value of the US
dollar against the euro may affect the value of debt denominated in US dollars in its financial
statements. At December 31, 2014, the debt exposure in US dollars reached US$10,375 million
excluding accrued interest and disregarding deduction of the initial costs of establishment, and the
Group’s debt exposure in euro amounted to €4,150 million excluding accrued interest and
disregarding deduction of the initial costs of establishment, the impact of the EIR, the TSDIs, debts
connected with operations, and the possible price supplement to be paid to Vivendi.
The Group is also exposed to currency risk involving interest due in US dollars on its debt
denominated in US dollars. The Group is seeking to cover this exposure using derivatives. There can
be no guarantee that the Group’s hedging strategies will fully protect its operating income from the
effects of currency exchange fluctuations or that such hedges will not limit any gain that the Group
might otherwise obtain by virtue of favorable movements in exchange rates.
On April 23 and 28, 2014, the Company entered into various swap agreements with Goldman Sachs
International. On May 1, 2014 Numericable Group and Goldman Sachs International transferred (by
novation) a number of swap contracts to various leading international banks. See Section 10.2.2
“Financial liabilities” of this Registration Document for a description of these swap agreements.
On December 31, 2014, five categories of cross-currency swaps were entered into with more than
fifteen counterparties:
2019 dollar- 2022 dollar-denominated 2024 dollar-denominated
denominated bond
bond
bond
USD M/EUR M
Refi bank loan
Non-refi bank loan
2,400/1,736
4,000/2,893
1,375/994
1,397/1,010
1,203/870
4.875%/4.354%
6.% 5.147%
6.25%/5.383%
L+3.75% /E+4.2135%
L+3.75% /E+4.2085%
April 30, 2015
April 30, 2015
April 30, 2015
May 21, 2014
April 30, 2015
Initial amounts swapped in
2,358/1,705
USD M/EUR M
Coupon payment date
August 15/February 15
3,930/2,842
1,351/977
1,358/982
1,170/846
face value
Dollar leg/Euro leg
Date of 1st swap
Final swap date
August 15/February 15
May 15, 2019
August
July
15/February
30 October1530
May 15, 2022
May 15, 2022
Final amounts swapped in USD
2,400/1,736
M/EUR M
4,000/2,893
1,375/994
Special clause
Five-year termination
clause in favor of the
banks
Five-year termination
clause in favor of the
banks
43
January
July 3030
October
April 30
30
January 30 April 30
May 15, 2019
1,397/1,010
May 15, 2019
1,203/870
Once the completion date of the acquisition of SFR was known, in October 2014 the Group signed a
currency swap with Société Générale to move up the date of the first swap (originally scheduled for
April 30, 2015) to November 25, 2014 in order to have available funds in euro to make the cash
payment to Vivendi.
The first leg of this swap was done on November 25, 2014. The Company received €6,377 million
from Société General against payment from the escrow account of $8,809 million. This first swap was
done at the exchange rate of €1.00 = $1.38134. The second leg will be done on April 30, 2015 on the
basis of an exchange rate of €1.00 = $1.3827. Accordingly, Société Générale will pay $8,809 million
to the Company, which amount will be paid immediately to the various leading international banks
party to the swap agreements. Symmetrically, those banks will pay €6,371 million to the Company,
which will immediately repay it to Société Générale. As a result of these two transactions, the
Company has realized a gain of €6 million.
These agreements meet the following main objectives:
To hedge the 5-year and 8-year interest and principal payments in US dollars:
The purpose of the cross-currency swap agreements is to hedge the euro/US dollar exchange rate risk
associated with the interest payments and the repayment of principal to be made in US dollars for the
bonds and bank loans. Under the terms of these swap agreements, the Group will swap amounts in
euro for the amounts in US dollars to be paid on each semi-annual or quarterly interest payment date,
based on an exchange rate of €1.00 = $1.3827.
The swap agreements for the bonds hedge the interest payments starting from the first semi-annual
payments on August 15, 2014 and until May 15, 2019 for the 2019 Dollar Bonds (final payments),
May 15, 2022 for the 2022 Dollar Bonds (final payments), and the 2024 Dollar Bonds. The swap
agreements for the US dollar drawdowns of bank loans hedge the quarterly interest payments up to
May 21, 2019.
The Group also used these swap agreements to hedge the principal of these bonds and bank
borrowings in dollars:
-
On May 15, 2019, Numericable-SFR will pay €1,736 million and receive $2,400 million
corresponding to the principal of the 2019 bonds and will pay €1,880 million and receive
$2,600 million corresponding to the principal of the bank loan, even though the latter
matures in May 2020.
-
On May 15, 2022, Numericable-SFR will pay €2,893 million and receive $4,000 million
corresponding to the principal of the 2022 bonds and will pay €994 million and receive
$1,375 million corresponding to the principal of the 2024 bonds, even though the latter
matures in May 2024.
It should be noted that the counterparties of Numericable-SFR in the hedging agreements benefit from
an early close-out clause at the end of five years (that is, in May 2019) for the 8-year hedging
agreements, i.e., relating to the principal and interest of the 2022 and 2024 bonds in dollars. Those
counterparties may unilaterally terminate the hedging agreement three years before its maturity and
have Numericable-SFR pay, or pay to Numericable-SFR (depending on the market conditions at such
time), the balance under the agreement.
Hedging of LIBOR-based interest payments:
In addition to the two objectives described above, the hedging instruments enable LIBOR exposure
for drawdowns in US dollars involving the Term Loan to be converted into EURIBOR exposure. The
Group’s risk is nevertheless not entirely hedged, since drawdowns in US dollars for the Term Loan
44
bear interest at the LIBOR rate plus a margin, subject to a LIBOR floor of 0.75%, whereas the swap
agreements do not include such a floor.
The swap agreements for US dollar drawdowns of the Term Loan cover the quarterly interest
payments up to May 21, 2019.
Security and guarantees:
The swap agreements described above are guaranteed and benefit from the same security as granted
for the bonds and bank loans (see Note 33.1).
Impact of these Swaps on the consolidated financial statements of the Group
There are two types of swap agreements entered into by the Group:
-
The swaps on the New Senior Secured Notes have been characterized as a cash flow hedge
because they exactly match the flows of the underlying obligations. The effective portion of
the change in fair value of these derivatives is posted against items of other comprehensive
income. It is reflected in income when the item hedged affects income. These swaps include
exchange rate hedge and interest rate hedge items. As of December 31, 2014 these
instruments had a fair value in favor of the Group of €632.7 million excluding accrued
interest. This fair value consists of an exchange rate component that has a fair value in our
favor of €797.3 million and an interest rate effect that has a fair value of €169.3 million in our
disfavor. The portion in our favor is posted as financial income to offset the exchange rate
loss on the New Senior Secured Notes. On the other hand, as of December 31, 2014 the fair
value of these financial instruments involving interest rate hedging items was posted under
other comprehensive income items at €169.3 million; that is, it was posted under
shareholders’ equity. The Group also recognized the deferred tax on these instruments under
other comprehensive income items; that is, it was posted under shareholders’ equity, in the
amount of €64 million at December 31, 2014.
-
The swaps on the Term Loans were posted as natural hedging (Fair Value category through
profit and loss according to IAS 39). The difference in recognition compared to the bonds is
connected with the variable nature (variable rates) of the underlying (Term Loans). These
derivatives are accordingly posted at their fair value on the balance sheet and changes in value
impact income. As at December 31, 2014, the fair value of these financial instruments (which
also include two items; that is, an exchange rate component and an interest rate component)
was recognized as financial income of €245 million excluding accrued interest, thus favorably
impacting the Group’s net income.
In total, as of December 31, 2014, the change in the mark-to-market value of the swaps (including
deferred tax) had a positive effect on net income to the extent of €1,111.4 million. See Note 31 to the
consolidated financial statements appearing in Section 20.1.1 “Consolidated financial statements of
the Group” of this Registration Document for more information on the posting of these swaps.
The following table shows the face values and (negative) fair values of the swaps at December 31,
2014:
(in € millions)
2019 Bonds
2022 Bonds
2024 Bonds
2020 Loan (“refi”)
2020 Loan (“non-refi”)
Face value
Fair value
(including
accrued
interest)
Fair value (not
including
accrued interest)
1,736
2,893
994
1,008
872
(218)
(333)
(114)
(127)
(119)
(210)
(315)
(108)
(126)
(119)
45
7,503
Total
(911)
(878)
A positive (negative) fair value indicates an amount in favor of the banks (of the Group).
4.5.2
Interest rate risk
The Group is exposed to interest rate risk. Changes in these rates could have an adverse impact on the
servicing of its debt.
The Group is exposed to the risk of fluctuations in interest rates, mainly under the Term Loans, which
are indexed to the European interbank offered rate (“EURIBOR”) or, for loans denominated in
dollars, to the London interbank rate (“LIBOR”), plus an applicable margin. In addition, any amount
that the Group borrows under the Renewable Credit Facilities will bear interest at a floating rate. An
increase in interest rates applicable to the Group’s debt will reduce the funds available to repay its
debt and to finance its operations and investment expenditures. Although the Group can resort to
various derivative instruments to manage its exposure to interest rate movements, there is no
assurance that it will be able to continue to do so at a reasonable cost.
In order to cover its exposure to the risk of fluctuations in the LIBOR (which applies to the portion of
the Term Loan denominated in US dollars) the Group has entered into swap agreements (which cover
its exposure to fluctuations in the EUR/USD exchange rate and in the LIBOR) converting its exposure
to LIBOR into exposure to EURIBOR. See Section 4.5.1 “Currency risk” of this Registration
Document.
As of December 31, 2014 the Group had no contracts covering its risk of exposure to fluctuations in
the EURIBOR. The EURIBOR could significantly increase in the future, resulting in an additional
interest burden upon the Group, reducing the cash flows available for investments and limiting its
ability to meet debt servicing for certain of its debt securities.
The following table shows the breakdown of the financial assets and liabilities of the Group at
December 31, 2014 (excluding accrued interest, EIR, security deposits, TSDIs, and the price to
supplement to be paid to Vivendi):
(€ million) Financial assets
12/31/2014
(a)
Variable Fixed
rate
rate
Less than
one year
From 1 to
5 years
More than
5 years
Total
Financial liabilities
(b)
Variable
rate
Fixed
rate
Net exposure (c) =
(b) - (a)
Variable
rate
Fixed
rate
Net exposure after
hedging (e) = (c) (d)
Variable
Fixed
rate
rate
Rate hedging
instrument* (d)
Variable
rate
Fixed
rate
40.5
86.1
40.5
86.1
-
-
40.5
86.1
161.9
2,039.4
161.9
2,039.4
-
-
161.9
2,039.4
3,844.6
6,688.8
3,844.6
6,688.8
-
-
3,844.6
6,688.8
4,047.0
8,814.2
4,047.0
8,814.2
-
-
4,047.0
8,814.2
* The hedges implemented mainly involve currencies; these contracts convert the Group’s exposure to LIBOR to exposure to EURIBOR
and thus do not reduce the overall exposure of the Group to the variability of interest rates.
It should be noted that the counterparties of Numericable in the hedging agreements benefit from an
early termination clause at the end of five years for the 8-year hedging agreements, i.e. relating to the
principal and interest of the 2022 Dollar Bonds and 2024 Dollar Bonds (see Section 10.2.2 “Financial
liabilities” of this Registration Document). Those counterparties may unilaterally terminate the
hedging agreement three years before its maturity and have Numericable Group pay (depending on
the market conditions at such time) the balance under the agreement (at the time when the agreements
46
are terminated) for the swaps. This possibility thus generates a liquidity risk as the Group may likely
contract for new swaps under the market conditions at the time of such termination.
As of December 31, 2013, the Group’s exposure to variable-rate debt amounted to €2,257.7 million
and the Group’s exposure to fixed-rate debt amounted to €380.4 million. As of December 31, 2014,
the Group’s exposure to variable-rate debt amounted to €4,047.0 million and the Group’s exposure to
fixed-rate debt amounted to €9,064.30 million.
The Group has entered into interest rate swap agreements and interest rate cap agreements in the past
and it plans continuing to do so, as the case may be. No guarantee can be given as to the ability of the
Group to satisfactorily manage its exposure to interest rate fluctuations in the future or to continue to
do so at a reasonable cost.
Considering the respective dimensions of the fixed-rate debt and the variable-rate debt of the Group
and the rate swaps implemented converting the Group’s exposure to LIBOR changes into exposure to
EURIBOR changes, a sudden change of 50 basis points in the EURIBOR could have had an effect,
over an entire year, of €5 million upwards or downwards on the net income of the Group for the fiscal
year ended December 31, 2014. As noted above, by means of the rate swaps the Group has no
exposure to LIBOR changes.
4.5.3
Liquidity risk
The Group manages liquidity risk by using tailored reserves, bank lines of credit and reserve
borrowing facilities with constant monitoring of cash flow projections and actual cash flows as well as
by achieving a match with the best profiles for the maturities of financial assets and liabilities.
The table below shows the contractual commitments and obligations of the Group as of December 31,
2014, excluding, in particular, future interest and the commitments involved in benefits granted to
employees and similar commitments (see also Note 33 to the consolidated financial statements for the
fiscal year ended December 31, 2014).
Maturity in
Total as of December
(in € thousands)
< 1 year
1 to 5 years
> 5 years
31, 2014
Financial liabilities and borrowings*
283
2,597
10,753
13,632
Operating leases
279
872
503
1,654
Total
562
3,469
11,256
15,286
* including amortized cost, USD/EUR adjustments, and price supplements to its fair value
The Group is also exposed to the risk of having to pay the amount pertaining to the mark-to-market
value of its eight-year hedge agreements under which the counterparties of Numericable-SFR benefit
from an early termination clause at the end of five years, i.e., relating to the principal and interest of
the 2022 Dollar Bonds and 2024 Dollar Bonds (see Section 10.2.2 “Financial liabilities” of this
Registration Document.) Those counterparties may unilaterally terminate the hedging agreement three
years before its maturity and have the Numericable-SFR pay (depending on the market conditions at
such time) the mark-to-market value (at the time when the agreements are terminated) for the swaps.
This possibility thus generates a liquidity risk; the Group may likely contract for new swaps under the
market conditions at the time of such termination.
The New Senior Secured Notes are “covenant-light,” that is, these obligations do not have
periodically tested financial clauses but merely financial clauses tested upon the occasion of particular
events (a disposal of assets, assumption of new debt, payment of dividends, etc.).
The Group is also availed of renewable credit lines for an amount of €300 million and an additional
€450 million became available after completion of the SFR Acquisition. At first, the maximum
47
amount of this credit line of €750 million was raised to €1 billion, and then later the maximum
amount was raised to €1.125 billion.
The availability of these renewable credit lines is subject to covenants and other usual commitments
(see Note 33 to the consolidated financial statements appearing in Section 20.1.1 “Consolidated
financial statements of the Group” of this Registration Document).
The following table presents the Group’s current financial rating:
Moody’s
Ba3 (negative
outlook)
S&P
B+ (negative
outlook)
Following upon announcement of the acquisition by Numericable-SFR of the 10% stake in the equity
of Numericable-SFR held by Vivendi (the other ten percent was purchased by Altice), Moody’s
decided to put the Group’s rating on watch with negative outlook.
4.5.4
Credit and/or counterparty risk
The credit and/or counterparty risk represents the risk that a party to a contract with the Group may
breach its contractual obligations, resulting in a financial loss to the Group.
Financial instruments that could expose the Group to concentrations of counterparty risk consist
primarily of trade receivables, cash and cash equivalents, investments and derivative financial
instruments. Overall, the carrying amount of financial assets recognized in the consolidated financial
statements, net of impairment, represents the Group’s maximum exposure to credit risk.
The Group believes that it has very limited exposure to concentrations of credit risk relating to trade
receivables by virtue of its vast and diverse customer base (government entities and consumer market)
operating in many industries throughout France. An analysis of the credit risk pertaining to net trade
receivables past due appears in Note 21 to the consolidated financial statements appearing in Section
20.1.1 “Consolidated financial statements of the Group” of this Registration Document.
The Group’s policy is to invest its cash, cash equivalents and investment securities with financial
institutions and industrial groups with a long-term rating of A-/A3 or above. The Group enters into
interest rate contracts with leading financial institutions and currently considers that the risk of a
breach by its counterparties of their obligations is extremely low, considering the fact that their credit
ratings are monitored and that the financial exposure for each of these financial institutions is limited.
In 2008, at the time when Lehman Brothers went bankrupt, a portion of the Group’s financial
liabilities was hedged by interest rate swaps that had been entered into with Lehman Brothers. As a
result of its bankruptcy, Lehman Brothers breached its obligations under the interest rate swaps. The
Group sued Lehman Brothers for damages totaling €11.2 million. In 2012 the Group received an
initial payment of €2.8 million under that claim. In 2013 the Group received two other payments of
€4.5 million and € 2.6 million under that same claim. In 2014 the Group received a fourth payment of
€0.8 million. With that final payment, all of the sums accepted by the administrator had been paid to
Ypso France (a total of €10.7 million). The Group does not expect additional payments from the
Lehman Brothers bankruptcy administrator.
4.5.5
Risks on shares and other financial instruments.
As of the date of this Registration Document, the Group does not hold any financial instruments apart
from securities of associates and non-consolidated equity interests (see Note 18 “Investments in
associates” in the consolidated financial statements of the Group appearing in Section 20.1.1
48
“Consolidated financial statements of the Group” of this Registration Document). The Group
therefore considers that it is not exposed to a significant market risk on shares and other financial
instruments.
4.6
4.6.1
RISK MANAGEMENT AND INSURANCE
Insurance
NC Numericable/Completel has obtained general civil liability insurance and insurance covering
property and operating losses that, it is noted, contain coverage exclusions and deductibles. NC
Numericable/Completel is not insured against certain operational risks for which no insurance exists
or which can only be insured under terms than NC Numericable/Completel considers unreasonable.
Nor is there any protection against the risks connected with the recovery of trade receivables. NC
Numericable/Completel regularly takes out various insurance policies covering the risks connected
with vehicle fleets.
NC Numericable-SFR is covered by insurance policies covering the civil liability of its corporate
officers; those policies contain, among other things, instances of coverage exclusions as well as
deductibles. NC Numericable-SFR has insurance policies specific to its status as a listed company,
noting that they contain instances of coverage exclusions as well as deductibles.
The Group has undertaken an expansion of these policies and of the scopes of these policies to cover
some or all of the Group’s companies (fraud and labor relations policies).
The Group considers that the existing insurance coverage, including the amounts covered and the
conditions of insurance, provides the Group adequate protection against the risks run by the Group in
the zones where it operates, considering the cost of such insurance and the potential risks to the
pursuit of its activities. However, the Group cannot guarantee that it will not suffer any loss or that no
legal action will be brought against the Group that may not be covered within the scope of the existing
insurance. See Section 4.2.9 “The continuity of the Group’s services strongly depends on the proper
functioning of its IT infrastructure and any failure of this infrastructure could have a material adverse
effect on the business of the Group, its financial position and its results of operations” in this
4.6.2
Risk management and internal control procedures
With regard to risk management and internal control, the Group has maintained the mechanism put in
place in previous years covering all activities of the Group’s companies. This mechanism has been
expanded to cover SFR Group since November 27, 2014.
4.6.2.1
Organization of internal control
4.6.2.1.1
Definition, objectives, and frame of reference
The Group defines internal control as a mechanism of means, procedures and actions adapted to the
particular characteristics of the business that enhances the control of its activities, the efficiency of its
operations, and the efficient use of its resources. Such means must be able to appropriately take
significant risks into account, whether relating to operations, finance, or compliance.
Internal control has been established to have the objectives of (i) providing an accurate picture of the
Group’s results and data, (ii) making sure that goals are achieved and mastering the associated risks,
(iii) improving guidance for operational activities and (iv) ensuring the quality of the published
financial statements while respecting the fundamentals of internal control.
These fundamentals involve (i) compliance with laws and regulations, (ii) adaptation of the business
to the instructions and guidelines issued by Management, (iii) proper functioning of internal
49
processes, particularly in terms of the prevention of irregularities or fraud, and (iv) reliability of the
financial data produced and communicated.
The Group’s system of internal control and risk management relies on the AMF’s Frame of Reference
as well as on the major international guidelines, particularly the COSO (Committee of Sponsoring
Organizations of the Treadway Commission) recommendations.
4.6.2.1.2
Internal control and risk management mechanisms
As of 2008, the Group has established an Internal Control Department that, over time, has been
availed of documentary and methodological frameworks, tools for control and guidance to help
identify and harness operational, financial and compliance risks.
In 2013, the Internal Control Department initiated a complete redesign of the key documents in
control activities, with the aim of being able to respond to changes in the frameworks of the Frames of
Reference as well as to provide assurance as to the proper handling of the components.
In 2014 the Group pursued this approach leading to the development of additional tools offering it a
better understanding of the various risks. This approach is in the process of deployment in the new
Numericable-SFR combination created as an outcome of the Shareholders’ Meeting of November 27,
2014.
The tools deployed are of such nature as to provide an overall view of the various key processes of the
Group. Assessment of risks and of control activities constitutes a major component of this
mechanism.
4.6.2.1.3
The players in internal control
The internal control mechanism is structured around various divisions or departments and includes
interdisciplinary committees. The various players involved in the mechanism contribute to the
management of risks within the Group.
Internal Control Division
The Internal Control Division is comprised of individuals whose multidisciplinary skills and
complementary attributes enable all of the activities of the companies in the Group to be addressed.
The skills common to these employees are a good knowledge of operational activities, a perfect
mastery of the organizations and a high degree of knowledge of information systems.
This division carried out both the tasks of internal control as well as those devoted to internal
auditing: (i) formalizing and updating key processes, (ii) performance of audits in line with a defined
annual plan as well as cyclical tests of key control points, (iii) identification of risks and review of the
associated mapping, (iv) issuance of recommendations and follow-up on the implementation of plans
of action connected with deficiencies shown by audits.
Financial Division
The activities of management control and accounting are centralized in a department for all of the
companies of the Group. This department has the following main tasks: (i) the production of the
consolidated accounts, (ii) development and monitoring of the budget, (iii) the issuance of reports on
consolidated accounts, both financial and operational reporting, and lastly (iv) the development of the
data necessary for financial communications. Through its actions in terms of control, the financial
management is a major player in the internal control mechanism.
Legal Division
As a control body, the Legal Division has the role of ensuring compliance with laws and regulations.
50
For this purpose, the Group has created functions dedicated to the control of inherent risks.
In 2010 a legal specialist in labor law reporting to the Human Resources Division was recruited to
handle litigation and prevent risks connected with employee disputes focusing both on number of
instances as well as on the risks associated with such disputes. In particular, in conjunction with the
HR managers, that legal specialist has carried out activities with regard to prevention and has
provided advice on how to proceed with the aim of preventing the emergence of any case of dispute.
In 2012, two employees were appointed Data Protection Officers, the first involved in the consumer
market area and the second in the business area. Their role consists of oversight of the legal and
regulatory risks involved within the Group under the data protection law.
In 2013 and 2014 the Group decided to assign legal specialists to the operational administrations in
order to prevent the risks inherent to the performance of contracts with Corporate Customers.
Committees
Parallel to and cross-cutting through the key processes of the Group, committees have been deployed
since the end of 2008 to enhance the internal control mechanism. They have the direct or indirect
purpose of limiting and/or steering the risks inside the Group.
As an illustration, these committees are:
(i)
The Information Systems Security Committee, which deals with various security aspects
involving information systems and network and telecommunications systems;
(ii)
The Commitments Committee, the task of which is to control all costs incurred by the Group’s
various offices, doing so from the first euro. In particular, its role is to require that authorizers
justify their needs and substantiate the basis for any expense included in the budget allotted;
(iii)
The BtoB and BtoC Committees, which are represented in all of the Group’s structures. All
management divisions are represented in them. Among other things, they have the task of
monitoring and steering key indicators. The presence of Internal Control within these
committees facilitates a good understanding of the risks related to the business activities.
(iv)
The Audit Committee, which has the particular responsibility of monitoring:
(a) the financial reporting processes,
(b) the effectiveness of the systems of internal control and Risk Management,
(c) the auditing of financial statements by the Statutory Auditors, and
(d) the independent character of the Statutory Auditors.
4.6.2.2
Risk management and internal control procedures
Unification of internal control activity was pursued in 2014 focusing on key processes with the aim of
strengthening management of the risks of the Group and standardizing the approach. This approach is
also in the process of deployment in the new Numericable-SFR combination created as an outcome of
the Shareholders’ Meeting of November 27, 2014.
The implementation methodology is comprised of four phases.
The first phase consisted of updating the internal control framework that describes all key processes
of the business and the associated control points. This framework is comprised of (i) a mapping of the
51
key processes, each articulated into three levels of refinement, (ii) a documentary framework for the
processes, and (iii) a matrix of existing control points.
The second phase involved the development of a risk management mechanism. Based on the process
guidelines, it enables monitoring of the proper functioning of operations by identifying and assessing
the various risks.
The third phase involves regular supervision of the system based on the performance of periodic
checks that thus enable the associated risks to be covered.
Lastly, the fourth stage involves the monitoring the implementation of remediation plans for the risks
identified during the work carried out. A remediation plan is defined as “a set of action plans to be
implemented to alleviate a deficiency observed and to enhance the control of the risk or risks covered
by the check.” It allows the traceability of the corrective actions undertaken, and their evaluation.
The monitoring of the remediation plan has input into:
(i)
the internal control guidelines by means of the updating of the control actions and processes;
(ii)
the risks management mechanism through a reassessment of the risks and of the controls in
place;
(iii)
the audit plan by targeting activities where the effectiveness of the corrective actions can be
verified over the medium term.
Internal control assessment
Assessment of the 2014 work has enabled the identification of the actions to be implemented so as to
respond to the various recommendations made by way of the results of the auditing activity carried
out internally and externally.
Internal Control is equipped with a tool for following up on deficiencies identified both by internal as
well as external auditing. Each deficiency is subjected to a review with the operational staff and its
management, and is covered by the cycle: (i) definition and implementation of the remediation plan,
(ii) monitoring of the effectiveness of the actions carried out, (iii) re-assessment of the related risk(s),
(iv) follow-up.
In 2014 assessment of internal control did not show any deficiency or severe insufficiency of such
nature as to call into question the reliability of the financial information.
4.6.2.3
Control procedures relating to the preparation and processing of accounting and
financial information
The guidelines created within the framework of the internal control and risks management mechanism
covers all of the processes, both operational and financial, that contribute to the preparation and
processing of accounting and financial information.
The control procedures have the aim of ensuring the consistency and accuracy of information
throughout the various processing chains. These control procedures provide assurance in the creation
of the data and all the way through the accounting of the data, up to the reporting of the data.
The various processes that have an impact on the preparation and processing of accounting and
financial information are the following:
(i)
The process of the closing of accounts: The closing of accounts is done monthly by means of
an established process. It is subjected to baseline planning, a sequencing of all of the actions
to take place and assigning the one responsible for each. This planning is communicated to all
52
of the participants. It allows the deadlines to be outlined and provides assurance that the
information produced will be exhaustive.
The quality of the information is ensured by actions of verification/substantiation conducted by the
Accounting Division in coordination with the Management Control Division. All of the data is
substantiated and every deviation or supplementary entry to be posted is documented.
The accounting and financial information produced is subjected to review and validation by the
Management Team. Furthermore, before any quarterly publication, the financial information produced
is reviewed by the Audit Committee.
(ii)
The consolidation process: Each quarter, the accounting and financial information is fed into
a central consolidation tool covering all of the companies comprising the Group.
Restatements specific to IFRS are documented and referenced in the process framework. The
consolidated financial statements are subjected to an external audit and generate a
certification by the Statutory Auditors.
(iii)
The budget process: The creation of the budget is subjected to a procedure covering both
method and organization. The annual budget is prepared by Management Control and
validated by the Executive Committee. Every month, a budget balance and a re-forecast are
made.
(iv)
The commitments monitoring process: The Group has implemented a process for monitoring
commitments with the aim of controlling the associated risks. It includes (i) validation, using
an information technology tool, of the commitments on each order registered in the
accounting tool, (ii) systematic validation by the Commitments Committee of each request,
whether budgeted or not, and (iii) authorization for the commitment in line with the
delegations of power issued.
(v)
The management reporting process: Management reporting is produced by Management
Control each month upon the completion of the closing of accounts. It provides the Executive
Committee with a view of the Group’s business by providing operational indicators and
quantitative data on business performance. This reporting also serves as a support for drafting
the financial reporting to the public.
This mechanism as a whole enables ultimate assurance to be provided as to the timely management of
risks within the Group.
In 2015, the Group intends to continue with the actions undertaken in 2014 within the context of the
activity of internal control aimed at enhancing its risk management mechanism by, in particular,
deploying this approach to the new Numericable-SFR combination created as an outcome of the
Shareholders’ Meeting of November 27, 2014.
4.6.2.4
The SFR Internal control mechanism (in the period from January 1, 2014 to
November 27, 2014)
The SFR internal control mechanism applies to SFR and to its subsidiaries with regard to their
activities in France.
Description of the internal control mechanism
First of all, the staff of the operational and functional departments carry out control activities on the
basis of existing operational methods and procedures frameworks.
Management control activities, in linkage with the various lines of business of the company, have the
particular task of checking transactions.
53
The Internal Control Division does work mainly relating to the processes that have a significant effect
on the financial statements. It identifies and categorizes the risks and associated controls, and updates
the framework for the procedures of internal control in cooperation with the operational staffs
involved. Its work also involves streamlining the internal control framework and automating the
controls.
The Internal Audit Division is composed of employees who are all members of IFACI (Institut
Français de l’Audit et du Contrôle Internes, French Institute of Internal Audits and Controls). That
Division has implemented a charter on internal auditing, procedures, and operating methods. It
participates following the annual audit schedule drafted on the basis of risk reviews performed with
the managers of the various lines of business.
The audit work is subjected to summary reports submitted to the Managers and detailed reports that
enable the operating staff involved to focus on the possible malfunctions determined and the
recommendations proposed. Summaries of the work carried out by the Internal Audit Division are
regularly disseminated to the Management Team. The implementation of the priority action plans is
subjected to follow-up formally drafted by the Internal Audit department.
In particular, a review of the control environment, based on a questionnaire adopting the main
components of the COSO guidelines, was done in November 2014 by the Internal Audit department.
The responses given and the associated documentation are analyzed by top management.
Mechanism for identifying and managing risks
In 2014 the mechanism relied on various players:
A risks committee, chaired and led by the Chairman and Chief Executive Officer of SFR, composed
of the following as full members: the Corporate Secretary, a member of the Executive Committee, the
Finance and Strategy Executive Director, the Head of Security, the Head of the Legal Department, the
Head of Internal Audit, and in some cases depending on the topics addressed, the managers of the
operational areas involved. The charter of the Risk Committee specifies, in particular, its role,
functions, powers and duties.
A review of the main risks in connection with the operational areas is done by the Internal Audit
Division each year. This review of the main risks is subjected, in particular, to review by the Risk
Committee.
Various operational areas are responsible for identifying their own risks and their activities and
mechanisms for controlling such risks. The main topics treated are the following:
-
competitive positioning in a fast-developing telecommunications market;
-
regulatory and legal provisions;
-
protection of sensitive data;
-
dependency on strategic joint arrangements;
-
reliability, availability and quality of networks and of information systems;
-
security of networks and of information systems;
-
fraud;
-
return on investment;
-
media exposure and image;
54
-
process of business transformation and guiding the transition;
-
flexibility and responsibility for a chain from end to end (dependency on other operators or
certain suppliers); and
-
frequency waves and health.
The main risks management and internal control mechanisms depend on analysis of risks according to
their criticality. Such analysis can contribute to prioritizing the audit tasks and controls to be carried
out.
An audit status update is on the Risk Committee meeting agenda along with a status report on the
implementation of the decisions made previously by the Risk Committee with the aim of
strengthening the risk control mechanisms.
The main risk control mechanisms are also identified and are regularly strengthened by implementing
action plans carried out by the operational areas aimed at achieving better business risk control.
55
5.
INFORMATION ABOUT THE GROUP
5.1
HISTORY AND RECENT DEVELOPMENTS
5.1.1
Company name
The Company’s name is Numericable-SFR.
5.1.2
Place of registration and registration number
The Company is registered with the Paris Trade and Companies Register under number 794 661 470.
5.1.3
5.1.3.1
Date of incorporation and term
Date of incorporation
The Company was incorporated on August 2, 2013.
5.1.3.2
Term
The term of the Company is 99 years from the date of its registration in the Trade and Companies
Register, unless dissolved early or extended.
5.1.4
5.1.4.1
Registered office, legal form and governing law
Registered office
The registered office of Numericable-SFR is located at: 1 Square Béla Bartók, 75015 Paris, France
(tel.: +33 (1) 85.06.00.00).
5.1.4.2
Legal form and governing law
Numericable-SFR is a French société anonyme à conseil d’administration (limited liability
corporation with a board of directors) governed by the provisions of Book II of the French
Commercial Code.
5.1.5
History and recent developments of the Group
The Group was created as a result of the combination of Numericable and Completel as a
telecommunications operator providing a wide range of products and services to all categories of
customers in France, from individuals and businesses to other telecommunications operators and
public authorities.
The Group’s origins date back to the creation of the cable networks in France. Part of the Group’s
cable network was built under the Cable Plan (Plan Câble) in the early 1980s by the French
Government, before being transferred to Orange, the incumbent telecommunications operator. The
network was originally operated by some of the Group’s predecessors, privately and publicly funded
local entities which the Group later acquired. Another part of the Group’s network was built under the
New Deal Plan (Plan Nouvelle Donne), a set of regulatory rules that allowed local authorities to set up
their own networks or to have networks built by private companies. These private companies were
then granted concessions to operate the networks for 20 to 30 years. As a result of this heritage,
French cable networks were owned and operated under various legal frameworks by distinct entities
that had potentially conflicting interests and which prioritized investment in technologies and
infrastructure other than cable networks. This split intensified the regulatory complexity and slowed
cable expansion in France compared with the rest of Europe. However, market consolidation began in
56
December 2003 when the limit on the number of homes connected to a single cable operator (8
million) was abolished.
Altice One (Alsace), a subsidiary of Altice, acquired Est-Videocommunication in December 2002,
and Coditel Belgium and Coditel Luxembourg in November 2003. In March 2005, Ypso France SAS
(“Ypso”), an entity controlled by the investment funds Altice and CCI (F3) S.à.r.l. (“Cinven”),
acquired the cable businesses of France Telecom Cable, TDF Cable and NC Numericable, making
Ypso the largest French cable operator. In 2006, Ypso acquired Est-Videocommunication, Coditel
Belgium and Coditel Luxembourg from Altice One, as well as the cable business of Noos-UPC
France from UBC Holding B.V., making Ypso the sole cable operator with a significant presence in
mainland France.
In 2006, Ypso started deploying optical fiber on its network. In 2007, all of Ypso’s cable businesses
were united under a single brand, Numericable.
In September 2007, two of Ypso’s shareholders, Altice and Cinven, acquired Completel. This allowed
the Group to acquire DSL and fiber metropolitan area networks (“MANs”), a corporate segment and a
nationwide backbone. Completel was created in January 1998 to take advantage of the opportunities
in the B2B sector arising from the progressive liberalization of the European telecommunications
market. Completel began its operations with the creation of the first alternative MAN in Paris and
Lyon in 1999, followed by the first offering of a LAN-to-LAN Ethernet connection in 2000. Since
2007, the Group has stepped up investments in its telecommunications networks.
In March 2008, the investment fund Carlyle Cable Investment SC (“Carlyle”) acquired a 38% stake in
Ypso and Completel.
In December 2010, Eric Denoyer was appointed Chairman of each of the Ypso and Altice B2B subgroups. Eric Denoyer had joined the Group in 2004 and was head of the Group’s wholesale division
from 2008 to December 2010.
In 2008, the Group also established Sequalum to design, finance, market, deploy and operate an
FTTH ultra-high-speed fiber network in the Hauts-de-Seine area.
By the end of 2008, the Group had fully integrated the historical Numericable business with the
historical Completel business; since then, the legacy networks have been operated as a single network,
providing residential, corporate and wholesale services to the Group’s customers.
Since 2009, the B2C business has focused on marketing bundled offers. Since 2011, the Group has
also offered quadruple play bundles. See Section 6.5.1.2 “B2C segment offers” for a description of
these services.
In addition, the Group has improved and extended its B2B operations through the acquisitions of
B3G, a French leader in IP Centrex, in 2009 and Altitude Telecom, a major French player in IP VPN,
in 2010. See Section 6.5.2.2.2 “Fixed-line data” for a description of these services.
As part of the Group’s strategy to focus on the bundled offers market in France, the Group sold its
Belgian and Luxembourg operations to several investors, including Altice (one of its main
shareholders), in June 2011. In 2011, the Group focused on developing a new and innovative "box"
that would allow it to make the most of its fiber network. In May 2012, the Group began marketing
“LaBox,” an integrated set-top box and cable router that it offers to its triple play and quadruple play
customers. The Group believes that LaBox is one of the most powerful and interactive set-top boxes
on the French market. See Section 6.5.1.2 “B2C segment offers” of this Registration Document.
In February and October 2012, Numericable Finance & Co S.C.A, an independent special-purpose
vehicle, issued high yield bonds in the amounts of €360 million and €500 million, respectively; these
bonds were listed on the Irish Stock Exchange (see Section 10.2.2 “Financial liabilities” of this
Registration Document). The success of these two issues allowed the Group to restructure
57
Numericable’s debt, minimizing liquidity risk and ensuring the continuity of the Group’s investments
in the residential segment.
In March 2013, the Group acquired Auchan’s television, ultra-high-speed broadband and fixed
telephony services which had some 5,000 individual subscribers.
In June 2013, the Group acquired Valvision, a simplified joint stock company governed by French
law which was a small regional cable operator in France with around 5,000 individual subscribers and
8,000 bulk subscribers.
In October 2013, the Group, through Altice B2B France SAS, acquired LTI Telecom SA, a
telecommunications operator founded in 1998 and active in the B2B market. LTI Telecom SA
provides fixed-line and mobile telephony solutions and internet access to small and medium-sized
companies with five to 250 employees in France. In November 2013, Numericable Group completed its initial public offering. Since then its shares
have been listed on Euronext Paris.
The Group simultaneously reorganized and streamlined some of its legal entities. First, following the
transfer operations, Numericable Group became the ultimate parent, controlling the entire capital of
the parent companies of the “Numericable” and “Completel” sub-groups.
On November 27, 2014, the Company acquired 100% of SFR’s capital (except for 10 SFR shares held
by a minority investor), as well as the entirety of the shares of another of Vivendi’s subsidiaries, SIG
50 (the “SFR Acquisition”). As part of this transaction, (i) on November 27, 2014, the Company paid
Vivendi a cash price of €13.17 billion less debt and cash, or a total of €8.54 billion; (ii) the Company
acquired Vivendi’s current account in SFR, at a price corresponding to the amount in principal at the
transaction date, including all interest accrued as at that date, or €4.83 billion, less €0.2 billion
reimbursed by Vivendi for its contribution towards financing the acquisition of Virgin Mobile, and
(iii) Vivendi transferred some of its SFR shares to the Company in consideration for 97,387,845
newly issued shares in the Company representing 20% of its capital (the “Transfer”), such Transfer
having been approved by the Extraordinary Shareholders’ Meeting of November 27, 2014.
The agreements relating to the SFR Acquisition stipulated that Vivendi would be entitled to an earnout payment of €750 million, payable in cash, if the combined operating cash flow (defined as
EBITDA – Capex) in a single year of the combined group resulting from the Acquisition was at least
€2 billion. Vivendi waived its right to this earn-out payment as part of the reciprocal commitments
made pursuant to the Agreement dated February 27, 2015, signed by the Company and Vivendi, under
the terms of which the Company would buy out half of Vivendi’s stake in the Company.
The SFR Acquisition was authorized on October 27, 2014 by the French Competition Authority. It
was accompanied by commitments accepted by the parties to the transaction (the “Commitments”).
The Commitments, which are summarized below, are valid for a period of five years and are
renewable once. In the event of a significant change in market competition, the Group has the option
of requesting a total or partial release from its Commitments.
On December 5, 2014, the Company finalized the acquisition of 100% of Omer Telecom, the holding
company for the group operating in France under the Virgin Mobile brand, for a price corresponding
to an enterprise value of €325 million (the “Virgin Mobile Acquisition”). Vivendi contributed €200
million towards financing this acquisition.
On February 27, 2015, the Company announced that it had signed a definitive agreement with
Vivendi to buy out half of its 20% stake in the Company, at a price of €40 per share. At the same
time, Altice announced that it had signed a definitive agreement with Vivendi for the acquisition, at
the same unit price, of Vivendi’s remaining stake in the Company. Following this transaction, Altice
will own 70.35% of the Company’s share capital and 78.17% of the voting rights (taking into account
58
the treasury shares held by Numericable-SFR). For a description of these agreements, see Section 20.8
“Significant changes in the financial or trading position” of this Registration Document.
Summary of the Commitments made to the French Competition Authority
Commitments to dispose of Outremer Telecom’s mobile operations in Réunion and Mayotte
and its directly owned stores
Altice has undertaken to dispose of Outremer Telecom’s mobile operations in Réunion and Mayotte
and its directly owned stores. This includes 150,000 contracts generating revenues of €49 million in
2013. The sale would include 2G and 3G licenses and frequencies in Réunion and Mayotte, mobile
customers and staff. The sale is under way, as described in Section 20.8.2 of this Registration
Document.
Commitments relating to the FTTH Agreement signed by SFR
In a letter to the Minister of the Economy dated April 8, 2014, the Group said: “Numericable has
consistently invested in its network, creating over 5 million fiber optic connections to date. This,
together with its specialist know-how, will enable the new group to reach the target of the Very-highspeed France Plan (Plan France Très Haut Débit) of 12 million homes passed by the end of 2017 and
15 million by 2020. ”
In this context, the Group has proposed commitments concerning the co-investment agreement signed
by SFR and Bouygues Telecom on November 9, 2010 for the deployment of FTTH networks. The
Group has undertaken (i) to complete, within two years of the notification of the decision, all drop
cable connections stipulated in the contract for all shared access points delivered as of the date of
notification of the decision, except where there are difficulties with implementation, and (ii) to insert a
clause in the agreement allowing Bouygues Telecom to order from the Group the drop cable
connection of its choice of buildings acquired after the date of notification of the decision, provided
these are within the geographical perimeter of the FTTH network deployed under the agreement (the
drop cable connections are to be performed within a maximum of three months, except where there
are difficulties with implementation).
In addition, the Group has undertaken to commence negotiations in good faith with Orange on the
exchange of municipalities for which SFR is designated as responsible operator under the terms of the
agreement for an equivalent number of connections and comparable deployment cost, in
municipalities in the same density category, located in other municipalities in which the Company has
no cable network. If the exchange is not completed within the allotted time, which may be extended
once by the French Competition Authority if necessary to finalize the negotiations, the Company
undertakes to allow Orange to deploy a FTTH network in the cable areas concerned, notwithstanding
any contractual clause to the contrary.
Commitments regarding access to the Group’s cable network
The Group has made the commitment to grant access to its cable network offering a minimum peak
download speed of 30 Mbps.
To this end, the Group will offer two access offers:

Access offer 1: This offer will be intended for MVNOs that do not deploy FTTH networks
and have no direct or indirect equity relationship with the Vivendi Group.
The Group will offer very-high-speed wholesale access to its white label cable network. A
reference offer will be published within three months.
59
This wholesale access offer will include connection to the cable network, telephony service,
broadband and associated services, delivery of TV services and provision of the end user’s set-top
box.

Access offer 2: This offer will be intended for MVNOs and communications providers that
deploy FTTH networks and have no direct or indirect equity relationship with the Vivendi
Group.
The Group will offer very-high-speed-enabled wholesale access to its white label cable network.
This wholesale access offer will include connection to the cable network, data collection and
transmission, and delivery of TV services.
In both cases, the Group may offer optional services to customers of these two offers.
The Group has made the commitment to offer pricing that is transparent, objective and nondiscriminatory, without causing any margin squeeze. They may be subject to change during the year.
During the marketing and promotion of its internet access offers, the Group is prohibited from using
files and data concerning customers of competing operators in respect of these access offers to
promote its own services, or from carrying out marketing specifically and exclusively targeting end
customers on the cable network of competing operators who are clients of access offers 1 and 2.
The French Competition Authority will conduct an annual review to examine any need for total or
partial modification of or release from these Commitments.
Commitments relating to detailed connectivity data (IPE)
The Group has made the commitment to (i) comply with the obligations relating to the “J3M file;” as
defined by ARCEP Decision 2009-1106 of December 22, 2009, when it receives the detailed
connectivity data file, known in France as IPE data and (ii) not to use such information to develop
new cable offerings.
Accordingly, the Group has made the commitment to separate the divisions in charge of the fiber
network receiving such information from the divisions in charge of marketing cable offerings.
Commitments related to the disposal of the Completel DSL network
The Group has made the commitment to dispose of the components of the Completel DSL network.
The scope of coverage corresponds to approximately 745 Orange main distribution frames ("MDF").
The Completel sale is under way.
DSL-enabled wholesale offer
Following notification of the decision and until the disposal of the DSL network has been completed,
the Group has made the commitment to provide (i) Completel’s DSL collection services for business
sites within the scope of disposal of Completel’s MDFs, and (ii) SFR’s DSL collection services for
business sites on SFR’s proprietary unbundled subscriber connection nodes (i.e. excluding those
unbundled under public service contracts), under objective, transparent and non-discriminatory
conditions which are no less favorable in terms of structure, duration and tariff than transactions
previously concluded by Completel and SFR prior to the date of notification of the decision.
Finally, the Group has made the commitment to inform the monitoring trustee of any changes in this
offer and of any agreements entered into with an operator in respect of this offer, as well as any
changes thereto.
Dark fiber services ("DFS")
60
The Group has made the commitment to continue offering third-party telecommunications operators
dark (i.e. unlit) fiber on demand, on the SFR network for the entire duration of the Commitments, in
the form of a lease or indefeasible right of use (IRU) between points of presence on the long-distance
network, provided that the requested fiber or fibers are surplus to the foreseeable needs of the new
group (except in the case of renewal of existing contracts, in which case this caveat does not apply).
The Group has made the commitment to ensure that such provision takes place under conditions that
are no less advantageous in terms of structure, duration and tariff than transactions previously
concluded by SFR with other operators prior to the notification of the Transaction. In this context, the
Group will send the monitoring trustee the agreements in effect on the date of notification of the
decision (the “Reference Dark Fiber Agreements”), as well as all new agreements entered into under
this commitment, to enable comparison between the Reference Dark Fiber Agreements and the new
agreements.
Wholesale offer enabled on Completel and SFR dedicated optical access networks (“B2B LANto-LAN”)
The Group has made the commitment to continue offering B2B operators the SFR and Completel
“LAN-to-LAN Ethernet” wholesale offer.
The Group has made the commitment to provide this offer under conditions that are objective,
transparent and non-discriminatory and no less favorable in terms of content and pricing than
transactions previously concluded by SFR or Completel, as applicable, prior to the date of notification
of the decision.
The special terms and conditions of this offer, together with the technical specifications for accessing
the service, must be sent to the monitoring trustee.
The Group has made the commitment to send the monitoring trustee any new version of its technical
offers and access pricing.
Commitments relating to the agreement entered into by the Group with Bouygues Telecom
The Group has made the commitment for the term of this agreement to:

maintain the existing arrangements for measuring network traffic for its own subscribers and
for those of Bouygues Telecom, and to share the results with Bouygues Telecom;

allocate, as it would do for its own requirements, sufficient maintenance personnel in charge
of connections and fault repair; and

assign maintenance quotas in the same way between maintenance for its own subscribers and
for Bouygues Telecom subscribers.
In general, under this agreement the Group has undertaken to provide Bouygues Telecom with the
same conditions and guarantees in terms of service quality as those envisaged in Access Offer 2.
Commitment related to the migration of customers of wholesale operator customers
In its Commitments for access to its cable network, the Group has made the commitment not to use
contractual clauses or engage in behavior that could prevent or impede the migration of subscribers of
telecommunications operators from the networks of the new entity to other networks via wholesale
offers; this obligation could require it to waive contractual clauses predating the Commitments and
potentially preventing this type of migration.
Commitments related to the distribution of internet access
61
The Group has made the commitment not to extend distribution agreements with La Poste to offers
distributed on the cable network, beyond their scope as of the date of this Commitment.
Testing the Commitment for the absence of margin squeeze and non-discriminatory treatment
In its Commitments related to access to its cable network, the Group has made the commitment to
identify the cost items used to apply the margin squeeze test and allow the monitoring trustee to check
that these cost items are relevant for the test and clearly identifiable in its accounting records.
In the context of the DSL-enabled wholesale offer and B2B LAN-to-LAN offer, the Group has made
the commitment to identify, within three months of the date of notification of the decision, the
relevant items in order to verify the objective, transparent and non-discriminatory nature of its
wholesale offers. The Group will allow the monitoring trustee to check that these items are relevant
for the performance of the test and clearly identifiable in its accounting records.
The Group will identify and retain such data for the entire duration of the Commitments. Furthermore,
it will send the data to the monitoring trustee and French Competition Authority, at their request, in
the event of litigation or dispute relating to a margin squeeze or alleged discriminatory treatment, or at
the request of the French Competition Authority in the context of monitoring the implementation of
the Commitments.
Commitment concerning the ARCEP dispute settlement procedure
In view of the competence of the French Regulatory Authority on Electronic Communications and
Postal Services (ARCEP) to rule on any disputes in relation to Commitments that concern access
offers, the DSL-enabled wholesale offer, DFS or the B2B LAN-to-LAN offer, in the cases referred to
in Article L. 36-8 I of the French Postal and Electronic Communications Code, the Group has
undertaken to implement this procedure in the event of an ongoing dispute.
Commitments regarding the relations between Numericable Group and Vivendi
The Group and Vivendi have made several commitments to prevent Vivendi from having access to
the Group’s strategic information owing to its presence on the Board of Directors and other
committees of the Company (see Section 14 “Administrative, management and supervisory bodies
and executive management” of this Registration Document). Consequently, the restrictions on the
Company’s Board of Directors, as part of the Competition Authority’s approval to acquire SFR,
aimed at preventing sensitive information reaching Vivendi, will be lifted once the directors appointed
on Vivendi’s recommendation have resigned.
Numericable has made the commitment not to disclose to Vivendi any commercial strategic
information concerning the markets in which these two groups currently or could potentially compete
during the lifetime of the commitments.
This confidentiality obligation specifically applies to information relating to (i) intermediate pay
television markets (assignment of channels to telecoms operators by broadcasters to create bundled
channels), (ii) markets downstream of the distribution of pay television services, and (iii) overseas
telecommunications markets. It will be monitored by a trusted third party who will attend meetings of
the Group’s boards of directors and audit committees to ensure that no sensitive information is
disclosed.
5.2
5.2.1
INVESTMENTS
Historical investments
On a pro forma basis, Group capital expenditure totaled €1,781 million in 2014 and €1,930 million in
2013. Almost €1 billion was spent in 2014 on upgrading and deploying 4G and fiber networks; this
represents more than half of the capital expenditure of SFR and Numericable before their merger.
62
Net capital expenditures are capital expenditures net of proceeds from the disposal of property, plant
and equipment and intangible assets and investment subsidies received.
Numericable Group
For the year ended December 31, 2014, Numericable Group incurred net capital expenditures of
€340.0 million, compared with €319.8 million for the year ended December 31, 2013.
The following table shows the capital expenditures of Numericable Group by type: (i) “maintenance”
capital expenditures, for maintaining the network (i.e., capital expenditures required regardless of the
commercial activity in order to provide existing customers with the same quality and service, e.g.
information systems, electrical systems, cooling systems), (ii) capital expenditures for connecting new
customers (customer equipment e.g. set-top boxes, connection costs, etc.), and (iii) capital
expenditures for upgrading and updating the network (including the transition to EuroDocsis 3.0), for
2013 and 2014.
(in € millions)
Maintenance capital
expenditures
New customer capital
expenditures
126
125.4
2014
2013
136
152.4
Network upgrade
capital
expenditures
78
42.1
The Group’s ability to provide new HD digital and on-demand TV services, faster broadband and
telephony services for new subscribers depends in part on its ability to improve its network. From
2013 to 2014, the Group deployed its optical fiber on a substantial part of its network and upgraded a
portion of this based on EuroDocsis 3.0 technology, incurring significant capital expenditures as a
result.
SFR Group
SFR Group capital expenditures totaled €1,665 million and €1,454 million for the years ended
December 31, 2013 and 2014, respectively. The following table provides a breakdown of the
operational expenditure of SFR Group between the acquisition of property, plant and equipment and
intangible assets for the years ended December 31, 2013 and 2014:
(in millions)
Acquisition of intangible assets – licenses
Acquisition of intangible assets – other
Acquisition of property, plant and equipment
Acquisitions of intangible assets and property,
plant and equipment
For the fiscal year ended December 31
2013
2014
586
535
1,079
918
1,665
1,454
SFR Group has invested in its mobile network to continue the rollout of 3G. At December 31, 2014,
the Group’s GSM/GPRS (2G) and UMTS/HSPA (3G/3G+) networks covered more than 99% of the
French population. The Group has continued to increase its network capacity to keep pace with the
latest developments in mobile broadband, 3G+ and 4G data traffic having increased by 95% in 2014.
Apart from faster speeds, the Group has continued to invest in improving the density of its 3G+
network, offering 3G+ in the 900 MHz band in dense areas. This technology improves the quality of
voice and mobile internet services. To ensure better mobile broadband coverage, the Group has also
invested in the extension of Dual Carrier technology (the latest version of 3G, with twice the
download speed), covering 75% of the population as of December 31, 2014.
In addition, the Group has invested to accelerate the rollout of 4G. At the end of 2014, the
acceleration of the 4G rollout enabled the Group to extend 4G coverage to over 2,000 towns and
cities. The rollout of 4G in the 800 MHz band (the “golden frequency”) provides more effective
63
coverage with better service, particularly inside buildings. In parallel, the rollout of 4G in the 2,600
MHz band in dense areas offers mobile internet customers download speeds of up to 115 Mbps. The
Group has also started to roll out LTE-Advanced (4G+) technology, the next generation of the 4G
standard, which is even faster than 4G. The cities of Toulouse and Toulon were upgraded to 4G+ in
late 2014.
See Section 10.5 “Liquidity and capital resources of the combined SFR Group” for more details of
SFR Group investment.
5.2.2
Current and future investments
The Group is continuing to invest in the deployment of optical fiber in France, with the aim of
building on its technology lead and reaching its target of 12 million homes connected to the fiber
network by 2017 and 15 million by 2020. The Group is also continuing to invest in its 3G network
and roll out its 4G network, with the aim of reducing or eliminating the coverage gap with its main
competitors by the end of 2014 (50%, 74% and 71% population coverage for the Group, Orange
(Orange 2014 Registration Document) and Bouygues Telecom (Bouygues Telecom 2014 Registration
Document), respectively).
64
6.
BUSINESS OVERVIEW
This section discusses the business segment, market and operations of the Group. The technical terms
and acronyms are defined and explained in Appendix I “Glossary” of this Registration Document.
The Groups estimates in Section 6 “Business overview” of this Registration Document are based on
ARCEP’s public data and on the operational reports of the various telecommunications operators,
except where otherwise indicated.
6.1
GENERAL PRESENTATION
Created as a result of the merger of Numericable Group and SFR, Numericable-SFR Group aims to
become, on the back of the largest fiber optic network and a leading mobile network, the national
leader in France in the convergence of very-high-speed fixed-line/mobile. A global player and leading
alternative operator in France, the Group has major positions in all segments of the French
telecommunications B2C, B2B, local authorities and wholesale markets. Strengthened by the
complementary nature of its brands, the Group offers a full range of Internet access, fixed-line and
mobile telephony and audiovisual services. As of December 31, 2014, the Group had nearly 23
million mobile customers and 6.6 million households with High-Speed subscriptions. In the B2C
segment, the Group operates under the Numericable, SFR, Red and Virgin Mobile brands. In the B2B
segment, it operates under the SFR Business Team, Completel and Telindus brands, serving more
than 190,000 companies. The owner of its infrastructures, the Group combines two powerful networks
and, thanks to its investments, aims to quickly expand Very-High-Speed fiber coverage and 4G to as
many territories as possible, and to offer an optimal quality of service. The Group combines the
national interurban fiber infrastructure of SFR, which includes nearly 50,000 kilometers of optical
fiber lines, and more than 160 MANs, as well as 80 MANs of Numericable Group, which thus
constitutes a dense and complete fiber infrastructure in France. Following the consolidation of SFR
and Virgin Mobile that is underway, the Group will benefit from network and operational synergies,
as well as other synergies which should allow it to reallocate investment expenses in order to
accelerate its investments in rolling out the fiber network, and thus to support innovation in terms of
products and services, to better respond to the growing demand for very-high-speed and next
generation services.
The Group recorded consolidated revenues of €2,170 billion and adjusted EBITDA of €706 million
for the year ended December 31, 2014, pro forma revenues of €11.4 billion for the year ended
December 31, 2014, and pro forma adjusted EBITDA of €3.1 billion for the same period (see Note 38
to the Group’s consolidated financial statements for 2014 which appears in Section 20.1.1
“Consolidated financial statements of the Group” in this Registration Document).
B2C fixed-line market. The Group was the leading player in the roll-out of fiber optics in France, with
a network that serves more than 6.4 million households with fiber optics (100Mbit/s and more) as of
late 2014, compared to 5.6 million in late 2013 (pro forma), or 800,000 additional connections.
In late 2014, the Group’s fixed-line subscriber base was 6,577,000. The very-high-speed subscriber
base (30Mbit/s or more) grew 4.5% (pro forma), reaching 1,547,000 customers. The ADSL subscriber
base slightly decreased by 1.4%, reaching 5,030,000 customers in late 2014. The decrease in the
ADSL base will continue in 2015, benefiting new subscriptions of these customers to the Group’s
Very-High-Speed network. The Group’s objective is to have 12 million households connected by
fiber by 2017 and 15 million householders connected by 2020. The Group considers itself to be
ideally placed to allow the DSL subscribers to benefit from a cable offer, and moreover at a natural
churn rate, to draw new customers and reallocate the investment expenses forecast by SFR in order to
accelerate the roll-out of the fiber network. Following the acquisition of SFR, the Group provides
bundled offers, including pay-TV products, access to high speed Internet, fixed telephony and mobile
services.
65
B2C mobile telephony market. The Group is the second leading operator of mobile telephony in
France by number of subscribers, with 16.2 million B2C customers as of December 31, 2014, down
4.7% (pro forma) in a highly competitive market. SFR’s solid market position in the mobile telephony
segment allows the Group to be one of the primary convergent operators in France with an attractive
“quadruple play” offer, which is based on innovation and supported by competitive fixed and mobile
networks, in order to meet the increased demand for high-speed connections and bandwidth. The
Group also considers the SFR brand, which has been present in France for more than 25 years, to be
known for the reliability of its network and for the quality of its customer service. SFR adapts to the
changing telecommunications landscape in France, which in 2012 gained a fourth player, following
the simplification of its commercial model and its customer offers. As of December 31, 2014, the SFR
network covered 50% of the population of metropolitan France with 4G, and more than 99% with 3G.
B2B Market. In the B2B segment, the combination of the Completel and SFR Business Team brands
has formed the most important alternative operator in France vis-a-vis the incumbent operator. The
Group benefits from solid relations with its large corporate customers and with entities of the public
sector, and has the ability to respond to the growing demand of SMEs for increasingly sophisticated
voice and data services. The Group offers data services, including IP VPN services (virtual private
network on IP), LAN to LAN (local network), Internet, security services, hosting and “cloud
computing,” mobile telephony services and voice services, in particular voice call services, VoIP and
Centrex. The Group benefits from an important combined fiber and DSL network in France, with a
market share of approximately 20% as of December 31, 2014 in the B2B segment (according to the
Group’s internal estimates).
Wholesale market. In the wholesale segment, the Group is the main national alternative player,
offering wholesale connectivity services for fixed-line and mobile voice calls, wholesale connectivity
services for data, wholesale fiber infrastructure services as well as white label triple play DSL and
Very-High-Speed offers. The Group offers a broad portfolio of products with a significant base of
national and international operators. It is the main alternative operator which competes with the
incumbent operator, addressing the full wholesale market spectrum and providing services to local,
national and virtual operators, as well as to international operators in France.
6.2
PRESENTATION OF THE SECTOR AND MARKET
The French telecommunications market had revenues of approximately €36.8 billion in 2014 (Source:
ARCEP). While the Group takes part in all telecommunications market segments, its activity is
centered around those that are the most attractive: Fixed-line very-high-speed Internet, pay-TV and
next-generation B2B services (advanced data services, IP VPN, hosting and cloud services). France is
one of the largest European markets in terms of access to fixed-line high-speed Internet, with nearly
25.97 million fixed-line high-speed subscriptions as of December 31, 2014 (Source: ARCEP). Having
a broader bandwidth is becoming increasingly important for B2C subscribers. There were 11.9%
very-high-speed lines as of December 31, 2014 in France (source: ARCEP), which is nevertheless a
low level as compared with other European countries.
Access to very-high-speed Internet continues to rapidly increase: as of December 31, 2014, 4,064,000
households were eligible for very-high-speed optical fiber to the home (FttH), which corresponds to a
12% increase in one quarter and a 37% increase over one year. (Source: ARCEP). On the mobile
market, the total number of SIM cards continues to increase, from 73.1 million cards as of December
31, 2012, to 76.8 million subscribers as of December 31, 2013, to 79.9 cards as of December 31, 2014
(Source: ARCEP), which has been sustained by the dynamic market in France: an increase in the rate
of penetration of mobile phones, smartphones and tablets and the growth of quadruple play offers.
Nevertheless, the value of the French mobile market declined after the fourth mobile telephony
operator entered the market in early 2012, having as a consequence, among other things, a drop in the
pricing of mobile offers in France. As of the date of this Registration Document, the prices for mobile
subscriptions in France had reached levels that were among the lowest in Europe for comparable
offers. In the B2C and B2B segments, data usage has increased and data needs have become more
complex, as the next-generation services sought require higher speeds and bandwidth capacity.
66
6.2.1
B2C market
The Group is present in metropolitan France and thus handles a population of approximately 66
million residents (Source: INSEE).
The French B2C Internet access segment is a mature one, with 26.0 million households having highspeed Internet access as of December 31, 2014 (Source: ARCEP).
In terms of very-high-speed Internet access, which the ARCEP defines as Internet access for which
the peak download speed is greater or equal to 30 Mbps, the French market nevertheless presents a
relatively low rate of penetration, with only 11.9% of households having very-high-speed Internet
access as of December 31, 2014 (Source: ARCEP). The Group estimates that such under-penetration
could constitute an attractive opportunity for growth, as B2C subscribers are beginning to favor higher
speed and bandwidth capacity for their Internet use.
The French high-speed Internet access market is one of the most competitive in Europe, with
significant unbundling and strong incumbent competitors. The Orange fixed-line network includes a
local loop serving the entire French population, and the unbundling allows other DSL access
providers to access it at a price that is regulated by ARCEP. According to ARCEP, as of December
31, 2014, 91.4% of the French population was able to access competitive retail offers thanks to
unbundling, which makes France one of the European leaders in that area (Source: ARCEP). All
operators reputed to exert significant influence are required to offer unbundled access to their local
loop and associated infrastructure under non-discriminatory conditions, which leads to increased
competition on the market. See Section 6.12.1.1 “The European regulatory framework of electronic
communication” of this Registration Document.
The competition on the B2C market has intensified recently, as the president of Bouygues Telecom
announced in December 2013 his intention to launch a price war on fixed-line Internet offers in 2014,
following Free’s ads for its 4G offers and the results of its competitors. Bouygues Telecom introduced
a triple play offer at €19.99 per month in February 2014, and in July 2014 launched a FTTH offer at
€25.99 including tax per month, with no commitment in terms of duration. In March 2015, Iliad
announced the release of a new triple play box under Android TV™, the mini 4K, at the price of
€29.99 per month, with no commitment in terms of duration.
As of December 31, 2014, Orange, Free (Iliad) and Bouygues Telecom reported a volume of
customers with broadband services of 10.4 million, 5.9 million and 2.4 million, respectively (Source:
announced in those companies’ 2014 annual earnings releases).
The French B2C mobile telephony market is a mature market, even though it has experienced
significant changes in recent years, with the entry of a fourth mobile telephony operator in January
2012. The penetration rate of mobile telephony in France has consistently increased, from a
penetration rate (including MtoM SIM cards (cards for communicating devices) for the entire
population of approximately 105% as of December 31, 2011, 112% as of December 31, 2012, 117%
as of December 31, 2013, and 121.5% as of December 31, 2014 (Source: ARCEP).
6.2.1.1
Sector convergence
The convergence of the B2C segment in France is the result of consumers’ desire to receive
multimedia and telecommunications services from a single operator and at an attractive price. In
response, operators offer television, high-speed Internet and fixed-line telephony services, which are
grouped into bundled offers known as “double play” (two services provided together), “triple play”
(three services – telephone, Internet, television – provided together) or "quadruple play" (telephone,
Internet,
television
and
mobile
telephony
provided
together).
Quadruple play” offers have been available on the French market since 2009 (Bouygues Telecom).
SFR and Orange introduced “quadruple play” offers in 2010, Numericable followed in 2011 and Free
did the same in 2012.
67
The Group estimates that bundled service offerings allow multimedia and telecommunications service
providers to satisfy the communication and entertainment needs of consumers, and draw new
customers thanks to the improved value of the offers.
The fiber optic/two-way cable networks are particularly adept at supplying triple play services which
require wide bandwidth. Initially designed to transmit significant amounts of data, the hybrid fiber
and coaxial cable network of the Group, which is based on FTTB technology, allows it to provide
high speeds to the customer, regardless of distance. Conversely, the actual speed of the DSL networks
varies according to the distance from the access point to the local loop, since the speed decreases as
the geographic distance from the customer compared to this access point increases (the maximum
speeds noted are for customers located within one kilometer of the nearest access point). In order to
increase and align network speeds, Orange began to invest in the construction of an FTTH network.
Iliad and SFR also began to roll out FTTH networks. As of December 31, 2014, approximately
935,000 subscribers were connected to the FTTH networks (Source: ARCEP).
6.2.1.2
High-speed Internet
a) Introduction
High-speed Internet access, often referred to simply “high-speed Internet,” is a high-speed data
Internet connection. Recommendation I.113 of the Standardization Sector of the International
Telecommunication Union (ITU) defines “high-speed internet” or “broadband” as a transmission
capacity that is higher than the primary speed of the ISDN, which is approximately 1.5 to 2 Mbps.
France, with 26.0 million high-speed internet subscribers as of December 31, 2014 (Source: ARCEP),
is one of the largest high-speed Internet access markets in Europe. However, in terms of very-highspeed Internet access, the French market has a relatively low penetration rate, with just 11.9% of
households having very-high-speed Internet access as of December 31, 2014 (Source: ARCEP). The
Group estimates that such under-penetration constitutes an attractive growth opportunity for the
Group as a reliable very-high-speed Internet access provider. Smartphones and tablets are
proliferating, and as they are increasingly used for multimedia functions, B2C subscriptions require
both more bandwidth (to adapt to the increased average number of screens per household) and quicker
download speeds (to adapt to the use of multimedia services).
The main high-speed Internet access technologies are DSL (VDSL2) and fiber optics/cable. Digital
analog modems, Internet access via electric cable and local wireless loop technology are likewise
available in France, although to a lesser extent. The high-speed market penetration rates seems to be
rising faster.
b) Main distribution platforms - DSL, VDSL2, fiber optics and cable
DSL is the first high-speed Internet access platform in France, with 22.4 million subscribers as of
December 31, 2014, and representing approximately 86.2% of the total French high-speed and veryhigh-speed market (Source: ARCEP). This situation is the result of several factors: the regulatory
environment which encouraged competition for DSL thanks to unbundling and regulated wholesale
prices; the relatively recent consolidation of cable activity in France and the weak cable connection
level (only 35% of French households); the fact that the modernization of cable networks is relatively
recent; and the relatively low levels of roll-out of fiber optics.
DSL currently offers consumers a maximum speed of 28 Mbps, while cable currently offers
consumers a maximum speed of 200 Mbps. As the speeds of these technologies are an average, they
can nevertheless be lower in practice. In practice, the DSL speeds depend on the distances between
the access point to the local loop and the home.
The Group’s network uses both FTTH technology and FTTB technology. FTTH technology, which
requires a fiber link directly to the subscriber, currently offers consumers a maximum speed of 1
Gbps. The major difference between the FTTH networks and the fiber/cable network (FTTB) lies in
68
the fact that for FTTB, the vertical connection (within the building) to the subscriber uses a coaxial
cable.
The roll-out of FTTH networks in France began slowly. Installation of this type of technology
represents an investment of capital and time, and requires civil engineering and cabling work, be it
horizontally to increase the number of residents covered, or vertically within buildings. The
government considers the FTTH networks to constitute a significant part of its long-term investment
plan and in February 2013 announced an FTTH roll-out program (for which cable technology is not
eligible) of €20 billion (invested by private operators and local and regional authorities) and the
objective of providing very-high-speed Internet access to 50% of the population by 2017, and to the
entire country by 2022. The government will provide a €3.3 billion subsidy package, a portion of
which comes from the Investments for the Future Program (Programme des Investissements d’Avenir)
which is managed by France’s General Commissariat for Investments and governed by the 2015
Budget Act. Various local and regional authorities have already extended subsidies to network
operators to install FTTH connections. This trend should continue, as certain departments,
municipalities and regions, such as Hauts-de-Seine, Amiens and Louvin, for example, have entered
into public-private partnerships to encourage such investments. At end-December 2014, France had a
total of 935,000 very-high-speed Internet subscribers via FTTH, a 67% increase in one year. The
Group signed agreements with Orange, as did Free, relating to the roll-out of fiber optics in less dense
zones of France. In accordance with the conditions established by ARCEP, third-party operators may
likewise have access to the infrastructure used by an operator, including by co-financing projects, for
their own very-high-speed Internet offers.
VDSL2 technology is an alternative solution. DSL networks may be improved, and a portion of them
have already been improved, thanks to the VDSL2 technology, which the government authorized for
use in April 2013, and which provides average bandwidth speeds of up to 50 Mbps (Source: ARCEP).
More particularly, the roll-out of VDSL2 only requires the addition of VDSL2 cards in the DSLAMs
that were already rolled out and does not entail any physical intervention at the subscriber’s home.
Moreover, the deployment of this technology has accelerated since October 2014 given the favorable
opinion of the copper experts committee that has allowed the marketing, starting from that date, of
VDSL2 in indirect distribution on all lines from an MDF on Orange’s local copper loop. As of
December 31, 2014, approximately 4.9 million households were eligible for VDSL2 (source: ARCEP
High- and very-high-speed observatory wholesale market, March 5, 2015).
As of December 31, 2014, very-high-speed subscribers represented approximately 11.9% of all highspeed Internet subscribers (Source: ARCEP), but Numericable Group was the top player on this
market. The Group currently offers cable customers Internet speeds which can reach 200 Mbps, and
its modernized network and set-top boxes are able to offer speeds going up to 400 Mbps, which has
led to additional investment expenses for the Group.
The following table shows the distribution between high-speed Internet services in France, between
December 31, 2013 and December 31, 2014 (Source: ARCEP):
69
in millions
Number of high-speed and very-high-speed subscriptions on fixed-line
networks
Number of high-speed subscriptions
of which are xDSL subscriptions
of which are other high-speed subscriptions
Number of very-high-speed subscriptions
of which end-to-end fiber optics subscriptions
of which very-high-speed ≥ 100Mbits/s subscriptions
of which other very-high-speed ≥ 30 and <100Mbits/s* subscriptions
*including subscriptions in VDSL2 for which speed is >=30 Mbits/s
Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014**
Changes in the total number of high and very-high-speed subscriptions
Net increase over one year, in millions
Net increase over one year, in %
Net increase over the quarter, in millions
Gross increase over the quarter, in millions ***
** Provisional results
Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014**
0.958
0.980
1.009
1.004
1.025
4.0%
4.0%
4.1%
4.1%
4.0%
0.284
0.285
0.181
0.255
0.305
1.250
1.250
1.075
1.350
1.300
24.943
22.876
22.461
0.416
2.066
0.559
0.764
0.743
25.228
23.009
22.585
0.424
2.219
0.640
0.804
0.775
25.408
23.054
22.630
0.424
2.354
0.720
0.821
0.812
25.663
23.166
22.723
0.443
2.497
0.801
0.851
0.845
25.970
22.875
22.395
0.480
3.095
0.935
0.885
1.275
***Data rounded to 12,500 – approximate
As of December 31, 2014, the Group had 6.6 million Internet subscribers, including 5.0 million DSL
subscribers, and 1.5 million FTTB and FTTH subscribers.
The Group is likewise in competition with operators who use alternate technologies for high-speed
Internet access, such as mobile 3G and 4G Internet. As of December 31, 2014, there were a total of
79.9 million SIM cards on the French market (including 76.8 million “active” cards) and, as of
December 31, 2014, 42.2 million active mobile 3G subscribers (Source: ARCEP). The Group, along
with Orange, Bouygues Telecom and Free, also rolled out offers based on 4G/Long-Term Evolution
(“LTE”), which allow quicker high-speed mobile Internet service to be provided. In October 2011,
Orange, SFR, Bouygues Telecom and Free obtained licenses for the spectrum range of 2.6 GHz,
adapted to the roll-out of the 4G/LTE networks. The Group, Orange and Bouygues Telecom have
already announced they have reached one million 4G subscribers each. Free’s 4G offer launched in
December 2013.
Moreover, alternative Internet access technologies could be introduced in the future. These
technologies should further increase competition, or could lead operators to increase their investment
costs to make additional upgrades. Competition in these alternative technologies, specifically in terms
of pricing, could become more intense in the future.
6.2.1.3
Pay-TV
a) Introduction
The French television market is one of the largest in Europe. As with other European markets, the
behavior of B2C consumers of television services in France is increasingly centered on digital,
innovative, HD, Ultra-HD, and 3DTV television services, as well as interactive television services
such as VOD, which require large bandwidth, along with bi-directional distribution platforms.
b) Broadcast platforms
In France, television signal broadcasting platforms include satellite, IP (DSL/FTTH), the cable
network of Numericable Group, terrestrial systems (DTT) and OTT. TV viewers who have the
appropriate television equipment may receive signals and watch programs on approximately 25
television channels free of charge (with no subscription) through DTT. In order to have access to
more channels or content, TV viewers must subscribe to pay-TV services. The pay-TV market in
France is divided between standard pay-TV in the form of packages of standard channels, in other
words DTT channels, as well as low added-value channels, and premium pay-TV in the form of
premium channel offers, which are specialized in sports, cinema and other thematic channels. The
incumbent operators of pay-TV must confront growing competition in free television (including DTT)
70
and other alternatives to pay-TV (“over-the-top” or OTT and catch-up TV), although the competitive
advantage of pay-TV (excellent quality programming and premium services) and the loyalty of the
existing subscriber base have contributed to its sustainability (low price sensitivity and weak churn).
The growth of IPTV has transformed the market, offering the possibility of providing pay-TV services
that go beyond the traditional cable and satellite methods (which is limited by the impossibility of
installing a satellite dish on the facade of buildings in certain areas, such as the center of Paris).
Even though pay-DTT (which now concerns only the Canal+ Group) currently represents a low share
of pay-TV, providers of pay-DTT could in the future be able to offer a larger selection of channels to
a broader audience at a price that is lower than the one billed by the Group for its cable television
services.
The Canal+ Group distributes its offers on all broadcasting platforms: DSL, DTT, satellite and the
cable network of the Group (in the latter case, only for channels that belong to Canal+, called Les
Chaînes Canal+, excluding Canal Sat). The Canal+ Group has two additional offers: a premium offer
consisting of Les Chaînes Canal+ and a multi-channel package known as CanalSat. These two
supplementary offers may be subscribed to individually or together. The Canal+ Group has developed
numerous services with high added value to its offerings, such as CanalPlay (TV on-demand not
available by satellite but available on the Group’s cable network), HD or even multi-screen
broadcasting. As of December 31, 2014, the Canal+ Group had 9.5 million subscribers, and 6.1
million individual subscribers in France (Source: 2014 Vivendi income statement). The Canal +
Group has negotiated agreements with broadcasters on the broadcasting platforms to which they hold
rights. As NC Numericable has not yet granted rights to Canal + Group for its platform, Canal +, it
cannot negotiate rights over that platform. NC Numericable is thus negotiating its own agreements
with the broadcasters.
With regard to Canal+ Group, the Group’s cable pay-TV offers are above all in competition with the
CanalSat offers, as the content of their offers is similar (the content of the Canal+ channels is
exclusive to the Canal+ Group). There are several CanalSat offers. CanalSat Panorama
(approximately 90 channels, €24.90 per month) and CanalSat Grand Panorama (the panorama
channels + the Cinema Series channels, €39.90 per month). There is also the Grand CanalSat offer,
which includes CanalSat Panorama, CanalSat Cinema Series and other options and channels (€58.90
per month; €64.90 per month with adult channels). The Foot+ and beIn Sport channels are not
included but may, along with other channels, be added as an option.
(i)
Cable
The Group is the only major cable operator in France. There are also small regional cable operators
who, together, represent less than 1% of French cable networks, based on the total number of homes
passed. The income from cable network operators primarily comes from subscription costs paid by
customers for services provided. The Group estimates that direct access to its customers will allow it
to identify and respond locally to their demand for specific products and services more easily, and
thus to better serve them. The services provided by the cable networks feature easy-to-use technology,
installation that is adapted to equipment at customers’ homes, and reliable secure signals which are
directly broadcast to their homes. Cable television subscribers can access the customer services
provided by the cable operator upon request. Cable also offers subscribers a high quality of service,
including excellent image quality, multiple HD channels, 3D compatibility and VOD offers.
With the market trending towards group offers for multimedia and telecommunications services, the
market share in cable television should benefit from the capacity of cable to provide triple play
services that benefit from a broad bandwidth, quick speed and bi-directional capacity.
The cable network, however, is limited and covers only approximately 35% of homes in France.
(ii)
Satellite
71
Satellite holds an important place on the French television market, in particular for premium products.
Satellite subscribers may opt for free satellite television or pay satellite television. Satellite operators
broadcast digital signals directly to television viewers at the national level. To receive the satellite
signal, TV viewers must have a satellite dish, satellite receiver and a TV set-top box. They must also
have a “smart card” to access subscription and premium television services that are broadcast by
satellite. Satellite operators of free TV have no contractual relationship with television viewers and
thus do not collect any subscription fees or other royalties.
Satellite broadcasting presents a certain number of competitive advantages compared to cable
television services, in particular a wider range of available programs on a larger geographic zone, in
particular in rural areas. Conversely, the Group estimates that satellites are less widely available in
urban areas due to restrictions on the installation of satellite dishes. The Group considers that satellites
also present the following disadvantages compared to cable: (i) high initial costs of obtaining and
installing a dish; (ii) lack of regular maintenance services which, conversely, are provided by cable
operators; and (iii) the vulnerable nature of the reception of satellite signals to external interference,
such as unfavorable weather conditions.
(iii)
DSL/VDSL2
Triple and quadruple play offers from the Group are primarily in competition with DSL offers from
Orange, Free and Bouygues, which are currently offering television services to customers connected
to the Group’s network by using high-speed DSL Internet connections, and with CanalSat, which
offers premium pay-TV on DSL and satellite networks. Even though DSL technology covers a
potentially larger customer base (covering, for Orange, its local loop, and for the others, the part of
Orange’s local exchange which was unbundled), the Group estimates that the superiority of its fiber
optic/cable technology in terms of quality, reliability and richness of content will allow it to challenge
this statement in the years to come in the areas where the Group has rolled out its fiber optic/cable
network. See Section 6.6 “Group network” of this Registration Document. The Group estimates that
DSL television presents a disadvantage as compared to cable: the addition of television services on a
DSL network has the effect of saturating the network and decreasing the available bandwidth for the
other services offered, in particular high-speed Internet services which require broad bandwidth.
However, the roll-out of VDSL2 could attenuate the effects of this disadvantage.
(iv)
Pay digital terrestrial television
The Group’s cable television services are likewise in competition with the pay-digital terrestrial
television (DTT) operators, such as the Canal+ Group. DTT currently offers only a limited number of
channels, and no interactive television service, providing above all free television, although the
quality of the image provided is good.
(v)
OTT and other emerging technologies
The Group is faced with growing competition for alternative methods for broadcasting television
services other than through traditional cable networks. For example, online content aggregators which
broadcast “over-the-top” (“OTT”) programs on a high-speed network, such as Amazon, Apple,
Google and Netflix, have already become competitors and are expected to grow stronger in the future.
Connected or “smart” TVs facilitate the use of these services.
OTT refers to high speed broadcasting of video and audio content without the Internet access provider
being involved in the control or distribution of the program (its role is limited to transporting IP
packages), as opposed to the purchase of video or audio programs from an Internet access provider
such as VOD video services or IPTV. Outside France, OTT has had great success. The extent of the
competition these alternative technologies will exert on the Group’s cable television system in France
is not yet known. In particular, OTT in France is affected by the “media chronology” in France, which
forces subscription VOD services to comply with a minimum period of 36 months between when a
72
film comes out in France and when it becomes available in a subscription VOD catalog, although this
does not apply to series or films that are not shown in theaters.
Netflix launched offers in France on September 15, 2014, offering a one-month free trial and then flat
fees beginning at €7.99 per month for standard definition screens, and up to €11.99 per month for four
HD-quality screens. Bouygues Telecom and Orange have signed agreements with Netflix under which
their respective customers may directly access unlimited on-demand video service on their television
via a Netflix subscription as of November 2014 (source: Bouygues Telecom and Orange.fr website
release). The television offer with Google Play under the Group’s “SFR” brand also includes access to
Netflix.
The Canal+ Group is offering CanalPlay, which is similar to Netflix’s offer. CanalPlay is available for
€7.99 a month for a computer, tablet or smartphone, and for €9.99 a month for a television, tablet and
smartphone (on Free, Bouygues Telecom, Apple TV and Xbox 360), with a one-month free trial.
Apple TV is also a competitor, and allows content to be broadcast on the television, with access to
available content on iTunes and at other providers (CanalPlay, YouTube).
Google TV is also available, either directly on certain televisions, or with a set-top box, and offers ondemand content as well as access to applications such as YouTube. There are also other VOD service
providers, such as Jook and Filmo TV.
Other technology and/or content providers could have offers in the future in France. For example,
Amazon offers content in the United States but not yet in France.
The offers of these providers or of other providers of content and/or technologies could significantly
increase the pressure for competition on the French market, impacting the prices and structure of the
offers. Nevertheless, such technologies could contribute to increasing the demand for very-high-speed
Internet access services that are offered by the Group.
6.2.1.4
Telephony
a) Fixed-line telephony
Traditional switched voice lines have been on the decline for several years, being gradually replaced
by VoIP lines and mobile telephony. More generally, fixed-line telephony has become a basic
product, which is now generally grouped under multi-play offers. The fixed-line services have
consequently become dependent on a quality high-speed Internet offer. Flat rates for fixed-line
telephony have become the market standard.
The fixed B2C telephony market in France is also facing the pressure exerted by alternate operators,
with the decrease in the prices of mobile telephony and interconnection rates, as well as alternative
access technologies and other Internet telephony methods offered on high-speed Internet connections.
The Group is expecting competition to be increasingly intense in the future, in particular in terms of
pricing.
Fixed-line and mobile telephony traffic dropped approximately 11% in the first nine months of 2014,
as compared to the first nine months of 2013 (source: ARCEP).
b) Mobile telephony
France is one of the largest mobile telephony markets in Europe. At December 31, 2014, there was a
total of 79.9 million SIM cards in France, representing a 121.5% penetration rate in the French
population (Source: ARCEP), a figure that has consistently increased over the past few years. The
historically low mobile telephony penetration rate, combined with the drop in market prices, has led to
a significant increase in mobile telephony subscriptions. This growth has been primarily sustained by
the subscription contract segment, which increased by nearly 5.4% in volume in 2014, whereas the
73
prepaid contracts segment declined by 7.2% during the same period (Source: ARCEP). The increase
in the subscription contract segment and the decline in the prepaid contracts segment are primarily
due to customers’ desire to switch to post-paid. The income from mobile services on the retail market
nevertheless dropped between 2011 and 2013, going from €18.9 billion in 2011 to €15.1 billion in
2013 (excluding income from the market between operators and retail income from value-added
services) (source: ARCEP). The drop in this income that was noted during the 2012-2013 period is
primarily attributable to two effects:
(i)

drops in rate are primarily a consequence of the arrival of a fourth mobile network operator,
Free, in January 2012. This intensification in competition had the effect of making mobile
offer rates in France among the lowest in Europe at the date of this Registration Document.
This trend is particularly found on the retail market, but has repercussions for the business
and wholesale markets too;

call termination fees were divided by 2.5 between 2011 and 2013, and then became stable
(source: ARCEP – Major Files – call terminations). Nevertheless, in the future, the impact
that a potential decrease in these rates could have on the income of operators should be
limited, given the particularly low level achieved in France as compared to the rest of Europe
(€0.78 for a mobile voice call termination in the metropolitan area as of January 1, 2015 for
all operators – source: ARCEP – Major Files – call terminations; approximately €1.94 on
average for the rest of Europe as of June 30, 2014 – source: Body of European Regulators for
Electronic Communications BEREC). The drop in income drawn from roaming, which is
linked to the reduction in wholesale and retail fees for intra-Europe roaming, also had an
impact on the sector’s revenues. This drop should continue in the upcoming years, due to the
expected decreases in roaming fees, which simultaneously result from regulatory changes and
commercial offers from operators.
Market segmentation
Historically, there were only three mobile network operators in France: Orange, SFR and Bouygues
Telecom. Iliad was granted the fourth mobile license in 2009, and launched a mobile telephony
service in January 2012 under the brand name Free. Free’s entry disturbed the market, intensifying
competition due to its price-setting strategy, which introduced new reduced-price commercial offers
onto the market. Before Free’s entry, the majority of subscription contracts were based on limited
usage (e.g.: four hours of communications) and subsidized cell phones. Free primarily introduced
packages without cell phones, which contained limited outsourced services, but while providing
unlimited data and communications offers (3G) at a very low cost (€19.99/month for its key offer).
The mobile telephony market is currently very competitive in France, with the launch of new 4G
offers, a declared hostility between competitors (specifically after the launch by Free and B&You of
4G offers at the same price as 3G offers) and the development of low-cost brands.
Other competitors also introduced low-price brands, such as B&You (Bouygues Telecom) and Sosh
(Orange). SFR also adapted its strategy by launching its low-cost “SFR RED” brand. Free quickly
gained market share, having attained approximately 10 million mobile customers as of December 31,
2014, and a market share of approximately 15%, three years after its commercial launch (source: Iliad
press release).
The French mobile market is also characterized by an important share of subscription services, i.e.,
55.77 million as of December 31, 2014 (excluding French overseas territories and SIMs MtoM –
Source: ARCEP). This is primarily due to prepaid offers being replaced by low-priced post-paid
offers (e.g.: €2 per month) with a small number of communication hours (e.g.: two hours of
communication) and no Internet.
Over the past few years, MVNOs such as Virgin Mobile, NRJ Mobile, La Poste Mobile and
Numericable have also used mobile operator networks to sell mobile products that bear their own
brand names. The migration of customers to MVNOs seems to have stabilized, with MVNOs
74
representing a combined market share of 9.6% of the mobile market in France as of December 31,
2014 (Source: ARCEP).
As of December 31, 2014, Orange, Bouygues and Iliad (Free) reported a total of 27.1 million, 11.1
million and 10.1 million mobile customers, respectively (Source: the companies’ 2014 annual
earnings releases) even though the total number of customers of MVNOs on the market reached 7.4
million as of December 31, 2014 (Source: ARCEP).
(ii)
Price setting dynamics
In the past few years, the increased competition on the French mobile market has resulted in a drop in
market prices. Consequently, the average income per user went down nearly 30% between the end of
2011 and the end of 2014 (source: ARCEP), primarily due to the change in offers of certain
subscribers to the benefit of post-paid services. Following this drop, mobile prices in France are now
among the lowest in Europe. France currently has the lowest mobile prices for comparable offers
among the primary operators, including for low-cost products, including unlimited calls, unlimited
SMS/MMS Internet 1, 2 or 3 Go, with no subsidy, in each country (KPN, Vodafone in the
Netherlands, Orange and Play in Poland; Proximus 5GB offer, Base and Mobistar in Belgium;
Swisscom, Sunrise and Orange in Switzerland; Movistar, Orange and Vodafone in Spain; Tim and
Vodafone in Italy; T Mobile, Vodafone and O2 in Germany; O2, Vodafone and EE in the United
Kingdom); for France, the Red, Sosh, B&You and Free offers are €19.99. The mobile telephony
prices in France are particularly low with regard to the weak density of the population, which requires
significant investments to offer sufficient national geographic coverage.
(iii)
4G/LTE
The French market has historically been slower than other European markets in terms of mobile data
consumption. Despite the high concentration of post-paid subscriptions, the market has been
historically slower as concerns data services. Recently, this trend has changed, insofar as the operators
have begun to launch 4G offers at reduced prices.
Free was the first operator to introduce 4G at no additional cost in December 2013. Other operators on
the market aligned their prices for the 4G with those of Free, with all mobile network operators now
offering similar all-inclusive 4G packages at an opening price of €20 per month.
(iv)
Mobile call termination rates
Mobile call termination rates have been reduced by regulators across Europe. In France, ARCEP
announced in 2011 that it would reduce mobile call termination rates (symmetrically for the main
operators, which did not include Free because it had not yet launched its commercial operations). In
late June 2011, Orange and SFR billed €0.03 per minute while Bouygues billed €0.034. The new
regulations required operators to reduce the rate to €0.02 per minute as of July 1st, 2011, €0.015 as of
January 1st, 2012, €0.01 as of July 1st, 2012, €0.008 as of January 1st, 2013 and €0.0078 as of
January 1st, 2015. Consequently, France has one of the lowest mobile call termination rates in
Europe, with a limited margin for new rate reductions; in comparison, the average rate in Europe is
€0.0169 as of July 2014 (Source: Body of European Regulators for Electronic Communications).
(v)
Mobile spectrum and network coverage
Mobile communications are provided through the use of a set of frequencies which the regulator
allocates to the various operators. Currently, the four main operators benefit from a varied frequency
spectrum, ranging from 800 to 2,600 MHz, which allows all 2G, 3G and 4G technologies to be
offered.
75
Four main network operators were thus present on the mobile service market in metropolitan France
as of December 31, 2014, with the various virtual network operators (MVNOs) representing a market
share of 9.6% (source: ARCEP).
Generally speaking, the operating licenses for the spectrum in France are generally granted for a
period of twenty years, and the operators can only use the technology covered by the license on each
band of the spectrum. The other operators have very similar positions on the spectrum bands, which
allows them to effectively compete in all of the technologies. The most recent frequency bids in
France were the bid for 800 MHz in December 2011, and the bid for 2.6 GHz in September 2011.
(vi)
Technological developments
On mobile networks, in order to accompany the strong growth of mobile Internet, operators have
committed, in line with the evident desire of the public authorities, to the development of very-high
speed-mobile infrastructure, which will supplement the 3G coverage already used. In fall 2012,
certain operators opened their fourth-generation networks (4G) by using different frequencies (800
MHz, 2,600 MHz or 1,800 MHz). 4G allows much higher speeds and capacities to be offered (up to
theoretical download speeds of 100 Mbps) than those of the previous generation 3G+ (HSPA+:
theoretical download speeds of up to 42 Mbps).
6.2.2
Fixed-line B2B market
Following the liberalization of the French telecommunications market in 1996, a large number of
telecommunications operators penetrated the B2B segment, offering fixed telephony services, fixedline Internet access, data access links and, more recently, cloud computing services. The large
corporate customer B2B market is very competitive and includes among its main players Orange,
SFR, Bouygues, and Completel as well as international players. The market for other accounts is
dominated by Orange, which competes with local players.
The expectations of B2B customers differ from those of B2C subscribers, in particular as concerns the
need for reliable and symmetrical bandwidth speeds (in other words, high speed downloads and
uploads). B2B customers demand that services be extremely reliable, and that they be able to be
quickly reestablished in case of failures (generally subject to financial penalties). B2B customers also
require symmetrical bandwidth speeds, even though B2C subscribers are generally satisfied with
asymmetrical speeds which provide quicker download times but slower uploads. B2B customers also
demand increased security and are able to impose penalties (monetary or other) on operators if the
contractual conditions are not respected. These requirements have an impact on the technological
solutions offered to B2B customers, and explain the higher prices for the B2B segment.
The penetration of mobile Internet is increasing for the B2B market, specifically with more and more
smartphones with a flat rate plan including data. In terms of fixed connectivity, the B2B market is
now characterized by a growing penetration of fiber optics, which is linked to an increase in data
consumption.
Customers’ expectations are increasingly for convergent offers combining competitive services:
fixed-line telephony, which is increasingly converging with data via VoIP, mobile telephony and
Internet access (with an increasingly strong demand for very-high-speed access). These converging
offers are specifically intended for micro-businesses and SMEs seeking all-in-one solutions.
They participate in the development of unified communications services for businesses and are
characterized by the convergence of mobile and fixed-line telephony, and the development of
collaborative tools (professional messaging service, instant messaging, videoconferencing, sharing
tools).
Beyond business services, the operators with a presence on the B2B market offer adjacent and
supplementary services, including unified communications services and collaboration tools, as well as
76
call center services or Internet presence management, and managed security services, whether hosted
or not, which accompany Internet protocol (IP) communications services and remote work (including
online backup, firewall, management and protection of secure access terminals to resources located in
a business network).
In terms of connectivity, the market features a growing penetration of fiber optics, which is linked to
the increase in data consumption.
6.2.2.1
Voice
The B2B segment for voice call services is extremely sensitive to price trends; customers are well
informed and contracts are relatively short-term (one year). Being able to face the competition
efficiently depends in part on the density of the network, and certain competitors of the Group have a
broader and denser network.
In recent years, the B2B market has experienced a structural change marked by a move from
traditional switched voice services to VoIP services.
6.2.2.2
Data services
On the B2B segment, for data services, being able to transfer large amounts of data and to have access
to the newest technologies is extremely important to customers. On the data market, consumption has
significantly increased and, currently, customers are often looking for combined infrastructure and
software solutions.
Price pressure has been strong in this competitive market. Conversely, the use of data transmission
services has significantly increased. The Group is expecting the demand for data services and B2B
bandwidth to continue growing, specifically due to the following factors:

the convergence between voice call and data services, such as VoIP, which leads to greater
demand for solid network solutions;

an increase in the use of smartphones with a flat rate including data;

the centralization of IT equipment for businesses with operations at several sites, including
the combining servers at a single site, which increases the connectivity needs of peripheral
sites of these businesses;

the emergence of new professional applications, such as videoconferencing;

the demand of larger businesses for quicker access, growing virtualization, data centers and
improved security services;

the increase of digitalization in public administrations;

greater use by medium-size businesses of complex data services, such as cloud computing;
and

professionals’ increased use of internal wireless networks.
Customers are currently seeking to optimize and streamline their needs as much as possible through
the use of data centers. Large corporations have a tendency to seek out specialized network solutions
to control their chain of services end-to-end, and often have their own infrastructure. Other businesses
are more apt to act according to their needs:
77
(i)
with “infrastructure as a service” (or IaaS/cloud) solutions to meet their needs in terms of data
availability, storage and security. “Infrastructure as a service” can now offer these businesses
data storage and safety solutions which would otherwise be too costly; or
(ii)
a tailored and secure infrastructure up to the “middleware” (“software as a service”) level.
The Group is currently facing competition from software providers and other IT providers of data and
network solutions, and the line between them and the suppliers of data infrastructure and solutions
like the Group has become increasingly blurred. Partnerships between IT providers and infrastructure
providers are becoming more and more common, and are an additional source of competition.
Particular growth is expected in data hosting outsourcing services. The complexity and growing
management costs of IT systems are in effect pushing businesses to turn towards cloud solutions.
This refers to a set of resources and services that are provided remotely, and which are thus
accessible, for the user, in a flexible manner, on various terminals. Operators have already developed
partnerships on “independent” cloud projects on French territory (the Group with Bull and Caisse des
Dépôts et Consignations via Numergy, Orange and Thales via Cloudwatt, as well as Bouygues
Telecom with Microsoft). This so-called “independent” cloud is intended for administrations, but also
for private French businesses. It should allow sensitive information such as personal administrative
data, information linked to e-health or even financial information requiring maximum security, to be
stored.
The B2B market also includes the Internet of Things. The Internet of Things covers a set of connected
objects: in the broad sense, this includes communication terminals, but also inert objects, equipped,
for example, with RFID chips, and machines on which built-in electronic systems equipped with SIM
cards have been installed (MtoM). These connected objects and machines are being developed in a
certain number of adjacent markets for uses in specific sectors, such as home automation, health and
security, but also energy and transportation, which are at the heart of digital city projects.
Accordingly, in France, the number of MtoM SIM cards has gone from 3.4 million in late 2011 to 6.9
million in late 2013, to 8.2 million as of December 31, 2014 (source: ARCEP).
6.2.2.3
Customers
The B2B segment is also defined by the different needs of customers, which vary according to a
business’ size. The major businesses are sophisticated customers, and are very sensitive to price
trends. Speed, capacity, security and reliability are also very important. They have a tendency to
unbundle services, and frequently subject them to invitations to bid. The smallest businesses are more
likely to group them and ascribe more importance to the provider’s proximity.
6.2.3
Wholesale market
The wholesale telecommunications market includes three sectors: voice call connectivity wholesale
services (voice), data connectivity wholesale services and dark fiber infrastructure wholesale services.
The wholesale segment of voice services includes fixed-line and mobile call termination services, as
well as interconnection for operators whose switched voice network is underdeveloped or nonexistent.
The wholesale data services segment includes the transportation of data for operators whose network
is underdeveloped or nonexistent, as well as mobile network services for MVNO operators. The new
dark fiber optic infrastructure wholesale market, based on the sale of fiber optic connections, with no
service linked to voice or data, is being developed in parallel with the roll-out of FTTH and 4G, and
primarily involves horizontal optical fiber links and connection to the backbone. The Group’s major
competitor on the French wholesale communications market is Orange. The Group is likewise in
competition with conglomerates of telecommunication operators and construction businesses, such as
Covage, Vinci, Eiffage and Axiom (which can put optical fiber cables in their construction works in
order to them rent them on the wholesale market) as well as with public infrastructure networks
(“RIP”).
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In France, Orange holds a leading position on the wholesale telecommunications market and on the
wholesale data market, in which local operators play an important role.
-
Voice. The wholesale market for voice call services is extremely volatile. Operators generally
launch invitations to bid annually and choose the provider only according to availability and
prices, due to the lack of difference in terms of quality of services between operators in the
voice call services sector. Competition consequently primarily occurs for the prices and
density of the network, as well as based on the flexibility of operators and their capacity to
offer tailored solutions to their customers. On the wholesale voice segment, pricing is
generally based on the increased cost pricing model, with interconnection rates established by
ARCEP. The regulated interconnection rates have decreased as the telecommunications sector
has matured. See Section 6.12.1.1 “The European regulatory framework of electronic
communication” of this Registration Document. The wholesale voice market likewise
includes wholesale resales for MVNOs and mobile roaming:
o
Wholesale resales for MVNOs: The provision of end-to-end mobile services for
MVNOs is a major issue for operators, and the degree of competition for these
services has intensified in recent years. The MVNO wholesale market has evolved,
especially after the signing of the first “Full MVNO” contracts in 2011. The status of
“Full MVNO” allows virtual operators (for example, NRJ Mobile) to issue their own
SIM cards, to have access to the central database managing subscribers’ rights, as
well as to certain elements of the network backbone. This model offers MVNOs
greater control of services and increased commercial autonomy, but also entails
higher costs for them (roll-out, technical maintenance). Moreover, the MVNO
agreements have affected the flows of traffic and have led to an increase in the
volumes of fixed-line telephony traffic to mobile, which generates higher wholesale
prices. In particular, Free’s arrival onto the mobile market in January 2012 has led to
a significant increase in call volume from mobile to fixed lines, as well as intramobile.
o
Mobile roaming: In order to continue offering mobile communication services
outside of their country of origin, operators also negotiate roaming agreements. The
communication services within the European Union are subject to price caps on both
the retail and wholesale markets. In France, mobile roaming services exist between
national operators in so-called “white zone” geographical regions, in which a single
operator has rolled out a network and takes in the traffic of other network operators.
The roll-out of the mobile network as well as the welcome services related thereto are
supervised by ARCEP.
-
Data services. The wholesale market for data services is less volatile than the voice call
services market. Competition is primarily dependent, aside from price, on the quality of
services and technological advances.
-
Infrastructure. The wholesale market for dark fiber optic infrastructure is more open than the
voice connectivity and data wholesale markets, given that the provision of these services does
not require having a dense national network, and does not include any service that would
require technical expertise. For example, certain cities in France have constructed their own
local fiber optic networks and are consequently wholesale providers of infrastructure (i.e.,
they rent the optical fiber to telecommunications operators).
The growth of the wholesale market is a result of the growth in the demand for network capacity,
which has significantly increased in recent years.
Another French market trend consists of developing public-private partnerships between local
authorities and infrastructure operators to install or modernize FTTB networks, or roll-out vertical
FTTH/FTTO networks. The Group was already selected and hopes to be selected again in the future
79
as the entity in charge of constructing certain new networks, or improving the existing ones. See
Section 6.5.3.2.3 “Wholesale Infrastructure Services” of this Registration Document.
Operators and consortia of operators and construction businesses have also begun to roll out their
FTTH vertical fiber networks in residential buildings in order to rent the usage right from these
networks to other telecommunications operators in conformity with the so-called status of building
operators through public-private partnerships with local authorities, among other things. The Group
intervenes in this area thanks to the relationships it has built from its public services activity, since
this is one way of maintaining and building relationships with its customers.
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6.3
STRENGTHS AND COMPETITIVE ADVANTAGES OF THE GROUP
The Group believes that it has the following advantages:
6.3.1
Main alternate operator with a solid position in all segments of a very attractive
telecommunications market
With revenues of approximately €48 billion in 2013, France is the third-largest telecommunications
market in Europe (source: IDC, Screen Digest). Despite strong growth in volume, the French
telecommunications market has recently experienced a drop in value, essentially due to price
pressures in the mobile telephony market, following the arrival of a fourth player in 2012, and the
drop in regulated call termination rates. The Group has leading positions in the main segments of the
French telecommunications market, where it is thus the main competitor of the incumbent operator.
With pro-forma revenues of €11,436 million for the year ended December 31, 2014, the Group has
operations in the B2C, B2B and wholesale segments and is able to offer a full range of services to its
customers, including premium Internet access, mobile telephony and content products.
Fixed-line B2C market. France is one of the largest European markets for high and very-high-speed
Internet access, with approximately 26 million high- and very-high-speed fixed-line subscriptions as
of December 31, 2014 (source: ARCEP). The high and very-high-speed fixed-line market has
experienced strong growth in recent years, due to a growing penetration of households, which has led
to a 4% increase in volume in 2014 (source: ARCEP). The Group is the second largest operator in the
high- and very-high-speed fixed-line market, with 6.6 million fixed-line high-speed and very-highspeed customers, which together represent 25.4% of the total market for fixed-line high- and veryhigh-speed Internet access (source: Group’s estimates based on ARCEP data). For the year ended
December 31, 2013, France still had an insufficient penetration rate in the strongly growing high- to
very-high-speed segment, with just 10% of the total very-high-speed connections. The Group is now
one of the market leaders in the very-high-speed segment, with 1.5 million subscribers, representing,
as of December 31, 2014, 48.5% of the total fixed very-high-speed lines (source: Group’s estimates
based on ARCEP data). The Group takes advantage of its high-quality fixed-line network, and the
brand image and distribution capacities of SFR, to meet the growing demand for speed and
bandwidth, with “multiple play” offers at competitive prices on the fixed-line B2C market.
Mobile B2C market. Thanks to its brand SFR, the Group is the second leading mobile telephony
operator in France, with 16.2 million B2C customers in mobile telephony as of December 31, 2014
(source: Group’s estimates). The French B2C mobile telephony market underwent an important
change in January 2012, with the arrival of a fourth mobile telephony operator, which intensified the
competition on the market and exerted significant pressure downward on the ARPU. After three years
with a strong drop in prices, following the arrival of this fourth operator in January 2012, the Group
expects that the price pressure will decrease, because the subscription-based mobile telephony prices
in France are now among the lowest in Europe. An increasingly weak part of the mobile telephony
market in France is also represented by customers using prepaid services. The Group is present in all
of these segments, with its “Formules Carré” offers, which target the mobile telephony market with
premium subscriptions, its “RED” offers, which target the basic subscription mobile telephony
market, and a prepaid range at attractive prices, under the “SFR La Carte” brand. As of December 31,
2014, more than 80% of the Group’s customers on the B2C mobile telephony market had subscription
offers. The Group feels that the combination of the very-high-speed cable/fiber network of
Numericable and SFR 3G+ and/advanced 4G networks will allow the Group to offer attractive flat
rate “quadruple play” packages, which meet the growing demand for speed and bandwidth coming
from multi-screen households, for usage both in and outside the home.
Pay-TV. The French television market is one of the largest in Europe, with a penetration rate of
approximately 77% as of December 31, 2013 (predicted to increase to 82% in 2017) (source:
ScreenDigest). The Group provides its customers with premium content, including a large choice of
high-definition channels, catch-up TV channels, one of the most complete video-on-demand (VOD)
catalogs on the market, integrated OTT video services, and groundbreaking social media applications.
81
The Group feels that its high-quality pay-TV content programming is an important differentiating
factor in its offering of bundled and convergent products.
B2B Market. In recent years, the French B2B telecommunications market has experienced a structural
change, with a decrease in switched voice services and an increase in the number and complexity of
the VoIP and data services. In particular, SMEs’ data service needs have changed, now becoming
consumers of bandwidth, in addition to becoming more complex. Customers’ high-speed needs favor
players with solid network coverage, as is the case for the Group, thanks to its dense capillary
network, comprised of 240 MAN networks, and the direct fiber connection from this network to the
main sites of its customers, providing them with symmetrical high speeds and reliable service. In line
with the development of market needs, the Group has also developed cutting edge data solutions,
among others “infrastructure as a service,” along with IP VPN services. The Group estimates holding
a market share of approximately 20% on the B2B segment (according to the Group’s internal
estimates) and is the primary major competitor for the incumbent operator, which currently has a very
favorable market position. The Group strives to take advantage of its commercial network and sales
force to increase its market share in this segment, and target adjacent market segments such as cloud
computing services and MtoM communications.
Wholesale market On the wholesale telecommunications market, the Group is in a very favorable
position for taking advantage of its network, and providing solutions at attractive prices for the shortterm needs of operators, all while making use of its cost structure to obtain attractive margins. This
includes selling fiber optic connections and circuits to international or local operators with subnetworks in France, leasing indefeasible rights of use (“IRUs”) and bandwidth capacity on its
network, along with the sale of point-to-point connections to other national operators, for example
radio transit sites for the roll-out of 3G and 4G. The Group expects growth in these sectors, due to the
increase in world data traffic and the migration of existing technologies towards Ethernet technologies
and fiber technologies, the need for greater bandwidth and the construction of a growing number of
antennas in line with the roll-out of the 4G coverage by operators. The Group intends to consolidate
its number two position on the market, in both the wholesale mobile and fixed telephony segments,
thanks to the Group’s significant wholesale capacities in the fiber sector (source: Group’s estimates).
The Group has connections to incumbent operators of French MVNOs (such as La Poste Mobile) and
fixed-line voice network operators (Bouygues Telecom), as well as to leading international players.
The Group also intends to continue to promote its responsive and adapted wholesale offers, so as to
fully take advantage of its network infrastructure and maximize the return on its network assets.
6.3.2
A consequential benefit in terms of infrastructure for each of the Group’s markets,
which connects fixed and supplementary mobile networks and is technologically
advanced
The Group believes that it has a consequential advantage in the French market as concerns the fixedline networks. With regard to the current infrastructure of operators in the telecommunications sector,
the Group’s network is, thanks to Numericable, the only end-to-end alternate central network in
France to have a local loop infrastructure, and is supplemented by SFR’s DSL presence and by its
interurban fiber network. This highly advanced fiber network provides high-speed downloads and is
supported by a powerful backbone. On the B2C segment, the Group has the largest fiber network in
France, connecting more than 6.4 million households via fiber optics as of December 31, 2014 (100
Mbit/s and higher). The Group will seek to strengthen its technological progress by serving more than
12 million households with fiber by 2017, and 15 million households to be connected by fiber by
2020. The Group considers that the acquisition of SFR will allow it to significantly increase the
penetration of very-high-speed fiber, in particular through the possibility for SFR DSL subscribers to
benefit from a cable offer.
Through its mobile network, the Group believes that it has one of the most expansive and most
advanced mobile networks of the alternative French players. The SFR network had 3G coverage of
more than 99% of the populace at end-2013. At end-2012, SFR was the first French operator to offer
82
high-speed Internet in mobile telephony (4G) to individuals and professional customers. As of
December 31, 2014, the 4G offered by SFR was covering more than 50% of the French population.
The Group is replacing a large number of its antennas by equipping them with single RAN technology
(2G/3G/4G) with fiber transmission, which will reduce maintenance costs and guarantee quality
infrastructure over the long-term. The combination of the fixed-line high connectivity network of the
Group with the high quality 4G mobile networks of SFR will allow the Group to respond to a strongly
increasing demand for data on mobile phones, providing high-speed transit fiber connections to
connect to the RAN mobile telephony network.
Due to the high level of investments made, and thanks to the fact that it is the owner of local
networks, MAN loops and a backbone, the Group is benefiting from an advantage in terms of costs
compared to alternative competitive operators, which should be supported in part by the networks or
technology of other operators, to provide their services while awaiting the roll-out of their own
network, where applicable. The fact that it is the owner of its networks also provides the Group with a
greater capacity to control costs, to determine costs of the most profitable additional capital
expenditures and to generate significant margins.
6.3.3
The Group is the main provider of very-high-speed multi-play services, with high
value-added offerings for French customers, providing opportunities for additional
sales in fixed-line and mobile services
Relying on a technologically advanced network and on innovative offerings, the Group has leading
positions as concerns the “multiple play” offers that are proposed to customers at attractive rates,
combining differentiated pay-TV, very-high-speed Internet access, fixed-line and mobile telephony
services. The Group considers its pay-TV, high-speed telephony and fixed-line telephony activities,
along with its strengthened capacity to offer advanced mobile telephony services, to provide it with an
opportunity to increase the penetration rate of its premium and “multi-play” packages. By
implementing this bundled product strategy and by increasing the penetration of “triple play” and
“quadruple play,” the Group will be able to increase the average revenue per user (the ARPU) of its
cable and/or FTTB services.
Very-high-speed. Numericable Group’s network is supplemented by the SFR fiber network and allows
the Group to provide very-high-speed Internet access to the customers it serves through its cable
network, with speeds currently reaching 200 Mbps, the highest speed available on a large scale on the
French market. The Group’s network was constructed and updated to face its customers’ growing
demands for speed and bandwidth. The possibility for DSL SFR customers to subscribe to a
cable/fiber offering will allow the Group’s network penetration to increase, in an effort to reduce the
rental costs of the last kilometer.
Complete premium pay-TV content. The Group sees itself as able to offer its customers important
advantages in terms of content. It maintains direct and long-term relationships with the primary
providers of content and television channels, and is currently the only high-speed provider that is
contractually able to offer pay content with single flat-rate billing (a position it shares with CanalSat).
The Group’s offerings will include a wide range of high-definition channels, as well as the largest
video on-demand (VOD) catalogs on the market, with more than 30,000 programs and films available.
Advanced mobile telephony services. Thanks to SFR’s mobile network, the Group is providing its
customers with access to one of the most advanced 4G mobile offerings on the market, offering more
significant connection speed and benefits in terms of wait-time on the network as compared to 3G.
SFR has also updated and simplified its customer offers: The “SFR Carré” offers target customers that
require premium products, subsidized cell phones, a physical distribution network, and customer
service, while the “SFR RED” offers target SIM-only customers, who are more attentive to costs than
to the provision of services or subsidized mobile apparatus.
Fixed-line telephony. The Group’s “multiple play” packages continue to include fixed-line telephony
services.
83
6.3.4
The renown of the SFR brand and the Group’s retail distribution networks serve as
a base for future growth.
The Group believes that the renown of the SFR brand and its retail distribution networks allow it to
take advantage of its significant fixed-line and mobile infrastructure, as well as its product offers,
which are the best in their class, to stimulate growth.
Strong brand image. The Group considers the SFR brand to be recognized by its customers for the
reliability of its network and for the high quality of its excellent customer service.
Multi-channel distribution network. The Group also has B2C distribution networks, including
physical channels and digital channels. Its physical distribution channels include an expansive
network of stores which, as of December 31, 2014, contained approximately 900 physical boutiques
(via distribution contracts). The Group’s online platform supplements the physical stores through
value-added services (technical support, information bulletins) and through its online boutique, which
serves as a window for all of its product offers and as a primary distribution channel for the “SFR
RED” offers. The Group’s multichannel network relies on customer service teams, which offer a
range of detailed and complete services which cover all customer needs (such as complaint
management, technical support, and loyalty and sales programs).
6.3.5
Cash flow generation
On a pro forma basis, the Group has generated adjusted EBITDA 2 of €3,100 million for 2014.
Following the acquisition of SFR, the Group holds approximately 100% of SFR and benefits from the
cash flows generated by it. The Group considers its vast, diversified customer base, as well as its
monthly subscription structure, to provide it with a certain level of predictability vis-a-vis future cash
flows. The Group’s capacity in terms of cash generation is a direct result of its strict focus on cost
optimization and organizational efficiency, as well as on a prudent investment policy.
6.3.6
Experienced management and the support of a reference shareholder, as well as a
proven history of creating synergies and integration
Experienced management that has proven its integration abilities. The Group’s management has
extensive experience in the cable and telecommunications sector, in particular in the French market.
Numericable Group was created following a successful combination of several cable assets in France,
which the Group’s existing management and controlling shareholder, Altice, successfully
consolidated by making a completely integrated profitable company. Furthermore, in 2007,
Numericable Group bought Completel and clearly improved its profitability, all while allowing it to
grow significantly. Eric Denoyer has been Chief Executive Officer of Numericable Group since
January 2011 and has continued to hold that title since the acquisition of SFR. He was previously
CEO of the wholesale market division of Completel. Thierry Lemaitre has been the Group’s CFO
since May 2010. Before joining the Group, he was CFO of Wanadoo and director of financial
controlling of the fixed-line and mobile service divisions of France Telecom in France and
internationally.
Strong support of the reference shareholder. The Group’s controlling shareholder, Altice, has
extensive investment experience in the telecommunications sector worldwide, and has demonstrated
its capacity to make purchases which create value thanks to optimized operations. Various
acquisitions made by Altice, for example in Benelux, Portugal and Israel, emphasize its capacity for
successful integration and increasing EBITDA, including in the case of situations where fixed-line
and mobile services converge. Altice is supported by an entrepreneur shareholder, Patrick Drahi, its
founder who, as acting Chairman of the Board of Directors, has 20 years of experience in the
ownership and management of companies in the cable and telecommunications sector. His
2
The amount of adjusted EBITDA is presented based on pro forma consolidated financial statements, which are established
by using the assumption of a complete acquisition of SFR and SIG 50, Virgin Mobile and Telindus as of January 1, 2014.
84
accomplishments include reconstructing the French cable and telecommunications market between
two entities, Numericable and Completel. Since the capital increase and acquisition of SFR, Altice has
held 59.58% of the Group and thus has control of it. Should Vivendi assign its entire equity interest,
by virtue of the agreements of February 27, 2015, Altice will hold 70.35% of the Company’s capital
and 78.17% of its voting rights (see Section 20.8 “Significant changes in the financial or trading
position” of this Registration Document for a description of these agreements).
85
6.4
GROUP STRATEGY
This section presents the Group’s strategy as if the integration of SFR and Virgin Mobile were already
complete; the integration itself is still in progress and includes, among other things, 15 priority
projects involving the implementation of strategic guidelines which were launched with the
completion of the acquisition of SFR in late November 2014 and reiterated on March 5, 2015 at the
time of the earnings release for the year ended December 31, 2014.
The Group intends to operate and continue to modernize its quality network in order to respond on all
markets to the growing needs for very-high-speed, and rapid and reliable access to the network. It
plans to continue to offer innovative products and services in order to favor the creation of growth and
quality that is offered to customers.
6.4.1
Making good use of its networks at the cutting edge of technology to provide the best
user experience to French customers
The Group seeks to make use of a combination of cutting-edge and highly supplementary networks of
Numericable Group and SFR. The Group feels that this combination will create a partial or full fixedline fiber-based network that is the most advanced in France, capable of providing customers with a
richer user experience all while optimizing the Group’s cost structure. Furthermore, the Group seeks
to offer the most attractive mobile and “quadruple play” services, to rely on the SFR mobile network,
in particular on the quality of its 4G network.
6.4.2
Achieving network and operating synergies in order to improve the generation of
cash flow and finance a new roll-out of fiber
The Group seeks to take advantage of the operational efficiency and economies of scale created by the
acquisition of SFR. The Group considers the integration of SFR into the Group to be supported by a
strong sector-specific logic, to the extent that this allows two complementary companies to be
combined. The Group also expects this acquisition to allow synergies to be achieved in various
sectors, both in terms of costs and investment expenses, in particular as concerns the network, the
B2C market, the B2B market and operating activities. The Group is targeting the following synergies:
-
on the B2C market, synergies of approximately €210 million in EBITDA, and approximately
€90 million of investment expenses for 2017, thanks to:
o
the natural renewal of cable or fiber offers of SFR’s DSL base. Considering that
Numericable Group’s network covers 35% of the territory, the Group estimates that
approximately 20% to 30% of SFR DSL customers should subscribe to a cable/fiber
offer from the Group. This increase in the cable/fiber customer base, and the
reduction of the DSL base, should generate cost savings (specifically on costs of
unbundling from the local loop that are paid to Orange);
o
the ARPU of Numericable Group customers is now higher than that of SFR
customers, in part thanks to the inclusion of premium services and content in
Numericable Group’s offerings. The increase in the cable/fiber customer base and the
reduction of the DSL base should allow the ARPU for the combined group to
increase on the whole;
o
the concentration of sales efforts in areas where the cable/fiber network is used thanks
to the power of the SFR brand and the optimization of the presence and performance
of boutique distribution;
o
the simplification of the range of offers and brand strategy; and
o
the quality of services proposed and the improvement of customer relationship
management;
86
-
-
-
on the B2B market, synergies of approximately €145 million in EBITDA by 2017, thanks to:
o
better commercial efficiency thanks to the repeat roll-out of the sales forces, allowing
for better customer coverage, and resulting in a decrease in churn and an increase in
the sale of products with high added value;
o
a reorganization of sets of B2B services, and sharing of B2B operations; and
o
an increase in Telindus’ profitability;
on the network, synergies of approximately €95 million in EBITDA and approximately €160
million in investment expenses by 2017, which result from:
o
the unification and interconnection of networks;
o
optimizing the transfer of data between network terminal points, primarily SFR’s
mobile antennas, and the network backbone. Previously, SFR used third-party
infrastructures for such transfers. It plans to use the infrastructures of Numericable
Group in the future, which will enable there to be cost savings;
o
optimization of the Group’s DSL network and transfer of Completel’s DSL network
(in conformity with the commitments made with the Competition Authority, see
Section 5.1.5 “History and evolution of the Group” of this Registration Document);
and
o
optimization of SFR’s fiber roll-out; and
other synergies of approximately €280 million in EBITDA and approximately €125 million in
investment expenses by 2017, as a result of:
o
purchase optimization;
o
the optimization of commercial expenses and the optimization of the brand portfolio;
o
enhancement of multimedia content;
o
optimizing the costs of computing/IT and information systems, thanks to a
simplification of processes and offers;
o
the streamlining of the real estate portfolio;
o
reviewing the purchase and subsidy strategy for mobile handsets;
o
the implementation of a new purchase model with suppliers; and
o
the reduction in general and administrative expenses.
The Group’s management is aiming for synergies that will have an impact on the Group’s EBITDA of
€730 million and that will have an impact on the Group’s investment expenses of €375 million by
2017. However, this estimated synergy is based on a certain number of assumptions made by relying
on the Group’s available information and on the assessment of the Group’s management, which has
drawn on this information. The assumptions used to estimate synergies are in essence subject to
various uncertainties and commercial, economic and competitive risks, which could cause the actual
result to significantly differ from those underlying the estimated synergies.
The objectives presented above are not provisional data or estimates of the Group’s profits, but are a
result of its strategic guidelines and action plan. They are based on data, assumptions and estimates
that the Group considers reasonable. These data, assumptions and estimates could evolve or change
due to uncertainties linked, among other things, to the economic, financial, competitive and
87
regulatory environment, as well as to the success of SFR’s integration within the Group.
Furthermore, the materialization of one or more risks described in Section 4 “Risk factors” of the
Registration Document could have an impact on the activities, results, financial position or outlook of
the Group, and thus call into question its ability to achieve the objectives presented below. Achieving
these objectives moreover assumes that the Group’s strategy as presented in this section will be
successful. The Group does not make any commitment or provide any guarantee as to the
achievement of the objectives appearing in this section.
6.4.3
To provide attractive service quality in triple play and quadruple play on the B2C
market
To provide very-high-speed services, high quality content and premium mobile telephony services to
B2C customers. By taking advantage of its network infrastructure, its access to premium content and
broad customer base, and the SFR brand, the Group seeks to offer existing and new B2C customers
the best “triple play” and “quadruple play” flat rates on the French market. The Group’s customers are
increasingly requesting bundled product offers, and the Group is expecting to benefit from an average
revenue per user that is higher than those of Numericable Group and SFR individually before the
combination, and with a reduced rate of subscriber drop-off.
Making use of SFR’s significant customer base in order to sell very-high-speed and pay-TV products
of Numericable Group. While it is planned that SFR’s DSL customers will be able to subscribe to a
cable/fiber offer, the Group also intends to make use of the strong image of the SFR brand and of its
distribution networks, to increase its market share by attracting new customers who are seeking faster,
higher speeds.
6.4.4
A strategy and quality of service that has been adapted for the mobile telephony
segment
In order to confront recent changes on the mobile telephony market, SFR has significantly simplified
its commercial model and customer offering. The Group is pursuing this strategy.
Modernizing and simplifying the offer structure. Following the arrival of a new mobile telephony
operator offering very basic yet economical services, SFR significantly simplified the structure of its
mobile telephony offers and adapted its new plans to the changing needs of its customers. The number
of packages decreased by half, both in the B2C and B2B markets. At the same time, SFR revisited and
streamlined its network of boutiques to focus on the best locations.
Adapting brand positioning to cover all customer segments. The Group intends to cover all segments
of the French mobile telephony market, through a policy of brands that are differentiated between the
premium segment under the “SFR” brand and the bottom of the market.
Developing innovative services. The Group is also investing in opportunities which aim to support the
growth of revenue of mobile telephony, in particular through the development of additional
innovative services.
6.4.5
Taking advantage of new opportunities for growth in business and wholesale
markets
Transition to next-generation services. The Group is seeking to serve the growing demand of the B2B
market for next-generation services: RVP-IP services, hosting or cloud services which require veryhigh-speed and offer high margins. The Group’s fiber network will be both powerful and flexible: its
high bandwidth capacity will allow these next-generation services to be offered and will be able to be
fully adapted to the future services, which will require a greater bandwidth and increased reliability.
The Group also benefits from a complete range of services which are intended to respond to the
evolving needs of customers of the B2B market with, in particular, more than one hundred data
centers operated by the Group. The Group intends to make use of the combination of its network and
88
its experience in critical network architecture to expand its customer base and increase its offers of
data products with a significant margin.
Effectively redeploying sales forces towards the B2B market. The Group is expecting to become a
sizable competitor for the incumbent operator on the B2B market, with a combined market share that
was approximately 20% in 2014 (according to the Group’s internal estimates). Even though the SFR
Business Team and Completel brands were previously in competition for key business accounts and
did not always have sufficient resources to compete for other accounts with the incumbent operator,
the Group should be able to strategically redeploy its sales forces in order to fully target all subsegments of the B2B market. In doing so, the Group intends to continue to gain market share on this
segment and to penetrate adjacent market segments, such as hosted computing services and MtoM
communications.
6.4.6
Establishing the Group’s advantage in terms of infrastructure by accelerating the
roll-out of fiber
Accelerating the roll-out of the fiber network and improving penetration in terms of households
passed. As of December 31, 2014, the Group had the largest fiber network in France, connecting more
than 6.4 million households with fiber optics (100 Mbit/s and more). The Group considers its fixed
network to be a competitive advantage. Additionally, once modernized, this network will be an
essential part of the Group’s strategy. To that end, the Group also plans to accelerate the
modernization of the network to EuroDocsis 3.0, and to strategically expand coverage of the Group’s
fiber network. The Group strives to expand the coverage of its fiber network up to a total of 12
million connected households by 2017, and 15 million households connected to fiber by 2020, which
will secure its competitive advantage.
89
6.5
DESCRIPTION OF THE GROUP’S OPERATIONS
The Group acquired SFR on November 27, 2014, and Virgin Mobile on December 5, 2014. As
described in Section 6.4 “Group strategy,” the integration of SFR and Virgin Mobile is underway, but
as of end-2014, Numericable Group, SFR Group and Virgin Mobile operated separately, generally
speaking. In this section, the operations of Numericable Group (excluding SFR Group and Virgin
Mobile), SFR Group and Virgin Mobile are described separately.
Numericable Group
6.5.1
6.5.1.1
B2C Market (Numericable)
General presentation
Historically, the Group’s B2C division included the provision of analog cable television services and
digital cable television services, since the advent of this technology. As of December 31, 2014, the
Group’s network covers approximately 38% of the French territory and extends to approximately 10.7
million households (9 million of which can be connected via FTTB or FTTH). To the extent that B2C
subscribers have increasingly looked to receive their multimedia and communications services
through a single offer subscribed to through a single operator, the Group has concentrated on offers to
subscribers of standard and premium pay-TV services, high-speed Internet access, and fixed-line and
mobile telephone service subscriptions in the form of triple and quadruple play offers. The Group’s
B2C services offered to individuals are currently primarily focused on the triple play and quadruple
play markets, by simultaneously providing these services under its own brand and as a white label
service. The Group continues to also offer its customers separate subscriptions to television, highspeed Internet access and fixed-line and mobile telephony services. The Group also offers analog
television to individual subscribers and collective digital services to managers of residential buildings
and building management agents.
The following chart summarizes the establishment of Numericable Group, the RGU, the ARPU and
certain annual and semiannual information on Numericable Group’s operations at the dates and for
the periods considered.
Operating data
As of and for the year ended December 31
2012
2013
2014
(Unaudited)
(in thousands except for percentages, RGUs per
individual user and ARPU)
B2C operating data
Footprint(1)
Homes passed(2) ..............................................................
9,875
Available triple play ................................................
8,428
EuroDocsis
3.0
cards
installed ....................................................................
4,788
Individual digital subscribers ..........................................
1,228
Multi-play(3) .............................................................. 972
Television as an individual
offer ......................................................................... 223
Other(4) ...................................................................... 34
White label end users(5) ................................................... 297
Total number of individual
digital users....................................................................
1,525
90
9,940
8,511
9,977
9,036
5,196
1,264
1,041
6,451
1,307
1,110
193
31
363
165
32
377
1,628
1,684
Individual subscribers of analog
television ......................................................................... 103
Total individual users ...................................................
1,628
Individual RGUs - TV(6) .................................................
1,163
Individual RGUs - Internet(6) .......................................... 985
Individual RGUs - fixed-line
telephony(6) ..................................................................... 946
Individual RGUs - mobile
telephony (6) .................................................................... 113
Total individual RGUs(6) ...............................................
3,207
Number of individual RGUs
per individual user(6) .....................................................2,41
Bulk subscribers(7) ..........................................................1,829
Churn - individual subscribers .......................................
18.6%
Triple play ................................................................
17.2%
Monthly ARPU – new
individual digital subscribers
(new customers) (8) .........................................................
€41.7
Monthly ARPU - individual
digital subscribers (subscriber
base)(8) ............................................................................
€40.7
81
1,709
1,140
1,054
63
1,747
1,144
1,122
1,024
1,098
186
3,404
253
3,617
2,53
1,753
19.2%
17.0%
2,64
1,773
19.0%
14.9%
€41.3
€43.6
€41.5
€42.0
_____________________________________________
(1) The operating data pertaining to the Group’s footprint and penetration are presented as of the relevant reporting date.
(2) A home is considered “passed” if it can be connected to the delivery system without having to extend the network.
(3) Multi-play includes double play services (Internet and fixed-line telephony, fixed-line telephony and television, television and
Internet).
(4) Includes subscribers to individual Internet, fixed-line telephony and mobile telephony offers.
(5) End users of fiber optics under a white label (i.e., not including end users of DSL under a white label) in conformity with the
established financial communications policy of Numericable Group, as well as the Group’s accounting segmentation (white
label activities in fiber optics included in the B2C segment and DSL white label activities included in the Wholesale
segment).
(6) Revenue Generating Units. Each individual subscriber to a cable television, high-speed Internet, fixed-line telephony or
mobile telephony offer on the Group’s network. Accordingly, a direct subscriber who subscribes to all B2C offers of the
Group would be calculated as four RGUs. Direct subscribers of the Numericable brand only (i.e., not including white label
subscribers or bulk subscribers).
(7) Bulk subscribers are subscribers to a bulk contract entered into with a cable operator and a building manager or management
agent.
(8) The operating data pertaining to the ARPU are presented in euros per month (excluding VAT) for the periods indicated and
do not reflect the ARPU from white label end users or bulk subscribers.
6.5.1.2
B2C segment offers
6.5.1.2.1
Digital services
Digital services include pay-TV, high and very-high-speed Internet, fixed-line and mobile telephony,
which are provided separately or bundled in triple or quadruple play offers.
Numericable Group emphasizes the provision of triple and quadruple play offers to its customers,
which it considers to be among the most attractive bundled offers available in France, due to the
excellent quality of television and Internet services provided by coaxial cable and/or optical fiber.
However, Numericable Group continues to offer its existing customers the possibility of separately
subscribing to digital television, Internet access and fixed-line telephony and/or mobile telephony
services when customers so demand. The various services offered by Numericable Group, whether
separate or bundled, are described below.
(a)
Digital television
As of December 31, 2014, Numericable Group provided digital television services to approximately
1,144 million B2C subscribers, including approximately 1 million multi-play subscribers and 165,000
subscribers to television only. Numericable Group believes it offers B2C subscribers one of the best
television offerings currently available in France, with a large number of HD channels and one of the
most attractive packages of premium channels, including the same content available in the CanalSat
offers. Its television services include between 200 and 400 digital television channels (including
91
between 10 and 75 HDTV channels), depending on the offer chosen, more than 40 digital radio
channels, interactive television services such as VOD, catch-up television and innovative functions
like 3DTV. VOD allows subscribers to order recent films and television programs for a fee, while
catch-up television allows subscribers to view television programs on demand from a certain number
of popular channels at any point within a certain period of time (generally) from 7 to 30 days from
their first broadcast. Numericable Group’s VOD catalog, which includes more than 30,000 programs
and films, is one of the largest offered in France. Numericable Group also offers access to 40 channels
which are selected from various devices (including smartphones and tablets) in exchange for a low
monthly entry-level fee for pay-TV subscribers, and free of charge for subscribers of premium payTV.
The television offerings of Numericable Group include a variety of public and private channels from
broadcasters worldwide, as well as specialized channels which cover all customer segments, such as
information, sports, music or even home shopping. Numericable Group’s quadruple play premium
offer (the “Platinum” offer) includes 320 channels (including 60 HD channels) and is, according to
Numericable Group, one of the largest television channel packages currently available in France.
Numericable Group customers may also purchase up to six themed packages, including channels,
which group together additional digital channels, such as the Cinema Pass or Sports Pass. Customers
may also add additional channels, such as the Orange Cinéma Séries, BeIn Sport and Canal+ channel
packages. The Platinum offer also provides high-speed Internet access with a download speed of up to
800 Mbps for subscribers connected to the EuroDocsis 3.0 portion of Numericable Group’s network
and up to 30 Mbps for subscribers connected to the EuroDocsis 2.0 portion of Numericable Group’s
network, as well as a fixed telephone line with unlimited national calls and certain international calls.
Numericable Group obtains licenses for the content of its television programs from providers of thirdparty content which have direct contracts with groups of authors in France, such as the SACEM
(Société des auteurs, compositeurs et éditeurs de musique), broadcasters and distributors. In general,
Numericable Group pays royalties to these content providers; the amount is dependent on the number
of subscribers, it being understood that certain providers sometimes impose that Numericable Group
pay a minimum guaranteed royalty. Numericable Group also pays royalties; the amount is dependent
on subscribers’ consumption of on-demand content, such as VOD (see Section 11.3.1 “Third-party
copyright and relations with copyright collecting societies” of this Registration Document).
(b)
High-speed Internet
As of December 31, 2014, Numericable Group had 1,122 million subscribers to its Internet services.
Numericable Group offers “continuous” high-speed Internet access with a download speed of up to
800 Mbps for the part of its network that is equipped with EuroDocsis 3.0 and up to 30 Mbps for the
portion of its network that is equipped with EuroDocsis 2.0. The high-speed Internet offers of
Numericable Group generally include a free wireless high speed router, an account with up to 30 email addresses, up to 200 MB of personal web space and a parental control service. The Group
considers its high-speed Internet offers to be the most advanced available in France.
The Group’s strategy for B2C Internet consists of providing a better-quality product for a
supplementary cost which surpasses its competitors in terms of download and upload speeds, product
features and quality of services.
Numericable Group also offers a double play DSL service for its customers, targeting residences that
are not connected to its fiber optic/cable network. Numericable Group had approximately 8,340 DSL
multi-play customers as of December 31, 2012, 24,871 DSL multi-play customers as of December 31,
2013 and 48,000 DSL multi-play customers as of December 31, 2014.
92
(c)
Fixed-line and mobile telephony
As of December 31, 2014, Numericable Group had approximately 1,049,000 subscribers to its fixedline telephony services. Numericable Group markets its fixed-line telephony services primarily within
the context of its triple play and quadruple play offers, as the majority of the high speed cable routers
installed are equipped with, or are easily interchangeable for a router that is equipped with two voice
ports. These offers include unlimited calls from fixed lines to other fixed lines and mobile phones in
France, as well as to the fixed lines of certain international destinations (and mobile phones for some
international destinations,) which became the market standard for triple and quadruple play offers in
France.
Numericable Group offers mobile telephony services under its own brand through MVNO
agreements. Since the acquisition of SFR, Numericable Group has essentially used the MVNO
contract with SFR to offer mobile telephony services. There were also MVNO agreements with
Bouygues Telecom, which allowed it to launch quadruple play offers in 2011.
Numericable Group had approximately 253,000 mobile subscribers as of December 31, 2014.
Numericable Group also offers mobile telephony services separately, at prices ranging from €2.99
euros to €25.99 per month.
(d)
Triple play and quadruple play services
Numericable Group offers triple and quadruple play services to customers connected to the portion of
its network that was improved in order to provide bi-directional capacity (using the EuroDocsis 3.0 or
EuroDocsis 2.0 technologies); this portion of the network represented approximately 85% of the
Group’s network as of December 31, 2014, based on the number of homes passed). Numericable
Group increased the number of households connected by FTTB/EuroDocsis 3.0 by 408,000 in 2013,
and renovated more than 800,000 triple play compatible connections for EuroDocsis 3.0 technology in
2014. As of December 31, 2014, Numericable Group had approximately 885,000 EuroDocsis 3.0
subscribers, and approximately 600,000 EuroDocsis 2.0 subscribers (including white label users).
As of December 31, 2013 and 2014, subscribers of Numericable Group’s multi-play B2C offers
represented respectively 82% and 85% of Numericable Group’s direct digital subscriptions.
Numericable Group had, respectively, approximately 972,000, 1,041 million and 1,100 million multiplay subscribers, as of December 31, 2012, 2013 and 2014, which represented, respectively, increases
of 3.6%, 7.1% and 6.6% compared to the number of Numericable Group’s multi-play subscribers as
of December 31, 2011, December 31, 2012 and December 31, 2013, respectively.
The triple and quadruple play offers of Numericable Group combine several services within bundled
offers that thus allow subscribers to benefit from the practical advantage of subscribing to television,
high-speed Internet, fixed-line and/or mobile telephony services together. Numericable Group
provides these services to meet the growing need of customers looking to receive their multimedia
and communication services from a single operator and at an attractive price. The bundled offers
proposed by Numericable Group allow its subscribers to combine cable television, high-speed Internet
and fixed-line and mobile telephony services for a price that is lower than what they would pay if they
subscribed to each of these services separately.
Numericable Group considers its triple and quadruple play offers to be among the most attractive
currently available in France, due to the excellent quality of television and Internet services provided
by coaxial cable and optical fiber, as compared to offers from the Group’s DSL competitors, which
also have multi-play offers. Numericable Group currently has seven offers: iStart (only available
online), LaBox Start, LaBoxPower, LaBoxFamily, LaBoxFamily 800M, LaBoxExtra and
LaBoxPlatinium. Entry-level iStart and LaBoxStart offers primarily target students and active young
people. The iStart offer only includes television channels that are available free of charge thanks to
DTT, although the LaBoxStart offer includes 200 channels. The iStart and LaBoxStart offers each
93
include high-speed Internet access with a maximum download speed of 100 Mbps. The LaBoxPower,
LaBoxFamily, LaBoxFamily 800M, LaBoxExtra and LaBoxPlatinium premium offers have better
Internet speed, more diversified television programs and, according to the Group, more interactive
and innovative services than those offered by the Group’s DSL competitors. The premium offers also
include 240 to 320 digital channels, 60 of which are accessible on the Group’s OTT cloud for remote
access from several devices (smartphones or tablets) at no additional cost (TV Everywhere), highspeed Internet access with a download speed of up to 800 Mbps for subscribers connected to the
EuroDocsis 3.0 portion of Numericable Group’s network, and up to 30 Mbps for subscribers
connected to the EuroDocsis 2.0 portion of Numericable Group’s network, as well as a fixed
telephone line with unlimited national and certain international calls.
In May 2012, the Group began marketing “LaBox,” an integrated set-top box and cable router that it
offers to its triple play and quadruple play customers. Numericable Group distributed approximately
300,000 LaBox units as of December 31, 2013. As of December 31, 2013, the Group had
approximately 300,000 LaBox subscribers, or a penetration rate of 29% of the Group’s multi-play
customers, and as of December 31, 2014, Numericable Group had more than 460,000 LaBox
subscribers, or a penetration rate of 41%. Numericable Group believes that LaBox is one of the most
powerful and interactive set-top boxes on the French market. In February 2013, Capital magazine
named LaBox to be the best set-top box on the French market.
This new set-top box and cable router is equipped with four tuners which allow subscribers to
simultaneously record two television programs, all while watching television, as well as watch
different channels in different parts of the house. TV programming may also be viewed on various
types of screens (tablets or mobile devices). It is equipped with four tuners with HD and 3D functions,
a Wi-Fi 802.11n router, a removable Blu-ray reader, and a removable hard disk (PVR) with options of
160 Go or 500 Go, which allows more than 110 hours of high definition (HD) programs that can be
recorded, and approximately 280 hours of standard definition (SD) programs. The Blu-ray DVD
reader is available as an option for customers that pay a security deposit of €100 at the time of
subscription to an offer that includes LaBox (in addition to the basic security deposit of €75 which is
required at the time of subscription to LaBox). LaBox also includes an optimized interface for
watching audiovisual programs on the television screen, thanks to an integrated search engine and
personalized access, which also offers the possibility of a split screen which enables one program to
be watched, all while simultaneously following the comments on social networks on the same
television screen. A Google search bar is also integrated into the interface. Smartphones and tablets
can use remote controls for LaBox, allowing users to navigate on the interface with their personal
portable devices, as well as to control the recording of programs by LaBox remotely, thanks to the
“TV Mobile” app. LaBox also includes a device for comparing VOD prices and intelligent research of
content, in addition to the possibility of watching up to two programs simultaneously through the
Picture-in-Picture feature, and recording two programs simultaneously. LaBox costs Numericable
Group approximately €200 per unit (excluding the €75 security deposit passed along to the customer)
compared to €135 euros per unit for the previous set-top box plus modem. Consequently, the costs
incurred by Numericable Group for each LaBox unit are equivalent to the costs incurred for the
previous generations of set-top boxes. LaBox has generated an increase in Numericable Group’s
ARPU, as the proportion of premium sales has increased, and allowed new customers to be drawn to
its network. Approximately 75% of gross new customers over the period from September 30, 2012 to
December 31, 2014 subscribed to the Group’s multi-play premium offers (in particular LaBox Power
and LaBox Family as described below).
The LaBox offers provide:
94

Internet, at a download speed of up to 800 Mbps, and an upload speed of up to 10 Mbps
for households that are connected to the EuroDocsis 3.0 cable network, and 30 or 100
Mbps for other households, as well as a Wi-Fi connection of up to 300 Mbps;

digital television services, with more than 300 channels available (including Ciné+, all
Disney channels, all MTV channels, National Geographic, Planète+, Eurosport and ESPN
America HD); and

fixed-line telephony services with two telephone lines and unlimited calls in metropolitan
France.
The content and price of each of the Group’s main offers (triple play and quadruple play) since
February 2014 are summarized in the charts below:
Triple play offers
Set-top box rental fee
included
Number of
channels &
services
Sampler
TV
Number of
HD
channels
Number –
Replay
Number of
multiscreen
channels
Multi TV
iStart
LaBox
Start
LaBoxPowe
r
LaBoxFamil
y
LaBoxFamil
y 800M
LaBox
Extra
LaBoxPlatiniu
m
€28.90
€39.90
€46.90
€56.90
€59.90
€77.90
€98.90
DTT
200
240
280
280
300
320
None
Power
Family
Platinum
Platinum
Platinum
None
n/a
27
47
55
55
59
60
n/a
22
36
48
48
54
55
n/a
66
100
114
114
116
117
Pay
option
Pay option
1st option
included –
excluding
equipment
rental
1st option
included –
excluding
equipment
rental
1st option
included–
excluding
equipment
rental
1st option
included –
excluding
equipment
rental
Included
Included
Included
Included
Included
Included
NO
MultiScreen
@
Max speed
100M
100M
200M
400M
800M
800M
800M
Destination
s
100
100
100
100
100
100
100
F2M
YES
YES
YES
YES
YES
YES
YES
without
F2M
without
F2M
with F2M
with F2M
with F2M
with F2M
with F2M
Pay
option
Pay
option
Pay option
Free option
Free option
Free option
Free option
TEL
nd
2 line (3)
95
iStart
Mobile
LaBox
Start 4
LaBox
Power 4
LaBoxFamil
y4
LaBoxFamil
y 4,800M
LaBox
Extra 4
LaBoxPlatiniu
m4
€45.90
€54.90
€61.90
€71.90
€74.90
€92.90
€113.90
Number of
channels &
services
DTT
200
240
280
280
300
320
Sampler
None
Power
Family
Platinum
Platinum
Platinum
None
n/a
27
47
55
55
59
60
n/a
22
36
48
48
54
55
n/a
66
100
114
114
116
117
1st option
included –
excluding
equipment
rental
1st option
included –
excluding
equipment
rental
1st option
included –
excluding
equipment
rental
1st option
included –
excluding
equipment
rental
Quadruple play
offers
Set-top box rental fee
included
TV
Number of
HD
channels
Number Replay
Number of
multiscreen
channels
Multi TV
NO
MultiScreen
@
Pay option Pay option
Included
Included
Included
Included
Included
Included
Max speed
100M
100M
200M
400M
1 Gb (800M)
1 Gb
(800M)
1 Gb (800M)
Destination
s
100
100
100
100
100
100
100
F2M
YES
YES
YES
YES
YES
YES
YES
without
F2M
without
F2M
with F2M
with F2M
with F2M
with F2M
with F2M
Free option
Free option
Free
option
Free option
TEL
nd
2 line (3)
Pay option Pay option Pay option
As a supplement, Numericable Group customers can subscribe to packages which include additional
content relating to sports, film, series and entertainment, as well as adult, news and society, discovery,
music, home living, young viewers, and world content, along with premium channels like Canal+ or
BeIN Sport (for example, an offer that combines Orange Cinéma Series and BeIN Sport for €20 per
month). The Group considers its premium packages to have very high value compared to the packages
of other triple and quadruple play operators that are present on the French market, and the Group
provides its customers (i) with a download speed that is much higher thanks to fiber optics, unlike
high-speed DSL, (ii) better-quality television services through a dedicated cable broadcasting
platform, (iii) multiple possibilities for HD broadcasting and (iv) the most complete premium pay-TV
offer, including direct access to premium channels and content. Unlike the Group’s customers, the
customers of its triple and quadruple play competitors need to have a separate subscription to
CanalSat to access channels with exclusive content.
Numericable Group offers VOD passes for its subscribers, starting at €4 per month. Films are
generally available on VOD four months after their debut at theaters (as compared to six months on
premium pay-TV (e.g., Canal+)).
Since the launch of Numericable Group’s quadruple play offer in May 2011, triple play subscribers
and subscribers to digital television services have the possibility of adding a mobile telephone
96
subscription to their existing subscription. The 2h package of Numericable Group is available free of
charge for premium quadruple play offers. Subscribers also benefit from a reduction on the Ultra
Mobile package, which costs €16 per month for quadruple play subscribers, as compared to €19.99
per month if subscribed to separately.
In August 2013, Numericable Group launched a new DSL triple play offer (up to 20 Mbps,) which
offers individuals residing outside the cable area the ability to subscribe to a Numericable triple play
offer. The following offers have been available since February 2014:

iStart at €28.90/month, including Internet, up to 100 megabytes + unlimited calls to fixed
lines in France and 100 international destinations + DTT;

LaBoxStart at €39.90/month including Internet up to 100 megabytes + unlimited calls to
fixed lines in France and 100 international destinations + 200 channels;

LaBoxPower at €46.90/month including Internet up to 200 megabytes + unlimited calls to

LaBoxFamily at €56.90/month including Internet up to 400 megabytes + unlimited calls to

LaBoxFamily 800M at €59.90/month including Internet up to 800 megabytes + unlimited
calls to fixed lines in France and 100 international destinations + 280 channels;

LaBox Extra at €77.90/month including Internet up to 800 megabytes + unlimited calls to
fixed lines in France and 100 international destinations + 300 channels; and

LaBoxPlatinium at €98.90/month including Internet up to 800 megabytes + unlimited calls
to fixed lines in France and 100 international destinations + 320 channels.
This new offer is based on a technological solution provided by its partner, TeVolution: a TV Unicast
solution based on Adaptive Bitrate Streaming and not on IP TV. TeVolution manages the provision of
television services with content that belongs to Numericable. These offers do not include all of the
advantages of the Group’s cable/fiber offer, as some services are not available under the ADSL offer
(certain interactive services like VOD, replay and certain channels). Subscribers must also pay €5 per
month to rent an HD Netgear STB 1100 set-top box (which includes a DailyMotion application and a
VOD/TV search network). The availability of the television service depends on a minimum speed of 2
Mbps, which is less than the speed needed for the IP TV technology.
6.5.1.2.2
Analog television services
Analog television services consist of broadcasting coded analog audio and video signals. As of
December 31, 2014, the analog television offer of Numericable Group, which contains 30 analog
channels, was provided to approximately 63,000 households which were primarily located in small
and medium-sized cities in eastern France, which are connected to Numericable Group but are not
eligible to receive digital television. This service is also provided to the incumbent’s customers on the
remainder of the Numericable Group network who have chosen not to subscribe to one of the Group’s
digital offers.
Following a release from the European Commission dated May 24, 2005, according to which Member
States had to interrupt the transmission of analog television, and move to DTT as of January 1, 2012,
and the adoption of the “2012 France Digital Plan” in October 2008 by France in order to promote the
development of the digital economy, the roll-out of DTT has occurred quickly and a complete move
to DTT was achieved in November 2011. DTT allows the public to receive a television offer free of
charge that is similar to Numericable Group’s analog television offer. In response, when this was
97
economically viable, Numericable Group developed triple play promotional offers targeted at
allowing existing analog customers to choose a digital television offer. Some customers of
Numericable Group’s analog services are nevertheless located in regions where Numericable Group’s
network is limited to analog services; proposing digital television and Internet access services to these
customers is not technically possible without Numericable Group investing in the roll-out of a fiber
optic/cable network. Numericable Group consequently intends to continue to provide analog services
to these customers until demand lowers to a level that is not economically viable.
Numericable Group had its highest level of losses in analog television subscribers when moving to
DTT, as customers became aware of the possibility of receiving good quality DTT channels free of
charge. Consequently, Numericable Group’s analog television customer base decreased, going from
approximately 263,000 subscribers as of December 31, 2009 to approximately 195,000 as of
December 31, 2010, and 133,000 as of December 31, 2011. The loss of customers then slowed,
achieving a number of 103,000 subscribers as of December 31, 2012, approximately 81,000
subscribers as of December 31, 2013 and 63,000 subscribers as of December 31, 2014. Numericable
Group expects that its analog customers will continue to decrease in the upcoming years.
6.5.1.2.3
Bulk services
Numericable Group offers bulk services to management agents and residential building managers,
such as the affordable housing building managers, which in turn offer them to their residents.
Numericable Group offers management agents and residential building managers services to operate
and maintain internal networks, in addition to access to bulk triple play offers which include standard
digital television services with 48 channels, 30 radio channels, an unlimited high-speed Internet
connection of up to 2 Mbps, unlimited fixed incoming and outgoing calls, as well as free telephone
and Internet modems. Numericable Group also offers a separate analog television offer to its bulk
subscribers. Fees are paid directly by the residential building manager, generally quarterly,
independently of the fact that the services are actually used by the residents. In the division of
Numericable Group’s bulk services, approximately 70% of the homes passed are in affordable
housing buildings.
Numericable Group provided services to approximately 1.8 million individual subscribers under the
framework of collective agreements as of December 31, 2013 and December 31, 2014. It nevertheless
does not have direct contact with these individual subscribers, since these contracts are only entered
into with the building managers or management agents.
6.5.1.2.4
White label (fiber)
Numericable Group provides white label double play and triple play access lines to third party
operators using fiber access technologies. Numericable Group began to provide white label triple play
fiber services in October 2009 to the mobile telephony operator Bouygues Telecom. It also offers
white label double play and triple play access lines to third-party operators via DSL (generally
separately); this business line is included in its wholesale market segment (see Section 6.5.3.2.4
“White Label (DSL)” of this Registration Document).
These white label triple play services are marketed under long-term contracts and are adapted to the
needs and requirements of each of Numericable Group’s customers. Bouygues Telecom is currently
the only customer outside Numericable Group in terms of white label fiber (following the acquisition
of the Darty telecommunications business in July 2012). The services provided to Bouygues Telecom
includes television content and high-speed Internet services, but not the fiber set-top box. For a
description of the main terms of the white label fiber contract signed by Numericable Group with
Bouygues Telecom, see Section 22.4 “White label contracts” of this Registration Document. See too,
Section 20.7.4 “Other” of this Registration Document. Numericable Group can also adapt the terms to
customers’ evolving demands: for example, in 2012, a rider to the contract with Bouygues Telecom
98
modified the Internet access speed provided, achieving up to 200 Mbps instead of a maximum of 100
Mbps.
The white label services, among other things, allow Numericable Group to optimize the use of its
network.
As of December 31, 2014, Numericable Group provided white label fiber triple play services to
approximately 377,000 end users.
6.5.1.3
Subscription fees
Numericable Group reviews its rates regularly and, in the past, has increased the amounts of its
subscriptions to take into account inflation, market conditions and changes in the cost of content. The
price of all of Numericable Group’s services, including its triple and quadruple play offers, depends
on the market conditions and price set by its competitors for similar offers.
6.5.1.4
Sales and marketing
Numericable Group markets and promotes its products directly to individual subscribers by using
different distribution networks, primarily through its own points of sale, third-party points of sale, its
website, and telephone sales as well as door-to-door sales. Numericable Group partially outsources its
door-to-door sales services. Numericable Group’s local stores offer product demonstrations, which
allow sales teams to promote and support sales of LaBox and premium offers. Numericable Group
has divided its distribution network in France into four regions and 151 sale zones, each of which are
under the supervision of a local director. Each zone is equipped with its own monthly detailed
reporting system, which regularly provides updated information, including the number of new
customers, churn rate, revenues generated and customer satisfaction.
The maps below show the sales zones and sites where the Numericable stores have been established
in France:
Numericable stores (including stores that have distribution agreements with third-party companies)
As of December 31, 2014, Numericable Group had 146 Numericable boutiques in France, 85 of
which were operated by virtue of exclusive distribution agreements. Numericable Group is pursuing
partnerships with the main French retailers (including Boulanger, Carrefour and Cora) within the
context of its local sales strategy.
99
Numericable Group uses various distribution networks in each commercial zone as a function of its
presence and success in that zone.
Numericable Group also has a separate sales team that is in charge of the sale of bulk services for
building managers or management agents.
Numericable Group’s marketing department is responsible for designing and promoting new products
and services for its customers, paying particular attention to campaigns relating to triple and
quadruple play offers. Numericable Group has marketed its B2C products and services under the
“Numericable” brand since 2007, including the products and services of the cable operators it has
acquired since that time.
6.5.1.5
Customer service and billing
Customer service is responsible for all customer care activities, including managing questions and
complaints. This function also manages telephone sales. Numericable Group outsources the majority
of customer care services to outside service providers. These providers use operating procedures, tools
and training provided by Numericable Group. A specialized internal team manages the most complex
customer care questions.
Numericable Group has high-quality customer relations management systems (“CRM”), which allow
it to more effectively manage customers that have recently subscribed for its services, to identify
customers presenting a risk of terminating their subscription, to establish a team with the expertise to
manage complex customer issues, to propose special offers to keep customers that might terminate
their subscription, and to establish collection plans for customers in financial difficulty. The annual
churn rate of individual subscribers among the general public from Numericable Group was 19.4% in
2011 (reflecting the official end of terrestrial transmission analog television and the move to DTT),
19.2% in 2013 and 19.0% in 2014. The churn rate of Numericable Group is higher than the market
standard due to the fact that its fiber optic/cable network coverage is more limited, and, consequently,
due to customers leaving this zone of coverage.
New subscribers commit for a 12-month period.
The majority of subscribers install their set-top boxes themselves (62% in 2014).
Billing is managed internally by Numericable Group. Numericable Group offers its individual
customers a choice between electronic or paper billing, as well as various early payment options, and
the possibility of paying by direct debit. As of December 31, 2014, approximately 84% of
Numericable Group’s customers had opted for direct debit payments.
6.5.2
6.5.2.1
B2B segment
Numericable Group is offering its B2B customers a full range of services including voice services, be
it for traditional switched voice services or VoIP and data services, such as the provision of very-highspeed Internet access, the provision of connection services for professional websites (IP VPN, LAN to
LAN and SAN to SAN), and cloud and hosting services.
The B2B customers of Numericable Group are small, medium and large businesses, as well as public
administrations, which often have several sites which require multi-site data connectivity services (IPVPN). The professional services for large corporate accounts and public institutions rely on standard
components which are tailored and assembled to meet the needs of the B2B customers of
Numericable Group. For example, each customer can choose the bandwidth speed, type of technology
and level of service required for a response time that is adapted to its own computing environment. In
100
2012, Numericable Group began to use indirect distribution networks to implement its strategy, which
consisted of targeting this segment of medium-sized businesses by strengthening the establishment of
its distribution network and accelerating new orders.
One of the Group’s advantages on the B2B market lies in the fact that its powerful urban fiber
networks are located in large urban areas. The Group chose to invest in these different urban networks
that are located in those large areas, and to connect them to its backbone, and now has more than 86
MANs, covering the main business centers in France. Furthermore, the combination of Numericable
Group’s fiber MANs and its DSL networks provides it with a key technological advantage on the B2B
market, which allows it to offer personalized products and services at competitive prices. Its fiber
optic network offers customers flexible service, thanks to its large bandwidth capacity, which is
adapted to the growing future needs for increased speed and reliability. Numericable Group also has
three data centers, in Paris, Rouen and Lyon, which are used within the context of its cloud and
hosting services.
The Group is focusing on developing its B2B business profitably and on monitoring the trends for
this segment with a revenue increase indicator that is generated by new B2B contracts, a unit of
measure which indicates the monthly recurring value of new orders for a given period. This
indicator includes the additional revenues generated by new contracts that are signed during a
given period. It is comparable to the ARPU of new customers, multiplied by the volume of new
customers on the B2C segment. The following table shows the level of additional revenues
resulting from new B2B contracts, based on contracts signed in 2012, 2013 and 2014.
Year ended December 31
2012
2013
2014
(Unaudited)
(in € thousands)
)
Revenues from New Orders ..............................................
5,659.7
6,656.5
6,482
6.5.2.2
B2B services of the Group
6.5.2.2.1
Fixed-line telephony
The B2B product and service offers of Numericable Group cover all needs for fixed-line telephony of
professionals, encompassing standard incoming and outgoing calls, through the use of its switched
voice network and, increasingly, VoIP technology, along with its tailored network architecture
solutions, which are based on entirely digitized technologies, in particular ToIP.
While large corporations generally have their own infrastructure or have the necessary infrastructure
installed for their fixed-line telephony solutions, medium-sized businesses often seek out solutions
which reduce the need to install such an infrastructure. By way of illustration, large corporations have
servers installed on their websites in order to be able to use the VoIP services provided by
Numericable Group. This offer allows customers to centralize their telephony needs at their main
premises, by centralizing all of their telephone equipment on their main site. This solution allows
companies to streamline their costs in terms of equipment and to route all of their internal calls
through their data network. For all classic telephony or VoIP services, Numericable Group offers
backup solutions to guarantee increased availability of the service.
Medium-sized companies often choose to use Numericable Group’s IP Centrex service, which uses a
server of Numericable Group that is located in one of its data centers rather than a server that is
located at their own premises, and to the extent that the cost of the server is shared between several
B2B customers using the IP Centrex service. Numericable Group’s Centrex offer was improved in
2009 with the acquisition of B3G, a French leader in Centrex and IP telephony services for
businesses.
101
Furthermore, Numericable Group provides its B2B customers with tools to manage their telephony
services, such as routing tools and intelligent management of incoming calls on customer service
lines. An Extranet service that is managed by Numericable Group provides its customers with access
to traffic reports as well as to detailed billing.
Numericable Group also offers free telephone services and premium services (known as “800
numbers” in France). It nevertheless believes that this activity should decrease over the next few
years, as the Group will focus on more profitable segments.
As of December 31, 2014, Numericable Group managed approximately 70,000 Centrex lines.
6.5.2.2.2
Fixed data
Numericable Group offers a full range of fixed data services on the French B2B market. It provides
professional customers with Internet access, routing and connectivity of multi-site data, VPN, LAN to
LAN, security services, messaging and hosting, as well as other value-added services. Its hosting
services rely on its three data centers and its cloud service offers are provided by two of these data
centers.
Numericable Group offers a wide range of Internet solutions to meet customers’ expectations in terms
of network reliability, security of data hosting and quality of connection. Thanks to its IP network,
Numericable Group has access to a peering network with other operators and Internet access
providers in France, as well as with the main international players. Following the example of fixedline telephony services, customers can connect their central website to Numericable Group’s fiber
optic network for better quality, and to Numericable Group’s DSL network for secondary sites.
(a)
Connection of professional premises and hosting (IP VPN, LAN to LAN, SAN
to SAN)
Numericable Group offers a full range of services to connect professional premises through Internet
access and hosting of secure data. A customer can connect its various professional and subsidiary
websites by LAN to LAN Ethernet or by IP (IP VPN) and have combined high-speed Internet access
with secure solutions for the hosting system. Numericable Group’s hosting solutions depend on a
high-speed telecommunications structure which improves the availability of the applications.
Numericable Group offers IP VPN services which allow professionals to send and receive data
through a private, secure network thanks to a virtual point-to-point connection. The services of
Numericable Group may be adapted to the technical and functional requirements of the customer’s
infrastructure, with flexibility in terms of bandwidth, connection technology, and management of
strategic flows (VoIP, Visio) and of the customer network. Numericable Group’s IP VPN offer was
strengthened in 2010 with the acquisition of Altitude Telecom, a French specialist in IP VPN, which
has know-how in this technology and an important customer base.
Numericable Group offers LAN to LAN services which can be adapted to the specific protocols of
professionals, and allow LAN customers to conduct business as if they were located in the same
building. Numericable Group also offers SAN to SAN services which allow customers to interconnect
and sync up their information technology platforms that are located on critical sites with full security.
Businesses thus benefit from data recovery solutions after loss thanks to data duplication on distinct
sites, as well as flexibility which allows duplication to occur by either simple copy or via total and
synchronized data duplication.
(b)
Cloud and hosting services
Numericable Group has adapted to the changing environment of the telecommunications sector by
rolling out a complete range of cloud computing services including flexible managed telephony
102
services, messaging and security solutions, as well as hosting services (in other words, servers and
platforms). Numericable Group is particularly focused on providing “infrastructure as a service”
(“IaaS”), which allows customers to benefit from the advantages of infrastructure without having to
invest in acquiring it.
The combination of the IaaS offer with Numericable Group’s high-speed network, which was made
possible in part by the power of fiber optics, contributes to attracting customers, all while taking
advantage of Numericable Group’s expertise in critical network architecture (Business Continuity
Solutions) or post-claims recovery plans.
Numericable Group currently has three main data centers, two of which are able to provide its IaaS
offer.
In France, the security of the data and information systems included in these data centers must be
carefully managed, in particular by:
▪ hosting in data centers located in France, in order to benefit from the French regulations relating to
data protection; and
▪ hosting on a private, secure, closed network, in order to lock and control access from all points.
Numericable Group’s cloud solution provides hosted information systems on IaaS platforms located
in one of Numericable Group’s two data centers, which are completely secured on the private network
of Numericable Group. The data is hosted on infrastructure and on a completely closed network (LAN
to LAN or VPN) and is Internet independent, in Numericable Group’s data centers located in France,
and consequently not subject to a foreign jurisdiction.
(c)
Completude Max Offer for Medium-Sized Businesses
Numericable Group has a bundled offer for medium-sized businesses – Completude Max – which
includes fixed-line telephony, a data service and additional services, which offer an overall solution
for B2B customers and include Internet access, unlimited telephone calls to fixed lines and to 45
fixed-line international destinations, along with other technical solutions such as fax by email and
voice messaging by email. The Completude Max offer generates relatively high margins despite its
low price. This premium offer of Numericable Group, which is unique on the market, includes highspeed Internet access at symmetrical speeds going up to 100 Mbps thanks to Numericable Group’s
FTTB network.
6.5.2.3
Customers
Public institutions are likewise large customers of the B2B segment. Local authorities, governmental
agencies and other public institutions, like hospitals, have a high number of local calls and are
strongly dependent on local networks to provide their services. Furthermore, public institutions need
advanced technologies to connect their different geographic sites to one another at competitive prices.
Numericable Group is a partner of national and regional public administrations. The acquisition of
Altitude Telecom in 2010 strengthened the public administration customer base of Numericable
group.
The contracts entered into with B2B customers generally have a minimum initial duration of one year
(for telephony services) and three years (for data services), but are renewed for an indeterminate
amount of time, unless the contract is terminated early by customers, or is renegotiated. The contracts
entered into with public institutions generally have a duration of three to five years, following
mandatory invitations to bid. The Group believes that the access to its network is a major competitive
advantage.
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6.5.2.4
Sales and marketing
The B2B segment of Numericable Group has a sales team that is organized into direct and indirect
distribution networks. Its direct distribution network contains 199 commercial engineers that are
dedicated to large and medium-sized businesses. Numericable Group covers medium-sized businesses
with dedicated commercial engineers and a network of distributors which is led by 43 commercial
engineers who are employed by Numericable Group. The indirect sellers are under the supervision of
Numericable Group’s commercial engineers and were hired with the aim of helping the Group to
penetrate the market of medium-sized businesses, for which local contacts are important. The indirect
sellers integrate Numericable Group’s B2B market offers by selecting the offers they market to
medium-sized businesses, alongside offers from the Group’s competitors.
The commercial engineers of Numericable Group combine know-how, drive and experience, provide
a strong regional and local presence, and have close relationships with the local authorities and
administrations. Numericable Group’s offers are adapted to the needs of each of its large and
medium-sized business customers. Thanks to offers like Completude Max, Numericable Group is able
to meet the connectivity needs of smaller businesses, based on more standardized offers.
The commercial teams of Numericable Group are able to determine customers’ needs and the best
way of responding to them. In some cases, in order to cover additional needs of businesses, in
particular large businesses with international needs, Numericable Group is able to propose
competitive offers in partnership with other operators.
Before signing a new contract, Numericable Group considers its acquisition cost (i.e., the necessary
investment expenses) in comparison to its value.
6.5.2.5
Customer service
On the B2B segment, Numericable Group has established a customer service structure which is
specifically adapted to the needs of its B2B customers in terms of quality of services, in particular for
technical and administrative issues. Its computerized client management interfaces have been
improved thanks to a specific program which was established in early 2012 and which provides a
centralized customer relations approach which is adapted to those customers’ operations.
Numericable Group’s standard service contract for B2B customers includes a commitment to
reestablish service within four hours. The annual availability of Numericable Group amounted to
more than 99.98% during each of the last six years. Its highly secure network and customer service
are available 24/7.
6.5.3
6.5.3.1
Wholesale segment
Numericable Group offers a full range of wholesale products and services, including wholesale
connectivity service (voice and data), wholesale dark fiber optic infrastructure services and white
label services.
▪ As concerns wholesale voice connectivity services, the voice services provided by Numericable
Group combine national and international call termination and fixed-line and mobile
interconnection for operators whose fixed-line network is underdeveloped or nonexistent, in
particular national and virtual operators in France, and international operators with a presence in
France.
▪ As concerns wholesale data connectivity services, Numericable Group markets LAN to LAN data
access links (specifically SDH and Ethernet) and fiber optic network or DSL (unbundling)
connections to local or international operators with networks that are relatively undeveloped in
104
France.
▪ As concerns the wholesale infrastructure services, Numericable Group markets wholesale services
that are based on network infrastructure, including indefeasible rights of use (IRUs) or bandwidth
capacity on its network to other telecommunications operators, as well as associated maintenance
services. Numericable Group also participates as a building operator, which consists of rolling out
vertical FTTH networks in residential buildings, and allowing access to third-party operators and
access providers by virtue of a long-term IRU. Numericable Group also performs wholesale fiber
optic activities through a 95% held subsidiary known as “Sequalum,” (initially a joint venture
between Eiffage and SFR Collectivités, a telecommunications infrastructure subsidiary of SFR,
with the latter always holding 5% of the capital and voting rights) which was established in view
of the design, financing, marketing, roll-out, and technical and commercial operation of a veryhigh-speed FTTH fiber optic network in the department of Hauts-de-Seine.
▪ Numericable Group provides white label double play and triple play access lines by DSL (mainly
through unbundling) by virtue of long-term contracts, allowing its partners to market triple play
offers under their own brands for their own subscribers.
Following the combination of the Numericable and Completel networks in 2008, Numericable Group
was able to take advantage of the vast establishment of its fiber optic and DSL networks. It went from
being a local wholesale player to one with national and international customers. It has a wide range of
products and a large customer base, with more than 200 national and international operators as
customers. The wholesale segment also benefits from cross-selling opportunities with the B2B
segment, when the analysis of a customers’ needs show that Numericable Group is able to serve it
more effectively through a wholesale offer with another operator.
Numericable Group meets the needs of the entire wholesale market in France, offering local, national
and virtual operators in France, as well as international operators, an alternative to Orange and SFR,
which are the two main wholesale providers in France. Numericable Group’s wholesale market
customers include Bouygues Telecom, AT&T, Tata Communications and Level 3 Communications.
6.5.3.2
Offers of products and services on the wholesale market
6.5.3.2.1
Voice-connectivity wholesale services
Numericable Group provides call terminations for national and international traffic, and fixed-line and
mobile interconnection services to operators with an underdeveloped or nonexistent fixed-line
network, in particular national and virtual operators in France, and international operators with a
presence in France. The fixed-line call termination services allow an operator to use Numericable
Group’s network to connect to the network of another operator to which the customer is not
connected. The fixed-line and mobile interconnection services allow an operator to use the Group’s
network to end fixed-line or mobile network communications of a third-party operator to which it is
not interconnected. This business is a legacy from Completel.
The termination fees are regulated by ARCEP and the call termination rates on fixed-line networks
have decreased in recent years. The system governing the call termination rates on mobile and fixedline networks has recently evolved. Accordingly, by Decision 2014-1485 of December 9, 2014,
ARCEP adopted the analysis on wholesale markets of mobile and fixed-line voice call Terminations
for the period from January 1, 2015 to December 31, 2017.
As concerns the rate structure used for mobile voice call terminations, ARCEP used the following
schedule:
 Up to December 31, 2014, a pricing structure of c€0.8/min for metropolitan operators and
c€1/min for overseas operators (maintaining the most recent limits imposed by the previous
market analysis);
 As of January 1, 2015, a pricing structure of c€0.78/min for a period of 1 year;
105
 As of January 1, 2017, a pricing structure of c€0.74/min.
As concerns the pricing structure used for fixed-line voice call terminations, ARCEP used the
following schedule:
 Up to December 31, 2014, a pricing schedule of c€0.08/min, corresponding to the limit in
effect at the time of the previous market analysis;
6.5.3.2.2
Wholesale connectivity services - data
Numericable Group also markets circuits based on SDH and Ethernet technologies (in other words
copper or fiber) and connections to the fiber optic or DSL network (unbundling) to international or
local operators with networks that are underdeveloped in France, primarily by using its own network,
and less frequently, by reselling usage of the networks of other operators. These services are generally
billed by circuit (thereby covering the bandwidth and speed). Setting up a direct connection with the
customer promotes high margins.
The wholesale data connectivity operations of Numericable Group have experienced regular growth
since 2009, and the Group is expecting strong growth in this activity in the future, due to the increase
in world data traffic and the migration from incumbent SDH or DSL technologies to Ethernet and
fiber optic technologies.
6.5.3.2.3
Wholesale infrastructure services
Numericable Group is optimizing the use of its network to market wholesale services based on
network infrastructure, specifically by leasing IRUs and bandwidth capacity on its network to other
telecommunications operators. It also offers associated maintenance services.
Numericable Group markets end-to-end local connections (intra-city) to link customers’ websites and
data centers, in consideration for connection fees and prices per meter of an IRU (which entails a high
initial connection cost but lower annual maintenance costs) or a leasing agreement (which entails a
lower payment at the beginning of the contractual period but high annual rents).
Following the ARCEP’s adoption of new regulations in 2009, Numericable Group also began to take
part as a building operator by making use of vertical FTTH networks in residential buildings and by
making these networks available to third-party operators and Internet access providers by virtue of
long-term IRUs. Numericable Group is able to provide this service thanks to its experience in rolling
out coaxial cables in buildings as a cable operator, as well as to its existing relationships with multifamily housing and management agents. Numericable Group’s relationships with local authorities are
also important because the fees relating to the roll-out of the network are a commercial advantage in
marketing fiber optic connections to customers as well as a support that allows Numericable Group to
roll out fiber to the general public. Roll-out costs are shared with telecommunications operators that
seek to access the network in conformity with the regulated fees and, throughout the duration of the
IRUs, Numericable Group provides maintenance services and bills maintenance fees to operators that
have access to the network.
Numericable Group also markets end-to-end connections which include radio sites as a collection
network for the roll-out of 3G and 4G to other French national operators. Between 2010 and 2012,
Numericable Group connected approximately 200 sites for Bouygues Telecom, and the Group plans
to connect several thousand sites for SFR.
106
6.5.3.2.4
White Label (DSL)
Numericable Group offers white label double play and triple play access links on DSL (primarily
through unbundling) to third party operators. It began to provide white label DSL triple play services
in 2006 within the context of Darty’s launch of its own triple play offer, the “Darty Box.” By virtue of
this contract, Numericable Group marketed triple play services to Darty, which resold them to its own
customers under its own brand.
As with the white label fiber triple play services of Numericable Group, the white label DSL triple
play services are marketed by virtue of long-term contracts and are adapted to the needs and
requirements of each of Numericable Group’s customers. These contracts include the provision of
television content, high-speed Internet access services and fixed-line telephone services for Darty.
Numericable Group also provides it with certain other products and services such as TV set-top
boxes. For a description of the main terms and conditions of Numericable Group’s white label DSL
contracts, see Section 22.4 “White Label contracts” of this Registration Document.
Bouygues Telecom acquired Darty’s telecommunications operations in July 2012. Numericable
Group expects this acquisition to continue over the long term with the migration of Darty’s customers
to the Bouygues Telecom network. Under the terms of the contract signed with Bouygues Telecom, a
certain number of white label customers were transferred in 2012 to the Bouygues Telecom network
(since these consumers only partially benefited from the unbundling offer on Numericable Group’s
network, even though they were able to completely benefit on the Bouygues Telecom network) but
the remaining customers will not be automatically transferred to Bouygues Telecom’s DSL network.
Numericable Group nevertheless expects Bouygues Telecom to recruit new subscribers on its DSL
network, and for Darty’s churn rate to take lower and lower numbers of white label customers onto
the Group’s DSL network.
Numericable Group provided its white label DSL triple play services to approximately 80,000 end
users as of December 31, 2014. Even though Numericable Group’s white label DSL activity has been
a key element of its growth since 2009, the Group is expecting a decrease this business due to
Numericable’s development of fiber optic access, as well as due to Bouygues Telecom’s purchase of
Darty.
6.5.3.2.5
Customers
Customers of the Wholesale segment include switched voice operators and virtual operators, such as
Paritel and SCT, foreign operators, such as Tata, Verizon, Level(3) and BT, French operators, such as
Bouygues Telecom and local operators, such as Outremer Telecom. Numericable Group is
establishing significant relationships with some customers, such as AT&T.
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SFR Group
SFR Group offers mobile and Internet/fixed-line telecommunications services on three markets: B2C,
B2B and Wholesale and Other. As of December 31, 2014, the Group had nearly 21.3 million mobile
customers and 5.2 million Internet customers.
Trends in the mobile customer base and SFR Group’s fixed-line Internet customer base between 2012
and 2014 (data as of December 31, 2012, 2013 and 2014):
Customer base (in thousands)
Mobile
% change vs n-1
Internet
% change vs n-1
of which high-speed Internet B2C
of which Fiber Customers
2014
21.331
-0.1%
5.228
-0.5%
5.173
255
2013
21.354
3.2%
5.257
3.6%
5.209
197
2012
20.69
-3.6%
5.075
1.1%
5.039
126
The B2C market corresponds to offers and services which are marketed among the general public and
professional customer base (less than 3 employees) in metropolitan France.
The B2B market contains service offers to large corporate customers, SMEs/micro-businesses and
public administrations in metropolitan France.
The Wholesale and Other market includes (i) service offers to virtual mobile operators, MVNOs or
foreign mobile operators whose customers use SFR Group’s network, as well as (ii) voice and data
transmission services, (iii) wholesale services relying on the fiber optic network infrastructure and (iv)
white label DSL offers for telecommunications operators and Internet access providers that are
customers of SFR Group.
6.5.4
B2C Market3
At end-December 2014 in metropolitan France, SFR Group had, through its mobile and fixed-line
B2C offers, 14.0 million mobile customers and more than 5.2 million high and very-high-speed fixedline Internet customers, including approximately 5 million ADSL customers and approximately
255,000 Fiber customers.
SFR Group also has convergent quadruple play fixed-line/mobile offers, as well as B2C adjacent
services, specifically in the cloud or home automation sectors. Lastly, in an effort to recruit and serve
its customers, SFR Group has developed a multi-channel customer relations and distribution
approach.
Customer base (in thousands)
Mobile
% change vs n-1
Internet
% change vs n-1
of which high-speed Internet B2C
of which Fiber Customers
6.5.4.1
2014
21.331
-0.1%
5.228
-0.5%
5.173
255
2013
21.354
3.2%
5.257
3.6%
5.209
197
2012
20.69
-3.6%
5.075
1.1%
5.039
126
Mobile offers
SFR Group is primarily present on the post-paid subscription segment (80% of its mobile customer
base at end-December 2014, as compared to 20% for prepaid offers). The recent changes in the
3
The prices indicated in this section are understood to include all taxes and are drawn from the SFR catalog “The Guide,”
which was valid from November 18, 2014 to January 19, 2015.
108
market have led it to strength the diversity of its offers, and in particular to enhance its premium
offers. SFR Group, as a leading alternative integrated operator, is nevertheless present on the entirety
of the B2C market, including the no-frills segment, as the size of its mobile customer base attests.
6.5.4.1.1
Premium post-paid offers - Formules Carrées packages
The Formules Carrées packages are post-paid mobile telephony premium offers. They are divided into
seven packages. The price of these packages varies from €9.99 including tax per month (price without
a handset for Carré 2H+50 Mo with a 12-month commitment) to €89.99 including tax per month
(Carré 12 Go, with calls to and from international locations, with a subsidized handset and a 24-month
commitment). All these offers include unlimited SMS and MMS but come with a variable volume of
voice and Internet data according to the selected package. Customers that subscribe to these packages
all benefit from the very-high-speed Internet network (Dual Carrier and/or 4G). The Formules Carrées
packages provide customers with a subsidized handset and are enhanced by a set of services:
exclusive “Extra” content by option on the 5Go and plus packages (iCoyote, Napster, CanalPlay, SFR
Jeux, Le Kiosk, L’Equipe), access to SFR Cloud (storage capacity of 10 or 100 Go according to the
packages); some are accompanied by SFR TV options (access to direct or on-demand television from
a cellphone) or MultiSurf (additional SIM cards which allow data to be shared with other devices).
“Carrés services” (Silver, Gold or Platinum) cover a set of services or benefits, such as mobile phone
loan or renewal under advantageous conditions, which are more or less extensive depending on what
package is selected. Some of these offers are also available in blocked packages. Lastly, customers
with Carrées packages can benefit from “Multi-Pack” discounts if they also subscribe to an SFR box
offer.
6.5.4.1.2
Post-paid “no-frills” offers – “RED”:
SFR Group also offers its customers four post-paid RED packages with no commitment and no
handset, which are available at the time of subscription and are primarily supported via a website.
These offers are sold at between €4.99 and €25.99 including tax per month. Customers with RED
packages have access to the same network technologies as customers with Formules
Carrées packages: they can opt for the RED 5 Go package, which offers access to a 4G network and
unlimited access to YouTube videos. Conversely, customers with RED packages do not benefit from
services associated with the Carrées packages and are not eligible for “Multi-Pack” discounts.
6.5.4.1.3
Prepaid offers – “SFR La Carte”:
SFR Group has prepaid offers at attractive prices under the SFR La Carte brand. After a SIM card is
purchased, at the price of €9.99, including tax, it can then be recharged by phone, Internet, by
purchasing coupons or tickets, recharging at physical points of sale, or through ATMs of banks that
are partners with SFR Group. Several ranges of prepaid recharges are accessible to customers: they
offer voice, SMS, MMS, international calls and data packages. They are sold at between €5 and €95
according to their type and the valid term of the credits (from five days to five months).
6.5.4.1.4
Remote access offers – “Connecté Partout” (connected everywhere):
SFR Group offers three packages for web trotters or tablets which provide access to its very-highspeed mobile network (Dual Carrier and/or 4G), which include the SFR Wi-Fi service and SFR TV.
These offers are available with no commitment for €7.99/month for 1Go of Internet and at
€24.99/month for 12Go. Two of these three packages are also available with a 24-month commitment
and reduced-price tablet: they are sold at €24.99 for the 5Go package, and at €34.99 for the 12Go
package.
SFR Group also offers a prepaid package for tablets which is designed for occasional use. The user
purchases a SIM card for €7.99 including tax and benefits from a credit of 200 Mo, which can be used
for two weeks and may then be recharged (using the SFR Connecté Partout recharges).
109
Lastly, SFR Group offers Internet keys and prepaid “ready-to-surf” kits at the price of €9.90,
including 200 Mo of Internet, which can then be recharged (SFR Connecté Partout recharges).
6.5.4.2
Fixed-line telephony offers
SFR Group had approximately 725,000 fixed-line telephony customer households without associated
Internet access as of December 31, 2014 in metropolitan France. SFR Group has two types of offers:
 preselection offers (call-by-call selection or automatic preselection), where
customers keep their subscription with the incumbent operator; and
 offers which include telephone line subscription, where the customer subscribes
for telephone service directly with SFR Group, and no longer with the incumbent
operator.
SFR Group’s fixed-line telephony offer includes options such as voice messaging, three-way
conference functionality, the portability of the customer’s current number, and call transfer, voice
mail and anonymous call rejection services.
6.5.4.3
Fixed-line Internet offers and related services
SFR Group had more than 5.2 million fixed-line Internet customer households in Metropolitan France
as of December 31, 2014 that had opted either for a high-speed connection (“La box de SFR” (“SFR
box”) offer, with ADSL and VDSL, subject to eligibility), or for a very-high-speed connection of up
to 1 Gbps of download speed (“La Fibre de SFR” offer, or the “box Fibre de SFR” offer, subject to
eligibility). All customer households with a fixed-line Internet offer from SFR Group have unlimited
Internet access.
6.5.4.3.1
Fixed-line Internet only offer (One-play)
SFR Group has offers with fixed-line Internet only, which allow high-speed Internet access with
preselected telephony service.
6.5.4.3.2
Bundled offers (double play)
SFR Group also has Internet access services that are part of bundled offers, known as double play,
which also include unlimited telephony service to fixed lines in metropolitan France, in the French
Overseas Departments4 and to more than 100 international destinations, as well as to mobile phones in
China, the United States and Canada. Customers can also subscribe for an unlimited mobile telephony
option in metropolitan France and in the French Overseas Departments (excluding Mayotte) for €5
per month, with no term of commitment, and to a “2h/Algeria” option that allows fixed-line and
mobile calls for €7.50 per month, with no commitment.
This “SFR Box” offer is available to:
4

Customers that have been unbundled by SFR: at the rate of €29.99/month, including tax, plus
the “TV on smartphone, tablets and computers” service (which among other things provides
access to the SFR TV application), billed at €1/month, including tax;

For customers that have not been unbundled by SFR: at the rate of €34.99/month including
tax, plus the “TV on smartphone, tablets and computers” service (which, among other things,
provides access to the SFR TV application), which is billed at €1/month, including tax.
French Guiana, Guadeloupe, Martinique, Réunion, St. Barthélemy, St. Martin, Saint-Pierre-et-Miquelon.
110
6.5.4.3.3
IP television service as part of the triple play offers
(a)
ADSL and “FTTH” fiber optic technology
For customers subscribing to an ADSL or “FTTH” fiber optic offer, an IP television service can be
added to the double play services described above. The addition of this television service enables the
triple play offers to be made.
The “TV Evolution option” television offer is billed at €5/month, including tax. It provides access to
170 channels (including 33 in HD) and to the TV Evolution set-top box. This set-top box allows the
television to be used as a Mediacenter and includes an intuitive 3D navigation interface, which allows
for recording and pausing the direct feed thanks to its integrated hard disk.
Triple play offers to customers are divided into 3 enhanced offerings:
•
The STARTER offer (SFR STARTER box on ADSL or the SFR STARTER Fiber via FTTH
optical fiber), which consists of high-speed or very-high-speed Internet (depending on customer
eligibility), unlimited calls to fixed lines in France and more than 100 destinations, unlimited calls to
mobile phones in France, China, the United States and Canada, as well as the TV Evolution option
with access to the Evolution set-top box and to 170 television channels.
This offer is billed at €39.99/month, including tax, via ADSL or FTTH optical fiber.
•
The POWER offer (SFR POWER box via ADSL or the SFR POWER Fiber via FTTH optical
fiber), which consists of high-speed or very-high-speed Internet (depending on customer eligibility),
unlimited calls to fixed lines in France and more than 100 destinations, unlimited calls to mobile
phones in France, China, United States and Canada, as well as the TV Evolution option with access to
the Evolution set-top box and 170 television channels, as well as the Entertainment + Sports package,
which includes 40 thematic TV channels.
This offer is billed at €44.99/month including tax via ADSL, and €48.99/month including tax via
FTTH optical fiber.
•
The offer with HOME by SFR (SFR Home box via ADSL or Fiber with Home by SFR via
FTTH optical fiber), which is comprised of high-speed or very-high-speed Internet (depending on
customer eligibility), unlimited calls to fixed lines in France and more than 100 destinations,
unlimited calls to mobile phones in France, China, the United States and Canada, as well as the TV
Evolution option with access to the Evolution set-top box and to 170 television channels. This offer
also includes access to the “Video Alarm Package,” Home by SFR and to an “SFR Extra” option.
The “Video Alarm Package” is a home automation offer that is sold separately at €9.99/month
including tax. This offer provides access to a management center for connected equipment, an HD
camera which is connected with an integrated motion detector, internal siren, smoke detector, opening
detector and remote control. The connected objects may be managed on a computer or on the Home
by SFR application.
The “SFR Extras” on ADSL and FTTH optical fiber are value-added services which are options that
can be chosen to supplement an offer. The customer can chose from among the following services: the
Entertainment + Sports Package, which includes 40 thematic TV channels, the monthly VOD 3 Pass,
the Youth Package, which includes access to youth channels and access to youth VOD, and even
unlimited calls to mobile phones in Europe.
This offer is billed at €48.99/month including tax, via ADSL, and €53.99/month including tax via
FTTH optical fiber.
111
Moreover, customers can subscribe to additional enhanced television services as an option (more than
200 additional channels, television on demand/replay, video on demand, program guide, radio, ondemand games).
(b)
FTTLA fiber technology with coaxial termination
Customers that are eligible for fiber with coaxial termination only have access to triple play offers:
consisting of SFR Internet, SFR telephony and “by Numericable” television. These offers are
available with the SFR Fiber box, an all-in-one box that enables access to Internet, telephony and “by
Numericable” television. These are white label offers that are sold wholesale by Numericable and
marketed under the SFR brand in SFR distribution channels.
The “by Numericable” television services constitute the most enhanced offer available, with access to
200 channels, along with “by Numericable TV” services and innovative functionalities such as Restart
(to restart a program from the beginning even though it is still being broadcast,) Picture-In-Picture to
watch two programs at the same time, along with the possibility of recording 2 programs in HD, while
viewing another program. This box also allows the viewer to monitor direct TV, listen to the radio,
navigate on the Internet or even view content on YouTube from the TV.
FTTLA coaxial termination fiber triple play offers to customers are divided among three enhanced
offers:
•
The STARTER Fiber box offer, which consists of very-high-speed Internet of up to 200Mbt/s
(depending on customer eligibility), unlimited calls to fixed lines in France and more than 100
destinations, unlimited calls to mobile phones in France, China, the United States and Canada, as well
as access to more than 200 TV channels and services with the STARTER by Numericable package.
This offer is billed at €39.99/month including tax.
•
The POWER Fiber box offer, which consists of very-high-speed Internet of up to 200Mbt/s
as access to more than 240 TV channels and services with the POWER by Numericable package. This
offer is billed at €48.99/month including tax.
•
The FAMILY Fiber box offer, which consists of very-high-speed Internet of up to 200Mbt/s
as access to more than 280 TV channels and services with the FAMILY by Numericable package.
•
The Fiber with Home by SFR box offer, which consists of very-high-speed Internet of up to
200Mbt/s (depending on customer eligibility), unlimited calls to fixed lines in France and more than
100 destinations, unlimited calls to mobile phones in France, China, the United States and Canada, as
well as access to more than 200 TV channels and services with the STARTER by Family by
Numericable package. This offer also includes access to the “Video Alarm Package,” Home by SFR
and an “SFR Extra” option.
The “Video Alarm Package” is a home automation offer that is sold separately at €9.99/month
including tax. This offer provides access to a management center for connected equipment, an HD
camera which is connected with an integrated motion detector, internal siren, smoke detector, opening
detector and remote control. The connected objects may be managed on a computer or on the Home
by SFR application.
The “SFR Extras” on FTTLA coaxial termination fiber are value-added services, which are options
that can be chosen to supplement an offer. The customer can chose from among the following
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services: the TV POWER by Numericable Package, which includes 40 channels and general TV
services, the Premium Family Pass, which includes access to youth channels and access to youth
VOD, and even unlimited calls to mobile phones in Europe.
All of these offers enable television access on a computer, and access to the SFR TV application,
thanks to which the customer can continue to benefit from box television services from a mobile
phone. The majority of customers with SFR Group Internet offers have opted for triple play offers.
As of December 31, 2014, SFR had approximately 3.4 million customers on its television offer (i.e.,
more than 66% of high- and very-high-speed Internet customers).
6.5.4.4
Convergent fixed-line/mobile offers
SFR Group is developing its household equipment strategy to promote convergence through a catalog
of flexible offers for customers wishing to simultaneously have a premium mobile and fixed-line
subscription. These offers furthermore benefit from other attractive rates, through “Multi-Pack”
discounts.
6.5.4.5
Adjacent services
SFR Cloud: SFR Group offers an online storage space, known as the “SFR Cloud” with all of its
mobile Carrées packages. SFR Group customers can store their multimedia content there (music,
photos and videos) and then see them on their connected devices (computers, smartphones and
tablets) and share them. SFR Group considers this online storage space with hosting in France to be
secure and confidential.
Home by SFR: SFR Group was the first operator to launch a B2C offer in the area of home
automation among telecommunication operators, with its innovative Home by SFR offers. The Home
by SFR offer functions with all Internet boxes, including those of other operators, and is divided into
two ranges of subscriptions: the Home Security package at €9.99 including tax per month and the
Premium Home Security package, at €19.99 including tax per month, which offers additional services
such as, for example, real-time video, or even 24/7 on-site intervention, in addition to services that are
included in the basic package (intrusion deterrence, unlimited alerts, remote management).
SFR Home Box: In June 2014, SFR Group launched a premium offer, the “SFR Home Box,” which
includes the Triple Play Evolution offer, the “Home” home automation and security service, as well as
a choice of premium content or unlimited calls to mobile phones in Europe. The complete offer is sold
at the rate of €48.99 (including €3 of TV options) per month in an unbundled zone (+€5/month in a
zone that is not unbundled).
6.5.4.6
Sales and marketing
SFR Group markets its products by relying on different distribution networks.
6.5.4.6.1
SFR Spaces
At end-December 2014, SFR Group had, for the B2C market (through distribution agreements),
approximately 720 physical stores known as “SFR Spaces” in France, including eight “Experience
stores” (stores of more than 150 m2 established in areas with very high traffic and visibility that offer
demonstration and test spaces which present the latest products and innovations). This network is
included in regular investments with the aim of modernizing and maintaining customers’ quality of
experience in stores.
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SFR also offers a “web to shop” service which allows its customers to order a product online, on the
web or through telesales (for example a mobile phone within the context of signing up for a new
subscription or renewing a mobile phone), and to go pick it up at the SFR space that is closest to
home. Depending on the availability of the desired product, the customer may pick it up in under 48
hours (a service that was launched in 2013) or in under 2 hours (a service that was launched in mid2014).
Furthermore, SFR developed the E-propale service, which allows estimates to be issued by all
methods for a customer contact. These estimates can then be finalized by a sale by the customer
himself, online or through the set of available methods. The service should be completely rolled out in
2015.
6.5.4.6.2
Points of sale, thanks to partnerships entered into with the major
multibrand groups of French retailers
SFR Group also relies on a point of sale distribution network thanks to partnerships that have been
entered into with the large groups of French retailers (specialized stores, major distribution, tobacco
shops).
In particular, SFR Group entered into a partnership with Fnac to distribute its offers through a
dedicated space in the 24 largest Fnac stores.
6.5.4.6.3
Website
SFR Group is offering its products on its website (www.sfr.fr), which receives more than 120 million
visits per month. This site presents all of SFR Group’s B2C offers and emphasizes exclusive
promotions, on both subscription offers and on a range of mobile handsets and accessories. SFR
Group considers this website to be a high-performing tool, which allows it to meet the needs of its
customers, in terms of both premium offers (Formules Carrées packages) and no-frills offers (RED
packages).
6.5.4.6.4
Telephone
Some offers are moreover sold by phone.
SFR Group pays particular attention to developing the complementarity of the different channels it
has developed, in order to meet its customers’ expectations and needs. For example, SFR Group has
established an Internet order service, where items can be picked up at a store.
6.5.5
B2B5
The change in usages reveals new trends on the B2B market, which accentuate the issues of
performance, reliability and, more generally, security. The development of mobility and remote work,
as well as the proliferation of exchanges and collaborative work, have resulted in the growth of data
usage, specifically in terms of mobility, for all customer terminals, and have created new needs for the
virtualization of applications and data. SFR Group is responding to these trends through a catalog of
solutions which have been standardized for all customers. While a certain number of trends are
common with the B2B market, the various customer segments present specific needs. SFR Group uses
the following segmentation to respond to these specific expectations: the major accounts,
SMEs/micro-businesses (micro-businesses representing businesses where the number of employees is
between 3 and 19) and the public administrations in metropolitan France.
5
The prices indicated in this section are understood to exclude taxes, and result from the SFR catalog from late September
2014 (which had not changed as of late December 2014).
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- for major accounts, it offers, through internal sales forces, tailored, reliable and
secure solutions which are based on a combination of standardized products and
more specific additional services. Similar security and reliability solutions are
offered within standardized products to the B2B segment through partner
distribution networks;
- the SME/micro-businesses segment is addressed through standardized, efficient,
reliable and foreseeable solutions in terms of costs.
The intrinsic nature of the B2B customer activity and the growth of complexity in use are today
pushing towards a simplification of the provider offers. SFR Group fully responds to these needs
through unified “all-in-one” communications offers.
Lastly, SFR Group has developed a set of adjacent solutions, which are supplemental to the traditional
offers, and which form part of a future desire for development in strongly growing segments (Cloud,
MtoM, etc.).
6.5.5.1
A catalog of standardized, reliable and secure solutions, for all customers
6.5.5.1.1
Voice and data offers
SFR Group’s mobile offers are intended for all segments of the B2B market, and include five mobile
telephony voice and data packages, which follow the same scheme as the B2C Offers, containing
additional options that integrate unlimited SMS/MMS as well as various levels of data usage, in
addition to four data access packages for tablets and computers, which offer Internet access of 5 Mo
to 12 Go depending on the offers.
6.5.5.1.2
Management and control service offers
Financial management services are offered to businesses. They provide access to simple tools,
including a dashboard of telecommunications expenses and consumption, which allow them to
effectively manage their fleet of handsets.
Handset management and security offers are available to all customers. The Mobile Device
Management (MDM) offer allows the fleet of smartphones and tablets to be remotely managed and
secured, in particular by erasing the business’ information in the event of theft. The handsets are
configured in a centralized manner through a Cloud platform.
6.5.5.1.3
Fixed-line voice offers
Fixed-line voice offers cover two fixed-line telephony packages, which are offered to all customers.
They include calls to fixed lines and mobile phones of the business’ internal SFR fleet with privileged
assistance: dedicated customer service, guaranteed restoration in less than 4 hours with the dispatch of
a technician if necessary and the choice of single, consolidated or separate billing.
6.5.5.1.4
Fixed data offers
SFR Group offers all of its customers two fixed data offers:
-
The iPnet offer via VP N IP SFR DSL, to interconnect the businesses’ various
sites in a private network. Connections can be made using DSL or Fiber
technology. Additional services, remote access, centralized and secure Internet
access or assistance can be associated with this offer;
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-
6.5.5.2
the Connect offer, which provides access to dedicated fiber or single-site SDSL,
with symmetrical guaranteed speed of up to 1 Gbps in fiber or 16 Mbps in SDSL,
and a main router.6
A catalog of specific solutions for the SME/micro-businesses segment, with strong
commercial potential.
6.5.5.2.1
Voice and data specific to SMEs/micro-businesses
For professionals and micro-businesses, the packages offered by SFR Group use the segmentation of
the B2C packages. The Formules Carrées packages also include specific additional advantages which
are adapted to professionals and micro-businesses such as, in particular, scheduling priority
appointments at SFR spaces, dedicated customer service, free Femto technology, a second reimbursed
SIM card, as well as a 10% reduction on each mobile line after subscribing to two 4G Carrées lines.
The mobile offers to SMEs also provide professional telephony services (business directory services,
fleet management, customer area, consumer alert, financial management solutions, etc.) with selected
handsets to meet professional needs, benefiting from a 24/7 exchange service on site.
6.5.5.2.2
Fixed-line services specifically for SMEs/micro-businesses
SFR Group offers a Pro version of its Internet box for small entities, which integrates services that
have been adapted for that segment. It also offers SMEs/micro-businesses high speed and very-highspeed solutions with security services that have been adapted to business’ needs (connection security
and filtering rules, availability of access with backup access, etc.). Lastly, the Cloud Business Store
allows these customers to access a list of applications which correspond to their business sector.
6.5.5.3
Solutions which are specifically adapted to large corporate account segments
The SFR Ipnet offer, which is intended for major accounts and businesses, includes multi-site access
in France and internationally (virtual private network with guaranteed routing and prioritizing of data
traffic). It allows information to be securely transported between all of the business’ sites in France
and internationally, thereby improving the performance of its applications.
The SFR Ethernet offer, which is specifically designed for major accounts, includes access to a LAN
network which allows all of the business’ local networks to be connected through a very-high-speed
medium. It thus allows the network resources of the customer business to be distributed and shared
(LAN network, servers, etc.), and its main sites (headquarters, data centers) to be connected through a
flexible point-to-point architecture, with a broad range of speeds and access (6 Mbps to 1 Gbps).
6.5.5.4
Consolidated (“all-in-one”) communications offers
Three consolidated communications solutions are offered as packages, which provide a solution that
is entirely hosted by SFR, with standard single-site or multi-site centralized telephone service, and
fixed-line/mobile convergence services.
6.5.5.4.1
Business Corporate Package
The Business Corporate Package is offered specifically to large corporations and large corporate
account customers with more than 400 users. This telephony and communications solution, which is
consolidated in Cloud mode, is adapted to each business and relies on four cornerstones: advanced
business telephony and consolidated communications functionalities, on-demand service with pay per
use, the guarantee of a single contact person for an end-to-end commitment, and a Customer Area that
6
Cisco IPv6 ready router.
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enables telephone services to be managed on a daily basis, along with fully independent customer
cooperation. This package is an all-inclusive offer which contains a service platform at its backbone
and centralized operator voice access, which is constructed on the customer’s existing network or SFR
Ipnet. It offers personalized end-to-end assistance in design, roll-out and operations. In addition to the
business’ telephony and cooperation functionalities, users will benefit from a Softphone7 service and a
single number. They can thus be reached at any time within or outside of the business, and on all
types of fixed-line or mobile handsets.
6.5.5.4.2
Business Entreprises Package
The Business Entreprises Package is an offer for various enterprises, from SMEs to major ones that
wish to depend on a player that provides overall management of their business communications
services (not only management of telephony service and equipment, but also telecom uses). This offer
provides a standard telephone service (transfer of calls, call forwarding, conference calls, etc.), but
also Fixed-Line and Mobile convergence services (single number, single messaging, accessibility
rules).
SFR provides a dedicated project manager during the period of on-site establishment and installation
by certified technicians.
6.5.5.4.3
Business Entrepreneurs Package
The Business Entrepreneurs Package, which is offered to micro-businesses, is focused on
telecommunications and Cloud solutions. It is dedicated to businesses with fewer than 20 employees,
and is offered at the price of €159 excluding tax per month for a 36-month commitment. Each
stationary user line (fixed line) beyond the first line included costs €36, excluding tax, per month,
while each additional mobile user line costs €59 excluding tax per month. This end-to-end offer is
also provided in a shared optical fiber version.
6.5.5.5
A complete catalog of adjacent solutions, with strong potential for growth
6.5.5.5.1
Conference call and call sharing offers
SFR Group offers a set of conference call and call sharing solutions, which have been adapted to the
needs of its customers of all sizes:
SFR Business Audioweb Offer
The SFR Business Audioweb offer is an audioconference service which also allows documents to be
shared and transferred. It may be expanded with the SFR Business Conferencing Visio offer, which
includes unlimited video conferencing, document sharing and transfer, a package of high-definition
material (screen, camera, microphone), as well as the operation and maintenance of equipment.
6.5.5.5.2
Machine-to-Machine offers
Machine-to-Machine offers (“MtoM”) allow a group of fixed or mobile machines to exchange
information with a central server, for example global positioning (GPS) services or payment by bank
card.
7
A softphone is an Internet telephony software program, which can be used, among other things, to place phone calls
from a computer.
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(i) MtoM connectivity solutions
SFR Group provides standard connectivity offers. To meet the specific needs linked to critical,
sensitive and/or high volume projects, SFR Group has developed a system for industrial management
of MtoM SIM cards. The latter allows various functionalities to be offered, along with different rates
that are adapted to each phase of the customer’s project, thereby optimizing its chances of success.
(ii) MtoM Trades solutions
SFR offers packaged solutions for bank card payments.
-
The MoneyStore Package offers stationary trades a completed fixed or mobile
solution, including an electronic payment terminal. It offers an unlimited number
of transactions, a monthly communication package, as well as maintenance
service including 24-hr. replacement of the handset. These services are available
for €34.90 excluding tax per month with handset.
-
The Money-n-Go Package, for mobile collections, is also available for the same
price of €34.90 excluding tax per month.
(iii) m-Alert Absolu Solution
SFR Group also offers security services for people and things. The m-Alert Absolu solution is a pocket
GPS alert that uses a mini-GPS box and intelligent networks established by SFR Group. This
innovative device is intended for all professionals that have professions entailing risks, individual
employees (mobile professionals, mobile technicians, physicians, nurses, etc.) and dependent people,
who could be located if needed. The m-Alert Absolu package is offered at the rate of €25 excluding
tax for 24 months.
6.5.5.5.3
Cloud: Infrastructures and IaaS offers
In the Cloud market, SFR Group is present through its own offers and those resulting from its
investment in the independent Numergy Cloud project in which it holds a 47% stake in the share
capital, alongside Bull and Caisse des Dépôts et Consignations.
An on-demand Infrastructure offers of the IaaS type (Infrastructure as a Service), known as the
Infrastructure Cloud Suite, is offered to customers, in particular to major accounts. The offer consists
of a hosting service with virtual servers in a shared environment. It allows the business to manage,
optimize and evolve all or part of its set of information systems infrastructures, on demand and
according to its needs. It is thus a solution which outsources IT resources in a secure environment.
This IaaS solution covers Public or Private Cloud-type needs. The Public Cloud entails hosting
applications and/or a website in a secure third-party user environment, while the Private Cloud
involves an infrastructure that is reserved for the exclusive use of a single organization in a secure and
separate environment.
SFR supplements its portfolio with a hosting service, a content acceleration service and managed
services with turnkey solutions. Furthermore, thanks to its partnership with Hewlett-Packard, SFR
Group is the first French partner to offer an overflow solution (when internal capacities are saturated)
in the Cloud for customers using Hewlett-Packard technology.
6.5.5.5.4
Cloud: collaboration solutions
SFR Group offers a Cloud Storage Suite which meets the needs for secure data storage, sharing and
backup. This all-in-one solution, billed by use, combines three complementary services:
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-
SFR storage: data storage service which respects the ergonomics of the trade
applications to which the business is accustomed.
-
SFR Sync: automatic synchronization service for a business’ data, made available
at all work stations and on all work tools of associates. The files are backed up
with secure access.
-
SFR Backup: automatic backup service for a business’ data which provides
accessibility from any handset. Data security is provided by an encryption service
for all access and storage, to ensure optimal confidentiality.
Among its Cloud collaboration solutions, SFR Group also offers the Collaboration Office 365
package, which combines under a single user license the Microsoft Office tools (professional
messaging, conferencing and instant messaging, online document sharing site, and office
applications), and makes them accessible online at any time.
6.5.5.5.5
Other Cloud solutions
The Cloud Business Store is a sales portal of SaaS solutions (Software as a Service) intended for
businesses, micro-businesses and professionals. It provides them access to a list of innovative and
high-performing online software solutions. Businesses and professionals can find, in addition to office
solutions (Microsoft Office 365), customer relations management, accounting, file storage, marketing,
emailing, security and even telephone conversation translation services. These solutions can be rolled
out in a flexible manner, on all terminals and mobile devices. These solutions include, among other
things, a 100% digital mailing system (e-velop by SFR), an Internet navigation security system (SFR
Proxy Cloud), a multi-channel message distribution service (SFR Push Contact), a simplified website
publication tool (SFR Mon Site Business), and a virtual office in the Cloud (SFR Explorateur de
Cloud).
6.5.5.5.6
Cybersecurity offers
IT security is at the heart of the business of telecommunications and Cloud operators. Strengthened by
its experience in this area, SFR Group has constructed a catalog of security services.
(i) Protection and security of Internet access
SFR Group launched its first managed services in Internet access security and protection starting in
2005. It now offers integrated and managed services, and SaaS Internet security solutions, such as
Internet filtering (Proxy SaaS). It works in close cooperation with security specialists to meet the
security demands of its customers. SFR Group also offers secure management solutions for remote
access terminals and remote access with virtual private networks (VPNs) and secure authentication
solutions, in particular in Cloud solutions.
(ii) Strengthening of levels of protection of business information
SFR Group offers data synchronization, storage and backup solutions. SFR Group also provides
responses to so-called evolved threats, such as attempts at intrusion into systems or denial-of-service
attacks.
“Packaged” IT data security service offers center around four areas: Handsets, Network, Internet and
Cloud. SFR Group offers assistance with certified engineers by publishers of partner solutions.
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6.5.5.5.7
Customer relations offers
(i) Special numbers
SFR Group has been a special number collection operator for nearly fifteen years. Approximately
6,000 businesses are customers of SFR Group’s special numbers (No. 08AB, No. 09, No. 3BPQ,
Proxinum). Overall, the more than 195,000 numbers that were activated on the SFR network totaled
more than 2.1 billion minutes in 2014.
(ii) Telephone assistance: Voice Portal range
The Voice Portal range was designed to assist businesses in their effort to optimize and automate their
telephone assistance. It includes a set of packaged solutions which have been adapted to each
customer’s needs, and are divided among numerous offers (Contact Package, Interactive Package,
VXML Package, Voice Premium Package).
(iii) Contact centers: “Genesys by SFR” and “Cross-Channel Contacts
Center” solutions
The “Genesys by SFR” and “Cross-Channel Contacts Center” solutions cover, respectively, the call
centers for the three major accounts (more than 1,000 telephone representatives) and the mid-market
(50 to 500 telephone representatives). These hosted solutions allow businesses to manage their
incoming contacts in a standardized manner, regardless of the method used by the customer (i.e.,
phone, e-mail, mail, fax, chat, social networks or avatars). Allowing 360° customer vision, these
solutions require strong integration with the customer information system. They are thus intensely
personalized, on-demand solutions.
The Cross-Channel Contact Center solution also exists in a packaged version, which cannot be
personalized, for SMEs (less than 20 telephone representatives).
(iv) Marketing campaign management
SFR Group offers three multi-channel outgoing marketing campaign management solutions: The
MultiChannel Distribution offer, which is designed for major businesses, the Distribution Package, for
SMEs and SFR Push Contact, which is marketed among professionals and micro-businesses. These
three offers allow messages to be sent (individually or via direct marketing) using the method that is
most adapted to the target: SMS, MMS, e-mail, fax or voice message. These campaigns are managed
through an online extranet or Application Programming Interface.
The E-velop offer provides all customers with a 100% digital registered mail service, with
confirmation of receipt, which facilitates the business’ administrative management. This solution has
the legal force associated with sending a classic registered letter to sign or perform a contract.
Registered letters are sealed and identified by a unique identifier.
6.5.5.6
Integration services.
SFR Group offers integrated services, in particular through Telindus France, a company that was
acquired during the 2nd quarter of 2014.
Telindus offers consulting, integration and operations services to businesses in the areas of business
networks (LAN, WiFi), data centers (virtualization and operation), IS security and unified
communications. The Telindus services, which are primarily rendered on the business’ website,
supplement the SFR services (unified communications, IaaS, SaaS, cybersecurity) which are primarily
rendered in hosted (“cloud”) mode, and allow power to be increased through hybrid or integrated
services.
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6.5.6
Wholesale and other
SFR Group is present on the Wholesale and other market offers: It provides the latter with service
offers (fixed-line and mobile voice and data) to route their traffic or to provide them with “white
label” products for their own customers as well as with infrastructure offers (hosting, ducts and fiber).
The extent and quality of SFR Group’s networks, combined with its 16 years of experience on this
market, make SFR a benchmark operator for both its fixed data and voice solutions, and for its
MVNO offers which have been designed for virtual mobile operators. A wide range of offers was
designed to meet the needs of its wholesale customers: transfer and collection of voice and data, call
termination in France and internationally, fiber optic network, DSL access, IP and Ethernet services,
bandwidth and hosting.
6.5.6.1
Fixed-line voice solutions
SFR Group meets the needs for national and international voice transfer through transit, collection and
call termination offers. Thanks to these solutions, third-party operators in France or abroad can use
SFR Group’s network to connect to the networks of other operators.
SFR Group also has turnkey offers for innovative local players (in particular, “switchless”) for
preselection, unbundling of fixed-line voice, resale of subscription and value-added services (08xx
numbers) which allow them to be the sole contacts for their customer, while managing the entire voice
bill. SFR Group supplements its offers to these players with VoIP offers (Voice on IP - telephone
calls via Internet) and Internet access in order to provide a comprehensive solution which meets the
telecommunications needs of their end business customers.
6.5.6.2
Solutions for mobile operators
SFR Group provides full offers on the market of mobile virtual network operators (“MVNO”) which
are intended for operators that do not have a network and who wish to market a mobile offer. SFR
Group has offers for “Full MVNOS” (offer of voice mobile collection, SMS and data), “light
MVNOs” (end-to-end mobile services: national, calls abroad, roaming, etc.), and via MVNO
aggregators that provide turnkey solutions. SFR currently hosts 16 contracting MVNOs on its
network, including 3 Full MVNOs (Virgin Mobile, EI Telecom and Mundio).
6.5.6.3
Roaming solutions for foreign operators
SFR Group welcomes roaming customers of foreign operators on its network, so as to offer them
continued service in France (roaming in). The 584 agreements that SFR Group entered into with the
majority of foreign mobile operators allow it to cover 277 destinations, and to thus offer an equivalent
service to its customers when they are in a foreign country.
6.5.6.4
Data, bandwidth, hosting and infrastructure solutions
In order to meet the needs for Internet connectivity, SFR Group offers end-to-end Internet access (for
a residential or corporate destination). These solutions allow the operator to benefit from SFR’s
network and support. SFR Group also meets the connectivity needs of international operators when
their international customers want to connect their points of presence in France. It also allows
international operators to construct seamless offers which integrate France into their offer
(international IP VPN).
Lastly, SFR Group has IT and telecommunications equipment hosting capacities, which it markets
among international players as a supplement to its data transfer and connectivity services. Its
infrastructure offer also includes the sale of access to its ducts or fibers.
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6.5.6.5
Operations of Société réunionnaise du radiotéléphone (SRR)
Société réunionnaise du radiotéléphone, a subsidiary of SFR Group, operates in Réunion and Mayotte,
on the B2C and B2B markets. In mobile, this subsidiary holds a GSM license (second generation) and
a UMTS license (third generation), and covers more than 99% of the population for 2G and 96% for
3G in Réunion.
On the B2C market, SRR provides fixed and mobile offers. Mobile offers under the SFR Réunion
brand8 include four Carrées packages, two blocked Carrés packages and a prepaid card package. The
NRJ Mobile brand, which is primarily intended for young people, includes offers for a prepaid card
and blocked package.
-
The Formules Carrées packages are available with or without a commitment, and
with or without a handset. Their rates (with a commitment for 12 months or 24
months with a handset) vary from €19 to €89 including tax per month, according
to the voice, SMS/MMS and data package.
-
SRR also offers two blocked Carrés packages, which are also available with or
without a commitment and with or without a handset, for prices ranging from €19
to €29 including tax per month (with commitments of 12 months or 24 months
with a handset).
-
The La Carte and NRJ Mobile prepaid cards, with no commitment, are available
at the price of €15 via the kit.
-
Lastly, SRR has remote access offers: The Carré tablet and key offers, for which
the rate varies between €30 and €40 (with commitments of 12 or 24 months and
handset) and SFR La Carte Internet (price ranging from €4 to €19).
-
The fixed-line B2C offers include a triple play offer at the rate of €49.90
including tax per month, along with an offer including a telephone subscription
and Internet access at the rate of €24.90 including tax per month (calls to fixedlines in metropolitan France and Réunion are billed at €0.09 per minute).
On the B2B market, SRR provides voice offers: the Formules Carrées packages, ranging from €19 to
€89 excluding tax per month (with mobile and commitment), and the Evidence meter for fleets of
fifteen lines and more. SRR also provides data offers, which include MtoM solutions as well as
Formules Carrées formulas for tablets and Internet keys. Seven of its stores (“SFR spaces”) are
moreover equipped with a specific front desk dedicated to businesses.
Furthermore, SRR offers, through the website redbysfr.re, no-frills offers through a package that can
be personalized, or an all-inclusive 1 Go package.
In Mayotte, SRR also covers the B2C and B2B markets. In mobile, it covers more than 99% of the
territory (more than 99% of the population) in 2G, and more than 72% of the territory (more than 87%
of the population) in 3G+. On the B2C market, SRR offers, under the SFR Mayotte brand, mobile
offers (Halo blocked or unblocked packaged, blocked 976 Mobile package, prepaid Yangou La Carte
and 976 Mobile cards, Internet 3G+ key) and fixed-line offers (Neufbox offers, including a triple play
offer). On the B2B market, SRR provides, under the same brand as that used on the B2C market,
voice solutions (Halo Pro) and data solutions (Internet mobile 3G+, Internet MtoM).
8
List of valid offers as of December 31, 2014.
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6.5.6.6
SFR Collectivités operations
SFR Collectivités, a subsidiary dedicated to local authorities, was formed to assist SFR Group in its
network and services roll-out strategy, within the context of local authorities’ needs. Beyond the
cooperative relationship with SFR Group and these authorities, SFR Collectivités also manages major
long-term partnerships such as Public Initiative Networks (“RIPs”). These physical networks which
were constructed by regional authorities with the participation of the private sector, are in large part
managed in the form of Public Service Concessions (“DSPs”). SFR Collectivités handles the roll-out
of fixed and mobile infrastructures in order to enhance the attractiveness and coverage of territories,
and may assist authorities with design and even the operation of these telecommunications networks.
At the date of this prospectus, SFR Group is the leading operator in the area of public initiatives
networks, with 28 public initiative networks among its assets.
6.5.7
Associates’ operations
The main associates are:
6.5.7.1
La Poste Telecom
SFR Group holds 49% of La Poste Telecom, which markets offers for telephony, subscriptions and
prepaid offers under the La Poste Mobile brand in the postal office network. La Poste Mobile is an
MVNO (Mobile Virtual Network Operateur) on the SFR network.
6.5.7.2
Synérail
SFR Group has a 30% stake in Synérail, alongside Vinci (Vinci Energies and Vinci Concessions) and
AXA (AXA Infrastructure Investissement SAS, AXA UK Infrastructure Investissement SAS, AXA
Infrastructure Partners FCPR) (each having 30%) and TDF (10%), and this company has signed a
GSM-R public-private partnership contract with Réseau Ferré de France. This contract, worth a total
of €1 billion over a 15-year term starting on March 24, 2010, is to finance, build, operate and maintain
a digital telecommunications network that will provide voice and data communication between trains
and ground control teams in conference mode. It allows a European network to be built with a unique
communications system that is compatible and harmonized between rail networks to replace the
existing national radio systems. This network will be rolled out gradually on 14,000 km of traditional
and high-speed rail lines in France. SFR Group also participates as a service provider in the GSM-R
network building and operation phase through Synérail Construction and Synérail Exploitation, which
it holds jointly with Vinci Energies.
6.5.7.3
Numergy
SFR Group has a 46.7% stake in Numergy, in association with Bull (20%) and Caisse des Dépôts
(33.3%). The purpose of the company is the development, operation and marketing of cloud
computing services.
Virgin Mobile
On December 5, 2014, Numericable Group acquired Omer Telecom Limited, which operates in
France as Virgin Mobile.
Virgin Mobile France was formed in 2006, and is the most important MVNO on the French market in
terms of subscribers. It is strengthened by its reputation for innovation and reliable customer service,
offering a wide range of contract rates and options that meet customers’ various needs. Virgin Mobile
France only operates in France.
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Virgin Mobile France has invested in the development of a full MVNO infrastructure (“full MVNO”;
in other words, it operates its own backbone elements and interconnection equipment, but must use
another operator’s radio network), allowing it to thus benefit more widely from sources of revenue
that are generated by consumers, including call termination expenses, and to reduce its costs. It also
provides additional strategic flexibility by giving greater control of its customers. 77% of Virgin
Mobile customers were on the “full MVNO” infrastructure as of March 31, 2014.
Virgin Mobile also has a distribution network with a portfolio of 76 single-brand Virgin Mobile points
of sale (independent or its own) and a well-established online platform.
Virgin Mobile provides its mobile services by using the networks of Orange, SFR and Bouygues
Telecom and, for 4G, SFR and Bouygues Telecom.
The following tables provides certain key performance indicators for Virgin Mobile as of March 31,
2013 and 2014
(in millions)
Postpaid customers
Prepaid customers
Total number of customers
ARPU for mobile (including the margin
linked to insurance)
high-speed ARPU (including OTT)
As of March
31, 2013
1.35
0.37
1.71
As of March
31, 2014
1.32
0.35
1.67
24.3
23.2
29.8
33.4
Source: Virgin Mobile
As with other mobile telephony operators in France, Virgin Mobile is adapted to difficult market
conditions, and specifically to intense competition. This has caused pressure downward on the ARPU
and customer base, as indicated in the chart above. Virgin Mobile has continued to focus on
innovative proposals and first-rate customer service to differentiate itself despite the strongly
competitive market. As of October 1, 2014, 93% of postpaid subscriptions were on offers launched or
modified subsequent to Free’s market entry in January 2012.
The Virgin Mobile offers are available with just a SIM card or with a mobile phone (and a 24-month
commitment). The following table describes the Virgin Mobile France offers in March 2015:
Data
Calls/SMS/
MMS
SIM Card
only, monthly
price
With mobile
phone,
monthly price
100 Mo of
4G data
1 Go of data
4G
3 Go of 4G data
3 hours of
calls and
unlimited
SMS/MM
S
Unlimited
calls and
unlimited
SMS/MMS
3 hours of
calls and
unlimited
SMS/MMS
Unlimited
calls and
unlimited
SMS/MMS
Unlimited calls
3 hours of calls to 69
and unlimited
destinations
SMS/MMS
(France +
international)
and unlimited
SMS/MMS
€4.99
€10.99
€10.99
€14.99
€19.99
€19.99
€13.99
€19.99
€19.99
€24.99
€36.99
€36.99
Virgin Mobile also offers a Virgin Box by SFR offer (triple play) at €29.99, which consists of Internet
access, unlimited calls to fixed lines and more than 80 destinations, along with a complete TV offer
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which functions with the SFR Evolution set-top box. This TV offer includes more than 170 channels,
36 of which are in HD, more than 10,000 VOD programs and films and 200 optional channels (Be in
Sport, youth package, etc.).
The Virgin Box is available under a quadruple play offer starting at €29.99 per month, and also
includes a mobile package at €0 (3H/SMS/MMS/100Mo). This quadruple play offer also allows for
access to a mobile package at €15, which includes unlimited calls and 20 Go of Internet, which results
in an extremely generous offer.
6.6
GROUP NETWORK
Numericable Group Network
6.6.1
Network overview
Numericable Group has a vast network that supplies both switched voice and data services. Its B2C
and B2B segments each benefit from the Group’s vast backbone. As of December 31, 2014, the length
of the fiber pairs on the national long-distance network was approximately 13,000 kilometers. This
access network includes hybrid fiber-coaxial (HFC) intended for homes, more than 80 fiber optic
urban networks connecting private corporate sites and public sector sites in densely-populated
business districts and a vast DSL network covering its switched voice lines with 754 subscriber
network access nodes. Covering approximately 35% of homes in mainland France, Numericable
Group network is concentrated in the more densely-populated areas but does not cover the entire
French territory.
Numericable Group’s fiber optic/cable network is one of the two largest end-to-end French networks
with a vast local loop infrastructure; the other one is Orange’s network. As of December 31, 2014, the
Numericable Group network was serving approximately 10 million (i.e., around 35% of French
homes), of which around 6.3 million homes passed by the FTTB network/a network equipped with
EuroDocsis 3.0, approximately 2.5 million homes passed by the network equipped with EuroDocsis
2.0 and 1.4 million homes passed by the standard coaxial cable network (which does not have twoway capacity and is therefore limited to television services). In 2014, Numericable Group increased
the number of homes connected by FTTB/EuroDocsis 3.0 by 800,000. The Group will continue the
renovation of the triple play local loops not replace with optical fiber to make them compatible with
the EuroDocsis 3.0 technology. See Section 6.6.4 “Recent and scheduled network investments” of this
Registration Document. As of December 31, 2014, more than 85% of the Numericable Group global
network in terms of homes passed is equipped using EuroDocsis 2.0 or EuroDocsis 3.0 technology.
Moreover, 85% of homes connected to the Numericable Group network benefit from a frequency of
862MHz (namely they are triple play ready). The portion of the Numericable Group network that has
already been upgraded to FTTB and uses EuroDocsis 3.0 technology currently offers a download
speed of up to 800 Mbps; this is the fastest speed available in France which allows Group customers
to connect several devices at the same time (computers, televisions, touchscreen tablets and
smartphones), without affecting the quality of the television signal. The Group believes that this
download speed and its separate flows for television and the Internet give it a competitive advantage.
The portion of the Numericable Group network that uses EuroDocsis 2.0 technology offers a
download speed of up to 30 Mbps, which, Numericable Group believes, is higher than that offered by
its DSL competitors. Each of the EuroDocsis 3.0 and EuroDocsis 2.0 technologies are used by
Numericable Group to offer its B2B subscribers triple or quadruple play offers and interactive
services needing broad bandwidths and benefiting from a frequency of 862MHz. The Group considers
the quality of image of its television offers, particularly for HDTV channels to be better than that
offered by the IPTV technology used by its competitors on the DSL lines and believes that this will
affect the choices made by customers, particularly by subscribers with large-screen TVs.
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The B2B segment of Numericable Group relies on urban fiber optic networks situated in large cities
and installed in more than 80 densely-populated business districts in France. The existence of these
MANs makes it possible, among other things, to connect new B2B customers by means of limited
capital expenditures. The Numericable Group DSL network connects the sites that are the furthest
away from its B2B customers. Completel has made a Commitment to sell of its DSL network
following the French Competition Authority’s decision of October 27, 2014 which authorized the
SFR Acquisition. For more information, see Section 5.1.5 “History and recent developments of the
Group” of this Registration Document.
The Numericable Group urban fiber optic networks and the DSL network supply complementary
access technologies that can be used to meet the demands of its B2B customers, which vary
depending on the bandwidth and security requirements for their sites. As a general rule, Numericable
Group connects large and/or sensitive sites of its B2B customers by optical fiber to its network, as
long as they are situated within a radius of 500 meters from the Numericable Group urban networks.
The secondary sites of key B2B customers, and the medium-sized enterprises subscribing to the
Group’s “Completude Max” service, are connected by optical fiber. The secondary sites of customers
situated outside the range of the Group’s DSL network are connected via DSL lines or lines rented
from other telecommunications operators. The Group believes that direct connections supporting fiber
optic and DSL access in a complementary manner meet very well the needs of its customers in terms
of bandwidth, technological and geographical complementary solutions and end-to-end quality
control. The Numericable Group national CORE IP network is one of the few “100Giga ready”
networks in France to be operative and covers the link between Paris and Lyon; its VoIP network
(which the Group believes to be one of France’s most technologically advanced networks) can adapt
to multiple technologies and accordingly provide the responsiveness necessary to meet its customers’
needs.
Numericable Group owns the hybrid fiber-coaxial cable of its network, as well as its equipment, headends, nodes and certain other parts of the access network, including the long-distance backbone
network. The civil engineering installations in which the cables are installed (like the conduits and
pylons) are owned by Numericable Group or Orange; in the latter case, the Group has access by
means of long-term IRUs. See Section 6.6.2 “History of the network and ownership” below. Several
telecommunications operators can occupy or use the same civil engineering installation or even the
same telecommunications equipment, without affecting the quality of the service provided.
The graphs shown below describe the combined fiber optic, coaxial cable and DSL networks of
Numericable Group used for its B2C, B2B and wholesale services, including the Group’s backbone,
as of December 31, 2014:
126
The B2B network (backbone)
The B2C network (local loop infrastructure)
Number of homes
passed
(departments)
6.6.2
>40% (11)
25-40% (17)
15-25% (19)
1-15% (22)
<1% (29)
History of the network and ownership
The Numericable Group network was built through the acquisition and combination of entities that
had themselves built their cable networks under the scope of various legal rules and regulations, such
as the 1982 Cable Plan (Plan Câble) and the 1986 New Deal Plan (Plan Nouvelle Donne). For a
description of the Cable Plan (Plan Câble) and the New Deal Plan (Plan Nouvelle Donne), see
Section 6.12.1.4.1 “Network using Orange conduits” and Section 6.12.1.4.2 “The implementation of
networks under the scope of the New Deal Plan (Plan Nouvelle Donne)” of this Registration
Document. As a result of this heritage, French cable networks were owned and operated by separate
entities that had potentially conflicting interests. This split intensified the regulatory complexity and
slowed cable expansion in France compared with the rest of Europe. However, market consolidation
began in December 2003 when the limit on the number of homes connected to a single cable operator
(8 million) was abolished.
Numericable Group’s urban fiber networks were built or acquired by Completel, which completed
construction of urban networks in nine regions of France in 2001. It then continued to build and
acquire urban networks, meaning that in 2007 it had 10 urban networks and as of December 31, 2014,
a total of 80.
Numericable Group’s global network consists of a combination of networks that Numericable has
inherited from the cable operators it has acquired and the networks built and acquired by Completel;
since 2008, it has, in practice, been managed as a single network to meet the needs of all market
segments of the Numericable Group (B2C, B2B and wholesale). It is used in accordance with several
long-term IRUs and public property occupancy agreements. For more information on these
agreements, see Section 22.3 “Infrastructure and network agreements” of this Registration Document.
Fifty-five percent of the Numericable Group’s current network was built during the early 1980s under
the Cable Plan (Plan Câble) by the French government and thereafter transferred to Orange. It was
originally operated by some of the Group’s predecessors, privately and publicly funded local entities
which Numericable Group later acquired. At the time of these acquisitions, Orange granted
Numericable Group several IRUs covering its infrastructures (mainly the conduits). These IRUs,
which were stipulated on different dates, were granted to Numericable Group for terms of 20 years
each and the renewal of the first of them was to be negotiated by the parties in 2019. For a description
of the IRU agreements of Numericable Group with Orange, see Section 22.3.1.1 “Indefeasible rights
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of use (IRUs) of Orange” and Section 6.12.1.4.1 “Network using the conduits of Orange” of this
Thirty-eight percent of Numericable Group’s network was built by some of its other predecessors
under the scope of the New Deal Plan (Plan Nouvelle Donne), a set of regulatory rules that allowed
local authorities to set up their own networks or have networks built by private companies to which
operating agreements were thereafter assigned for the use of cable television networks on their
territory, with terms of 20 to 30 years. For a description of the long-term contracts signed by the
Numericable Group with the local authorities concerning the installation and operation of the
Numericable Group cable network, see Section 22.3.1.2 “Contracts signed with the local authorities
under the scope of the New Deal Plan (Plan Nouvelle Donne)” and Section 4.4.2 “The legal status of
the Group’s network is complex and, in certain cases, is subject to renewals or challenges” of this
Seven percent of Numericable Group’s current network is governed by ad hoc agreements such as
lease agreements (namely a form of delegation of public services by virtue of which Numericable
Group leases a whole network) or public property occupancy agreements (i.e., a form of delegation of
public services by virtue of which Numericable Group installs the equipment necessary on the public
domain). These agreements are signed for terms that range from ten to thirty years with the local
authorities, mainly municipalities. See Section 22.3.1.3 “Other agreements with the local authorities”
and Section 6.12.1.4.3 “Other networks” of this Registration Document.
Numericable Group’s cable network is relatively recent compared to the copper pairs of the DSL
networks of other competitors, and the Group has an advantage over those competitors as the
forerunner in the field of fiber optics in France.
6.6.3
Technical characteristics
The backbone (which designates the main voice and data transmission routes between large networks
that are strategically interconnected and the main routers) is used by the Group to route the digital
signals of subscribers throughout France. As of December 31, 2013, the length of the fiber pairs on
the national long-distance network was approximately 13,000 kilometers. The backbone of data
currently functions in “All-IP” and transports all Group communication using specific bandwidths for
each of the Group’s digital services, digital television, high-speed Internet, B2B data services and
B2C fixed-line telephone services. The backbone of voice routes Group switched voice
communication traffic. The Group believes that this backbone is entirely able to meet the needs of its
subscribers.
The portion of the Group network that uses a standard coaxial cable to supply analog and digital
television to approximately 1.5 million analog homes is not connected to the Group backbone.
The routers set up before 2007 (i.e., before EuroDocsis 3.0) enable download speeds of up to 100
Mbps and the Docsis 3.0 routers enable download speeds of up to 400 Mbps.
The distribution of Numericable Group services within densely populated metropolitan areas is
assured by means of a local loop that is connected to the backbone and can meet the increased
capacity demands. The Group owns the local loop connected to its network.
Subscribers in the B2C segment connect to the network via a coaxial cable connection from one of the
Group’s nodes.
The quality of the network may deteriorate where the penetration rate of a specific node increases
beyond a certain threshold. If necessary, the adaptability of the Numericable Group network enables it
to solve this problem, to a certain extent, thanks to a “division” of the node and the installation by
Numericable Group of supplementary equipment at the node level, meaning that the same capacity
services approximately half the number of homes. Numericable Group uses amplifiers on a portion of
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the coaxial lines to reinforce the downlink and uplink signals (return paths) on the local loop, but not
on a portion of the network equipped in EuroDocsis 3.0 to which subscribers are relayed by means of
an FTTB connection. FTTB technology enables the deployment of optical fiber to generally reach the
property limit of Numericable Group subscribers, like the basement in a house, with the final
connection of the individual space ensured via alternative non-optical means, generally a coaxial
cable.
Numericable Group constantly monitors the performance levels of its networks. The backbone
network has been designed in such a way as to include redundant functions in order to minimize the
risk of network failures and natural disasters and to re-route traffic in a reverse direction around the
backbone if a section of the backbone should be cut-off. Although Numericable Group has insured its
buildings, network head stations, nodes and associated network equipment against the risk of fire,
flooding, earthquake and other natural disasters, they are not insured against war, acts of terrorism
(except to a certain extent under the scope of the general insurance of the Numericable Group assets)
and cyber-risks. Numericable Group has insurance for its fiber optic network and insurance covering
damage to assets for its coaxial cable network up to a certain level of cover and with some exclusions.
6.6.4
Recent and scheduled network investments
Numericable Group plans to continue rolling out fiber optic selectively and continuously, particularly
where greater density of its fiber optic network is necessary in order to improve the service provided
to its subscribers. Numericable Group regularly improves its network to equip it with EuroDocsis 3.0
technology at the latest when transitioning to FTTB technology. It constantly upgrades and renews its
B2B connections in order to remain in line with consumer demands and expectations.
Numericable Group has increased the number of homes connected by FTTB/EuroDocsis 3.0 in recent
years. Numericable Group had upgraded the connection of 114,000 homes for the year ended
December 31, 2011, 503,000 homes for the year ended December 31, 2012, 408,000 homes for the
year ended December 31, 2013 and close to 850,000 homes for the year ended December 31, 2014.
The Group intends to continue to renew the triple play local loops that have not been renewed in
optical fiber to make them compatible with EuroDocsis 3.0 technology.
For B2B customers, one of the advantages of the Numericable Group network is its adaptability, with
fiber optic and DSL making for a major technological advantage. Numericable Group is able to use its
fiber optic network to establish a direct connection with the sites of customers with important needs in
terms of capacity, with an average capacity in excess of 125 Mbps and a growing number of gigabit
sites, and its DSL network for the customers’ secondary sites whose capacity needs are smaller. As of
December 31, 2014, Numericable Group had more than 300 fiber connection points through to the
Gigabit, of which half are ready to receive services guaranteed to 500 Mbps.
The SFR Group network
Through its network, SFR Group aims to bring a high-quality high-speed and very-high-speed
experience to all its private, professional or business customers, both for fixed-line and mobile
services, whatever the place of use.
To this end, SFR Group has invested in its network infrastructures in order to be able to develop
innovative, convergent high-quality services, while keeping costs under control. These networks
enable fixed-line and mobile voice and data traffic to be routed throughout France, but they are also
interconnected to the networks of the rest of the world by means of interconnection agreements or
transitional agreements.
SFR Group intends to continue to invest in advanced technology that enables it to get ahead of market
trends and cover future traffic needs. This choice is laid out in mobile, more specifically through the
deployment of 4G and in fixed-line through the development of very-high-speed fiber optic networks
in particular. In order to continue to control costs while improving the coverage and quality of its
129
networks, SFR Group relies on its partnerships for the sharing of fixed-line very-high-speed networks
(namely with Orange) and more recently of mobile networks (with Bouygues Telecom).
6.6.5
Overview of the SFR Group network
6.6.5.1
A directly-owned full network infrastructure
In order to offer all its customers a top quality user experience, SFR Group has developed its own,
unique transport network, enabling all its mobile and fixed-line traffic to be routed. This network is
based on a modern, high-quality infrastructure, both as regards its backbone and its mobile and fixedline access networks: a development that was made possible thanks to the resources made available
for some years now for the deployment and maintenance of the SFR Group networks.
SFR Group has one of the three large backbones in France (alongside those of Orange and
Numericable-Completel). This backbone represents a transport infrastructure of national scope with
close to 50,000 km in fiber optic enabling the connection of more than 160 metropolitan loops in the
territory. It is accompanied by a network with more than a hundred or so data centers, spread
throughout the territory. For example, the largest SFR Group site, with almost 12,000 m² occupied,
hosts 62 international telecommunications operators accounting for almost 50% of Internet traffic in
France.
More specifically, as regards its mobile access network, SFR Group has more than 18,500 radio sites,
each comprising emission/reception equipment (base station), transmission equipment and
environment infrastructures (e.g.: pylon, technical room, energy workshops, antennas, etc.). These
radio sites are relayed to the fiber optic backbone via the fiber optic connections or radio connections
either of its own or through the links leased to Orange. It owns almost 5,200 pylons of which almost
half are installed on land it owns.
To operate on this mobile network, SFR Group has made considerable investments in purchasing
mobile frequencies from the different auction-offs organized by the regulatory authorities in the past.
It therefore today has a diversified catalog of frequencies (2G/3G/4G) and an allocation of spectrum
that suffices to cover its current and expected requirements.
Frequencies
Allocation of SFR Group
spectrum (MHz)
Expiration dates
Current technologies10
800 MHz
900 MHz
1,800 MHz9
2.1 GHz
2.6 GHz
2x10
2x10
2x20
2x14.8 + 5
2x15
2x3.8
2x5
3/25/2021
8/21/2021
5/25/2016
6/8/2030
2G (GSM)
3G (UMTS)
1/17/2032
4G (LTE)
3/25/2021
2G (GSM), 3G
(UMTS)
9
“Refarmed” spectrum situation on the frequencies of 1800 MHz after May 25, 2016.
10
Current use of technology for these frequencies.
130
10/11/2031
4G (LTE)
As concerns its fixed-line access network, SFR Group relies on an unbundled DSL network of almost
6,700 unbundled main distribution frames (MDFs) as of December 31, 2014. This unbundled network
enables it to act as Internet access supplier, using the Orange copper connection links.
Since 2007, SFR Group has also been using its subscriber connection links by means of optical fiber
(fiber to the home - FttH), which enables it to supply speeds of up to 1Gbps. This deployment relies
on a network of 270 Optical Distribution Frames (ODF) from which the final links depart to connect
its private and business customers in optical fiber, enabling them to use Orange’s copper connection
links.
6.6.5.2
A high-performing, reliable network
6.6.5.2.1
(i)
Extensive coverage meaning that connectivity needs can be met across the
territory
Mobile coverage
Through significant deployment on its radio sites of the different 2G and 3G technologies, SFR Group
today aims to cover all mobile connectivity needs in mainland France. Accordingly, as of December
31, 2014, the mobile network of SFR Group covers 99.7% of the French population in GSM/GPRS
(2G) and more than 99% of the population on the UMTS/HSPA (3G/3G+) network. At that same
date, SFR’s 4G network covers 50% of the population of mainland France.
In order to ensure the best possible coverage with very-high-speed mobile, SFR Group also uses Dual
Carrier technology (DC-HSDPA+ network, the latest evolution of 3G), thereby covering more than
75% of the population and successfully doubling download speeds of up to 42 Mbps (source: reported
to ARCEP by SFR Group as of July 1, 2014).
In order to support new uses of mobile Internet (data traffic increased by 40% from 2013 to 2014 in
3G and by 95% overall, considering traffic on the SFR 4G network), it continues to extend the
capacity of its 3G network.
Finally, continuously striving to adapt to new uses and to improve user experience, SFR Group uses
all the possibilities created by its network infrastructure and its choice of technologies. Accordingly,
in 2013 it was the first operator to have deployed 4G on line A of the Paris RER, thanks to its
partnership with RATP. In addition, it plans to extend it to include other metro and Paris RER lines.
(ii)
Fixed-line coverage
As of December 31, 2014, SFR Group’s network numbered close to 6,700 Main Distribution Frames
(MDFs) and covered 28 million lines, with 87% of the population covered, with SFR able to unbundle
its voice, Internet or television services on IP based on line eligibility for these services (source:
Ariase).
Moreover, SFR Group has also built an optical network that enables it to connect its 270 Optical
Distribution Frames (ODFs), making 2.3 million homes in mainland France eligible for FTTH fiber as
of December 31, 2014.
DSL coverage
Fiber network at end-2014
131
6.6.5.2.2
Performance of the mobile and fixed-line networks adjusting to the main
expectations of users
SFR Group has designed, developed and deployed its network with the goal to meet all user
expectations, both in terms of fixed-line and mobile telecommunications.
Accordingly, for the mobile network, where the notions of quality of use and failure rates are
particularly important to customer satisfaction and overall experience, SFR Group is focused on its
capacity to deploy a network allowing for sufficient speeds to address the specific uses of each of its
users. For example, it was the main mobile operator in France to use low frequencies, referred to as
“golden frequencies” (800MHz), to optimize its network’s cover and quality, while using high
frequencies to ensure sufficiently high speeds to cope with the voice and data traffic demand.
For the fixed-line network, reliability of connectivity and equipment (specialy “La box”) in the longterm is essential to user satisfaction. SFR Group therefore seeks to offer top notch performance in all
of its fixed-line services (Internet, telephone and television). SFR Group’s DSL network, for example,
boasts one of the lowest ADSL failure rates after 30 days (source: ARCEP, measurements of quality
of access to fixed-line services in the 2nd quarter 2014).
6.6.6
6.6.6.1
Continued development of a very-high-speed permanent infrastructure using the
best technology available
Mobile network
6.6.6.1.1
(i)
Deployment of 4G technology
Gradual, systematic deployment of Single-RAN technology
Access to SFR Group’s mobile network consists of more than 18,500 radio sites, equipped with one
or more items of emission/reception equipment (base station), each dedicated to a single technology
(2G or 3G) or latest generation equipment “Single-RAN,” which enables 2G, 3G and 4G technology
to be managed by means of a single item of equipment.
SFR Group makes the most of its deployment of 4G technology to systematically replace its older
antennas by using Single-RAN technology, thereby enabling its customers to benefit from a highquality, very-high-speed network, while also making the most of the technical and financial benefits
brought about by this technology.
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In actual fact, this technology has some technical advantages. First and foremost, it enjoys higher
performance (quality of mobile voice in 4G or 3G cover, increased 3G capacity) thanks to its capacity
to use optimal technology (3G/4G) and frequencies (specifically 900 MHz). The effectiveness and
reliability of connectivity are also optimized, thanks to the use of unique transmission technology
(comparable with the use of several technologies on alternative equipment, referred to as “Overlay”).
Finally, it facilitates technological evolution (introduction of 3G 900 or 4G 1800 for example), thanks
to a simple software evolution, with no intervention on the physical components. It also has
prerequisites by which to evolve towards LTE-Advanced (4G+) technologies.
The use of the Single-RAN technology also enables the generation of a certain number of economic
benefits, particularly due to the reduced amount of equipment necessary. Thus the reduction of
maintenance works makes it possible to save on operating costs, while the facilitation of technological
evolution and the reduction of the number of sites required reduce investments.
Finally, this technology also improves the customer experience in a parallel fashion, thanks to a
greater fluidity of the network (due to better cover and availability) and increased capacity over all
frequencies concerned by this technology (2G/3G/4G). This additional performance is also further
reinforced by the desire of SFR Group to develop fiber optic connections (“backhaul” links).
(ii)
Focus on the “golden frequencies”
In 2012, SFR Group was the first operator to have a 4G offer following the 2011 acquisition of the
800 MHz so-called “golden frequencies,” again in a bid to meet its customers’ coverage requirements.
They have better propagation properties (specifically within buildings) than the higher frequencies
like the 1,800 MHz and 2,600 MHz, and also require fewer antennas to cover the same surface.
On these 800 MHz frequencies, SFR Group thus has, as of January 1, 2015 a total of 3,758 antenna
authorized as compared with 4,295 for Orange and 2,949 for Bouygues Telecom (source: ANFR);
Free was not awarded the golden frequencies (800 MHz) during the 2011 auction-offs organized by
the Regulatory Authority.
This focus on the “golden frequencies” means that initially, SFR Group can speed up its geographic
coverage on 4G technology, while meeting current capacity requirements. It will concentrate on
progressive capacity investments at a later stage, so as to meet the demands of its customers. This
increased capacity will be facilitated by means of the Single-RAN technology, which enables the
interchangeability of frequencies, and by the activation of “high” frequencies (1,800 MHz and 2,600
MHz), which enable SFR Group to offer download speeds of up to 112 Mbps.
6.6.6.2
Fixed-line network
6.6.6.2.1
Progressive deployment of fiber optic based FttH technology
SFR Group benefits from what has historically been very good DSL technology coverage; currently, it
is looking to develop the very-high-speed (speeds in excess of 30 Mbps) so as to meet the gradual
increase in users.
This is why SFR Group has chosen to develop and deploy FttH (Fiber to the Home) technology,
thereby successfully addressing these needs through higher performance, particularly in terms of
speed. At the date of this Registration Document, 2.3 million homes are passed by SFR via FttH
technology. SFR Group has also been a pioneer of increased fiber speed, as it was the first to market
an offer in 2013 with a speed of 1 Gbps (theoretical download speed).
FttH technology specifically benefits from a longer life span than other new generation technologies
and has significant potential for evolution (for example, since 2012, SFR Group has been deploying
evolutionary equipment towards XGPON technology that enable speeds to be offered of up to 10
Gbps, namely 10 times more than the GPON technology currently used). Moreover, the symmetry of
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the upload and download speeds of optical fiber, associated with the better performance in terms of
speed mean that advanced applications such as remote medicine can be developed. Finally, and unlike
other technologies such as VDSL, where actual speed decreases as the distance increases, it is not
technically limited by distances to connection nodes.
6.6.6.2.2
A pragmatic approach to speed up deployment of the fixed-line high and
very-high-speeds
In order to meet the growing needs of users even more quickly, SFR Group has defined a pragmatic
strategy that enables it to speed up deployment of its very-high-speed offers.
SFR Group deploys both FttH technology in very dense areas, so as to maximize coverage of the
French population under the scope of the agreement signed with Bouygues Telecom (see Section
6.6.2.3.2 “Fixed-line networks sharing agreements”) and in the less dense areas addressed via the
deployment agreement signed with Orange (see Section 6.6.2.3.2 “Fixed-line networks sharing
agreements”). On the B2B market, the deployment of optical fiber access networks will be equally
focused on areas with high potential, thereby enabling customer connections to be shared and
connection costs reduced. This optimization will be facilitated by the systematic use of a
geomarketing approach.
6.6.6.3
A commitment in network sharing agreements enabling the deployment of mobile and
fixed-line very-high-speed while keeping costs under control
To optimize the quality and coverage of its networks and to ensure the optimal allocation of its
investments, SFR Group has been one of the most active operators in the development of dedicated
network sharing partnerships for both mobile and fixed-line infrastructures.
6.6.6.3.1
Mobile networks sharing agreement
On January 31, 2014, SFR and Bouygues Telecom signed an agreement to share their mobile
networks. The agreement aimed to allow the two operators to offer their respective customers better
geographic coverage and better quality of service, while optimizing costs and investments made in
this context.
The agreement sets forth the deployment over an area corresponding to 57% of the population (i.e.,
the entire territory except for the 32 largest agglomerations numbering more than 200,000 inhabitants
and the white zones) of a new shared network.
The agreement is based on two principles:
-
to create a special-purpose joint venture to manage the shared assets and liabilities of the
radio sites, i.e., the passive infrastructures and geographical sites where the telecom
infrastructures and equipment are deployed. SFR and Bouygues Telecom each retain full
ownership of their own telecom equipment assets and frequencies;
-
to set up a RAN-sharing service that 2G, 3G and 4G operators can use in the shared territory.
Each operator is responsible for the part of the shared territory in which it designs, deploys,
operates and maintains the RAN-sharing service.
SFR and Bouygues Telecom retain an independence capacity to innovate as well as complete rate and
commercial independence and continue to offer differentiated services thanks to the expert knowledge
of their backbone and frequencies.
This agreement to share part of the mobile networks of Bouygues Telecom and SFR is part of
numerous similar provisions already implemented in other European countries.
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By means of a press release dated January 31, 2014, ARCEP approved the agreement, as long as three
conditions were applied: (i) preservation of operator commercial and strategic autonomy, (ii) no
eviction of certain market competitors and (iii) improvement of the services supplied to users as
regards coverage and quality of service.
The first deliveries of cellular plans occurred on April 30, 2014. It was at that time that each operator
first became aware of the deployment plans and technical characteristics of its partner’s sites. The
French Competition Authority had prohibited the exchange of technical information prior to the
signing of the agreement, and the engineering guidelines had been established on the basis of
assumptions that proved to be incorrect in some cases. The discussions that followed upon the initial
deliveries of cellular plans led on October 24, 2014 to adaptation of the agreement and, more
specifically, of some engineering choices that had been made at the time when the initial agreement
was signed. The target date for completing the network was shifted ahead one year, from the end of
2017 to the end of 2018, to account for the time needed to make these adjustments in the target
network engineering.
6.6.6.3.2
Fixed-line networks sharing agreements
In 2010, SFR Group signed a joint investment agreement with Bouygues Telecom for the deployment
of optical fiber in certain municipalities in very densely populated areas. The agreement set forth the
sharing of horizontal fiber optic networks between their points of presence and each building in the
selected municipalities. It should enable the two operators to speed up and extend deployment of their
FttH infrastructures to the benefit of their respective customers in the selected municipalities, while at
the same time reducing their deployment costs.
In 2011, SFR Group signed a joint investment agreement with Orange for the deployment of fiber in
the les densely populated areas of metropolitan France, which represent 9.9 million homes. Each of
the parties will become a customer of the other by signing IRUs 11 in the areas where it does not
deploy fiber itself. The other operators will have access to these infrastructures by means of
agreements governing the Wholesale and other market.
These agreements set forth the commitments made following the October 27, 2014 decision of the
French Competition Authority that authorized the SFR Acquisition (see Section 5.1 “History and
recent developments of the Group” of this Registration Document).
6.7
TECHNOLOGY AND INFRASTRUCTURE
Technology and infrastructure of Numericable Group
6.7.1
Conditional access system
Access to the television channels offered in the Numericable Group program packages is secured by
means of a conditional access system that Numericable Group obtains from Nagra France, a
subsidiary of Kudelski Group. The conditional access system enables Numericable Group to offer
pay-TV services, to control access to certain paid offers and to individually bill each subscriber for
these services. The system encrypts the signals sent to subscribers and subscribers decrypt the signals
using a set-top box and an access card. See Section 6.10 “Dependency” of this Registration Document
for a description of the contract with Nagra France. At the time of signing of a Numericable Group
services contract, subscribers receive a set-top box and an access card that enables them to receive the
paid programming offered by Numericable Group. Each card is electronically synchronized with a
single set-top box. Numericable Group regularly checks and identifies any unauthorized access to its
service because all unauthorized access entails major risks for its business and revenues. See Section
11
IRUs (Indefeasible right of use) are contracts assigning operators permanent, irrevocable and exclusive rights of long-term
use. Applied to the local fiber optic loop, it enables an operator to have a right of use over a local loop deployed by
another operator by making an initial payment. It is therefore a form of joint investment. The right to sell remains with the
owner of the local loop.
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4.2.12 “Data loss, data theft, unauthorized access and piracy can have a material adverse effect on the
Group’s business and reputation of the Group, as well as on its accountability, including criminal
liability” of this Registration Document.
In compliance with the agreements signed by Numericable Group with Kudelski Group, Numericable
Group has system solution licenses and software it needs to provide some of its services, specifically
for the broadcast of digital television, security systems, interactive applications, VOD platforms and
the programming of digital television. In the event of an irreparable failure of the Numericable Group
systems, Nagra France, pursuant to the contract with Kudelski Group is obliged, under certain
conditions, to replace the conditional access system and the cards supplied to Numericable Group
subscribers and, if necessary, adjust the set-top boxes to the new system.
6.7.2
Set-top boxes and Internet routers
In order to receive digital television services, Numericable Group subscribers unscramble the digital
signals using the Group’s interactive HD set-top boxes with an access card (also referred to as a
“smart card”) to decrypt the signals. Since 2009, Numericable Group has purchased most of its set-top
boxes from Sagemcom under procurement contracts. In October 2011, Numericable Group signed a
procurement contract with Sagemcom for the Group’s new set-top box, LaBox. The initial duration of
the contract was until April 2016, but it will then renew automatically, unless terminated early. It sets
out a commitment by Sagemcom to deliver the set-top boxes ordered within fixed terms and a nonexclusive commitment by Numericable Group to order minimum quantities of set-top boxes during
the course of the contract.
The Group has chosen to use a single supplier, believing this to be most effective given the
complexity of this equipment. However, the Group believes that it could procure set-top boxes from
other suppliers without running into any particular issues or extra costs. Although the Numericable
Group set-top boxes are designed by its manufacturers, Numericable Group was very much involved
in the design of the operating system and particularly as regards the interface that appears on its
customers’ screens when they use the set-top boxes. With LaBox, the portal, the user interface and the
backbone system use a software based on HTML5, created and owned by Numericable Group.
Numericable Group believes that it is the first operator to use a software based on HTML5 in a set-top
box and that this has enabled it to finalize a top-of-the-range product more quickly than would have
been possible using the technologies normally involved.
In order to access the Internet and fixed-line telephone services of Numericable Group, Numericable
Group subscribers must have a high-speed router. The range of high speed broadband services offered
by Numericable Group includes services with download speeds of up to 200 Mbps. Since 2007 and
until recently, the high-speed routers supplied by the Group to its subscribers were all pre-EuroDocsis
3.0 broadband routers (or “Docsis broadband”), which offered download speeds of up to 100 Mbps.
The Group now supplies high-speed EuroDocsis 3.0 routers with the capacity to support download
speeds of up to 800 Mbps, although it only supplies its B2C subscribers with speeds of up to 200
Mbps. Numericable Group generally purchases its gateways from Netgear, after verifying their
compatibility with its systems and adapting them if necessary.
As of December 31, 2014, approximately 59% of the gateways deployed by Numericable Group used
EuroDocsis 3.0 (deployments since 2010), 32% used EuroDocsis 2.0B (deployments between 2007
and 2010) and 9% used EuroDocsis 2.0 (deployments pre-2007).
6.7.3
Information technology (“IT”) systems
The Numericable Group IT systems were mainly developed by its own in-house IT department.
Numericable Group develops solutions in-house because it is important to maintain a high level of
flexibility and capacity to adapt to the changing market conditions. The main Numericable Group IT
systems are as follows: (i) the system of sales services, which mainly allows Numericable Group to
register and control the commercial operation of the direct and indirect distribution networks for the
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two segments, B2C and B2B; (ii) the CRM system, which enables Numericable Group to offer
customers a complete service in terms of complaints, subscriber profile analysis and the processing of
special offers and the recovery processes; (iii) the reporting system that enables the rapid preparation
of reports on the business’ key indicators, the automatic distribution of reports to the designated
addressees and the preparation of reports and analyses according to area of business; and (iv) the
system for managing subscribers that facilitates the authorization of new customers, processes
monthly subscription payments, controls payment delays, notifies the failed accounts by means of
messages spread through “pop-up” windows, SMS messages, automated telephone messages and emails, provides for automatic changes, enables the de-registration of customers upon expiry of their
contract and enables the automatic distribution of these services.
6.7.4
Data centers
In order to meet the needs of the B2B segment, Numericable Group has three data centers in Paris,
Rouen and Lyon. These data centers consist of one or more properties equipped with 24-hour security
and surveillance services and include several rooms with cabinets containing the servers, kept at an
ideal temperature and permanent electricity supplies. The servers hold the data and applications to be
used by B2B customers, who benefit from a secured connection to the data center servers.
Technology and infrastructure of SFR Group
6.7.5
Simplified general architecture of a telecommunications network
ACCESS
NETWORKS
CUSTOMER
S
COLLECTION
NETWORKS
BACKBONE
SERVICE
PLATEFORMS
(Source: SFR Group, diagram prepared internally)
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The rate of major technological advances in the telecommunications sector is intense and is becoming
increasingly faster specifically to be able to keep up with the very rapid development of Internet use,
both in fixed-line and mobile. Consequently, for some years now, SFR Group has embarked on a path
of streamlining its networks, built historically by SFR for mobile and by Neuf Cegetel for fixed-line.
Simplified diagram of SFR Group network
Traffic is collected by means of access networks dedicated to customer connections and thereafter
routed via the collection networks to the backbone.
The laying of services is supplied by different platforms adapted to the services (voice or data) and
each of the markets covered by SFR Group: B2C, B2B and Wholesale.
6.7.6
6.7.6.1
Access networks
Mobile access networks
As explained in Section 6.6.5 “Overview of the SFR Group network,” the SFR Group mobile access
network comprises more than 18,800 radio access sites, each consisting of:

one or more items of emission/reception equipment (base station), each dedicated to a single
technology (2G or 3G) or latest generation equipment “Single-RAN,” which enables 2G, 3G
and 4G technology to be managed by means of a single item of equipment;

transmission equipment connecting the radio access equipment to the collection network and
the backbone via optical fiber, radio connections (FH) or links leased to Orange; and

environmental infrastructures such as the energy workshops, antennas, technical room and
pylon holding the antennas, etc.
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6.7.6.2
Fixed-line access network
Historically, the unbundling of copper connection links of subscribers of Orange has enabled SFR
Group to act as an Internet access provider.
SFR Group fixed-line access network can route voice or data traffic from the terminal equipment at
the customer’s premises to the collection points.
Since 1987, SFR Group has also been deploying its connection links of subscribers by means of
optical fibers (FttH), using GPON technology.
Access type on the fixed-line network
6.7.6.2.1
DSL (Digital Subscriber Line)
The “MDF” (Main Distribution Frame) is a building owned by Orange in which all copper telephone
links terminate for a given geographic area. The size of the MDFs varies considerably from a few
hundred to several dozen thousand lines. SFR Group has installed DSLAM (Digital Subscriber Line
Access Multiplexer) type equipment in these MDFs, which enables the connection of customers
mainly through ADSL2+ technology.
SFR Group ensures the supply of Internet access on the copper link (DSL - Digital Subscriber Line) in
two ways:

by means of the installation of active equipment named “DSLAM” (Digital Subscriber Line
Access Multiplexer) in the Orange MDF premises, on which the connection links are then
connected for SFR Group subscribers (this solution is referred to as “unbundling”);

by means of the purchase of a wholesale service from Orange, which then delivers the traffic
of all customers concerned to the collection points (this is referred to as a “bitstream”
solution).
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6.7.6.2.2
FttH
In order to connect homes to fiber optics, SFR Group has chosen to deploy GPON technology, which
enables multiplexing of 64 or 128 homes on a single fiber. This technology means that theoretical
speeds of up to 1 Gbps in download can be offered to subscribers, as well as the benefit of an entirely
passive distribution network between the ODF (Optical Distribution Frame) and the customer’s
installation, which reduces costs of deployment and operation.
In very densely populated areas, SFR Group builds its own ODF and deploys its own optical fibers
through to the shared access points (typically situated at the base of each building). The connection of
a customer up to the shared access point is carried out by the building operator, who manages only the
infrastructures deployed within the building.
Outside densely populated areas, the part of the shared optical network is greater. Shared access
points are defined for each geographic area and each serves approximately 1,000 homes with a shared
infrastructure.
In the two cases described below, optical couplers/splitters situated at the shared access points enable
customer flows to be multiplexed on a single optical fiber.
General diagram of an FttH connection
6.7.6.2.3
Wimax (Worldwide Interoperability for Microwave Access)
Société du Haut Débit - SHD (“SHD”), a 100% subsidiary of SFR Group, holds an operating license
to use the frequencies of the 3.5 GHz bandwidth in the regions of Ile-de-France and Provence-AlpesCôte d’Azur, for Wimax technology. These frequencies will be used in the future with the
technological neutrality12 of the frequencies and services initiated by the European Commission.
6.7.7
Collection networks
The collection of fixed-line traffic, corresponding to the network elements situated between the
customer-side access and the backbone, is assured through optical fiber, leased connections and the
FH. The collection network enables the aggregation and routing of flows between fixed-line or mobile
access network and the backbone supporting the services. Flows are transported in IP via the Ethernet
protocol.
The SFR Group collection network is based on 160 metropolitan loops constructed in the centers of
the cities.
12
Principle according to which the frequency bandwidths are available for all types of technologies and all types of
electronic communication services.
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6.7.8
Transmission network and IP transport network
For its optical transmission network, SFR Group has chosen a “meshed” architecture, namely one that
is constructed in the form of inter-linked loops, thereby securing traffic flow as much as possible.
In the past, SFR Group built its optical transmission network on the basis of national agreements with
Réseau Ferré de France (RFF) and Voies Navigables de France (VNF). SFR Group has extended this
vast transmission network by also renting fibers to third parties (Réseau de Transport d’Electricité
(RTE), motorway networks, metropolitan networks) and to Orange, specifically for the connection of
MDFs.
To be able to handle increasing traffic, SFR Group has implemented the highest performing optical
technology available to date, and more specifically, the use of speeds of 100 Gbps on the main routes.
Transmission network map
(Source: SFR Group)
SFR Group has constructed an IP (Internet Protocol) transport network that is multi-service and boasts
very high capacity. It is situated above the optical transmission network. The backbone routers use
Nx100G technology (i.e., they can support connections of a unitary capacity of 100 Gbps).
The SFR Group network can manage Internet access services using the addresses in the format IPv4
or IPv6 for its B2C, B2B and Wholesale customers. It can transport voice, data and video flows
(television services on multicast IP or Video On Demand: VOD).
6.7.9
Service networks: backbone and service platforms
The networks supporting voice or data services schematically consist of several service platforms that
are different for each service and are inter-connected. For a given service, the platforms and network
equipment enabling the interconnection form a backbone.
6.7.9.1
Mobile voice backbone
The mobile voice backbone can handle voice traffic and interconnections towards other operators.
Since 2009, voice has been supported in 2G and 3G via the IP protocol, on a latest generation R4
network architecture. The platforms supporting the short message services (SMS) and multimedia
141
message services (MMS) are sized to absorb exceptional traffic peaks as seen, for example, during
End-of-Year celebrations. SFR Group has also implemented a virtualized infrastructure (IAAS
(“Infrastructure as a service”), adapted to the telecommunications world), enabling it to rapidly launch
innovative new services.
6.7.9.2
Mobile data backbone
The data transmission backbone for mobile is currently being modernized to be able to handle the
traffic of all customers using 2G, 3G and 4G technologies. It is installed in three different sites and
has a size and mechanisms that are such as to ensure availability of service, including where major
damages are suffered at one of the three sites. This data transmission backbone handles the WAP
(Wireless Application Protocol), MMS, consumer and business Internet access, the parental control
service and mobile television and video on demand services.
6.7.9.3
Fixed-line voice backbone
SFR Group has a voice backbone on IP for its fixed-line service customers that has been provided
since 2011 by two IMS (IP Multimedia Subsystem) technology platforms, in order to cope with the
growth in traffic. The IMS platform is still used today, particularly for B2C telephone services, but
also for B2B, and to manage call continuity between fixed-line and mobile handsets.
The mobile voice network described above in Section 6.7.9.1 “Mobile voice backbone” of this
Registration Document is currently being evolved to be completed by an IMS backbone that will
allow for the direct transport on the 4G network of voice (today transported on 2G and 3G networks).
This will bring about a considerable improvement in quality of voice calls and will decrease call
establishment time by a factor of five. Accordingly, in the medium term, IMS technology will allow
for a convergence of voice network infrastructures of fixed-line and mobile services, as shown in the
diagram below.
SFR Group has also embarked on an IP technology modernization plan of its voice interconnections
with other operators.
6.7.9.4
Fixed-line contents distributor service
In addition to the various large capacity items of equipment present on the networks to process the
data flows, SFR Group has also implemented a contents distribution service, or Content Delivery
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Network (CDN), based on twelve regional sites and consequently reducing data traffic on its national
transport network. This CDN specifically hosts the Video On Demand services and the website sfr.fr,
and is also open to third-party services.
6.8
SEASONAL NATURE OF THE BUSINESS ACTIVITIES
As concerns the B2C mobile activities, the year-end is an extremely sensitive sales period. A major
failure of the information systems or of any component of the chain of production and logistics during
that period would have negative consequences on revenues. To prevent this type of risk, the Group
avoids working on the network and information systems during that period of the year (starting in
mid-November).
As regards fixed-line B2C activities, revenues from basic analog TV services, Cable TV services and
Internet services are mainly based on a fixed monthly fee and are thus not subject to seasonal
variations. The number of customers generally increases from September to January as households
tend to make more purchases during back-to-school and end of year periods.
The number of B2B customers usually increases in June and December when private and public
companies establish their budget, whereas revenues arising from B2B telephony services tend to
follow the cycle of school holidays, with a slight decline during summer and winter holidays as well
as in May due to the many bank holidays, but this decline is not material.
6.9
SUPPLIERS
Numericable Group
Numericable Group entertains relations with several suppliers that provide it with materials, software
and services needed to operate the Group network.
The main suppliers of materials and software for the B2C segment are Sagemcom and Netgear, which
manufacture set-top boxes and high-speed routers on behalf of Numericable Group and of which they
retain intellectual property rights. Cisco supplies Numericable Group’s cable router termination
systems (i.e., equipment generally situated on the network heads or distribution frames that
Numericable Group uses to supply high-speed data services). Pro-Cable, as provider of business
resource planning, supplies billing software and associated IT equipment software. Nagra France
supplies the conditional access system.
The main suppliers of equipment and software for the B2B segment are Cisco, which supplies
portions of data network and CPE such as servers; Huawei, which supplies components of the
telephone network and telephone CPE; Genbac, which supplies telephone network maintenance
services; and Arbor, which supplies billing software.
Numericable Group uses a limited number of subcontractors to maintain its network, manage its call
centers and supply, install and maintain the terminals installed with private users and on private
business sites and in the public sector; Numericable Group employees only carry out a small portion
of installations. Some services can be installed by Numericable Group customers themselves, but
most still require a professional installer. The Numericable Group agreements require subcontractors
to maintain a certain level of quality and employ qualified staff, and Numericable Group regularly
monitors the effectiveness and quality of the service supplied by subcontractors.
SFR Group
SFR Group has implemented a multi-sourcing purchasing policy for some technologies and
permanently monitors suppliers in the production chain.
143
The breakdown of the main suppliers for the major categories is as follows:
-
eight main suppliers of mobile handsets;
-
five main suppliers of telecommunications equipment;
-
ten main suppliers for the deployment of this equipment and maintenance;
-
fourteen main suppliers for the IT systems; and
-
ten main suppliers for the call centers.
As regards mobile handsets, SFR Group works with some of the best-known brands on the market, as
well as with Original Design Manufacturers (ODM) for which SFR Group uses its own brand. It is
very important that SFR Group have access to all the leading brands on the market. Moreover, SFR
may, for some very specific products or services, find itself dependent on certain suppliers. SFR
considers that it is commercially dependent on a handset supplier.
With regards to telecommunications equipment, SFR Group has a dual sourcing policy with leading
companies in these scopes for the main SFR network equipment, in particular for radio equipment.
SFR Group considers that there is therefore no critical dependency. As regards the backbone, SFR
Group has more of a mono-sourcing policy, according to type of equipment, in order to simplify
matters considering the smaller volumes of investments involved. The companies concerned are also
leaders in their fields.
As regards the computer systems, SFR Group uses both market-recognized solutions (Oracle, SAP)
and more specific solutions for which the provisions are contracted in order to protect access to the
source code. SFR Group considers that there is therefore no critical dependency in this respect.
SFR Group has thus developed and maintained relations with different suppliers, which contribute
towards the development of innovations, quality of service and operative excellence with regards to
its customers and in a bid to ensure economic effectiveness.
The buying process consists of five stages that describe the whole life cycle of the relations between
SFR Group and its suppliers.
The selection of suppliers is one of the most important stages in deploying and maintaining the
network and for the offers supplied by SFR Group (handsets, etc.). It is rigorous and applies objective
criteria relating to product and service quality, delivery terms and conditions and their costs as part of
the total cost of ownership.
This assessment also considers commitments relating to:
-
compliance with applicable laws and regulations;
-
compliance with rules of confidentiality and loyalty;
-
the existence and application of an Environmental and Social Responsibility
(ESR) policy suited to the nature of the products and services supplied.
These criteria are specifically set forth in the contracts governing relations of SFR Group with its
suppliers.
Governance is assured with the main suppliers. This enables a long-term, balanced relationship to be
established and relates to both the monitoring of performance, the sharing and supervising of targets
and the exchange of information regarding market and technology trends.
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For several years now, SFR Group has been implementing a purchasing policy that takes into account
the main social and environmental responsibilities in its relations with its suppliers in order to best
control the risks.
The main principles are as follows:
-
favor suppliers which meet these criteria;
-
take into account these criteria in supplier evaluation;
-
promote and ensure compliance with the SFR Code of Ethics.
All purchase contracts signed during the last two years include a clause on “compliance with laws and
regulations - Social responsibility.” SFR Group uses a specialized company, Ecovadis, to regularly
evaluate its main suppliers. The evaluations are carried out based on document reviews conducted
jointly with Fédération Française des Télécommunications. As of the date of this Registration
Document, 172 suppliers have been evaluated.
The use of protected sector businesses (recycling of equipment, telephone contacts, etc.) is an integral
part of the purchasing policy and is regularly monitored. In 2014, SFR Group grossed 3.6 million
euros with protected sector businesses.
SFR Group regularly provides training for its buyers. An integration and training process is completed
by all new hires in the department. The process covers responsible buying aspects.
6.10
DEPENDENCY
As described above, the Group uses several suppliers in the course of its business activities. With the
exception of Nagra France, which supplies the conditional access system, the Group believes that it is
not dependent on any single supplier and that the loss of one of its suppliers would not have any
material adverse effect on the Group’s business, and that the Group could replace its main suppliers
without any major disturbance to its business. See Section 4.2 “Risks relating to the Group’s business
activities” of this Registration Document. The Numericable Group contract with Nagra France was
signed in October 1999 and terminated in 2007. As from that date, the contract has been automatically
renewed for subsequent five-year periods, unless either party should provide six months’ notice
before the expiration of each five-year period. The last automatic renewal took place on January 1,
2012, namely until December 31, 2017. Furthermore, SFR believes that it is commercially dependent
on the handset supplier (see Section 6.9 “Suppliers” of this Registration Document).
6.11
6.11.1
COMPETITORS
Main competitors
6.11.1.1 Orange
Orange is the incumbent telecommunications operator in France and one of the world’s largest
telecommunications operators. In France, it offers a complete range of services on the B2C and B2B
segments and the wholesale market and has large market shares in all these segments. It provides
services on a national level, using its copper local loops, backbone and infrastructures as well as a vast
2G and 3G mobile network. It currently invests in FTTH and 4G networks. As of December 31, 2014,
the main shareholder of Orange was the French government, which held approximately 25% of its
capital.
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6.11.1.2 Iliad (Free)
Iliad (which conducts business under the trade name “Free”) is a telecommunications operator that
has been very active in France since the late 1990s. It is known for having introduced new
commercial offers onto the market at reduced prices, thereby bringing about important changes and
high levels of competition on the French market. For example, in 2002, it launched a DSL offer at
€29.99 per month, to which fixed-line telephone and television services were added in 2003.
Competitors then followed suit, bringing about a generalization of triple play offers at €30 until 2011
inclusive.
Free obtained the fourth mobile telephony license in 2009 and launched a mobile telephony offer in
January 2012 with a mobile flat fee of €19.99 per month, reduced to €15.99 per month for its DSL
subscribers, which includes unlimited calls, SMS, MMS and mobile Internet access up to 3 Go
inclusive, without subsidized telephone and without commitment. This offer transformed the mobile
market. Free had 10 million mobile customers as of December 31, 2014 and a market share of around
15%, three years after its commercial launch (source: Iliad press release). In December 2013, Free
launched its 4G offers at the same price as its 3G offers, thereby elbowing out the 4G offers of other
operators who charged a premium on 4G.
Free operates exclusively in the B2C market. Its DSL offer is essentially based on unbundling and
supplies speeds of up to 28 Mbps. In 2006, Free announced its long-term investment plans in the
FTTH networks, initially focused on the densely populated areas covering 4 million homes, without
providing a specific time frame. It also announced investment plans outside densely populated areas
by means of a contract signed with Orange in August 2012. Customers in the area where Free
deployed FTTH (i.e., Paris) could receive the free-of-charge FTTH offers of Free, which supply
download speeds of up to 100 Mbps and upload speeds of up to 50 Mbps, and some subscribers could
receive download speeds of up to 1 Gbps and upload speeds of up to 200 Mbps.
In the mobile telephony market, in 2014, Iliad deployed a 3G network that covers more than 75% of
the French population, and it has undertaken to deploy a 4G network covering at least 60% of the
French population by end-2015.
Iliad is a major competitor in high speed, announcing net recruitment of 228,000 new subscribers (net
of terminations) and a market share of 26% of net recruitments in 2014. On mobile, Iliad announced
that it was the top recruiter in 2014, with more than 2 million new subscribers and a market share of
15% as of December 31, 2014.
6.11.1.3 Bouygues Telecom
Bouygues Telecom is held by the Bouygues SA conglomerate. It has been present in mobile
telephony services since 1996 and in fixed-line telephony services since 2008. Its DSL offer is based
both on unbundling and on white label contracts with the Group.
In the French mobile market, Bouygues Telecom had 11.1 million customers and a 14.4% share of the
Mobile fleet at end-2014, down 0.6 points at end-2013. In the French fixed-line high-speed market,
Bouygues Telecom has 2.4 million customers, with a 9.4% share of the fixed-line high-speed market
at end-2014, up 1.3 points from end-2013. Its share of the very-high-speed market was 12% at end2014, as compared with 18% at end-2013 (source: Bouygues’ 2014 annual report).
Bouygues Telecom is also active in the B2B segment. It makes particularly competitive offers to
professional customers and also works in partnership with other companies to develop innovative
telecommunications solutions and offers suitable for its B2B customers, including a cloud partnership
with Microsoft. Bouygues Telecom remains a fairly small player in the B2B market, appearing to
mainly target smaller businesses with convergent fixed-line and mobile offers and a range of services.
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6.11.2
B2C market
The high-speed broadband, television and fixed-line and mobile telephony markets are competitive
and the Group faces strong competition from long-standing and new operators alike in France. See
Section 4.1.1 “The Group operates in a competitive sector and competition could have a material
adverse effect on its business” of this Registration Document. The Group’s main competitors are
Orange, Free, Bouygues Telecom and Canal+ Group. The nature and level of competition faced by
the Group varies for each of the products and services it offers.
High-speed broadband. DSL is the leading high-speed Internet access platform in France, with 22.4
million subscribers as of December 31, 2014, and representing approximately 86.2% of the total
French high-speed and very-high-speed market (Source: ARCEP). The Group’s main competitors are
the suppliers of high-speed DSL Internet access, Orange, Free and Bouygues Telecom, respectively
with market shares of the high-speed and very-high-speed Internet access of approximately 41%, 23%
and 9% based on the total number of subscribers in France as at December 31, 2014 (source: Group
estimates). The Group is also in competition with the same operators on the 3G mobile Internet
services market.
Very-high-speed broadband. ARCEP defines very-high-speed as Internet access with peak download
speed of at least 30 Mbps. Only 11.9% of French homes had high-speed broadband access at
December 31, 2014 (Source: ARCEP). The Group is by far the current leader of the emerging veryhigh-speed market, with a market share of 50% as at December 31, 2014 (Source: ARCEP and Group
estimates). In order to increase and standardize the speed of its networks, Orange has started investing
in the construction of an FTTH network. Free has also started deploying FTTH networks. As of
December 31, 2014, approximately 935,000 subscribers were connected to FTTH networks (Source:
ARCEP).
Television. The Group supplies television services to viewers via the Group’s cable network. It is the
only major cable operator in France with approximately 99% of the cable television market. On the
pay-TV market, the Group is in competition with suppliers of premium channel packages such as
CanalSat, the triple and quadruple play operators like Orange, Free and Bouygues Telecom, which
supply IPTV services and suppliers of pay-DTT, like Canal+. The Group estimates that its share of
the pay-TV market is approximately 10%. The growth of IPTV has transformed the market, offering
the possibility of providing pay-TV services that go beyond the traditional cable and satellite methods
(the latter of which is limited by the impossibility of installing a satellite dish on the facade of
buildings in certain areas, such as the center of Paris).
The Group is also in competition with the suppliers of satellite television services, who can offer a
wider range of channels to a larger audience, covering more extensive geographical areas (including
rural areas) at lower prices than those invoiced by the Group for its cable television services. All
increases in market shares in the satellite sector may have a negative impact on the success of digital
cable television services. The Group is also faced with competition from free TV broadcast by
satellite. In order to receive free television services, viewers simply need to buy a satellite dish and a
set-top box.
Even though pay-DTT (which now concerns only the Canal+ Group) currently represents a low share
of pay-TV, providers of pay-DTT could in the future be able to offer a larger selection of channels to
a broader audience at a price that is lower than the one billed by the Group for its cable television
services.
Moreover, the Group is also faced with competitors using different technologies. For example, Canal+
Group broadcasts its services using the IP technologies of DSL triple and quadruple play operators
rather than by satellite. It also broadcasts Canal+ via the Group’s cable network. The Canal+ Group
products are therefore available throughout French homes, meaning that the Group only offers its
products to 35% of the territory.
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In addition, the number and quality of the channels offered as part of the non-premium channel
packages has increased considerably in recent years. If the packages of Group premium channels are
not perceived by its customers as being better value for money than the non-premium channels
packages (whether those of the Group or its competitors), the Group’s customers may opt for the nonpremium channels packages of the Group or its competitors.
Finally, the supply of “over-the-top” (OTT) audiovisual contents on an existing high-speed network
(by suppliers such as Amazon and Apple) bypasses the traditional networks specified above
(including that of the Group) and constitutes a source of steadily increasing competition.
Fixed-line telephony. The Group faces strong competition from existing fixed-line telephony
operators.
Mobile telephony. The Group’s main competitors in the French mobile telephony market are Orange,
Bouygues Telecom and Free and MVNOs. Free entered the market in early 2012, with an innovative
commercial offer and at a reduced price, which comprises SMS, MMS and unlimited calls, an
adjusted data usage grid with access to mobile Internet up to 3 Go and free calls to 40 different
countries in Europe and North America for the price of €19.99 per month (€15.99 per month for its
triple play subscribers), which was considerably below that offered by pre-existing operators (Orange,
Bouygues Telecom and SFR). Free held 15% of the French mobile telephony market, i.e., more than
10.0 million subscribers as of December 31, 2014. Orange, Bouygues Telecom and SFR have reacted
to the entrance of Free on the mobile telephony market by launching low-cost mobile offers
respectively under the brands Sosh, B&You and Red. The main operators launched 4G offers in the
last quarter of 2013, with Free being the first to offer 4G at the same price as 3G.
Triple and quadruple play. The French multimedia and telecommunications markets have converged
in the B2C area, where customers seek to obtain media and communication services from a single
operator at an attractive price. The offers of bundled services are now the standard in the B2C market
and the Group (as well as its competitors) attract most of its new customers thanks to these bundled
offers. On the triple and quadruple play service market, the Group’s main competitors are currently
Orange, Free and Bouygues Telecom. The Group’s competitors continue to improve their bundled
offers. If the Group’s bundled offers prove to be non-competitive on the market, it may be necessary
to reduce the price or increase investments in services in order to improve the relevant quality and
benefit from the increased demand for bundled services, avoiding losing subscribers.
6.11.3
B2B market
The Group faces strong competition from incumbent and new operators alike in the B2B market. See
Section 4.1.1 “The Group operates in a competitive sector and competition could have a material
adverse effect on its business” of this Registration Document. The Group’s main competitors in this
segment are Orange (Orange Business Services), Colt, Verizon and some local-scale players.
Orange Business Services had a market share of approximately 70% as of December 31, 2014
(source: Group estimates).
Colt is also a regional player that is well-known in the French market, offering IT and data services to
businesses in Paris and Lyon. This market is very price-oriented and focused on international
coverage.
In the business market apart from key accounts, the Group’s B2B division is in competition with
Orange Business Services and, to a lesser extent, with Bouygues Telecom Enterprises and Colt. The
Group is also in competition with a large number of small regional players that use the networks of
other operators or those of Orange to offer very aggressively-priced services. The SME market is,
however, less specifically targeted on price and more hinged on the service than the large corporate
market. The Group believes that it held a market share of around 20% as of December 31, 2014.
148
The key account B2B customers tend to unbundle services (looking for offers that meet specific
requirements in terms of network, speed, fixed-line telephony and mobile telephony) and pay
particular attention to the prices offered. Data needs are becoming increasingly more complex.
Moreover, B2B customers require that services be extremely reliable and restored very quickly in the
event of failure. Businesses also tend to focus on “infrastructure as a service,” integrated data storage
availability and security solutions.
The B2B market for voice call services is extremely sensitive to price trends, with sophisticated
customers and relatively short-term (one year) contracts. Being able to face the competition efficiently
depends in part on the density of the network, and certain competitors of the Group have a broader
and denser network than that of the Group. The Group has not signed an MVNO contract for the B2B
segment either. Had it done so, such a contract would have enabled it to provide B2B customers with
mobile telephony services; this may prove to be a disadvantage in terms of competition. In addition to
the competitors described above, the Group is also in competition in the Centrex VoIP market with
smaller players, such as Keyyo and Sewan.
In the B2B market for data services, network power, including its capacity to transport large quantities
of data, and access to the latest technologies, are extremely important to customers. The Group’s
competitors can invest larger amounts in the network power and technological developments and,
consequently, be more competitive than the Group with regards to B2B customers. In the data market,
customers often look for combined infrastructure and software solutions. Consequently, the Group
also faces competition from software suppliers and other IT suppliers of data solutions and networks,
which may reduce the value that customers assign to Group infrastructure solutions, bringing about a
reduction in the Group’s prices and, accordingly, margins. IT suppliers may also be associated with
Group competitors in the telecommunications infrastructures sector. Moreover, the Group is also in
competition with smaller players such as ADISTA, Neo Telecom, Nerim and Acropolis, which are
specialized in Internet and cloud computing services with added value. The Group believes that it
enjoys a competitive advantage over these operators thanks to its direct fiber optic connection with the
main sites of Group customers, supplying high symmetric speeds and a reliable service. It also
benefits from the scope of its all-digital networks and mainly IP-based, the quality of its services, the
centralized, profitable organization of Group customers and the regional presence of the Group.
The Group’s direct competitors in terms of fiber optic connections are Orange, Colt and Verizon.
Most of these have, like the Group, concentrated their efforts on a limited number of densely
populated areas, such as the business district of La Défense in Paris. Colt operates in Paris and Lyon;
Verizon mainly operates in Paris, as well as Lyon and Strasbourg. The major international players do
not have a sufficiently developed network in France to be considered competitors, and the costs of
constructing such a network would be prohibitive in terms of the level of business that these players
could potentially generate in France.
6.11.4
Wholesale market
In France, the wholesale telecommunications market is dominated by Orange, although its market
share varies by segment. In the fixed-line segment, and thanks to its copper monopoly, Orange is
indisputably the leader, with a market share of more than 50% as of December 31, 2014 (Source:
Group estimates). The Group is the second-largest French operator in this segment. In the mobile
segment, the Group believes it is the market leader, with a share of more than 50% in terms of value
(Source: Group estimates).
6.12
TELECOMMUNICATIONS REGULATIONS
The Group’s business is subject to laws and regulations governing the telecommunications sector and
the information society in France and in the European Union.
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6.12.1
Regulation of electronic communication services and networks
6.12.1.1 The European regulatory framework of electronic communication
The majority of the regulatory provisions applicable in France in the telecommunications sector are
set out in the French Postal and Electronic Communications Code (the “CPCE”). The provisions of
the CPCE are mainly based on the following five directives, set out in the “2002 Telecommunications
Package” of the European Union, which applies to the seven relevant markets, as defined by
recommendation 2007/879/EC of December 19, 2007 of the European Commission13:
•
Directive 2002/21/EC of March 7, 2002 on a common regulatory framework for electronic
communications networks and services (the “Framework Directive”);
•
Directive 2002/19/EC of March 7, 2002 on access to, and interconnection of, electronic
communications networks (the “Access Directive”);
•
Directive 2002/22/EC of March 7, 2002 on universal service and users’ rights relating to
electronic communications networks and services (the “Universal Service Directive”);
•
Directive 2002/20/EC of March 7, 2002 on the authorization of electronic communications
networks and services (the “Authorization Directive”); and
•
Directive 2002/58/EC of July 12, 2002 concerning the processing of personal data and the
protection of privacy in the electronic communications sector (the “Directive on privacy and
electronic communications”).
In addition to the 2002 Telecommunications Package, the following texts also apply to the
telecommunications sector:
•
Directive 2002/77/EC of September 16, 2002 on competition in the markets for electronic
communications networks and services (the “Competition Directive”); and
•
Regulation (EU) 531/2012 of June 13, 2012 on roaming on public mobile communications
networks within the Union, which sets forth limits for the wholesale and retail roaming rates
billed by mobile operators. For network operators, the regulation also entails an obligation to
ensure the right to reasonable wholesale access demands for roaming services as well as the
possibility for retail customers to choose an alternative roaming operator, different from their
national operator, as from July 1, 2014. The table below shows the maximum roaming rates
that can be applied by mobile operators:
From July 1, 2012
to June 30, 2013
From July 1, 2013
to June 30, 2014
From July 1, 2014
to June 30, 2017
Retail price
Outgoing calls (per minute)
€0.29
€0.24
€0.19
Incoming calls (per minute)
€0.08
€0.07
€0.05
SMS (per message)
€0.09
€0.08
€0.06
Data (per Mb data transferred)
€0.70
€0.45
€0.20
€0.14
€0.10
€0.05
Wholesale price
Calls (per minute)
13
In 2012, the European Commission initiated a process revising this recommendation, specifically via a consultation
procedure of which the contributions were published in January 2014.
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SMS (per message)
€0.03
€0.02
€0.02*
Data (per Mb data transferred)
€0.25
€0.15
€0.05*
* Remains applicable until June 30, 2022.
In 2009, the European Council and Parliament adopted a new regulation and two new directives that
slightly modified the 2002 Telecommunications Package without significantly altering the global
regulatory framework (the “2009 Directives”). These documents which complete the regulatory
framework and assign supplementary powers to the National Regulatory Authorities (“NRA”) and the
European Commission, are:
•
Regulation (EC) 1211/2009 of November 25, 2009 establishing the Body of European
Regulators for Electronic Communications (“BEREC”). Rather than acting as a European
regulatory agency, the role of BEREC is to establish a forum for the cooperation between the
NRAs and the Commission. Its responsibilities include the preparation and communication of
guidelines and best regulatory practices to the ARN and the emission of reports and opinions
to the European Council, Parliament and Commission. By way of example, BEREC
specifically published a report on May 29, 2012 on the neutrality of the Internet and Internet
traffic management in Europe;
•
Directive 2009/140/EC of November 25, 2009, amending the Framework, Access and
Authorization Directives. The new Directive: (i) introduces a final solution of functional
separation in order to solve the problems of competition; (ii) grants the European Commission
new powers of recommendation on the projects of measures planned by the NRAs; (iii)
facilitates access to the radio-electric spectrum, allowing users to transfer or rent their rights
of use to third parties; and (iv) provides that the NRAs will have the power to ensure the
effective use of the spectrum and take all steps necessary to prevent the anti-competitive
obstacles of certain operators; and
•
Directive 2009/136/EC of November 25, 2009, amending the Universal Service and Privacy
and Electronics Directives and Regulation (EC) 2006/2004 on cooperation between national
authorities responsible for the enforcement of consumer protection laws, in order (i) to
reinforce the rights of users of electronic communication services; (ii) to extend the universal
high-speed service; and (iii) to guarantee the quality of services offered and the transparency
and fluidity of the market.
These two Directives have been transposed into the CPCE by Order 2011-1012 of August 24, 2011,
Decree 2012-436 of March 30, 2012 and Decree 2012-488 of April 13, 2012. The French regulatory
framework was also slightly amended by two other decrees in 2012:
•
Decree 2012-513 of April 18, 2012 on the communication of information to the government
and territorial authorities on the infrastructures and networks established on their territory.
This decree establishes the procedural framework and indicates the type of information that
operators are required to supply to local government entities; and
•
Decree 2012-1266 of November 15, 2012 on the control of the safety and integrity of the
installations, networks and services of the electronic communications operators. This decree
establishes that the French government can conduct audits and controls on the security of the
operators’ networks.
On December 5, 2012 and then on September 11, 2013, the European Commission published a draft
recommendation on the obligations of non-discrimination and the cost recognition methods to be used
in order to promote competition and improve the high-speed broadband investment context, which it
submitted to BRECE for an opinion. In its current form, the recommendation establishes that the
access prices must be calculated by taking an “ascending” modeling approach, based on a model that
151
includes existing infrastructures (mainly conduit) and those to be built entirely when preparing a new
generation of access networks. The recommendation specifies that the European Commission plans
for the average monthly price for unbundled access to the local copper loop in the European Union to
result from the application of the recommended method in order to fall within a price range of
between €8 and €10 (hence the rate of €8.90 currently in force in France already falls within this
range). The recommendation also establishes the method by which to calculate the costs to be used for
the asymmetric regulation of fiber optic networks but, by contrast, does not establish the method for
symmetric regulation (see below for more details on the symmetric model in force in France).
On June 17, 2013, the European Commission and its Deputy Chairman held a public information
meeting to re-launch the implementation of the “single telecommunications market” in the European
Union, of which the main characteristics will be as follows: (i) creation of a passport procedure within
the European Union and a single authorization for the supply of services within the European Union;
(ii) standardized access granted to operators at the entry points necessary for the supply of services,
coordination in terms of the assignment of frequencies for mobile and wireless services and the range
of standardized “access products” for operators; and (iii) the possibility for consumers within the
European Union to freely benefit from telecommunications services throughout Europe, assuring
open, non-discriminatory access to Internet services, transparency and the possibility of changing
operator easily and eliminating differences between the roaming costs applied to national and
international calls/SMS. On September 11, 2013, the European Commission published a draft
“legislative package” listing the same these principles. This proposal was received favorably by the
European Council when it met on October 24 and 25, 2013, encouraging the European legislator to
proceed quickly with its review of the proposal to be adopted in 2015. On January 21, 2014, the
European Social and Economic Committee also expressed a favorable opinion on the proposed
regulation of the Commission, while noting that the Commission was to re-examine the inclusion of
high-speed services under the scope of application of the provision of the universal service.
Finally, on May 15, 2014, the European Council and Parliament adopted Directive 2014/61/EU on the
measures aiming to reduce the cost of the deployment of the high-speed electronic communications
networks. This directive aims to facilitate and encourage the deployment of high-speed electronic
communications networks, promoting the joint use of existing physical infrastructures and enabling a
more effective deployment of new physical infrastructures so as to reduce the costs connected with
the implementation of these networks. It also establishes the minimum requirements concerning civil
engineering works and physical infrastructures, with a view to approaching certain aspects of the
legislative, regulatory and administrative provisions of the Member States in certain sectors. The
Member States have until July 1, 2016 to adopt the national measures transposing this Directive.
6.12.1.2 The French regulatory framework applicable to electronic communication
The effective implementation and control of the European regulatory framework lies within the
responsibility of the NRAs.
6.12.1.2.1
National Regulatory Authorities
ARCEP
In France, the NRA for electronic communication is ARCEP, which was created in January 1997.
ARCEP is an independent administrative authority mainly in charge of regulating electronic
communication sector markets, managing simplified administrative procedures to exercise the
business of electronic communications operator, defining access, interconnection and roaming
conditions, calculating costs and contributions to the universal service and rate regulation, and
assigning rights for the use of frequencies as described in Section 6.12.1.3.1 “Networks and
frequencies” of this Registration Document.
152
In order to exercise its functions, powers and duties, ARCEP has various powers and specifically
regulatory power, control power, power to settle disputes, power of consultation and sanction power.
The sanction power set out in Article L. 36-11 of the CPCE allows ARCEP to take steps with regards
to network users or suppliers of electronic communication services in the event of breach of
legislative and regulatory provisions governing their activities or decisions taken to ensure their
implementation. It can also order operators to pay fines of up to 3% of the operator’s annual revenues,
or 5% for repeat offenses and, if ARCEP identifies a serious, immediate breach of the rules governing
the sector, it can order interim measures with no need for prior notice. Additionally, if a breach may
cause serious damages to an operator or market, the Chairman of ARCEP can file an urgent request
with the Conseil d’État to order the party concerned to comply with applicable rules, under penalty of
a daily fine until the breach is cured. On July 5, 2013, the Conseil d’État, in ruling on a matter that
was raised by Numericable in relation to Constitutional Law concerning Article L. 36-11 of the
CPCE, invalidated the sanction powers of ARCEP set forth by Article L. 36-11 (1) to (12) of the
CPCE. Order 2014-329 of March 12, 2014 on the digital economy, completed by a decree published
on August 3, 2014 later secured the sanction power of ARCEP. It thus modified Articles L. 5-3, L. 3611 and L. 130 of the CPCE and established a restricted group within ARCEP in charge of declaring
the sanctions. The restricted group does not take part in the preparation of prosecution and inquiry
action and does not take part in ARCEP proceedings in relation to dispute settlement, the opening of
an administrative inquiry or notice of default. An appeal can be lodged against sanction decisions and
a motion to stay filed in compliance with Article L. 521-1 of the Code of Administrative Justice with
the Conseil d’État.
In this context, ARCEP, having met in the composition required for dispute settlement, prosecution
and inquiry matters (RDPI) decided on September 9, 11 and 23, 2014, to open 19 proceedings with
regards to several operators for events potentially constituting failure to fulfill obligations relating to
their activities. These procedures involve eleven fixed-line and mobile market operators (including
Numericable and SFR). They specifically relate to the deployment of mobile services and specifically
in the less densely populated areas of the territory.
An investigation stage has started, aimed at investigating the conduct of each operator, which may
result:
- in the termination of prosecution, if the findings of ARCEP’s investigation are satisfactory;
- if not, in the decision to notify the operators concerned of their default and order them to fulfill their
obligations within specific terms.
The French regulatory framework is supplemented by the decisions and regulations of the ARCEP.
ARCEP decisions may relate to asymmetric regulation - namely, which applies to operators
occupying a dominant position on the market - or a symmetric regulation, namely one that applies to
all operators. Certain symmetric regulatory decisions need to be approved by the Ministry for
Electronic Communication. In 2012, 2013 and 2014, the main decisions taken by ARCEP relating to
the Group were as follows:
•
Decision 2012-007 of January 17, 2012, amending the duration of the amortization of assets
comprising the copper local loop of Orange envisaged by Decision 05-0834 on December 15,
2005. The 2012 decision led to a reduction in the costs of unbundling from €9 to €8.80 in
2012. However, the impact of this decision will be partially offset by the consequences of the
ARCEP 2013-0001 decision of January 29, 2013 concerning the rates of return on investment
applicable in booking costs and the control of fixed telephony business rates regulated by
Orange from 2013 to 2015, which gave rise to an increase in unbundling costs to €8.90 at
May 1, 2013;
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•
Decision 2012-1546 of December 4, 2012 setting the provisional contributions to be made by
operators towards the cost of the universal service for 2013 (see below for details on the
universal service);
•
Decision 2012-0039 of January 17, 2012, authorizing SFR to use the frequencies in the 800
MHz bandwidth in mainland France to establish and use a mobile radio-electric network open
to the public. The fixed part of the price due by SFR to use these frequencies is €1.065 billion.
SFR is required to ensure a cover rate of 98% of the mainland population within twelve years
(90% of the population of each mainland department to be covered) and 99.6% in fifteen
years (95% of the population of each mainland department to be covered). SFR is also
required to implement network and frequency sharing and to provide access provisions to the
network to the MVNOs as well as offering a solution based on full MVNO architecture;
•
Decision 2013-1406 of November 26, 2013 setting the provisional contributions to be made
by operators towards the cost of the universal service for 2014 (see below for details on the
universal service);
•
Decision 2014-0533 of May 6, 2014 setting the definitive assessment of the net cost of the
universal service and the contributions to be made by operators for 2012 (see below for
details on the universal service); and
•
Decision 2014-1397 of November 25, 2014 setting the provisional contributions to be made
by operators towards the financing of the universal electronic communication service for
2015 (see below for details on the universal service).
Competition Authority
The French Competition Authority is an independent administrative authority in charge of monitoring
freedom of competition under Article L. 461-1 of the French Commercial Code. Its duties are to
control anti-competitive practices, to control concentrations and to provide advisory opinions on
market operation.
In its role of controlling anti-competitive practices, in accordance with Articles L. 464-1 and 2 of the
French Commercial Code, the Competition Authority can: (i) assign pecuniary fines; (ii) order
businesses to cease such practices; (iii) accept commitments that are able to end concerns over
competition; and (iv) impose injunctions in the event of urgency. Under Article L. 464-8 of the
French Commercial code, an appeal can be lodged against these decisions (in itself, not suspensive)
before the Paris Court of Appeal, within one month. An appeal can be brought against the ruling of
the Paris Court of Appeal of Paris in the Court of Cassation within one month.
In its role of controlling concentrations, in accordance with Articles L. 430-1 et seq. of the French
Commercial Code, the Competition Authority must give advance authorization to concentrations
between sufficiently large businesses. It may: (i) authorize the concentration; (ii) ban it; or (iii) subject
its authorization to meeting certain commitments. Under Article R. 311-1 of the Code of
Administrative Justice, the parties and third parties concerned can lodge an appeal (in itself, not
suspensive) for annulment or reformulation with the Conseil d’État within two months.
In its advisory role, in accordance with Articles L. 462-1 et seq. of the French Commercial Code, the
Competition Authority provides opinions on the function of the markets at the request of the
government, parliament, jurisdictions, legal entities representing public interests or on its own
initiative. No appeal can be brought against these opinions.
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6.12.1.2.2
Market analysis - asymmetric regulation
Market analysis is the cornerstone of the asymmetric regulation framework applicable to operators
with a dominant market position. Asymmetric regulation, ex ante, focuses on market segments mainly wholesale markets - in which distortion of competition and dominant positions have been
identified. In compliance with the Framework Directive, Regulation (EC) 1211/2009 of November 25,
2009 establishing BEREC and Articles L. 37-1 to L. 38-1 of the CPCE, ARCEP is required, under the
supervision of the European Commission and BEREC, and on the basis of the recommendation of the
French competition authorities: (i) to define the relevant markets and identify the businesses believed
to exercise significant influence over the markets in question; and (iii) to decide whether or not to
require these businesses to comply with regulatory obligations in relation to the competition-related
issues identified.
The first and second phases of this market analysis were achieved respectively at end 2007 and in
2010. The market analysis was carried out by ARCEP in relation to three separate markets: the fixedline telephony market, the mobile telephony market and the high-speed market. From 2010 to 2012,
ARCEP developed and achieved the third phase of its market analysis, which covers the period 20112014.
The unbundling of the Orange copper lines is the main line of action in terms of sector regulation. It is
through unbundling that multiservice offers such as the “triple play” offers on telephone lines that can
support them have developed in France.
Unbundling requires operators to make considerable investments; the geographic coverage of
operators is only extended gradually over the territory. Complementing unbundling, alternative
operators have sometimes, on an infra-national basis, used wholesale offers of DSL run by Orange
that enable them, to date, to market Internet access services and telephone services over the entire
territory in retail markets.
The supply by Orange of wholesale unbundling offers and activated DSL access is regulated by
ARCEP. For the period from mid-2011 to mid-2014, the regulatory framework applicable to the
wholesale unbundling and activated DSL access offers is defined by the market analysis decisions of
ARCEP 2011-0668 and 2011-0669 of June 14, 2011.
These decisions have led Orange to set its access rates to the local loop according to the following
rates methods:
Rates prior to April 1, 2014
Unbundled zone
Non-unbundled zone
Total
unbundling
Partial
unbundling
Total DSL
activated
Partial DSL
activated
Service access fees
56
66
61
56
Monthly access rate
8.9
1.64
12.21
4.09
5.7
5.7
17.91
9.79
Collection rate per customer in ATM
(76 kbit/s)
Recurring monthly cost per customer
8.9
1.64
Source: SFR
However, the new Orange rates applicable as of April 1, 2014 show a rise of €0.12 per month for total
access to the local loop, following a change to the breakdown of the IFER, giving greater weight to
the copper line component used by the main splitter. In a parallel fashion, Orange has increased the
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speed per customer by 76 kbit/s and per month to 84 kbit/s and per month, resulting in an increased
monthly cost per customer in a non-unbundled area of: (i) €0.80 per customer and per month for full
access; or (ii) €0.90 euros per access and per month for partial access.
These decisions have led Orange to set its access rates to the local loop according to the following
rates methods:
Rates as from April 1, 2014
Unbundled zone
Non-unbundled zone
Total
unbundling
Partial
unbundling
Total DSL
activated
Partial DSL
activated
Service access fees
56
66
61
56
Monthly access rate
9.02
1.64
12.41
4.39
6.3
6.3
18.71
10.69
Collection rate per customer in
ATM (76 kbit/s)
Recurring monthly cost per
customer
9.02
1.64
Source: SFR
SFR Group expects rises for the years 2015 to 2017 due to the scheduled rate increase of the line
component of the IFER line in application of Article 71 of Law 2013-1279 of December 29, 2013 and
the increasing use of flow by ADSL customers of SFR in non-unbundled areas. However, in order to
limit these increases for customers in non-unbundled areas, SFR has undertaken a program whereby
its customers are migrated from ATM to Ethernet with more advantageous rates, saving more than a
euro a month per customer, thereby allowing for the development of a greater range of services (direct
or replay television services in particular).
The regulatory measures that can be imposed by ARCEP on operators believed to exercise significant
influence over a relevant market (and, if applicable, over another market of the electronic
communications market closely linked to this market) are named under Articles L. 38, L. 38-2
(wholesale markets) and L. 38-1 (retail markets) of the CPCE. These measures entail the obligation to
publish detailed rate and technical offers for interconnection and access, to supply interconnection or
access services in non-discriminatory conditions, to allow reasonable demands for access to network
installations or associated means, not to apply excessive tariffs or eviction on the market in question
and to apply rates that reflect the corresponding costs, to isolate certain activities (in terms of
accounts), to supply retail services at non-discriminatory conditions, not to group these services in an
unreasonable manner, to comply with the mechanism for limiting the prices set by ARCEP and to
obtain the approval of ARCEP of the prices before they are applied. For wholesale markets, in the
event that the above measures are insufficient to solve the competition issues, ARCEP may impose in
addition a functional separation of the wholesale activities of the electronic communications operator
in question.
Neither Numericable, nor Completel nor SFR are considered by ARCEP as operators believed to
exercise significant influence over any relevant market, except over the relevant markets of the call
termination on their respective networks, on a par with all the other operators. This means that
Numericable, Completel and SFR must comply with the regulation in force for call termination rates
on fixed-line and mobile networks. In actual fact, the fixed-line telephony operators, including
Numericable, Completel and SFR, are considered as having a significant influence on the geographic
call terminations of their networks and, in compliance with Articles L. 38 and L. 38-1, of the CPCE
and ARCEP’s decisions following on from the related market analyses, are subject to obligations
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relating to the access, interconnection, non-discrimination and transparency, as well as to obligations
relating to rate control (obligation not to apply excessive prices for fixed-line telephony call
terminations); SFR is subject to an obligation to provide guidance with regards to costs concerning its
voice call terminations and mobile SMS.
The rules governing call termination rates on mobile and fixed-line networks have recently changed.
Thus, by means of Decision 2014-1485 of December 9, 2014, ARCEP adopted the wholesale market
analysis of the fixed-line and mobile voice call terminals for the period from January 1, 2015 to
December 31, 2017.
As concerns the pricing structure used for the mobile voice call terminations, ARCEP has opted for
the following schedule:
 Until December 31, 2014, a pricing structure of c€0.8/min for mainland operators and
c€1/min for overseas operators (maintaining most recent limits imposed by the previous
market analysis);
 As from January 1, 2015, a pricing structure of c€0.78/min for a period of 1 year;
 As from January 1, 2017, a pricing structure of c€0.74/min.
As concerns the pricing structure used for fixed-line vocal call terminations, ARCEP has opted the
following schedule:
 Until December 31, 2014, a pricing schedule of c€0.08/min, corresponding to the limit in
effect at the time of the previous market analysis;
 As from January 1, 2017, a pricing structure of c€0.077/min.
Consequently, the revenues of Numericable Group obtained from call termination commission billed
to other fixed-line and mobile telephony operators declined over the same period.
In accordance with the decisions adopted in summer 2011, applicable until summer 2014, regarding
the regulation of high-speed and very high-speed markets, ARCEP has identified Orange as the only
operator deemed to exercise significant influence over the fixed telephony market, and has imposed
specific obligations upon it involving access to its infrastructures (unbundling the local copper loop
and access to infrastructures). The provisions on the asymmetric regulation system for conduits have
been extended to include the general infrastructure costs, and the regulations governing unbundled
passive access to the local copper loop have been kept and extended to cover access to the local subloop in order to increase the speeds available for subscribers. Moreover, ARCEP has declared that the
high-speed access offer rates need to be cost-oriented. On June 26, 2014, ARCEP published three
decisions defining, for the period from mid-2014 to mid-2017, the asymmetric regulation of the
wholesale market offering access to physical infrastructures, consisting of a local wire-based loop
(market 4), a wholesale high and very-high-speed access offer market, activated and delivered on an
infra-national level (market 5) and the wholesale capacity service market (market 6). This parallel
review of the three markets enhances the consistency between, on the one hand, the regulatory
obligations applicable to wholesale offerings that are referred to as “mass” ones considering that they
are mainly meant for mass consumption and, on the other hand, those relating to wholesale offerings
specifically meant to meet the needs of businesses. Under the terms of these three decisions, ARCEP
has identified Orange as the only operator deemed to exercise significant influence over these
markets14 and has imposed specific obligations upon it, particularly to accede to reasonable requests
for access, to provide access under non-discriminatory conditions, and price control. This regulatory
14
Global Caribbean Network exercises significant influence over the wholesale capacity service market of the interterritorial inter-urban segments Saint-Barthélemy – Métropole, Saint-Barthélemy – Martinique and Saint-Barthélemy –
Saint-Martin.
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framework increases the opportunities for the sharing of existing infrastructures with a view to
reducing the costs of deployment of very-high-speed: more extensive and less restrictive re-use of
Orange civil engineering, securing of the LFO collective offer conditions and, more generally, of the
provisions necessary for the deployment and use of optical local loops. It will also enable the
standardization of services available - specifically audiovisual services - on the copper network, on
the one hand allowing alternative operators to enrich their service offer without being present in
unbundling and on the other, allowing Orange to dispose of all restrictions to the opening, in a secured
legal framework, of audiovisual services in non-unbundled areas and, finally, enabling alternative
operators to speed up the unbundling of the smaller sub-splitters. These measures should mean that
the gap in terms of service between the unbundled area and the non-unbundled area should gradually
be narrowed. Several operative improvements will be made to the existing wholesale offers
(unbundling, civil engineering, increased speed, revision of bundled offers, extension of the range of
speeds available and inclusion of optic securing services on wholesale offers activated on the
dedicated local optical loop, etc.). This new framework defines reinforced obligations to nondiscrimination in application of the recommendation made by the European Commission on
September 11, 2013 as regards “obligations to non-discrimination and coherent cost calculation
methods to promote competition and encourage investment in high speed.”
6.12.1.2.3
Symmetric regulation
ARCEP also regulates the telecommunications sector in a symmetrical fashion, namely by imposing
the same obligations on all operators; it does this through a certain number of decisions, namely:
•
Decision 06-0639 of November 30, 2006 on the making available of lists of subscribers and
users for the purpose of the publication of universal directories or the supply of universal
information services;
•
Decision 2007-0213 of April 16, 2007 on the obligations set for operators controlling access
to the end user for routing communications intended for value-added services;
•
Decision 2008-1362 of December 4, 2008 on the publication of service quality indicators set
by operators;
•
Decision 2009-0637 of July 23, 2009, specifying the methods by which to apply the
portability of fixed-line numbers and the routing of communication to destination of the
numerous fixed-line and mobile ports;
•
Decision 2009-1106 of December 22, 2009 and Decision 2010-1312 of December 14, 2010
on the methods by which to access very-high-speed electronic communication lines in optical
fiber;
•
Decision 2013-1475 of December 10, 2013 amending the list of municipalities of “very
densely-populated areas” defined by Decision 2009-1106 as mentioned previously,
specifically in order to consider deployments made after 2009 and the technical and financial
conditions for operator connection;
•
Decision 2010-1314 of December 14, 2010 on the accessibility and opening conditions of
infrastructures and networks eligible to receive aid from a digital territorial development
fund;
•
Recommendation of June 14, 2011 relating to the access to FttH lines of certain properties of
“very densely populated areas,” and specifically those with at least 12 homes or premises for
professional use. A new recommendation, completing that of June 14, 2011 as specified
above, was issued by ARCEP on January 21, 2014, relating to the access methods to FttH
lines for properties of fewer than 12 homes or premises for professional use in “very densely-
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populated areas.” However, Law 2014-1 of January 2, 2014, enabling the government to
simplify and secure the enterprise route, establishes that the government shall be authorized to
order measures “encouraging the establishment of very-high-speed fiber optic communication
lines in homes and premises for professional use and [...] clarifying the conditions for the
establishment of such lines.”
ARCEP has announced that it would be undertaking works concerned with the specification of rates
and operations for the access to shared optical local loops (BLOM) and to enable the preparation of
offers adapted to suit the specific needs of businesses using BLOM.
Accordingly, on February 7, 2014, ARCEP made available for the public consultation it had launched
a summary of the discussions of the working group on the FttDP (Fiber to the Distribution Point). The
working group consisted of representatives of the operators, territorial authority associations and
government services concerned. FttDP is a very-high-speed network architecture that consists of
deploying optical fiber to a point very close to the subscriber’s home and, unlike FttH, re-using
existing cabling (copper line or coaxial cable) on the final segment to connect the home to the optical
fiber.
In a partnership with ARCEP and jointly with the territorial authorities, the landowners and operators,
on February 26, 2014, the Very-High-Speed France Mission (Mission France Très Haut Débit)
prepared a framework agreement for the fibers of the affordable housing area, accounting for more
than 4.6 million homes in France. This agreement should encourage access to digital services.
Moreover, the Authority has launched a public consultation until July 11, 2014 regarding a general
mode setting out rates for accessing shared optical local loops outside very densely-populated areas.
In preparing this model, which considers the specificities of the various types of fiber optic network
projects, it will be possible to specify rate criteria, thereby remedying the inconsistencies sometimes
seen in rate grids. The responses to the consultation were published on October 7, 2014. ARCEP
noted that the majority of players responded to the consultation by approving the principles of the
model proposed (apart from some reservations concerning the implementation of the model). On
December 17, 2014, ARCEP launched a second public consultation on the rates for accessing fiber
optic networks through to the subscribers; this is set to conclude on February 20, 2015. In this new
consultation, the Authority proposes extending the functional scope of the model to consider the
segments situated upstream of the sharing point and downstream of the optical connection point.
Finally, ARCEP launched a public consultation, from July 15 through September 26, 2014, regarding
a symmetric draft decision on the operative processes of the access to the very-high-speed fiber optic
electronic communication networks. The Authority received nine responses to this first public
consultation. Considering these contributions, the Authority then made some adjustments to the draft
decision. This new draft was sent to the French Competition Authority for opinion. At the same time,
a public consultation in relation to it was launched again until January 20, 2015.
6.12.1.2.4
Interconnection
The regulations governing the interconnection of each operator on the Orange networks and those of
other operators are essential in order to open up the market and ensure the quality of the services
supplied to each operator’s subscribers. The interconnection agreements are governed by private law
but the main rates are set by ARCEP. In compliance with Decision 2011-0926 of ARCEP of July 26,
2011, the maximum rate for call termination was set at €0.003 from October 1, 2011 to July 1, 2012,
at €0.0015 from July 1, 2012 to January 1, 2013 and beyond that at €0.0008. These agreements must
be disclosed to ARCEP if it should so request. ARCEP has the power to rule on disputes between
operators, but an appeal can be brought against its decisions in the Paris Court of Appeal. Any such
appeal brought against a decision of ARCEP shall not, however, suspend application of ARCEP’s
decisions.
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Numericable has signed interconnection agreements mainly on the termination of calls on its network
and on the networks of other operators, the pairing or interconnection of Internet traffic, the use of
conduits or optical fiber and the access to its fiber optic network by other operators. Completel has
signed similar agreements and other interconnection agreement including, as regards voice
transmission services for other operators, the lines or data services leased and the collection of traffic
by the providers of voice services and value-added data services. SFR has signed interconnection
agreements on call termination on the fixed-line and mobile networks with the most important
national operators as well as on the networks of other operators. SFR has signed reciprocal SMS and
MMS interconnection agreement with the three incumbent French mobile operators. MMS rates are
not regulated. As a general rule, the flows exchanged by operators are almost always symmetrical.
6.12.1.2.5
Specific regulatory framework regulating access to the new generation fiber
optic networks
The Economic Modernization Law of August 4, 2008 sets forth several provisions aiming to
implement a regulatory framework for the deployment of very-high-speed fiber optic networks. These
provisions were amended by Order 2014-329 of March 12, 2014 in relation to the digital economy,
which amended Article L. 33-6 of the CPCE, Article 1 of Law 66-457 of July 2, 1966 on the
installation of receiving antennas for radio broadcasting and Article 24-2 of Law 65-557 of July 10,
1965, setting out the rules for the joint ownership of buildings.
The regulation includes a certain number of measures intended to encourage such deployments,
specifically: (i) the obligation for private and public owners to facilitate the installation of FTTH fiber
optic networks in collective buildings or sets of individual houses (namely “lots”); (ii) rules for
sharing fiber optic access in order to avoid several FTTH networks being implemented in a single
building (only one property operator can therefore install a network in a building); (iii) the obligation
for each operator offering access to very-high-speed to be able to connect to the network; and (iv)
provisions establishing that the access point to the shared network must be situated outside the limits
of private property (except if ARCEP should approve the access point being located within a given
property). The Order of March 12, 2014 therefore restricted the principle according to which the fiber
is installed at the expense of the operator laying the network in the property to only those operations
carried out in the parties affected by the shared use. The operator can therefore have a single occupant
of the home or professional premises pay for all or part of the connection works for these private
parties to the network deployed in the property.
In addition to the application decrees, ARCEP has been awarded the power to decide on the definition
of the terms and conditions relating to the application of this law. Accordingly, for fiber optic
networks situated in the 148 most densely populated cities of France, ARCEP’s decision 2009-1106
of December 22, 2009 governing access to the end part of the networks installed by
telecommunications operators in the buildings. If they so wish, operators may invest jointly in the
FTTH networks installed by other operators and can therefore obtain a dedicated fiber. ARCEP
Decision 2010-1312 of December 14, 2010 sets out the terms and conditions for accessing very-highspeed fiber optic electronic communication lines in the less densely-populated areas. By virtue of this
Decision, operators are required to establish sufficiently large shared access points to enable other
operators to gain access to them at reasonable prices. It also demands that operators deploying a
network shall stock the active or passive network devices of other operators at these shared access
points.
Finally, in January 2010, the French government established a provision of €20 billion by which to
finance development of very-high-speed networks. On July 27, 2011, €900 million were allocated to
co-finance the development of the fiber optic network in the less densely populated areas. The
Minister in charge of the digital economy presented the Council of Ministers meeting held on March
12, 2014 with a communication summarizing, eighteen months after its launch, the “Very-High-Speed
France” (France très haut débit) plan launched by the government in February 2013. 49 files covering
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59 departments have already been covered by a state principle agreement. Financed by public funds,
they must enable, within the next five years, coverage of 4 million extra homes, situated in the less
densely populated areas of the territory. This is in addition to the 11 million homes already eligible.
The Group intends to adopt an opportunity-driven strategy with regards to the government program.
6.12.1.3 The French regulatory framework specific to mobile telephony
6.12.1.3.1
Networks and frequencies
Authorizations to use frequencies
Under the scope of its mobile telephony operator business declared in application of Article L. 33-1
of the CPCE, SFR has authorization to use the following frequencies:
•
authorization to establish and use a second generation (GSM) mobile radio-electric network
open to the public on the 900 MHz and 1,800 MHz bandwidths (ARCEP Decision 06-0140 of
January 31, 2006);
•
authorization to establish and use a third-generation (UMTS) mobile radio-electric network
open to the public on the 2.1 GHz bandwidth (see Decree of July 18, 2001 (NOR:
ECOI0120177A), as amended by the Decree of December 3, 2002 (NOR: INDI0220264A)
for the 1,900-1,980 MHz and 2,110-2,170 MHz sub-bandwidths and ARCEP Decision 100633 of June 8, 2010 for channels 1,959.9 - 1,964.9 MHz and 2,149.9 - 2,154.9 MHz);
•
authorization to re-use the 900 MHz bandwidth in order to establish and operate a thirdgeneration mobile radio-electric network open to the public (ARCEP Decision 2008-0228 of
February 26, 2008 amending ARCEP Decision 06-0140 above);
•
authorization to establish and use a fourth generation (4G or LTE) mobile radio-electric
network on the 800 MHz bandwidth (ARCEP Decision 2012-0039 of January 17, 2012) and
2.6 GHz bandwidth (ARCEP Decision 2011-1171 of October 11, 2011).
On January 1, 2013, SFR returned, 2x 2.4 MHz in the 900 MHz bandwidth in a very densely
populated area to the operator Free Mobile.
Expiration dates of the authorizations to use the frequencies:
The table below summarizes the authorizations to use the mobile frequencies pertaining to SFR,
specifying for each bandwidth of frequencies what technology is currently authorized, the quantity of
frequencies attributed to SFR, the ARCEP decisions or decrees and the grant and expiration dates.
Authorizations reaching expiry first are those for 2G/3G at 900 MHz, 1800 MHz and 2.1 GHz (in
2021), followed by 3G authorizations in 2030 and 4G in 2031 and 2032.
Bandwidths
Tech.
Quantity
Texts
Grant date
Expiration
date
800 MHz
4G
2*10 MHz
ARCEP Dec. 12-0039
1/17/2012
1/17/2032
900 MHz
2G/3G
2*10 MHz
ARCEP Dec. 06-0140
3/25/2006
3/24/2021
1,800 MHz
2G
2*23.8 MHz
ARCEP Dec. 06-0140
3/25/2006
3/24/2021
2.1 GHz
3G
2*14.8+5 MHz
Decree of July 18, 2001 amended
by the Decree of December 3,
2002
8/21/2001
8/21/2021
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2.1 GHz
3G
2*5 MHz
ARCEP Dec. 10-0633
6/8/2010
6/8/2030
2.6 GHz
4G
2*15 MHz
ARCEP Dec. 11-1171
10/11/2011
10/11/2031
New frequencies grant schedule:
On February 20, 2014, the government and ARCEP announced that the procedures for the grant of
4G authorizations overseas would be launched during the first half of 2014. By press release on
September 15, 2014, the government established the objectives for the forthcoming attributions of
frequencies for high- and very-high-speed mobile overseas. The Authority will submit a proposed
draft specification to the government, in order to thereafter proceed by launching a call for bids.
ARCEP also authorized Société réunionnaise du radiotéléphone to pursue 4G experiments on the
bandwidths of 1800 MHz and 2.6 GHz by its Decision 14-0237 on March 11, 2014.
The government and ARCEP have not yet ruled on a detailed schedule for the attribution of new
frequencies apart from the frequencies already attributed in the bandwidths 800 MHz, 900 MHz,
1800 MHz, 2.1 GHz and 2.6 GHz. A number of frequency bandwidths are currently being discussed
on a European and international level. The first multi-year program on the matter of the radio-electric
spectrum policy, European Parliament and Council Decision 243/2012/EU establishes a target of
1,200 MHz, identified for very-high-speed mobile by 2015. This figure includes the spectrum already
being used.
Some frequency bandwidths are already standardized on an international level and are concerned by a
community standardization decision, but have not yet been granted for very-high-speed mobile in
France. This is the case, for example, of bandwidths 2.6 GHz TDD (50 MHz available) and
bandwidths 3400-3600 MHz and 3600-3800 MHz. SFR has authorization for the radio local loop in
Ile-de-France and Provence-Alpes-Côte d’Azur in the lower part 3400-3600 MHz (2*15 MHz in each
of the two regions, by virtue of two ARCEP Decisions 06-0773 and 06-0774 dated July 25, 2006).
For other frequency bandwidths, the end of European works lies between December 2014 and July
2016. This regards the bandwidths 700 MHz (2*30 MHz), 1.5 GHz (40 MHz downlink) and 2.3 GHz
(80 to 100 MHz shared). These may be started-up by ARCEP and the government between 2015 and
2020.
As regards the transfer of 700 MHz frequencies of audiovisual towards mobile operators, December
10, 2014 saw the Prime Minister announce that frequencies will be granted to telecommunications
operators in December 2015. Their effective transfer would take place between October 1, 2017 and
June 30, 2019, with the exception of certain areas where they may become available for use as from
April 2016. On December 16, 2014, ARCEP launched a public consultation until February 16, 2015
on the strategic review of the spectrum for very-high-speed mobile. It particularly aims to collect
contributions from sector players on the targets and methods for the grant of the 700 MHz bandwidth.
In a decree dated January 6, 2015, the main due dates of the schedule looking to re-assign frequencies
of the 700 MHz frequencies were set in favor of ARCEP. Moreover, on January 12, 2015, the
European Communion launched a public consultation on the use of the frequencies of the 700 MHz
bandwidth.
Some frequency bandwidths may change their intended use in coming years. This is the case, for
example, for the TDD frequencies at 1900-1920 MHz and 2010-2025 MHz (35 MHz), of which a
part is currently allocated to mobile operators. The European Conference of Postal and
Telecommunications Administrations (“CEPT”) studies the possibility of using these bandwidths in
alternative manners, like for wireless microphones, high-speed communication with aircraft, security
networks or wireless camera connections. The 2.1 GHz bandwidth currently allocated to the satellite
mobile service (2*30 MHz) but which is used very little, may be re-assigned to terrestrial mobile
162
operators.
Refarming of 4G
Article 59-III of Order 2011-1012 of August 24, 2011 in relation to the introduction of technological
neutrality in the 1800 MHz bandwidth establishes a lifting, in certain conditions, of technological
restrictions in the frequency bandwidth as from May 25, 2016. In accordance with the terms of
Article 59-II of the same order, mobile telephony operators may nevertheless ask for the restrictions
to the use of frequencies established in their authorizations to be re-examined early (namely before
May 24, 2016).
In France, the authorizations to the use of frequencies in force on the bandwidth 1,800 MHz restrict
the use of frequencies to GSM technology and specifically do not enable the implementation of LTE.
In this context, on March 12, 2013, ARCEP published a guidance document for “the introduction of
technological neutrality on the 1,800 MHz bandwidth,” in accordance with which the application of
the net target ruling is planned at the expiration date of May 25, 2016:
•
lifting of the restriction to GSM technology on the 1,800 MHz bandwidth;
•
division, in order to meet the need for equality between operators, of the 1,800 MHz
bandwidth into four separate authorizations for use of frequencies, held by the companies
Orange, SFR, Bouygues Telecom (with 20 MHz duplex each) and Free mobile (with 15 MHz
duplex).
•
At the time of the change to the authorization to use the frequencies for mobile operators, new
revenues for the use of the frequencies without restrictions will apply. These are defined in
the amended Decree 2007-1532 of October 24, 2007. The fixed part due by way of use of the
frequencies of the bandwidth 1800 MHz will go from being 571 euros per kHz duplex (GSM)
to 3,231 euros per kHz duplex (technologically neutral); for SFR, this means an annual
increase in frequency revenues of €51.03 million. However, this substantial increase in the
fixed part due by way of use of the frequencies in the 1800MHz bandwidth was cancelled out
by the Conseil d’État Decree of December 29, 2014 (Petition No. 368773). Consequently, the
government is forced to set the amount of the revenues of this fixed part as a lower amount.
Bouygues Telecom has asked ARCEP for early permission to re-use in LTE the frequencies that had
been assigned it in 2009 in the 1,800 MHz bandwidth. In a decision of March 14, 2013, ARCEP
authorized Bouygues Telecom to re-use, as from October 1, 2013, the frequencies available to it in
the 1,800 MHz bandwidth for technologies other than GSM, as long as it returned a part of them. The
conditions for this authorization were specified by a decree published on March 23, 2013.
Network sharing
As ARCEP recalls, if competition by means of infrastructures is an important element by which to
ensure a competitive dynamic and a high level of investment, network sharing is not incompatible
with this competitive objective (see specifically ARCEP Opinion 2012-1627 of December 20, 2012).
In a context of increased competitive pressure and when investments remain considerable,
particularly for the deployment of 4G, network sharing may, for the operators, constitute a way by
which to reduce their costs and provide users with benefits in terms of the extension of coverage and
improved operator quality of service.
Network sharing is implemented in France through numerous specific devices that share the aim of
reinforcing the mobile coverage in the country:
163
•
the “white zones” program that began in 2003 under the guidance of the Ministry for
Territorial planning and ARCEP to enable 2G network coverage in the city centers of
approximately 3,300 municipalities;
•
a 3G network infrastructure sharing agreement in compliance with ARCEP Decision 2009329 of April 9, 2009, signed on February 11, 2010 by three mobile operators (SFR, Orange
and Bouygues Telecom), which stipulates that installations on the 3G network be shared by
these mobile operators in the less densely populated areas of the territory. This agreement was
signed on July 23, 2010 and an agreement with Free Mobile setting out the methods for its
deferred inclusion into this mechanism; and
•
the sharing obligations resulting from the authorizations to use the 4G frequencies that
stipulate that their owners must jointly share the networks and frequencies in the 800 MHz
bandwidth so as to cover, within a maximum of 15 years (January 2027), the city centers of
municipalities situated in white zones.
It should be noted that on September 24, 2014, ARCEP brought two sanction proceedings against
SFR for events potentially constituting failure to fulfill obligations relating to the activities of SFR.
This was a potential non-compliance related to the deployment of mobile services, specifically in the
less densely populated areas of the territory (with respect to the infrastructure sharing agreement for
the 3G network in the white zones and 2G coverage in all city centers and priority transport links).
Apart from these specific provisions, the conditions in which the network or sharing agreements can,
generally, be implemented by mobile operators are laid down by the French Competition Authority in
an opinion of March 11, 2013.
Under this scope, on January 31, 2014, SFR and Bouygues Telecom announced the stipulation of a
sharing agreement for part of their mobile networks (see Section 22.3.4.1 “Bouygues Telecom
agreement” of this Registration Document). By means of a press release dated January 31, 2014,
ARCEP approved the agreement, as long as three conditions were applied: (i) preservation of
operator commercial and strategic autonomy, (ii) no eviction of certain market competitors and (iii)
improvement of the services supplied to users as regards coverage and quality of service. Moreover,
the signing of this agreement was referred to the Competition Authority by Orange on April 29, 2014
(see Section 20.7.17 “Orange versus SFR and Bouygues Telecom (sharing agreement)” of this
Registration Document).
Roaming
Roaming is another form of sharing infrastructures between operators, under the scope of which an
operator welcomes the customers of another operator on its network. Only the frequencies of the host
operator are used here.
Upon implementation of network sharing, roaming is implemented in France through several sets of
specific measures including, in particular: (i) the “white zones” program mentioned previously,
which began in 2003; and (ii) the ruling on the right to roaming for 2G and 4G of Free Mobile.
SFR, which has a cumulative authorization over two blocks of the 800 MHz bandwidth must allow
Free Mobile, if it should make a reasonable request to this end, to benefit from roaming where the 2.6
GHz network of Free has reached (i) coverage of 25% of the population and (ii) if Free Mobile does
not already benefit from a roaming agreement on the very-high-speed mobile network of another
owner of frequencies in the 800 MHz bandwidth. This right concerns 4G in primary deployment area
in the 800 MHz bandwidth, namely 18% of the population and 63% of the territory.
The operators are therefore authorized to stipulate international roaming agreements with their
foreign equivalents and may also be held, under the scope of their frequency authorizations to
164
stipulate roaming agreements with the MVNOs (Mobile Virtual Network Operators) in order to
welcome the latter’s customers to their networks (see below for the commitments made by SFR on
this point).
6.12.1.3.2
(a)
Main obligations relating to the mobile operator activities of SFR
Obligations applicable to all mobile telephony operators (symmetric regulation)
General framework
In addition to the obligations applicable to all operators using a network or supplying an electronic
communication service to the public (as specified in particular by Article L. 33-1 of the CPCE and
Articles D. 98-3 to D. 98-13 of the same Code), SFR is, as a mobile telephony operator, more
specifically held to fulfill the general obligations arising:
•
from Article D. 98-6-1 of the CPCE on the protection of the health of end users and the
environment;
•
from ARCEP Decision 2005-1083 of December 8, 2005 specifying, generally, the rights and
obligations of operators supplying GSM or IMT-2000 services;
•
from Articles L. 44, D. 406-18 and D. 406-19 of the CPCE and ARCEP Decision 2012-0576
of May 10, 2012, defining the rules and methods applicable to portability and the retaining of
mobile numbers; or
•
from Articles R. 10 et seq. of the CPCE and ARCEP Decision 06-0639 of November 30,
2006, which are rules relating to the making available by operators of their lists of subscribers
and users (specifically to a mobile telephony service) in order to publish universal directories
or supply universal information services.
Mobile voice call termination (CT)
Call terminations of network operators (and full MVNOs) are concerned by a multi-year rating
framework. These are rates for voice call terminations of Orange, SFR, Bouygues Telecom
operators and their subsidiaries, with the latter having been fixed, for the period 2011-2013, under
the scope of ARCEP Decisions 2011-0483 on May 5, 2011 (mainland) and 2010-1149 of
November 2, 2010 (overseas).
In Decision 2012-0997 of July 24, 2012 relating to the determination of the relevant markets
relating to the voice call termination of Free Mobile, Lycamobile and Oméa Telecom, ARCEP
considered it relevant to organize a specific framework for these three operators for the period
2012-2013.
The voice call termination rates of the various operators are subject to continuous, major
reductions over time. By way of example, the trends in voice call termination rates of the various
operators active on mainland France as of December 2013 can be summarized as follows:
In c€
From
From
July 1,
As of As of
July 1, January
2012 to
January July 1, January January January
2002 2003 2004 2005 2006 2007 2008 July 1, July 1, 2011 to 1, 2012
December 1, 2013 2013 1, 2015 1, 2016 1, 2017
2009 2010 December to June
30, 2012
30, 2011 30, 2012
Orange
20.12 17.07 14.94 12.5 9.5
7.5
SFR
Bouygues
27.49 24.67 17.89 14.79 11.24 9.24
Telecom
Free
Mobile
Full
MVNO
6.5
4.5
3
8.5
6
3.4
c€2
c€1.5
c€1
c€0.8
c€0.8 c€0.78
c€1.6
165
c€1.1
c€0.76 c€0.74
Source: ARCEP
As concerns the pricing structure for mobile voice call terminations, for the cycle 2014-2017
ARCEP has opted for the following schedule:
 Until December 31, 2014, a pricing structure of c€0.8/min for mainland operators and
c€1/min for overseas operators (maintaining the most recent limits imposed by the
previous market analysis);
Today, the voice call termination rates of all regulated operators comply with the European
Commission Recommendation of May 7, 2009 on the regulatory treatment of fixed and mobile call
termination rates in the European Union: they are symmetrical and aim to ensure incremental longterm costs for an effective, generic operator.
Due to the quick implementation by ARCEP of the European Recommendation of May 7, 2009 on
the regulatory treatment of fixed-line and mobile call termination rates in the European Union,
France is presently the European Union country with the lowest call termination rates.
However, the non-uniform application of this European Recommendation within European Union
countries is prejudicial against French operators, which are penalized with respect to certain foreign
operators. This difficulty is further enhanced on an international scale, outside the European Union,
due to the imbalances of traffic and differences in price that may be even greater.
On May 28, 2013, ARCEP began its 4th cycle of analyzing the wholesale markets of fixed-line,
mobile and SMS voice call terminations on mainland France and overseas for the period 2014-2016.
The sector regulator wishes to thus maintain and extend the current regulation for a further three
years, namely non-rate obligations (access, non-discrimination, transparency) and an obligation to
apply rates that reflect the costs of their services. At this point, ARCEP has not yet specified the
mobile voice call termination levels that are to be established for the next three years.
On July 26, 2013, ARCEP sent its draft analysis to the French Competition Authority for opinion. In
its Opinion 13-A-16 of October 14, 2013, the Competition Authority stressed the need, in particular
as regards mobile voice call termination (CT), for a rapid standardization of the European regulatory
framework relating to international calls.
SMS call termination (CT)
The SMS call termination markets are today characterized by a symmetry of traffic and overall
balance of interconnection.
Until July 21, 2013, the SMS call termination rates of the various operators active on mainland
France and overseas had been set by ARCEP Decision 10-0892 on July 22, 2010. The SMS call
termination of the various operators concerned by this decision (including SFR, Orange and
Bouygues Telecom) was thus established symmetrically as from January 1, 2013, at 1 euro cent for
mainland France and overseas, making France one of the European Union countries where SMS call
terminations are lowest.
As shown by the table below, the multi-year rates framework applied by ARCEP, which shows a
tendency to lower interconnection charges, has resulted in a continuous, major reduction in SMS call
termination rates of regulated operators:
166
In c€
Orange and SFR
Bouygues Telecom
Réunion - Mayotte area
operators
As of
As of
As of
As of
August 1, October 1, As of July January 1, As of July January 1,
2006
2010
1, 2011
2012
1, 2012
2013
3
2
1.5
3.5
2.17
1
1
3
2
West Indies - Guiana area
operators
Source: ARCEP
3
2
Since July 21, 2013 (the expiration date of Decision 2010-0892 mentioned previously), SMS call
terminations have no longer been formally subject to an ex ante pricing structure set up by
ARCEP. Moreover, following the aforementioned Decision 2010-0892, new players have appeared
on the scene (Free Mobile in particular), which are not today subject to any form of regulation ex
ante on SMS call termination markets.
Under the scope of the new analysis cycle of the wholesale fixed-line, mobile and SMS voice call
termination market, which began in May 2013 for the 2014-2016 period, ARCEP envisages
including Free Mobile and all full MVNO operators under the scope of the category of operators
subject to ex ante regulation. The sector regulator also wishes to maintain and prolong for three
years a regulation of SMS call terminations but does not envisage any further lowering of rates for
which the limit will remain fixed as 1 euro cent until December 31, 2016 for all operators on
mainland France and overseas. ARCEP is therefore considering the potential relevance of the
MMS call termination market for ex ante regulation.
In its Opinion 13-A-17 of October 14, 2013, the Competition Authority asked ARCEP to plan and
prepare, in the short or medium term, a potential lifting of ex ante obligations on the wholesale
SMS call termination market. The Authority also believes that the implementation of a regulation
ex ante on MMS call terminations is not justified.
Thus on September 12, 2014 ARCEP once again launched a public consultation, to last until
October 13, 2014, on its draft decision on the analysis of the fixed-line voice, mobile voice and
SMS call termination markets on mainland France and overseas, for the period 2014-2017,
including the draft pricing structure.
The Authority has proposed similar limits between mainland France and overseas, thereby
bringing overseas and mainland France rates for voice and SMS closer. The operators can pursue
the development of formulas including communication between mainland France and overseas.
The draft rate limits for mainland France and overseas are as follows:
Mobile voice call termination Fixed voice call termination SMS call termination
Until 12/31/2014
c€0.80/min
c€0.080/min
from 1/1/2015 to 12/31/2015
c€0.78/min
c€0.079/min
from 1/1/2016 to 12/31/2016
c€0.76/min
c€0.078/min
As from 1/1/2017
c€0.74/min
c€0.077/min
c€1/min
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Source: ARCEP
ARCEP has notified the European Commission of its draft decision on the regulation of wholesale
fixed-line voice, mobile voice and SMS call termination markets for the period 2014-2017. On
November 28, 2014, the European Commission approved the draft regulation on the analysis of the
fixed-line voice and mobile voice call termination markets that can therefore be adopted. The
Commission did, however, ask for some supplementary justifications as regards the part relating to
the regulation of wholesale SMS call terminations markets. Following the procedure aimed at
consolidating the domestic market, it launched an in-depth investigation and exchange of notes
with ARCEP and ORECE for a two-month period, after which it will decide whether or not to
approve the ARCEP draft.
At the end of these two months, on January 29, 2015, ARCEP announced that it was withdrawing
its draft decision to continue dialog. In this period of time, the Authority placed the SMS markets
under surveillance.
6.12.1.3.3
Individual obligations resulting from SFR mobile telephony licenses
In addition to the general obligations described above (see Section 6.12.1.3.2 “Main obligations
relating to the mobile operator activities of SFR” of this Registration Document), there are also
individual obligations connected with commitments made by SFR at the time of attribution of the
various different authorizations to use the frequencies it holds.
These individual obligations mainly include the following:
3G coverage commitments
The table below summarizes the commitments to ensure 3G network coverage applicable to SFR:
Due dates
Coverage obligation (in terms of
% population coverage)
December 31, 2010
December 31, 2011
88%
98%
December 31, 2013
99.3%
Source: ARCEP
By means of Decision 2014-0624 dated May 27, 2014, ARCEP began in administrative inquiry
concerning SFR in order to ensure compliance with its commitments made in relation to the last
due date for the deployment of its third-generation mobile network in France ensuring 99.3%
coverage. This inquiry is still underway.
Coverage commitment in very-high-speed mobile
The schedule given below summarizes the deployment obligations envisaged by the SFR 4G
licenses on the 800 MHz and 2.6 GHz bandwidths:
As % of population
October 11, January 17, October 11, January 17, October 11, January 17, January 17,
2015
2017
2019
2022
2023
2024
2027
In the primary deployment area (18% of the
population and 63% of the territory)
40% (800
MHz band)
90% (800
MHz band)
90% (800
95% (800
MHz band) MHz band)
In each department
Throughout mainland France
25% (2.6
GHz band)
60% (2.6
GHz band)
Source: ARCEP
168
75% (2.6
98% (800 99.6% (800
GHz band) MHz band) MHz band)
MVNO (Mobile Virtual Network Operators) hosting commitments
When proceeding to attribute the residual frequencies of the 2.1 GHz bandwidth, SFR undertook to
host MVNOs on its network in accordance with conditions “that did not unjustifiably restrict the
objective of competition on the wholesale market of MVNO hosting and the commercial autonomy
of the MVNOs on the retail market.”
Moreover, under the scope of its 4G license on the 800 MHz bandwidth, SFR specifically
undertook as follows:
(i) to grant “reasonable requests for hosting on a very-high-speed mobile network open to the public”;
(ii) to supply the MVNOs it hosts on its network with “hosting at reasonable economic conditions,
specifically with regards to the prevalent conditions on the wholesale and retail markets on which
[SFR] operates and compatibly with the exercise of effective, fair competition on these markets”; and
(iii) to propose “an offer based on full MVNO architecture consisting of the supply of access to its
local radio loop “in conditions enabling its effective use and, particularly in non-discriminatory
conditions in terms of quality of service with respect to that from which [SFR] benefits for its own
services.”
6.12.1.4 Legal status of the cable networks
A telecommunications network essentially consists of physical infrastructures (conduits, network
heads, switches) in which the telecommunications equipment (mainly cables) are housed. These
components may be subject to different legal rules (see below). Given that the Numericable Group
physical infrastructure is not built on its own land (but rather on public or private property),
Numericable Group has signed agreements or leases or benefits from rights of way or indefeasible
rights of use (IRUs) with the owners. The telecommunications equipment itself may be owned
directly by the telecommunications operator or by a third party (which may in turn itself be a
telecommunications operator). Several telecommunications operators can occupy or use the same
physical infrastructure and/or the same telecommunications equipment. Numericable Group built its
network by buying and combining entities that had themselves built their networks under different
legal rules, with different combinations of the legal rules described below.
6.12.1.4.1
Networks using Orange conduits
In 1982, the French government launched the Cable Plan (Plan Câble) (established by the laws of
July 29, 1982 and August 1, 1984). Under the scope of the Cable Plan (Plan Câble), the cable
network was built by the French government before being transferred to Orange, the incumbent
telecommunications operator. The network was originally operated by some of Numericable Group’s
predecessors, privately and publicly funded local entities which Numericable Group later acquired. At
the time of these acquisitions, Orange granted Numericable Group several IRUs covering its
infrastructures (primarily conduits). These IRUs, which were agreed to on various dates, were granted
to Numericable Group for a term of 20 years each, and the renewal of the first of them will have to be
negotiated between the parties in 2019. For a description of the IRU agreements of Numericable
Group with Orange, see Section 22 “Major contracts” of the Registration Document. The portion of
network using Orange conduits represents 55% of the global network of Numericable Group.
In compliance with ARCEP Decision 2008-0835 of July 24, 2008, Orange published on September
15, 2008 a technical and commercial offer made to telecommunication operators allowing them
access to the civil engineering infrastructure of the local wire-based loop, pursuant to which such
operators could roll out their own fiber networks in Orange’s ducts. Orange later asked Numericable
to modify the IRUs in order to bring the operating procedures envisaged in the IRUs into line with
169
certain operating procedures of this commercial offer. More specifically, Orange asked the Group to
comply with the general rules regarding access to Orange’s civil engineering installations for the
purpose of maintaining and upgrading its network. This issue was litigated, and both ARCEP and the
Paris Court of Appeal ruled in favor of Orange on November 4, 2010 and June 23, 2011 respectively.
Numericable appealed the decision in the Court of Cassation which on September 25, 2012 upheld,
for the most part, the decision of the Paris Court of Appeal.
Moreover, on October 21, 2011, ARCEP initiated penalty proceedings against Numericable, arguing
that it had not complied with its November 4, 2010 decision. Consequently, in December 2011,
Numericable and Orange signed amendments to the IRUs in order to comply with the November 4,
2010 ARCEP decision and to align the operating procedures set out in the IRUs with the procedures
set out in the Orange generic technical and commercial offer.
In the meantime, the sanctions procedure initiated by the ARCEP was not settled with the execution
of the amendments and the Group was ordered on December 20, 2011 to pay a fine of €5.0 million for
noncompliance with ARCEP’s November 4, 2010 Decision. Numericable filed an appeal against this
decision in the Conseil d’État. The case is currently pending in the Conseil d’État. Under the scope of
this procedure, Numericable disputed the constitutional legality of Article L. 36-11 of the CPCE
establishing the sanction powers of ARCEP in the Constitutional Court, via a procedure referred to as
a priority matter of constitutional legality. On July 5, 2013, the Constitutional Court invalidated the
sanction powers of ARCEP set out under paragraphs 1 to 12 of Article L. 36-11 of the CPCE, on the
basis of which ARCEP’s December 20, 2011 decision to impose the aforementioned penalty was
made. Numericable asked the Conseil d’État to give effect to this decision and to accordingly
invalidate the ARCEP decision of November 20, 2011.
At the same time, Numericable initiated parallel proceedings against Orange in the Commercial Court
of Paris on October 7, 2010 claiming damages of €2.7 billion for breach and modification of the IRUs
by Orange. On April 23, 2012, the Commercial Court of Paris ruled in favor of Orange and dismissed
the Group’s claims for damages, ruling that there were no material differences between the original
operational procedures and the new operational procedures imposed on Numericable by Orange under
the terms of its general technical and commercial offer, published on September 15, 2008.
Numericable appealed this decision in the Paris Court of Appeal and claimed the same amount of
damages as it had in the Paris Commercial Court. Orange, in turn, claimed that the proceedings
materially impaired its brand and image, and claimed damages of €50 million. In a ruling dated June
20, 2014, the Paris Court of Appeal dismissed Numericable’s appeal, which was referred to the Court
of Cassation on August 14, 2014.
6.12.1.4.2
Implementation of networks under the scope of the New Deal Plan (Plan
Nouvelle Donne)
In 1986, the government launched the New Deal Plan (Plan Nouvelle Donne) (Law 86-1067 of
September 30, 1986 relating to freedom of communication). This new regulatory framework
authorized local public authorities to install their networks or to have them built by private companies.
Several private companies (which Numericable Group acquired at a later date) thus implemented new
networks and obtained rights to occupy and use 20 to 30-year concessions to exploit these networks.
The networks belonging to the New Deal Plan (Plan Nouvelle Donne) account for 38% of all
Numericable Group networks. Numericable Group signed approximately 500 contracts for networks
under the New Deal Plan.
There is no model contract under the scope of the New Deal Plan (Plan Nouvelle Donne) and,
consequently, there is a certain level of uncertainty with regards to the ownership of the networks by
virtue of certain long-term contracts with local authorities. The question relates to the identification of
contracts that can be classified as delegation of public service. By virtue of a delegation of public
service contract signed with a local authority, the infrastructures and equipment used to supply these
170
public services are returned to the local authorities upon expiry or termination of the contract
(returnable assets).
In this context, Law 2004-669 of July 9, 2004, transposing the 2002 European Community directives
referred to as the “2002 Telecoms Package” into French law, has set forth an obligation to comply
with the agreements by terminating exclusive rights for the establishment and/or use of the networks.
Moreover, Law 2008-776 of August 4, 2008 authorized local authorities to grant equivalent access
rights to their networks for competitors of Numericable Group, even if otherwise provided in the
contract with these local authorities. In a report of July 2007, ARCEP found that these contracts could
only be definitively categorized on a case-by-case basis according to each contract’s language.
However, the contracts signed with local authorities after 1990, pursuant to the authorization granted
as part of the New Deal Plan (Plan Nouvelle Donne) by Law 90-1170 of December 29, 1990 to
municipalities to use telecommunications networks directly could be classified as public service
delegation contracts and therefore incorporate the concept of returnable assets.
To clarify the conditions for complying with the agreements currently in force with public players
(mainly local authorities), in May 2010 Numericable Group proposed to ARCEP a plan for the
novation of its agreements, as follows: ownership of the civil engineering components (that is, the
conduits) pertains to the local authorities, while ownership of all of the existing cabling and
telecommunications equipment expressly pertains to Numericable Group by means of a transfer
process.
This plan resulted in the finalizing of settlement agreements (i) covering the aforementioned items,
(ii) including an agreement for occupancy of public property encompassing a non-exclusive right on
the part of Numericable Group to use the conduits that have become the property of local authorities
in accordance with the terms of the mentioned new agreements, along with its own
telecommunications equipment. One of the main characteristics of these new agreements is that the
right of Numericable Group to use these conduits is not exclusive, and that its competitors can install
their own equipment there.
Numericable Group has signed 29 agreements according to the plan officially endorsed by ARCEP,
with different local authorities and is currently still negotiating the implementation of the proposal it
has made to certain local authorities.
See Section 4.4.2 “The legal status of the Group’s network is complex and, in certain cases, is subject
to renewals or challenges” of this Registration Document for a description of the risks associated with
the New Deal Plan (Plan Nouvelle Donne).
6.12.1.4.3
Other networks
A limited portion of Numericable Group’s current network (7%) is governed by legal agreements
such as long-term public property leases, tenancy agreements (that is, a type of operating concession
by which Numericable Group leases an entire network), or public property occupancy agreements
(under which Numericable Group installs the network equipment necessary in certain public
locations, with no transfer of ownership occurring under this type of agreement).
These agreements are signed with local authorities, mainly municipalities, for terms ranging from 10
to 30 years. In compliance with Articles L. 2122-2 and L. 2122-3 of the General Code of Property of
Public Persons, local authorities can terminate these agreements for the occupation of the public
domain at any time, as long as they can prove that said action is in the public interest.
Upon expiration of these agreements, Numericable Group must, depending on the contractual
provisions, (i) return all networks to the local authorities, in some cases in exchange for payment by
the local authorities of an amount equal to the market value of the network and in some cases without
payment, (ii) withdraw all networks, at its own expense or at the expense of the local authorities, (iii)
171
transfer the network to other operators, upon approval from the local authorities, or (iv) buy back the
network. In compliance with the law applicable to such agreements, upon expiration of the long-term
leases the network reverts to the local authorities.
Royalties are generally paid once a year and vary depending on the size of the network, the number of
users connected to the network and, if applicable, the scope of deployment of the Numericable Group
network in public places.
6.12.1.5 Portability of fixed-line number
Portability is a service offered by a telecommunications operator that enables its subscribers to keep
their telephone number if they change operators. Portability of number is an obligation for all
operators with end subscribers in compliance with Article L. 44 of the CPCE. Decree 2006-82 of
January 27, 2006 extended this obligation to portability of numbers to include alternative telephony
operators. ARCEP Decision 2009-0637 implementing this decree was published on July 23, 2009 and
approved by the Ministry for Electronic Communication on October 22, 2009. This decision declares
the obligations of operator portability, specifically as concerns the maximum duration for which time
a service can be suspended in the event of a request for portability (four hours as from January 1,
2012). It also establishes that as from April 1, 2010, the same level of service must be supplied for
calls made to numbers taken and for those made to numbers not taken, reserving the right for the
maximum suspension of service under the scope of a request for portability. In accordance with
Article D. 406-18 of the CPCE, a request for portability between two operators must be processed
within one day. Consumer contracts must include and detail the sanctions applicable if these operators
should fail to comply with these terms. A decree published in the Official Journal of November 1,
2013 approved ARCEP Decision 2013-0830 of June 25, 2013, specifying the new methods for
keeping fixed-line numbers. This decision establishes new obligations for B2C operators, specifically
in terms of information and quality of service, which must be progressively implemented before
October 1, 2015.
In order to effectively manage the exchange of information between operators as regards requests for
portability, in January 2009, the major operators, including Completel, Numericable and SFR,
established a dedicated entity to this effect, the Association for the Portability of Fixed-Line Numbers
(Association de la Portabilité des Numéros Fixes).
6.12.1.6 Directories and communication of lists of subscribers
In accordance with Article L. 34 of the CPCE, the publication of lists of subscribers or users of
electronic communication services or networks is free, without prejudice to the protection of personal
rights. Consequently, all operators connecting end subscribers are required to make their lists of
subscribers public for the purpose of the preparation of directories and communication to universal
information services.
ARCEP Decision 06-0639 of November 30, 2006 details the conditions for making available lists of
subscribers and users for the purpose of the publication of universal directories or the supply of
universal information services.
6.12.1.7 Contribution towards the financing of the universal service
In accordance with the terms of Articles L. 35 et seq. of the CPCE, which transposes the provisions of
the Universal Service Directive in France, as amended by Directive 2009/136/EC of November 25,
2009, the obligation of the universal service includes: (i) the universal electronic communication
service; (ii) complementary services to the universal electronic communication service; and (iii)
missions of general interest under the scope of electronic communication, as regards defense and
security, public research and further education. The universal electronic communication service
172
includes: (a) a connection to a fixed-line network open to the public and a high-quality telephone
service, including fax communication and data communication, at sufficient speeds to enable Internet
access and the free routing of urgent calls, all at a reasonable price; (b) an information service and
directory of subscribers; (c) access to public telephone cabins; and (d) specific measures in favor of
end users with disabilities.
In accordance with Law 2003-1365 of December 31, 2003, operators are required to ensure that the
supply of universal service is designated on the basis of invitations to tender. Orange was awarded the
calls for tenders conducted in France and designated as the operator in charge of supplying the
components of the universal service, with the exception of the subscriber directory service, which was
assigned to PageJaunes by a Decree dated December 6, 2012. The cost of the universal service is split
between the operators on a prorata basis according to their revenues obtained from telecommunication
services. The contribution made by Numericable Group towards the financing of the universal service
was approximately €200,000 for 2011 (ARCEP Decision 2010-1230 of November 16, 2010),
approximately €317,000 for 2012 (ARCEP Decision 2014-0533 of May 6, 2014), approximately
€400,000 for 2013 (ARCEP decision 2012-1546 of December 4, 2012), approximately €420,000 for
2014 (ARCEP Decision 2013-1406 of November 26, 2013) and is approximately €180,000 for 2015
(ARCEP Decision 2014-1397 of November 25, 2014). The contribution made by SFR towards the
financing of the universal service was approximately €5,729,000 for 2011 (ARCEP Decision 20101230 of November 16, 2010), approximately €6,273,000 for 2012 (ARCEP Decision 2014-0533 of
May 6, 2014), approximately €6,369,000 for 2013 (ARCEP Decision 2012-1546 of December 4,
2012), approximately €6,030,000 for 2014 (ARCEP Decision 2013-1406 of November 26, 2013) and
is approximately €6,276,000 for 2015 (ARCEP Decision 2014-1397 of November 25, 2014).
6.12.1.8 Radio-broadcasting of audiovisual services
The transmission and broadcasting of radio and television services (whatever the signal transmission
means used) come under the scope of the 2002 Telecommunications Package and are therefore
subject to the control of the NRAs.
The controlling powers of the French broadcasting regulator, Conseil Supérieur de l’Audiovisuel
(“CSA”) were extended by law 2004-669 of July 9, 2004 to cover all radio and television services,
whatever the transmission and broadcasting method. The rules govern the powers and members of
CSA and are subject to change in the near future, in accordance with the legislative bill relating to the
independence of public audiovisual services. Law 2013-1028 of November 15, 2013 (i) granted CSA
the power to appoint the Chairmen of France Télévision, Radio France and the company in charge of
French audiovisual services abroad in lieu of the President of the Republic; (ii) reduced the number of
members of the CSA from nine to seven and limited the powers of the President of the Republic to
designate a Chairman of CSA only; (iii) amended the sanction procedure of CSA to create an
independent rapporteur and establish a clear distinction between the fact-finding and investigative
bodies and the decision-making bodies. As broadcaster of radio and television services, the Group is
required to declare its activities and register with CSA.
In accordance with Articles 42-1 and 42-2 of Law 86-1067 of September 30, 1986 (as respectively
amended by Laws 2004-669 of July 9, 2004 and 2013-1028 of November 15, 2013), the sanctions
considered by the CSA if an operator fails to comply with the regulatory framework include limiting
the scope or reducing the duration of the operator’s registration and the suspension or even
withdrawal of this registration (for up to one year). The CSA can also order the payment of fines of up
to 3% of the operator’s annual revenues, or 5% in the event of a repeat offense.
As distributor of audiovisual services, the Group is subject to the regulatory obligations for the supply
of mandatory (“must-carry”) services requiring a supplier of services by cable, satellite or ADSL to
provide certain audiovisual services on its network.
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These mandatory service obligations are governed by Articles 34-2, 34-4 and 34-5 of Law 86-1067 of
September 30, 1986 (as amended by Laws 2011-901 of July 28, 2011 or 2009-258 of March 5, 2009,
as applicable):
•
Article 34-2 establishes that for all network types, the following channels must be made
available to subscribers free of charge: public service channels broadcast on the wavelengths,
Arte, Chaîne Parlementaire, TV5 and the RFO services specifically intended for the general
public of mainland France (the RFO-Sat program). Except for satellite, the same rules apply
to local cable channels.
•
Article 34-4 introduces rights to mandatory services on all transmission means (cable, satellite
and ADSL) for chains with free analog or digital access broadcast on the wavelengths, in fair,
reasonable, non-discriminatory conditions. Only the channels themselves can demand that
their programs be broadcast on the distribution networks and not the opposite.
•
Article 34-5 requires that digital electronic communication networks broadcast all the
regional programs of France 3.
In addition, CSA controls the contents of the broadcast channels. More specifically, Article 15 of Law
86-1067 of September 30, 1986 (as amended by Law 2010-769 of July 9, 2010) establishes that CSA
must publish rules to protect children from programs considered as a danger to their physical and
mental health. CSA has implemented strict rules in this respect, in particular in relation to the use of
specific logos for programs considered inappropriate for children. As an operator and distributor of
television channels, the Group complies strictly with these rules.
6.12.2
Regulation of the content of electronic communication
6.12.2.1 Content of on-line services and liability of players on the Internet market
The provisions on liability applicable to intermediate providers of Internet services are laid down in
Law 2004-575 of June 21, 2004, CPCE, Decree 2011-219 of February 25, 2011 and Decree 2012-436
of March 30, 2012. They include the following provisions:
•
suppliers of on-line communication services must be directly or indirectly known. Suppliers
of access and hosts are required to store data enabling them to identify the persons involved in
the creation of the contents of the services they supply, so as to be able to transmit this data to
the legal authorities if necessary;
•
hosts may be held civilly or criminally liable for the activity or information stored at the
request of a beneficiary of these services only where they are aware of the unlawful nature of
the information or where the events and circumstances make the unlawful nature evident or if,
when becoming aware of the unlawful nature, they fail to take prompt action to remove this
data or prevent access to it;
•
access suppliers cannot be held civilly or criminally liable for the contents to which they grant
access except where they are the source of the request for the contents transmitted or if they
choose the addressee of the transmission or if they have chosen and/or altered the contents
transmitted; and
•
electronic communication operators are required to keep the technical connection data
necessary for criminal investigations or missions by HADOPI (as defined below). They may
also keep the technical data necessary to pay their invoices. Apart from these two specific
cases, the operators concerned must eliminate or make anonymous all data relating to a
communication once it has been made.
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Legislative provisions have also been introduced by Law 2010-476 of May 12, 2010 relating to the
opening-up to competition and regulation of the on-line gaming and betting sector and Law 2011-267
of March 14, 2011 on the guidance and programming for the performance of interior security obliging
access suppliers to block access to certain websites and certain on-line contents (such as illegal
gaming websites or child pornography contents) when asked to do so by the On-Line Gaming
Regulatory Authority or France’s Interior Ministry.
6.12.2.2 Copyright and the Internet
In accordance with Law 2009-669 adopted on June 12, 2009, encouraging the dissemination and
protection of creations on the Internet, a specific system of “graduated responses” has been
introduced, aiming to limit illegal downloads. The first level of the system is an e-mail warning sent
to individuals carrying out illegal downloads. An independent autonomous administration - Haute
Autorité pour la Diffusion des Oeuvres et la Protection des Droits sur Internet (“HADOPI”) has been
created to manage and send out these e-mails. On October 28, 2009, Law 2009-1311 was adopted to
complete the graduated response system by establishing that in the event of repeat offenses, the court
could apply a fine or even suspend access to the Internet by the individual responsible for the illegal
downloading. This latter sanction was, however, eliminated by Decree 2013-596 of July 8, 2013.
These legislative provisions have also been completed by a certain number of regulatory provisions
relating: (i) to the types of data and interconnection of information systems (Decree 2010-236 of
March 5, 2010); and (ii) to the obligation for access suppliers to act as a carrier for the dissemination
of recommendations made by HADOPI (Decree 2010-1202 of October 12, 2010).
In May 2012, the new government announced the creation of an ad hoc commission established to
reform HADOPI. This commission, which issued its report on May 14, 2013, gave recommendations
in the following areas: (i) public access to cultural works and offers on-line; (ii) remuneration of
creators and financing of creation; and (iii) the protection and adaptation of intellectual property
rights. The legal framework of copyright and the Internet is therefore to be altered in the near future,
as has been the case by Decree 2013-596 of July 8, 2013 mentioned above and, recently, by Law
2014-315 of March 11, 2014, reinforcing the means by which to fight counterfeiting.
6.12.2.3 Personal data processing and the protection of individuals
Law 2004-801 of August 6, 2004 on the protection of natural persons with regards to personal data
processing, modifying Law 78-17 of January 6, 1978 relative to computing, data and freedoms (“Law
78-17”) and the implementation decree 2005-1309 of October 20, 2005 of Law 78-17 transposing
Directive 95/46/EC of October 24, 1995 on the protection of privacy with regards to personal data
processing and the free circulation of this data and certain provisions of the Privacy and Electronic
Directive on protection in French law. Law 2004-575 of June 21, 2004, for trust in the digital
economy and Law 2004-669 of July 9, 2004 on electronic communication and audiovisual
communication services have also transposed some provisions of the Privacy and Electronic Directive
into French law. Finally, the French data protection regulations have been amended by Order 20111012 of August 24, 2011, which transposed the 2009 Directives (more specifically, the requirement to
obtain advance consent from the user to the installation of cookies on an individual computer) into
French law. On January 25, 2012, the European Commission published proposals for the updating and
modernizing the principles of Directive 95/46/EC laid out above, in order to strengthen the rights of
individuals, guarantee them greater control over their personal data and, more generally, guarantee
their right to privacy. These proposals aim to ensure that personal data of individuals is protected wherever they are sent, processed or stored - even outside the European Union. On March 12, 2014,
the European Parliament approved a draft regulation based on the 2012 proposals of the European
Commission.
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The main provisions applicable of Law 78-17 (as amended), which is the cornerstone of French
personal data protection regulations, are as follows:
•
no personal data can be processed without first informing and obtaining the consent of the
data subject. However, a limited number of circumstances are defined in which such
processing may be legal, even without the consent of the data subject (these exceptions to not
apply to the processing of sensitive data);
•
the right of data subjects to access, correct and oppose the processing of their personal data
must be assured at all times;
•
all personal data processing must be notified to, or duly authorized by the French Data
Protection Agency (“CNIL”), without prejudice to very limited exceptions;
•
electronic communication suppliers are obliged to report (to the French authorities) any
infringement of personal data protection, as detailed in Decree 2012-436 of March 30, 2012;
and
•
any violation of the provisions of Law 78-17 (as amended) may be subject to administrative
sanctions and/or penalties. Possible infractions and sanctions incurred in these cases are
described by Articles 226-16 to 226-24 of the Criminal Code. These infractions are punished
by a fine of up to €30,000 and up to five years’ imprisonment or, for legal entities, a fine may
up to €1.5 million.
Under the scope of its normal business, the Group records and processes personal data specifically
comprising data on the use of the services it supplies and number of visits to its websites. These
personal data, however, processed in full compliance with all applicable laws, in particular the
databases prepared by the Group to this end, have been declared to the CNIL.
As regards data connected with use of its services, since June 18, 2008 the Group has been required to
keep all identification data for five years following termination of subscription. In compliance with
Article L. 34-1 of the CPCE, technical data relating to connections must be kept and made anonymous
after one year.
The Group may be required to send information it has on the identification, location and connection of
a user of its services, but this information can only be supplied to duly authorized legal or
administrative authorities. The information transmitted shall not include data on the contents of
communication or information consulted. The categories of data coming under the scope of this
requirement are currently specified by Decrees 2006-358 of March 24, 2006 and 2011-219 of
February 25, 2011. According to Articles L. 241-1 et seq. of the Internal Security Code, the Group
may also intercept electronic communication sent via its terrestrial network at the request of duly
authorized legal or administrative authorities. This type of interception - for which the Group receives
financial remuneration from the government in accordance with Decision 2000-441 DC of the
Constitutional Council of December 28, 2000 - is carried out under strict supervision and by qualified
professionals using duly authorized equipment that is controlled by the competent authorities.
Moreover, Decree 2012-488 of April 13, 2012 sets down new obligations for operators to protect the
security of their data on their networks. Operators are required to implement specific measures to
protect the security of their networks.
Finally, hosting of personal health data by SFR is subject to a specific authorization procedure, which
was obtained by SFR in March 2012 (Decision of March 6, 2012 authorizing Société française du
radiotéléphone (SFR) to host applications supplied by customers and the management of personal
health data via its service offers of on-demand IT systems infrastructure, “Isiad-Infrastructure SI à la
176
demande” and dedicated hosting, “Hosting-Hébergement dédié”) (published in the Official Journal of
the Ministry of Health on November 15, 2012 (p. 182).
The legislative framework for the hosting of personal health data is established by article L. 1111-8 of
the Public Health Code added by Law 2002-303 of March 4, 2002 (referred to as the “Kouchner”
Law), which establishes that healthcare professionals or healthcare establishments or the data subject
may make personal health data collected or produced during prevention, diagnosis or treatment,
available to any individuals or legal entities authorized to this end. The hosting of personal health data
can only take place with the specific consent of the data subject. The authorization procedure involves
compliance with the various requirements set forth by Decree 2006-6 of January 4, 2006, encoded in
the regulatory part of the Public Health Code.
Failure to comply exposes the provider hosting the personal health data to the possibility of three
years’ imprisonment and a fine of up to €45,000 (Article L. 1115-1 of the Public Health Code).
6.12.2.4 Domain names
Domain names are assigned to the digital addresses of the servers connected to the Internet and
constituting Internet addresses. The legal provisions connected with the allocation and management of
level-one domain names for national French territory are laid down by Law 2011-302 of March 22,
2011, as codified by Articles L. 45 et seq. of the CPCE. The Group has recorded a certain number of
domain names in France, which have been considered as assets. The courts have now reinforced
protection of domain names to the extent that a domain name is considered as part of the rights
conferred by registered trademarks.
6.12.3
Tax treatment
6.12.3.1 Tax on television services
Article 28 of the 1997 Supplementary Budget Act (97-1239 of December 29, 1997) established, as
from January 1, 1998, tax due by all users of a television service received in mainland France or in the
overseas departments. Since January 1, 2008, television service taxes are due on the one hand by all
publishers of television services, whatever their broadcasting network, and on the other by distributor
of television services, whatever electronic communication network they may use.
Article 20 of the 2012 Supplementary Budget Act extended the scope of the tax due by television
service distributors to also include electronic communication operators.
Since January 1, 2014, for television service distributors, the base of the tax due consists of the
revenues resulting (i) from subscriptions and other amounts paid by users in remuneration for one or
more television services (after eliminating 10%) and (ii) subscriptions and other amounts paid by
users under the scope of offers intended for the general public granting access to public on-line
communication services or telephony services, when subscription to these services makes it possible
to receive television services by way of this access (after eliminating 66%). The tax rate is progressive
(from 0.5% for between 10 and 250 million to 3.5% for the portion exceeding €750 million).
6.12.3.2 Tax on the revenues of electronic communication operators
Law 2009-258 of March 5, 2009 on audiovisual communication and the new public television service
introduced a rate of 0.9% applicable to the portion of revenues (excluding VAT) of
telecommunications operators in relation to electronic communication services exceeding €5,000,000.
This tax came into force on March 7, 2009. Following the infraction procedure against France in
connection with this tax, brought by the European Commission on January 28, 2010 and the issue, on
September 30, 2010, of a grounded opinion whereby the tax is not compatible with European
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Directive 2002/20/EC, the matter was referred to the court on September 22, 2011 (Case C-485-11).
On June 27, 2013, the Court issued an order rejecting the action of the Commission on the grounds
that the tax on the revenues of telecommunications operators did not come under the scope of
European Directive 2002/20/EC and was therefore not incompatible with said Directive.
6.12.3.3 VAT treatment applicable to television services
The VAT rate for television services increased from 7% to 10% as from January 1, 2014.
Article 26 of the 2011 Budget Act, promulgated on December 28, 2010, had eliminated the possibility
of applying the reduced VAT rate to 50% of the price of the bundled offers giving access to both an
electronic communication network and a televisual service. Later, under the scope of these offers, the
intermediate rate applied, equivalent to the economic value of the services corresponding to the
televisual broadcasting rights acquired by the supplier.
As from January 1, 2015, in accordance with Article 54 of the 2014 Supplementary Budget Act of
December 29, 2014, the distributor of television services, included as part of a triple play offer and for
which distribution rights have been acquired, can only apply the intermediate rate of 10% to the
amounts paid, per user, for the acquisition of the above rights.
6.12.3.4 Flat taxation of network businesses applied to radio-electric stations
Article 1635-0 quinquies of the CGI sets forth a flat-rate tax on network businesses (IFER). In
accordance with the terms of Article 1519 H of the CGI, this tax applies specifically to radio-electric
stations whose power requires an opinion, an agreement or a declaration to the National Frequencies
Agency in application of Article L. 43 of the CPCE.
6.12.3.5 Tax on the sales and rental of video games for private use of the general public
Article 1609 sexdecies B of the CGI establishes a tax on the sales and rental in France, including in
the overseas departments, of video games intended for private use by the general public. It is based on
the amount excluding VAT of the price paid by the customer and its common rate is established as
2% (10% for “adult” contents). Suppliers of “video on demand” are concerned by this tax when they
collect payments on their own behalf in exchange for making a video program available to the end
user.
6.12.3.6 Fees and royalties set forth by the CPCE
•
Royalties for the use of radio-electric frequencies: royalties due by SFR for its authorizations
to use the frequencies are those specified by the provisions of Decree 2007-1532 of October
24, 2007, as amended. These charges consist of a fixed part and a variable part based on
revenues and determined in accordance with the provisions of Decree 2007-1532 specified
above;
•
Administrative tax: in application of Article L. 33-1 of the CPCE, SFR is required to pay a tax
to cover the administrative costs connected with the implementation of the CPCE provisions
on electronic communication (Book II). The provisions in force to date to calculate this tax
are defined by Article 45 (VII) of the 1987 Budget Act (86-1317) amended by Article 132 of
the 2006 Budget Act (2005-1719) and by Article 7 of the 2006 Supplementary Budget Act
(2006-1771);
•
Interference fee: in application of Article L. 43-I bis of the CPCE, SFR Is required to pay the
fees established for the benefit of the National Frequencies Agency and intended to cover the
full costs incurred by this establishment in collecting and processing complaints made by
audiovisual communication service users relating to interference caused by the start-up of
178
radio-electric stations in the 800 MHz bandwidth. The total amount of the tax to be paid is
divided up, within the limit of €2 million per year, between the owners of the rights to use the
frequencies of the specified bandwidth;
•
Dialing fees: in accordance with Article L. 44-II of the CPCE, SFR is required to pay a fee for
the dialing resources assigned to it by the ARCEP;
•
Contribution to the spectrum development fund: in application of Article L. 41-2 of the
CPCE, SFR pays the spectrum development fund a contribution aiming to cover the cost of
developments necessary to make the frequencies assigned it available and of which the
amounts and terms of allocation are established by the National Frequencies Agency in
accordance with the provisions of Articles R. 20-44-6 and R. 20-44-7 of the CPCE.
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7.
ORGANIZATIONAL CHART
7.1
SIMPLIFIED ORGANIZATIONAL CHART OF THE GROUP
The organizational chart below shows the Group’s legal structure as of the filing date of this
(1) Includes the 3,573,919 shares held by Fiberman. Fiberman has been controlled by Altice since Carlyle and Cinven
disposed of their holding in the company.
(2) 100% - 10 shares.
(3) The agreements signed on February 27, 2015 provide for the transfer of the shares held by Vivendi, following
which Vivendi will no longer hold any shares in the Company (for a description of these agreements, see Section
20.8 “Significant changes in the financial or trading position” of this Registration Document).
7.2
7.2.1
SUBSIDIARIES AND EQUITY INVESTMENTS
Overview
The Group was created as a result of the combination of Numericable and Completel as a
telecommunications operator providing a wide range of products and services to all categories of
customers in France, from individuals and businesses to other telecommunications operators and
public authorities.
In November 2013, Numericable Group completed its initial public offering. Since then its shares
have been listed on Euronext Paris.
Following the submission of the Offer to Vivendi proposing the acquisition of 100% of SFR
(excluding 10 SFR shares held by a minority shareholder), as well as all of the shares of another of
Vivendi’s subsidiaries, SIG 50 (the “SFR Acquisition”), the terms of which were accepted by
Vivendi’s Supervisory Board on April 5, 2014, and after completion of the procedures involving the
notification/consultation of the relevant employee representative bodies, the parties signed the Draft
Agreement for the SFR Acquisition in view of the Company’s acquisition of SFR and SIG 50.
The Draft Agreement for the SFR Acquisition stated that on the Completion Date, (i) Vivendi would
sell some of its shares in SFR to the Company, together with its shares in SIG 50, for the price of
€13.5 billion, less debt and cash, (ii) the Company would acquire Vivendi’s current account in SFR
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for a price corresponding to its principal amount on the Completion Date, including all interest
accrued prior to that date, and (iii) Vivendi would transfer some of its shares in SFR to the Company
in consideration for delivery of new ordinary shares in the Company representing 20% of its capital
(after completion of the Capital Increase described below, but without taking account of the potential
dilution resulting from the exercise of any stock options granted by the Company) (the “Transfer”).
Following the Transfer and the completion of the Acquisition on November 27, 2014, the Company’s
share capital was as follows: (i) Vivendi: 20%; (ii) Altice France: approximately 59.7%; and (iii) free
float: approximately 20.3%, including shares held by certain Company executives through Fiberman.
Vivendi and Altice act in concert; a shareholders’ agreement was signed on November 27, 2014
between Vivendi, Altice France and Altice S.A. governing relations between Vivendi and Altice
France as shareholders of the Company (AMF Document No. 214C2545 of December 5, 2014). On
February 27, 2015, the Company announced that it had signed agreements with Vivendi providing for
the transfer of the shares held by Vivendi, following which transfer Vivendi would no longer hold any
shares in the Company (for a description of these agreements, see Section 20.8 “Significant changes
in the financial or trading position” of this Registration Document).
On May 16, 2014, the Company began negotiations for the acquisition of 100% of Omer Telecom.
The Company is a holding company with no operations of its own. Following the reorganization
described above, the Company became the parent company of a group that includes 94 consolidated
entities (78 companies in France and 16 foreign companies). The Group also includes the company
Numericable Finance & Co. S.C.A., an independent special purpose finance vehicle, issuer of the
February 2012 Bonds and October 2012 Bonds.
The Company is also the head of a tax consolidation group established in accordance with Articles
223(A) and 223(L)(6)(i) of the French General Tax Code, with effect from January 1, 2014, and
including the French companies of which the Company indirectly holds at least 95% of the share
capital.
In this context, the distribution of dividends by Ypso France to Ypso Holding S.à.r.l. will remain
subject to the additional tax contribution of 3% on distributions provided by Article 235 ter ZCA of
the French General Tax Code (given its status as third-party intermediary company). However, if the
Company (which will be liable for taxes on this contribution as the head of the new tax consolidation
group) is able to demonstrate that Ypso Holding S.à.r.l. repaid to it the dividends paid by Ypso
France, it would be entitled to claim a refund of the contribution initially paid from the tax
administration.
7.2.2
Significant subsidiaries
The Company’s principal direct and indirect subsidiaries are described below.

Société française du radiotéléphone – SFR is a limited liability corporation (société anonyme)
with share capital of €3,423,265,598.40. Its registered office is located at 1 square Béla Bartók,
75015 Paris, France and it is registered with the Paris Trade and Companies Register under
number 343 059 564. SFR is a telecommunications operator active in mobile telephony and fixedline and mobile internet markets, targeting the B2C, B2B and wholesale segments. The Company
owns 100% of SFR (excluding 10 SFR shares held by a minority shareholder).

NC Numericable is a French simplified joint stock company with share capital of €78,919,817.50.
Its registered office is located at 10 rue Albert Einstein, 77420 Champs-sur-Marne, France and it
is registered with the Meaux Trades and Companies Register under number 400 461 950. The
Company indirectly holds 100% of the share capital and voting rights of NC Numericable. NC
Numericable operates the Group’s cable networks and markets the following services:
broadcasting of television programs, telephony, high-speed broadband and video on demand
(VOD).
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
Completel is a French simplified joint stock company with share capital of €146,648,525.88. Its
registered office is located at 1 square Béla Bartók, 75015 Paris, France and it is registered with
the Nanterre Trade and Companies Register under number 418 299 699. The Company indirectly
holds 100% of the share capital and voting rights of Completel. Completel is a
telecommunications operator specialized in high-speed and ultra-high-speed broadband for
businesses, the public sector, operators and service providers. In 2011, Completel acquired B3G, a
leading French provider of IP Centrex services, and Altitude Telecom, a telecommunications
operator active primarily in western France.

Société réunionnaise du radiotéléphone – SRR is a limited partnership with share capital of
€3,375,165. Its registered office is located at 21 rue Pierre Aubert, 97743 Saint Denis, France and
it is registered with the Trade and Companies Register of Saint-Denis de la Réunion. SRR
operates in Réunion and Mayotte in the B2C and B2B markets. This company distributes its
mobile, fixed-lined and internet services under the SFR brand. In Mayotte its services are
distributed via its subsidiary, Société mahoraise du radiotéléphone (“SMR”). SFR owns 100% of
SRR.

SFR Service Client is a limited liability corporation (société anonyme) with share capital of
€150,000. Its registered office is located at 12 rue Jean-Philippe Rameau, 93634 Saint-Denis
Cedex, France and it is registered with the Bobigny Companies Register under the number 413
512 013. It is a wholly owned subsidiary of SFR. SFR Service Client is in charge of customer
relations in the B2C segment and provides support for B2C distribution of the SFR brand. As
such, it provides customer relationship services either directly or via subcontractors. These
services mainly include call centers, billing, customer communication and after-sales care.

SFR Collectivités is a limited liability corporation (société anonyme) with share capital of
€50,152,492. Its registered office is located at 12 rue Jean-Philippe Rameau, 93634 Saint-Denis
Cedex, France and it is registered with the Bobigny Trade and Companies Register under number
419 753 587. It is a wholly owned subsidiary of SFR. SFR Collectivités was specifically set up to
work with local authorities in supporting the deployment strategy for the Group’s networks and
services in their area. The company has been awarded several public service contracts for the
building and operation of telecommunications infrastructure. These contracts are awarded by local
authorities that want to extend broadband coverage and provide local businesses with highperformance infrastructure. Generally valid for 15 to 20 years, these public service contracts set
targets in terms of deployment, service offering and prices. Investment subsidies are generally
granted by local authorities to improve the economic balance of the projects. SFR Collectivités
has created several special purpose entities specifically to manage these contracts.

Société d’investissements et de gestion 50 – SIG 50 is a limited liability corporation (société
anonyme) with share capital of €50,039,925. Its registered office is located at 1 square Béla
Bartók, 75015 Paris, France and it is registered with the Paris Trade and Companies Register
under the number 421 345 026. The Company owns 100% of SIG 50 and its subsidiaries,
including Telindus France.

SFD is a limited liability corporation (société anonyme) with share capital of €6,000,000. Its
registered office is located at 41 rue Delarivière Lefoullon, 92807 Puteaux, France and it is
registered with the Nanterre Trade and Companies Register under the number 410 358 865. Its
purpose is to distribute the SFR offering to SFR stores.

Compagnie d’Investissements Diversifiés – CID is a limited liability corporation (société
anonyme) with share capital of €70,037,865. Its registered office is located at 12 rue Jean-Philippe
Rameau, 93634 Saint-Denis Cedex, France and it is registered with the Bobigny Trade and
Companies Register under number 414 754 739. CID owns the company Cinq sur Cinq, which
distributes the SFR offering to SFR stores. CID also owns Futur Telecom, a provider of
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communication solutions aimed at small and medium-size companies, and Connect Assistance,
whose two constituent entities (2SIP and 2 SID) carry out home installation.

Telindus France is a simplified joint stock company with share capital of €43,929,984. Its
registered office is located at 12 avenue de l’Océanie, 91940 Les Ulis, France and it is registered
with the Evry Trade and Companies Register under number 348 505 256. Telindus France is one
of the main players in the French telecoms integration and ICT market and is the largest Cisco
distributor in France. Telindus France is set to increase the Group’s presence in the telecoms
integration market and will offer new services to its business customers.

Ypso Holding S.à.r.l. is a Luxembourg limited liability company with share capital of
€41,898,225. Its registered office is located at 3 boulevard Royal, L-2449 Luxembourg and it is
registered with the Luxembourg Trade and Companies Register under number B 110.644. The
Company holds 100% of the share capital and voting rights of Ypso Holding S.à.r.l.

Ypso France SAS is a French simplified joint stock company with share capital of €74,707,200.
Its registered office is located at 10 rue Albert Einstein, 77420 Champs-sur-Marne, France and it
is registered with the Meaux Trade and Companies Register under number 484 348 131. The
Company directly holds 1.6% of the share capital and voting rights of Ypso France SAS and
indirectly holds 100% of the share capital and voting rights of Ypso France SAS. Ypso France
SAS is a sub-holding company and the direct or indirect parent company of all Numericable
Group subsidiaries.

Numericable US is a simplified joint stock company with share capital of €37,608,579. Its
registered office is located at 5 place de la Pyramide, 92088 Paris la Défense, France and it is
registered with the Nanterre Trade and Companies Register under number 801 376 161. The
Company indirectly holds 100% of the share capital and voting rights of Numericable US, which
in turn holds 100% of the share capital and voting rights of Numericable US LLC, a company
organized under US law, whose registered office is located at 901 N. Market St, Suite 705,
Wilmington, County of New Castle, Delaware 19801, USA. Numericable US and Numericable
US LLC were created on March 26, 2014 for the purpose of financing the SFR acquisition.

Omer Telecom Limited is a company organized under UK law whose registered office is located
at 25 Savile Row, London W1S 2ER, United Kingdom. Its company registration number is
05721373. The Company owns 100% of Omea Telecom.

Omea Telecom SAS is a simplified joint stock company with sole shareholder and share capital of
€1,026,396. Its registered office is located at 12/14 rue Belgrand, 92300 Levallois-Perret, France
and it is registered with the Nanterre Trade and Companies Register under the number 495 028
987. The company is a mobile virtual network operator (MVNO) active in the retail mobile
telephony market. It offers a range of mobile and fixed telephony services marketed under the
Virgin Mobile brand.
In terms of operating businesses, the Group’s most significant subsidiaries are SFR, SRR, SFR
Service Client, SFR Collectivités, NC Numericable, Completel, Omea Telecom and Telindus France.
7.2.3
Recent acquisitions and sales of subsidiaries
On November 27, 2014, the Company acquired 100% of SFR Group (excluding 10 SFR shares held
by a minority shareholder).
On December 5, 2014, the Company acquired 100% of the capital of Omer Telecom Limited, the
holding company of the group operating in France under the Virgin Mobile brand.
7.2.4
Equity investments
183
As of the date of this Registration Document, the Group holds the following direct and indirect equity
investments:

50% of the share capital and voting rights of Infracos. Under the terms of a memorandum of
understanding signed on January 31, 2014, SFR and Bouygues Telecom defined the terms of an
agreement to share part of their mobile networks that would enable them to offer their respective
customers better quality services at an optimized cost (see Section 22 “Major contracts” of this
Registration Document). To this end, SFR and Bouygues Telecom have formed a special purpose
entity, initially tasked with optimizing the number of sites, and subsequently with managing the
portfolio of consolidated sites;

49% of the share capital and voting rights of La Poste Telecom. In 2011 SFR and La Poste
created a joint subsidiary, La Poste Telecom, of which they own 49% and 51% respectively. This
company is an MVNO active in the retail mobile telephony market. It offers a range of mobile
telephony services, which since May 23, 2011 have been marketed under the La Poste Mobile
brand via La Poste’s branch network;

46.7% of the share capital and voting rights of Numergy. On September 5, 2012, SFR, Bull and
the Caisse des Dépôts announced the creation of Numergy, a company offering all economic
actors remotely accessible and secure IT infrastructure capable of hosting data and applications
(“cloud computing services”), with enhanced security and confidentiality; and

30% of the share capital and voting rights of Synérail and 40% of the share capital and voting
rights of Synérail Construction. Synérail is the project company awarded the GSM-R partnership
agreement by Réseau Ferré de France for the design, construction, deployment, operation,
maintenance and financing of the GSM-R mobile telecommunications network developed for rail
communications and applications. The remainder of Synérail is owned by Vinci, AXA
Infrastructure and TDF. Synérail Construction was chosen by Synérail to build the network. The
remaining shares of this company are held by Vinci Energies.
All other equity investments of the Group are classified as “other financial assets” in the Group’s
consolidated financial statements. These can be found in Section 20.1.1 “Consolidated financial
statements of the Group” of this Registration Document.
184
8.
PROPERTY, PLANT AND EQUIPMENT
8.1
SIGNIFICANT EXISTING OR PLANNED PROPERTY, PLANT AND EQUIPMENT
As of December 31, 2014, the Group owned property, plant and equipment with a value of
approximately €8,006 million. The Group’s telecommunications network represented most of the total
value of its property, plant and equipment. For detailed information on the Group’s network, see
Section 6.6 “Group network” of this Registration Document.
The Group leases some of its property, plant and equipment, particularly certain buildings and
telecommunications network infrastructure.
Property, plant and equipment owned or leased by the Group consist primarily of the following.
8.1.1
Tertiary and mixed-use sites
SFR Group
SFR Group owns or leases, directly or indirectly, 11 tertiary sites throughout mainland France, mainly
in regional cities (Saint Herblain, Toulouse, Rennes, Lyon Saint Priest, Lyon Bron, Metz Territoire de
Borny, Aix le Sulky, Bordeaux lac, Marseille, Vénissieux, Vélizy). These are office buildings,
sometimes with adjacent technical facilities (in which case the site is referred to as “mixed-use”),
ranging in size from 2,500 and 11,000 m² and altogether totaling around 70,000 m² (excluding the
technical facility at the Vénissieux site).
SFR Group also leases 18 other tertiary sites representing a total surface area of 214,000 m², through
commercial leases entered into under normal market conditions. These sites include, in particular:
the Group’s headquarters (“SFR Campus”) at Saint-Denis, divided into two lots representing
a total useful area of 125,701 m². The freehold to the site was held by four companies, jointly owned
by SFR Group and Vinci Immobilier. One of the two lots was sold on April 4, 2014 to SCI Campus
Medicis St Denis for €372 million excluding tax. The other was sold off-plan to SCI Campus
Rimbaud St Denis for €308 million excluding tax. This site is leased to SFR under four leases:
(i)
two leases with a fixed term of 11 years and 9 months which took effect on December 4,
2013, corresponding to the first lot and representing an area of 61,474 m²;
(ii)
two off-plan leases with a fixed term of 11 years and 9 months, due to take effect in
November 2015, corresponding to the second lot and representing an area of 51,394 m². This site will
accommodate staff transferred from the tertiary sites currently leased in Meudon and Nanterre;
mixed-used sites in Courbevoie and Strasbourg (totaling around 55,145 m²) and office
premises in Massy, Gentilly, Lille Republic, Efixo Marseille and Grenoble (totaling around 18,149
m²), representing a total surface area of approximately 73,294 m².
Numericable Group
Numericable Group occupies administrative buildings and offices for the Group’s administrative and
commercial needs, comprising 64 sites with a total surface area of 29,100 m², primarily in France. The
Group owns the registered office of Ypso France SAS, Numericable and NC Numericable, located in
Champs-sur-Marne (Paris-Ile de France). The main sites held under commercial leases are Béla
Bartok (where the Company has its headquarters), Champs-sur-Marne, Isneauville and Limonest. The
Company’s registered office is now at 1 square Béla Bartok, 75015 Paris, following the relocation
from its former headquarters at La Défense (notice given by Completel on September 30, 2014). The
Béla Bartok lease was signed on April 9, 2001 for a term of three, six or nine years with effect from
January 1, 2001.
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8.1.2
Technical sites
SFR Group
The technical sites of SFR Group are classified in three categories:
-
Mobile switching centers (“MSC”);
-
Radio sites: transmitting/receiving sites with transmitting/receiving antennas; and
-
fiber optic exchanges.
SFR Group owns around 50 MSC buildings, mainly in Trappes, Valenton, Mitry Mory, Toulouse,
Lyon Bron, Saint Herblain and Corbas.
Radio sites consist of about 20,000 sites of various types (existing buildings, undeveloped land, water
towers and pylons). Of these, 2,000 are leased to major groups under the terms of leases concluded
under framework agreements. The main framework agreements are with the TDF Group, Accord and
the SNCF.
Fiber optic exchanges primarily include small local optical connection nodes, which are a priority
acquisition for the Group.
Numericable Group
Numericable Group assets consist of land, buildings and telecommunications network infrastructure.
The Group owns the optical fiber and coaxial cables of its network, as well as its equipment, headends, nodes, switches, connection equipment and certain other parts of the access network, including
the long-distance backbone network. The main technical sites of NC Numericable/Completel are
located in Palaiseau, Marseilles and Nanterre. The cable infrastructure (such as ducts and pylons) is
owned by the Group or Orange, in which case Orange makes them available to the Group under longterm indefeasible rights of use (IRU) entered into with Orange (see Section 6.6 “Group network”).
8.1.3
Commercial sites and premises
SFR Group
The Group SFR holds more than 800 commercial leases for its stores located throughout France.
Numericable Group
Numericable Group owns or leases 63 stores and warehouses, representing a total sales area of 11,500
m².
8.1.4
Furniture and equipment
The Group’s assets also include movable assets, computer equipment and servers, particularly set-top
boxes and other digital terminals and equipment installed on the premises of the Group’s subscribers,
of which the Group retains ownership and which must be returned to the Group at the end of the
subscription.
The Group believes that the usage rate of its property, plant and equipment is consistent with its
activity and projected growth, as well as with its current and planned investments.
186
As of the date of this Registration Document, the Group’s planned property, plant and equipment
correspond to the investments in progress and the planned investments presented in Section 5.2.2
“Current and future investments.”
8.2
ENVIRONMENT AND SUSTAINABLE DEVELOPMENT
In view of its activities and its current property, plant and equipment, the Group believes that there are
no environmental factors likely to have a significant impact on the use of its property, plant and
equipment. Nevertheless, the Group pays particular attention to its environmental footprint and seeks
to implement a policy of profitable, sustainable and responsible development from a labor,
environmental and social point of view.
The Group has introduced various environmental procedures for its business and its employees. The
Group is keen to maintain this approach in the years to come.
For the year ended December 31, 2014, the Company has also prepared a sustainability report, as
provided for in Article L. 225-102-1 of the French Commercial Code. This report and the
accompanying KPMG report are available on the Company’s website.
Aside from limiting its direct impact, the Group is also careful to offer its subscribers ecologically
responsible products and services in order to reduce their energy consumption. Due to its versatility
and multifunctionality, the new LaBox represents a significant step forward since it combines several
functions (Blu-RayTM player, HD-TV box and removable hard drive).
Finally, the Group keeps track of the latest scientific developments and health authority guidance on
radiofrequency exposure. In a spirit of vigilance and transparency, it also continues to inform and
engage in dialog with its various stakeholders, be they politicians, landowners, customers or local
residents.
187
9.
ANALYSIS OF THE GROUP’S RESULTS OF OPERATIONS
Readers are invited to read the following information on the Group’s consolidated and pro forma
results of operations in conjunction with the Group’s consolidated financial statements for the fiscal
year ended December 31, 2014 and the comparative information for the fiscal year ended December
31, 2013, as set out in Section 20.1.1 “Consolidated financial statements of the Group” of this
Registration Document. The consolidated financial statements have been prepared in accordance with
IFRS as adopted by the European Union and have been audited by Deloitte & Associés and KPMG
Audit, Statutory Auditors. The Statutory Auditors’ report on the consolidated financial statements can
be found in Section 20.1.1 “Consolidated financial statements of the Group” of this Registration
Document. These financial statements include a condensed pro forma income statement for the 12
months ended December 31, 2014, intended to present the impact of the acquisitions of SFR Group
(SFR SA, SIG 50 and their subsidiaries, including Telindus, acquired by SFR Group on April 30,
2014) and of Virgin Mobile Group (Omer Telecom Limited and its subsidiaries) and the associated
financing, as if these transactions (acquisitions, financing of acquisitions and refinancing transactions
connected with the acquisitions) had occurred on January 1, 2014.
This analysis also makes reference to the condensed pro forma income statement for the 12 months
ended December 31, 2013, which was included in Section 20.3 of the Registration Document filed
with the AMF on October 10, 2014 under number D.14-0803 and which was intended to present the
acquired by SFR Group on April 30, 2014) and the financing and refinancing transactions, excluding
the acquisition of Virgin Mobile, a transaction that is not on its own material within the meaning of
the European Prospectus Directive, as if these transactions had occurred on January 1, 2013. By virtue
of the fact that Virgin Mobile and Telindus are not included in the 2013 pro forma income statement,
its comparability with the 2014 pro forma income statement is affected.
Readers are also invited to read SFR Group’s results of operations set out below in conjunction with
the unaudited condensed interim combined financial statements of SFR Group included in Section
20.3 “Combined financial statements of SFR, SIG 50 and their subsidiaries for the nine months ended
September 30, 2014” of this Registration Document. These condensed interim combined financial
statements were prepared in accordance with IAS 34 - Interim Financial Reporting as adopted by the
European Union. The condensed combined financial statements of the Combined SFR Group were
reviewed by KPMG Audit, a division of KPMG S.A., for the fiscal year ended September 30, 2014.
The Statutory Auditors’ report on the condensed combined financial statements can be found in
Section 20.3.4 “Statutory Auditors’ Review Report on the combined financial statements of SFR, SIG
50 and their subsidiaries for the nine months ended September 30, 2014” of this Registration
Document.
The Group would remind readers that the update to its Registration Document filed with the AMF on
October 28, 2014 under number D.14-0803-A01 includes the Group’s analysis of its results of
operations for the nine months ended September 30, 2014 presented in Section 9 “Analysis of the
Group’s results of operations” and the unaudited condensed interim consolidated financial statements
of Numericable Group as of September 30, 2014.
9.1
9.1.1
Introduction
Created as a result of the merger of Numericable Group and SFR, Numericable-SFR Group aims to
become, on the back of the largest fiber optic network and a leading mobile network, the national
leader in France in the convergence of very-high-speed fixed-line/mobile. A global player and leading
alternative operator in France, the Group operates in three segments of the French
telecommunications market:
188
 The B2C segment, which encompasses fixed-line and mobile product and service offers for
residential customers under the Group’s brands. The B2C segment represents the bulk of
Group revenues, contributing €1,409 million in the fiscal year ended December 31, 2014 (i.e.,
65% of total Group revenues) and €774 million in the fiscal year ended December 31, 2013
(i.e., 59% of total Group revenues).
 The B2B segment, which encompasses service offers for SMEs, large corporations and public
authorities. The B2B segment is the second-largest source of revenues for the Group,
contributing €464 million in revenues in the fiscal year ended December 31, 2014 (i.e., 21%
of total Group revenues) and €310 million in the fiscal year ended December 31, 2013 (i.e.,
24% of total Group revenues).
 The Wholesale segment, which encompasses wholesale mobile and fixed-line voice call
connectivity services, wholesale data connectivity services, wholesale fiber infrastructure
services as well as white label triple play DSL and very-high-speed offers for
telecommunications operators and Internet service providers. The Wholesale segment is the
third-largest source of revenues for the Group, contributing €297 million in revenues in the
fiscal year ended December 31, 2014 (i.e., 14% of total Group revenues) and €230 million in
the fiscal year ended December 31, 2013 (i.e., 18% of total Group revenues).
Following SFR’s consolidation, it was decided to move all white label operations to the Wholesale
segment. This can be attributed to the fact that SFR also does substantial business with Bouygues, in
particular with regard to the marketing of ADSL connections as does Numericable for very-highspeed. In order to aggregate the contribution of these operations they will henceforth be included in
the Wholesale segment; 2013 data has also been adjusted accordingly.
The Group’s service and product offers are tailored to the characteristics and requirements of each
market segment:
 In the B2C segment, the Group offers television, very- high- speed broadband, fixed-line and
mobile telephony services, in the form of bundles and on a stand-alone basis. The Group also
offers analog television services to individual subscribers and bulk digital services to
managers of residential buildings.
 In the B2B segment, the Group offers data services, in particular IP VPN (IP Virtual Private
Network), LAN to LAN (local network), Internet, and security, hosting and cloud computing
services, as well as fixed-line voice and mobile telephony services, including voice calls,
VoIP and Centrex.
 In the Wholesale segment, the Group offers wholesale mobile and fixed-line voice call
connectivity services, wholesale data connectivity services, wholesale fiber infrastructure
services as well as white label triple play DSL and very- high- speed offers for
telecommunications operators and Internet service providers. It also offers wholesale services
built around the fiber optics network for other telecommunications operators, as well as for
the B2B segment. This segment also includes services sold to virtual mobile operators and
roaming services for foreign visitors on the SFR mobile network (“roaming in”).
At December 31, 2014, the Group had a fixed-line subscriber base of 6,577,000, including 1,547,000
very-high-speed subscribers (30Mbit/s and over) and 5,030,000 ADSL subscribers. At December 31,
2014, the Group had a total mobile customer base of 22,939,000, including 16,238,000 residential
mobile customers.
The Group recorded consolidated revenues of €2.170 billion and adjusted EBITDA of €706 million in
the fiscal year ended December 31, 2014 and pro forma revenues of €11.4 billion in the fiscal year
ended December 31, 2014 and pro forma adjusted EBITDA of €3.1 billion in the same period (see
189
Note 38 to the 2014 Group consolidated financial statements included in Section 20.1.1 “Consolidated
financial statements of the Group” of this Registration Document).
9.1.2
Presentation of the consolidated financial statements and pro forma financial
information included in this Registration Document
Numericable Group was created on August 2, 2013. On November 7, 2013, Numericable Group was
transferred, in connection with the Company’s prospective IPO, two holding companies incorporated
in Luxembourg, Ypso Holding S.à.r.l. and Altice Lux Holding S.à.r.l., the parent companies of Ypso
France and Altice B2B France respectively.
Ypso France, which operates the Numericable business, is a French cable television service provider
of premium digital television packages, which are available to households in areas that are triple play
enabled. Ypso France also provides French residential customers with broadband Internet and fixedline and mobile telephony services.
Altice B2B France, through its main operational entity, Completel SAS, operates the largest
alternative fiber-to-the-office (“FTTO”) network in France, constituting the third-largest alternative
Digital Subscriber Line (“DSL”) network in France. Completel SAS provides business customers with
a comprehensive service offer, including data transmission, very-high-speed broadband,
telecommunications services, convergence and mobility solutions, through the fiber and DSL
networks.
In 2014, Numericable-SFR acquired the SFR and Virgin Mobile operators. SFR also acquired
Telindus in 2014.
The Registration Document presents the Group’s consolidated financial statements for the fiscal year
ended December 31, 2014. These financial statements have been prepared in accordance with
International Accounting Standards IFRS as published by the International Accounting Standards
Board (IASB) and adopted by the European Union at December 31, 2014.
The Group’s consolidated financial statements for the fiscal year ended December 31, 2014 include a
condensed pro forma statement of income for the 12-month period ended December 31, 2014,
intended to present the impact of the acquisitions of SFR Group (SFR SA, SIG 50 and their
subsidiaries, including Telindus, acquired by SFR Group on April 30, 2014) and of Virgin Mobile
Group (Omer Telecom Limited and its subsidiaries) and the associated financing, as if these
transactions (acquisitions, financing of acquisitions and refinancing transactions connected with the
acquisitions) had occurred on January, 1 2014.
The Group would also remind readers that the Registration Document filed with the AMF on October
10, 2014 under number D.14-0803 includes the condensed pro forma statement of income for the 12month period ended December 31, 2013, intended to present the impact of the acquisition of SFR
Group (SFR SA, SIG 50 and their subsidiaries, excluding Telindus, acquired by SFR Group on April
30, 2014) and the financing and refinancing transactions, excluding the acquisition of Virgin Mobile,
a transaction that is not on its own material within the meaning of the European Prospectus Directive,
as if these transactions had occurred on January 1, 2013. By virtue of the fact that Virgin Mobile and
Telindus are not included in the 2013 pro forma statement of income, its comparability with the 2014
pro forma statement of income is affected.
The unaudited condensed interim combined financial statements of SFR Group are included in
Section 20.3.3 “Combined financial statements of SFR, SIG 50 and their subsidiaries for the ninemonth period ended September 30, 2014” of this Registration Document. These condensed interim
combined financial statements were prepared in accordance with IAS 34 “Interim Financial
Reporting” as adopted by the European Union.
190
The Group would remind readers that the update to its Registration Document filed with the AMF on
October 28, 2014 under number D.14-0803-A01 includes the unaudited condensed interim
consolidated financial statements of Numericable Group as of and for the period ended September 30,
2014.
9.1.3
Material factors affecting operating income
Certain key factors along with certain past events and transactions have had, and may continue to
have, an effect on the operations and operating income of the Group presented below. Looking
beyond the regulatory and macro-economic environment and changes in scope, the main factors
affecting the normal course of the Group’s operations and its income include (i) changes in scope, (ii)
financial expenses, (iii) costs of integration and achievement of acquisition-related synergies, the
competition and the attractiveness of the Group’s products and services compared with those of
competitors, (iv) pricing changes, (v) customer acquisition and cancellation rates, (vi) the structure of
the Group’s costs and its programs to optimize these costs and (vii) the upgrade and maintenance of
the network, and related costs. In this respect, readers are invited to read the risk factors presented in
Section 4 “Risk factors” of this Registration Document and the description of the Group’s market and
offers presented in Section 6 “Business overview” of this Registration Document.
9.1.3.1
Financial expenses
Net interest and other expenses totaled €600 million in 2014 versus €324 million in 2013. Financial
expenses were impacted by the successive refinancing in 2013 and 2014 and, in 2014, by the
financing of the acquisition of SFR, for which the sums raised in April 2014 were placed in escrow
until the acquisition was completed in November 2014. See Notes 4.3 and 5.6 of the consolidated
financial statements as set out in Section 20.1.1 “Consolidated financial statements of the Group” of
this Registration Document.
9.1.3.2
Costs of integration and achievement of synergies
As explained in Section 6.4 “Group strategy,” the Group is looking to take advantage of the
operational efficiencies and economies of scale created by the SFR acquisition. The Group believes
that SFR’s integration into the Group is underpinned by strong sectoral logic insofar as it enables two
complementary companies to be combined. The Group also expects this acquisition to offer synergies
in a range of areas, not only in terms of costs but also as regards capital expenditure, in particular on
the network, the B2C market, the B2B market, and operationally. Given the date of acquisition of
SFR (November 27, 2014), this integration is expected to have a significant impact on the Group’s
future results. Also see Section 4.2.2 “SFR’s integration into the Group could give rise to operational
difficulties and other adverse consequences” of this Registration Document.
9.1.3.3
Changes in the scope of consolidation
The Group’s results are affected by acquisitions and disposals.
In March 2013, the Group acquired Auchan’s television, a very-high-speed broadband and fixed-line
telephony business (terminating the white label agreement signed with Auchan), which represented
circa 5,000 individual subscribers.
In June 2013, the Group acquired Valvision, a simplified joint stock company governed by French
law which was a small regional cable operator in France with around 5,000 individual subscribers and
8,000 bulk subscribers.
On October 31, 2013, the Group, via Altice B2B France SAS, acquired 100% of the shares in
Invescom, a holding company solely dedicated to holding all the share capital of LTI Telecom, a
telecommunications operator created in 1998, operating in the B2B market, primarily offering fixed-
191
line telephony, mobile telephony, Internet and VPN network services for small and medium-sized
companies with between 5 and 250 employees in France.
The Group did not carry out any significant disposal in 2012 or 2013.
In 2014, Numericable-SFR acquired the SFR and Virgin Mobile operators. These acquisitions had a
very significant impact on the Group’s results, even if the two were consolidated for only one month
in 2014 (from November 27, 2014 for SFR and from December 5, 2014 for Virgin Mobile). SFR also
acquired Telindus in 2014. SFR and Virgin Mobile respectively contributed €835 million and €28
million to Group revenues in 2014. SFR and Virgin Mobile respectively contributed a loss of €34
million and a loss of €8 million to Group net income in 2014. In the 2014 pro forma statement of
income, SFR contributed €9,788 million to revenues, namely 86.6% of total pro forma revenues, and
€251 million to net income in 2014.
9.1.4
9.1.4.1
Main performance indicators
Connected sites and number of individual subscribers
The Group uses as management indicators the number of customers it can serve across its fiber/cable
fixed-line network and the number of fixed-line subscribers, including the number of very-high-speed
subscribers (FttH and FttB), and the number of mobile subscribers, including the number of
subscribers on plans, the number of B2B subscribers and the number of white label end users (fiber
and DSL). These indicators allow the Group to analyze the success of its various offers and to adjust
its offers based on this research.
The table below sets out the Group’s operating data: (i) pro forma for the fiscal year ended December
31, 2013; and (ii) actual at December 31, 2014. The pro forma operating data for the fiscal year ended
December 31, 2013 intended to present this operating data as if the acquisitions of SFR Group (SFR
SA, SIG 50 and their subsidiaries, including Telindus, acquired by SFR Group on April 30, 2014) and
of Virgin Mobile Group (Omer Telecom Limited and its subsidiaries) had occurred on January 1,
2013.
Operating data
As of and for the fiscal year ended
(in thousands)
2013
2014
B2C operating data
Footprint(1)
Homes passed(2) ...................................................
9,940(4)
Of which Fiber connections ......................................
5,196(5)
10,394
6,451
17,036
13,257
Of which pre-paid .....................................................
3,780
Fixed-line subscribers............................................
6,582
Of which ADSL ........................................................
5,102
Of which FTTB and FTTH .......................................
1,480
16,238
13,004
3,234
6,577
5,030
1,547
Monthly ARPU(3)
23.9
29.0
Of which pre-paid .....................................................
8.0
34.3
Of which ADSL ........................................................
32.6
Of which FTTH .........................................................
34.7
Of which FTTB .........................................................
41.3
192
22.5
26.6
7.4
34.1
32.6
28.5
41.0
(1)
(2)
(3)
(4)
(5)
9.1.4.2
B2B operating data
Post-paid fixed-line subscribers ......................................
6,190
Of which M2M .........................................................
3,615
6,701
4,225
Operating data for the fixed-line
wholesale segment
White label end users ......................................................
974
Of which Fiber ..........................................................
363
1,007
364
The operating data pertaining to the Group’s footprint and penetration are presented as of the relevant reporting date.
A home is considered "passed" if it can be connected to the delivery system without having to extend the network.
The operating data pertaining to the ARPU are presented in euros per month (excluding VAT) for the periods indicated and do
not reflect the ARPU from white label end users or bulk subscribers.
Data not inclusive of SFR Group homes passed.
Data not inclusive of SFR Group Fiber connections.
ARPU (Average Revenue Per User)
The Group uses ARPU as an indicator to track the performance of its B2C operations. The ARPU
cannot be used to measure financial performance under IFRS, and is not reviewed by the auditors, a
consultant or outside expert. ARPU is calculated internally on the basis of assumptions made by
management. The definition used by Group management may not be comparable with other similar
terms used by other companies.
The table below presents the Group’s pro forma ARPU for the fiscal years ended December 31, 2013
and December 31, 2014. The pro forma ARPU is intended to present the Group’s ARPU as if the
acquisitions of SFR Group (SFR SA, SIG 50 and their subsidiaries, including Telindus, acquired by
SFR Group on April 30, 2014) and of Virgin Mobile Group (Omer Telecom Limited and its
subsidiaries) had occurred on January 1, 2013.
For the fiscal year ended
(in thousands)
2013
Monthly ARPU(1)
23.9
29.0
Of which pre-paid .....................................................
8.0
34.3
Of which ADSL ........................................................
32.6
Of which FTTH .........................................................
34.7
Of which FTTB .........................................................
41.3
(1)
2014
22.5
26.6
7.4
34.1
32.6
28.5
41.0
The operating data pertaining to the ARPU are presented in euros per month (excluding VAT) for the periods indicated and do
not reflect the ARPU from white label end users or bulk subscribers.
Mobile ARPU continued to decline in 2014 in the French market to €22.5 for SFR-Numericable in
2014 (pro forma), 5.9% lower than in 2013 (pro forma).
Fixed-line ARPU (pro forma) declined slightly from €34.3 to €34.1 over the same period,
representing a decline of 0.6% from 2013 to 2014. This virtual stability was due to the strong
performance of the very-high-speed operations, where stronger growth in the customer base and
average revenue per user were enough to offset the decline in DSL operations.
9.1.4.3
Subscriber acquisition costs
Subscriber acquisition costs for B2C cable/fiber optic products include the cost of equipment at the
subscriber’s residence (TV set-top boxes), any necessary cabling and installations at the subscriber’s
residence and on-site, as well as order costs including marketing and other sales costs such as
commission. Some of these acquisition costs (in particular the equipment) are capitalized.
193
Subscriber acquisition costs for mobile products are similar in nature and also include handset
subsidies.
9.1.5
Main elements of the income statement
A brief description of various line items on the Group’s income statement and of certain other
measurements used by the Group is presented below.
9.1.5.1
Revenues
Revenues are calculated on the basis of (i) volume, which depends on the number of subscribers, sites
connected or lines supplied for subscription offers and usage levels, and (ii) prices, subscription fees,
minutes, line rental and other services, depending on the chosen offer.
The principles governing revenue recognition can be found in Note 2.3 to the Group’s consolidated
financial statements in Section 20.1.1 “Consolidated financial statements of the Group.”
9.1.5.2
Purchases and subcontracting services
Purchases and subcontracting services mainly include handset costs and the cost of TV content, data
and high-speed broadband interconnection costs and fixed-line telephony interconnection and
termination costs (levels are regulated). Other additional purchases and subcontracting services
include outsourcing costs, mainly from the outsourcing of network maintenance work, installation
work and call centers; advertising expenditure; fees payable under the Group’s MVNO contracts with
Bouygues Telecom (and, between January and November 2014, SFR); and the cost of public services,
in particular electricity, fees paid for rights of way and rent and service charges for movable and real
property.
9.1.5.3
Personnel expenses
Personnel expenses mainly include (i) salaries and bonuses, statutory and contractual profit-sharing,
social security charges and related levies, (ii) expenses related to the employee retirement plan and
other post-employment benefits, (iii) costs of using temporary and external employees and (iv) the
IFRS 2 expense relating to the stock subscription option plan.
The Group’s personnel expenses are dependent on the number of employees, the level of
compensation of full-time employees and of external employees. The Group feels that current payroll
levels are adequate and does not expect any significant increase in the near future. Salary negotiations
are typically held once a year.
9.1.5.4
Taxes and duties
Taxes and duties mainly consist of general direct and indirect taxes, such as the annual flat-rate tax
(IFA) and the flat-rate tax on network companies (IFER), the CVAE (Cotisation sur la Valeur Ajoutée
des Entreprises), a French business value-added contribution, and the corporate property tax (CFE),
local taxes, taxes on company cars, company social solidarity contributions and duties on certain
advertising expenditure (in particular, those on printed advertising materials), as well as duties
applicable to telecommunications operators and television providers, such as the taxes on television
providers, contributions to support the audiovisual industry and duties on VOD.
This line item does not include income tax, which is recognized under the “Income tax expense
(income)” line item.
194
9.1.5.5
Provisions
Provisions mainly include provisions for operational risks, disputes (see Section 20.7.1 “Tax
audits” of this Registration Document) and pensions.
9.1.5.6
Other operating income
Other operating income is mainly comprised of work done by the Group itself (namely on projects
involving network upgrades and the development of IT products using in-house employees), the
proceeds of the disposal of property, plant and equipment and other revenues.
9.1.5.7
Other operating expenses
Other operating expenses are mainly comprised of:
 the net carrying amount of fixed assets sold;
 advisory fees paid in connection with refinancing;
 management fees paid to former Group shareholders (Altice, Cinven and Carlyle) until
the IPO, for the provision of certain management, financing or advisory services; and
 other miscellaneous operating expenses.
9.1.5.8
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Earnings before interest, taxes, depreciation and amortization (EBITDA) is one of the main indicators
used by the Group to manage and evaluate its operating results, to make investment and resourceallocation decisions and to assess the performance of management personnel. It is equal to revenues,
less purchases and subcontracting services, personnel expenses, taxes and duties, provisions, other
operating income and other operating expenses.
The Group feels that this indicator is helpful to readers of its financial statements as it provides them
with a measurement of its operating results that excludes non-cash items such as depreciation and
amortization and impairment, increasing the projected value of its consolidated financial statements
and providing information on the results of the Group’s normal business activities and cash flow
generation, which allow investors to better identify financial performance trends. The process used by
the Group to calculate EBITDA may not be comparable with other similarly-titled measurements used
by other companies. Furthermore, this measurement should not be viewed as an alternative to
operating income in that the effects of depreciation and amortization and impairment excluded from
this measurement ultimately affect operating income. Accordingly, the Group also presents the
“Operating income” line item, which includes all amounts affecting its operating income.
9.1.5.9
Adjusted EBITDA
Adjusted EBITDA is equal to EBITDA (i.e., earnings before interest, taxes, depreciation and
amortization) adjusted for certain items that the Group considers to be non-recurring or that are noncash in nature. During the period presented, these items consisted of: fees paid in connection
with refinancing transactions, restructuring costs and acquisition-related expenses, provisions
and costs relating to tax and social security audits, payment of business fines, (non-cash)
charges resulting from the accelerated depreciation of TV set-top boxes and high-speed routers
that were damaged or not returned by subscribers cancelling their subscriptions and the
expensing of the residual net carrying amount of assets handed back to local authorities upon
termination of public service delegations, CVAE (Cotisation sur la Valeur Ajoutée des
195
Entreprises), a French business value-added contribution, and expenses relating to stock
subscription option plans.
The Group feels that this measurement is helpful to readers of its consolidated financial
statements insofar as it highlights trends and provides more detailed information on the
Group’s operating results and its cash flow generation.
9.1.5.10 Depreciation, amortization and impairment
Depreciation and amortization and impairment primarily reflect the steady impairment,
depreciation and amortization of non-current assets such as network assets.
9.1.5.11 Net interest and other income
Net interest and other income consist of interest income, net of interest expenses and other
financial expenses. Interest income is mainly comprised of revenues from the investment of cash and
cash equivalents and other interest income. Interest expenses mainly consist of interest expenses on
the Group’s credit facilities (calculated after taking account of the effect of interest rate derivatives) as
well as finance lease costs using the effective interest method. Financial expenses also include
changes in the fair value of derivative instruments that do not qualify for hedge accounting and are
accordingly recognized at market value. Other financial expenses mainly consist of fees (other than
advisory fees, which are recognized under other operating expenses) paid in connection with the
amending and refinancing of the Group’s debt, usage fees paid in connection with the use of certain
new credit facilities and provisions for financial risks.
9.1.5.12 Corporate income tax
Corporate income tax includes income tax and the portion of provisions for tax audits relating to the
corporate income tax. It does not include other taxes owed by the Group, which are accounted for
under the “Taxes and duties” line item described above.
The Group has substantial tax losses that can be used to limit the amount of corporate income tax
payable.
However, the ability to effectively use these losses (and to effectively achieve all or part of the
theoretical tax savings they represent) will depend on a range of factors, including:
 The ability of the Group or certain Group companies to generate taxable profits and the extent
of these profits compared to the losses;
 the general limitation under French tax regulations, by virtue of which the percentage of tax
loss carryforwards that can be offset against taxable profits of over €1 million is limited to
50% for fiscal years ending on or after December 31, 2012, along with certain more specific
restrictions relating to certain categories of losses;
 the consequences of current or future tax audits and litigation; and
 possible changes to applicable laws and regulations.
As explained in Note 4.8 to the consolidated financial statements for the fiscal year ended December
31, 2014, in 2014 the Group capitalized an additional deferred tax asset of €298 million based on
updated projections of the use of loss carryforwards considered likely over the five-year forecast
period having regard to (i) the establishment of a new tax consolidation system at Numericable-SFR
in the first half of 2014 and (ii) the acquisition of SFR, which will join that tax consolidation scheme
in 2015. It should be added that the bulk of these losses can be carried forward indefinitely.
196
9.1.6
Key accounting principles
For a description of the Group’s main accounting principles and use of estimates, see Notes 2 and 3 to
the Group’s consolidated financial statements included in Section 20.1.1 “Consolidated financial
statements of the Group” of this Registration Document.
9.2
ANALYSIS OF THE GROUP’S INCOME STATEMENT FOR THE FISCAL YEARS
ENDED DECEMBER 31, 2013 AND 2014
The table below presents the Group’s consolidated income statement for the fiscal years ended
December 31, 2013 and 2014, in millions of euros and percentages of revenues for the periods under
review. This financial information is drawn from the Group’s audited consolidated financial
statements.
2014
2013
(in € millions)
(as a % of (in € millions)
revenues)
(as a % of Change
revenues)
Revenues
2,170
100.0%
1,314
100.0%
65.1%
Purchases
and
subcontracting
services
Personnel expenses
Taxes and duties
Provisions
Earnings before interest, taxes,
depreciation and amortization
(EBITDA)
Depreciation,
amortization
and
impairment
Operating income
(1,331)
(61.3%)
(611)
(46.5%)
117.8%
(261)
(59)
(16)
98
(32)
569
(12.0%)
(2.7%)
(0.7%)
4.5%
(1.5%)
26.2%
(155)
(34)
(20)
86
(20)
560
(11.8%)
(2.6%)
(1.6%)
6.6%
(1.6%)
42.6%
69.0%
74.1%
(22.0%)
13.4%
54.1%
1.6%
(461)
(21.2%)
(304)
(23.1%)
51.6%
108
5.0%
256
19.5%
(57.8%)
Financial income
Cost of gross financial debt
Other financial expenses
Net interest and other income
15
(439)
(176)
(600)
0.7%
(20.2%)
(8.1%)
(27.6%)
10
(185)
(149)
(324)
0.7%
(14.1%)
(11.3%)
(24.6%)
52.5%
137.4%
18.3%
85.3%
Corporate income tax
313
14.4%
133
(10.1%)
135.6%
Share in net income (loss) of 4
associates
Consolidated/combined net income (175)
0.2%
(0)
(0.0%)
N/A
(8.1%)
65
4.9%
-370.6%
Attributable to owners of the entity
(8.1%)
65
4.9%
-372.0%
(0.2%)
(0)
0.0%
N/A
Attributable
interests
to
(175)
non-controlling 0
197
9.2.1
Revenues
Contribution of segments to consolidated revenues
(in € millions)
2014
2013
change
B2C
B2B
Wholesale
1,409
464
297
774
310
230
82.0%
49.8%
29.0%
Total
2,170
1,314
65.1%
The Group’s 2014 revenues totaled €2,170 million compared with €1,314 million in 2013, an increase
of 65.1% on 2013 revenues.
The B2C operations, including the contribution of SFR and Virgin Mobile for December 2014,
accounted for the bulk of consolidated revenues, namely €1,409 million, 82% up on 2013. This
growth was mainly driven by the contribution of SFR’s B2C operations, from December 2014. SFR
and Virgin Mobile contributed €835 million and €28 million, respectively, to total Group revenues in
2014.
At December 31, 2014, the Group had 16,238 million mobile customers, over 81% of which are
subscribers and the remainder pre-paid customers, and 6,577 million fixed-line customers, including
1,547 million very-high-speed customers versus 1,313 million very-high-speed customers under the
Numericable brand at end-2013.
Revenues from B2B operations totaled €464 million in 2014 versus €310 million in 2013, a year-onyear increase of close to 50%. The addition of SFR made it possible to round off the B2B fixed-line
operations, operated under the Completel brand, with moreover a mobile component: at endDecember 2014, the Group thus had 6,700 million B2B mobile customers.
Lastly, revenues from Wholesale operations rose 29% from 2013 to 2014, going from €230 million in
2013 to €297 million in 2014. SFR’s additional contribution was lower than for the B2C and B2B
operations because Numericable and SFR already provided each other with reciprocal services that
were eliminated in consolidation for December 2014. Most of the increased business brought in by
SFR involves the Wholesale business with MVNOs, for Mobile and DSL vis-à-vis Bouygues.
9.2.2
Purchases and subcontracting services
Purchases and subcontracting services totaled €1,331 million in 2014 versus €611 million in 2013.
This increase was mainly due to the integration of SFR and, to a lesser extent, of Virgin Mobile
whose acquisition costs, including in particular the cost of purchasing handsets sold to customers
signing up for offers with handset subsidies, that are traditionally very high in December, which is the
month in which most handsets are sold. This also explains why SFR’s contribution to operating
income in December 2014 was so low compared with the incremental effect on Group revenues.
198
9.2.3
Personnel expenses
Personnel expenses totaled €261 million in 2014 versus €155 million in 2013, an increase of 69%
compared with 2013.
This increase needs to be considered in the context of the total number of employees, which rose from
2,100 permanent and fixed-term employees at Numericable at December 31, 2013 to almost 15,600
permanent and fixed-term employees within the Group’s new scope at December 31, 2014.
9.2.4
Taxes and duties
Taxes and duties amounted to €59 million in 2014 versus €34 million in 2013, an increase of €25
million compared with 2013. Around a third of this increase was due to broadly higher duties and the
growth in revenues in the former Numericable Group scope on which certain duties are levied; the
remaining two thirds are due to the integration of SFR and its subsidiaries and of Virgin Mobile.
9.2.5
Provisions
Provisions totaled €16 million in 2014 versus €20 million in 2013, a reduction of €4 million compared
with 2013. Virgin and SFR accounted for a net reversal of €18 million. Indeed, on a like-for-like basis
provisions rose by €14 million primarily for tax and employment litigation and customer provisions.
9.2.6
Other operating income amounted to €98 million in 2014 versus €86 million in 2013, an increase of
€12 million compared with 2013. On a like-for-like basis, other operating income was unchanged
with the increase being solely due to the effect on the scope of consolidation of the integration of SFR
and its subsidiaries and of Virgin.
9.2.7
Other operating expenses amounted to €32 million in 2014 versus €20 million in 2013. The change
was mainly due to the net value of fixed asset disposals, which rose by €9 million from 2013 to 2014.
9.2.8
Earnings before interest, taxes, depreciation and amortization (EBITDA)
Earnings before interest, taxes, depreciation and amortization (EBITDA) rose €9 million from 2013 to
2014 from €560 million to €569 million.
This change was mainly due to the following items:
- The higher earnings before interest, taxes, depreciation and amortization on a like-for-like
basis was partly obscured by non-recurring effects, primarily connected with the acquisition
of SFR (see section on the transition from EBITDA to adjusted EBITDA below) and the
modest contribution from SFR and its subsidiaries and from Virgin, which traditionally record
very weak results in December due to high levels of commercial expenditure.
199
Transition from EBITDA to adjusted EBITDA
12-month period ended December
31
2014
2013
(in € millions)
(Unaudited)
EBITDA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
569.1
560.1
Advisory fees relating to debt refinancing (a). . . . . . . . .
Expenses relating to the acquisition of SFR (b). . . . . . . .
Acquisition-related restructuring costs (c). . . . . . . . . . .
Provisions/costs related to tax and social security audits
Extraordinary expense relating to Orange or Free. . . . . .
CVAE (d).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accelerated depreciation of equipment (e). . . . . . . . . . .
Stock-option cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.1
60.6
9.8
18.5
4.9
16.2
22.1
8.8
Adjusted EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 706.3
(a)
(b)
(c)
(d)
(e)
1.4
11.3
7.2
12.7
14.7
3.6
615.9
Fees paid in connection with Group refinancing transactions (recognized under other operating expenses).
Bank commission and advisory fees and paid in connection with the acquisition of SFR, including €9.8 million in stamp duty
In 2014, restructuring costs relating to the acquisition of SFR and LTI. In 2013, restructuring costs incurred in connection with the
Group’s acquisition of Altitude Telecom (recognized under purchases and subcontracting services and personnel expenses).
As from January 1, 2010, the CVAE (Cotisation sur la Valeur Ajoutée des Entreprises), a French business value-added contribution
based on the value-added generated by a company, partly replaced the former business tax (recognized under taxes and duties).
Non-cash charges resulting from the accelerated depreciation of TV set-top boxes and high-speed routers that were damaged or not
returned by subscribers cancelling their subscriptions and the expensing of the net carrying amount of assets handed back to local
authorities in the case of returnable assets at the end of public service delegations.
9.2.9
Depreciation, amortization and impairment
Depreciation and amortization rose €157 million from 2013 to 2014 from €304 million to €461
million. Aside from higher depreciation and amortization on a like-for-like basis on the back of the
substantial capital expenditure by Numericable in rolling out its fiber infrastructure, the bulk of the
increase was driven by the integration of SFR.
9.2.10
Net interest and other income totaled €600 million in 2014 versus €324 million in 2013.
Interest income rose from €10 million in 2013 to €15 million in 2014. This increase was mainly due to
income from the investment of the funds raised to finance the acquisition of SFR and placed in escrow
for a number of months prior to completion of the acquisition and payment in cash to Vivendi.
There were two main reasons for the higher interest expense:
 The increase in the cost of gross financial debt, from €185 million in 2013 to €439 million in
2014. This increase was due to the additional financial debt taken on to finance the
acquisition of SFR.
 The increase in other financial expenses relating to the arrangement of a new financing to
replace the one previously arranged by Numericable, which generated non-recurring
expenses. 2014 financial costs included €22 million for unamortized expenses relating to the
debts settled in May 2014.
This increase was partly offset by the lower premiums paid in connection with the early repayment of
bonds (€89 million in 2014 versus €117 million in 2013). In 2013, they included expenses relating to
the settlement of Super PECs (shareholder debt) totaling €81.6 million (no impact on Group cash
200
insofar as this debt was settled by means of the issue of shares as part of the IPO – see Note 5.1 to the
consolidated financial statements).
Financial costs net of financial income of €600 million break down into three categories:
•
€436 million in recurring cash financial costs compared with €181 million in 2013. This
increase was due to the additional financial debt taken on for the acquisition of SFR. Recurring cash
financial costs included:
o
interest payments on the Former Senior Loans and Bonds totaling €55 million, down from the
€177 million incurred in 2013;
o
interest payments on the new Bonds, the Term Loan and the draw-down fees on the
Revolving Credit Facilities totaling €373 million. This financing was arranged in 2014;
o
miscellaneous cash interest on leasing or other credit lines of €8 million in 2014 compared
with €3 million in 2013.
•
€55 million in recurring non-cash financial costs. This mainly includes the amortization of
financing arrangement fees and the remeasurement of hedging instruments. This sum should be
contrasted with €5 million in income in 2013.
•
€109 million in extraordinary financial costs, including a cash portion for the early repayment
penalties on the bonds (€89 million) and the cancellation of the amortization of the financing
arrangement fees (€20 million). This amount should be contrasted with €148 million in 2013.
It should be noted that the Group arranged cross-currency swaps to hedge the EUR/USD exchange
rate risk stemming from the interest payments and repayment of principal to be made in US dollars for
the bonds and bank loans connected with the 2014 refinancing and the acquisition of SFR. See
Section 4.5.1 “Currency risk.” In 2014, these swaps were, excluding the impact of interest rates,
classified as hedging, and financial costs, net also included foreign currency differences (€1,064
million), offset by the corresponding remeasurement of derivative instruments for €1,047 million.
9.2.11
Corporate income tax
Corporate income tax rose from income of €133 million in the fiscal year ended December 31, 2013
to income of €313 million in the fiscal year ended December 31, 2014. The Group recognized net tax
income in 2013 and 2014 as a result of the tax loss carryforwards capitalized in those two fiscal years.
In the fiscal year ended December 31, 2013, the Group recognized deferred tax assets totaling €133
million in respect of tax loss carryforwards the future use of which was considered likely within the
five-year forecast period.
In 2014, the Group capitalized an additional deferred tax asset of €298 million based on updated
projections of the use of loss carryforwards considered likely over the five-year forecast period having
regard to (i) the establishment of a new tax consolidation scheme at Numericable-SFR in the first half
of 2014 and (ii) the acquisition of SFR which will join that tax consolidation scheme in 2015.
9.2.12
Net income (loss)
Net income (loss) went from net income of €65 million in the fiscal year ended December 31, 2013 to
a net loss of €175 million in the fiscal year ended December 31, 2014.
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9.3
2013 AND 2014 PRO FORMA RESULTS
In order to facilitate understanding of the Group’s results, pro forma financial statements were also
prepared.
impact of the acquisitions of SFR Group (SFR SA, SIG 50 and their subsidiaries, including Telindus,
acquired by SFR Group on April 30, 2014) and the Virgin Mobile Group (Omer Telecom Limited and
its subsidiaries) and the associated financing, as if such transactions (acquisitions, financing of
acquisitions and the refinancing transactions connected with the acquisitions) had occurred on January
1, 2014.
acquired by SFR Group on April 30, 2014) and the associated financing and refinancing transactions,
except for the Virgin Mobile acquisition, which is not a material transaction within the meaning of the
European Prospectus Directive, as if such transactions had occurred on January 1, 2013.
As a result of Virgin Mobile and Telindus not being included in the 2013 pro forma income statement,
its comparability with the 2014 pro forma income statement is affected.
12-month period ended December 31
2014
2013
(in €
millions)
(as a % of (in €
revenues)
millions)
(as a % of
revenues)
Pro forma revenues
11,436
100.0%
11,472
100.0%
Pro forma operating expenses
Pro forma operating income
(10,795)
641
(94.4%)
5.6%
(10,214)
1,258
(89.0%)
11.0%
9.3.1
Revenues (pro forma)
Contribution of segments
consolidated revenues
to
pro
forma 12-month period ended December 31
(in € millions)
2014
2013
change
B2C
B2B
Wholesale
7,888
2,223
1,325
7,929
2,124
1,419
-0.6%
-4.7%
-6.6%
Total pro forma
11,436
11,472
-0.3%
Pro forma revenues declined 0.3% from 2013 to 2014. However, after incorporating the €568 million
contribution of Virgin Mobile and Telindus to 2013 revenues, revenues were down €603 million, a
5.0% decline. This decline affected all segments in 2014.
Revenues from B2C operations were down €368 million in 2013 once Virgin’s contribution is
incorporated, a 4.5% decline. This decline mainly reflects the erosion of mobile revenues, with the
overall customer base declining 4.9% from 17.036 million customers (pro forma) to 16.238 million
202
customers from 2013 to 2014. On top of this, average revenue per user fell from €23.9 (pro forma) to
€22.5, a decline of 5.9% from 2013 to 2014.
In fixed-line operations, the customer base stabilized at 6.577 million customers in 2014 versus 6.582
million customers (pro forma) in 2013. In addition, ARPU declined slightly from €34.3 (pro forma) to
€34.1 over the same period, representing a decline of 0.6% from 2013 to 2014. This virtual stability
was due to the strong performance of very-high-speed operations, where stronger growth in the
customer base and average revenue per user was enough to offset the decline in DSL operations.
Pro forma revenues from B2B operations were down €142 million in 2013 once the contribution of
Telindus is incorporated, a 6% decline. This decline was mainly due to the erosion of Mobile ARPU,
which has spread from B2C operations to B2B mobile operations. In addition was the erosion of
fixed-line voice rates, which are becoming commoditized.
Pro forma revenues from Wholesale operations were down €94 million, a 6.6% decline. This
reduction was mainly due to the erosion of Wholesale voice operations, where prices have fallen
sharply on the back of the cumulative cuts in call termination rates.
9.3.2
Operating income and adjusted EBITDA
Transition from Operating Income to adjusted EBITDA (pro forma)
(in € millions)
12-month period ended December
31
2014
2013
Operating income ................................................................
641
Depreciation,
amortization
and 1,948
impairment.............................................................................
SFR and Virgin Mobile acquisition 61
costs(a) .....................................................................
Restructuring costs(b)...................................................
52
Other non-recurring costs(c) ..........................................
216
Costs relating to stock option plans(d) ..............................
13
Accelerated depreciation of fixed 54
assets(e) ....................................................................
CVAE ((f) .................................................................
72
Other income/expenses(g) .............................................
43
Adjusted EBITDA ...............................................................
3,100
Adjusted EBITDA margin rate...............................................
27.1%
1,258
1,965
94
23
31
15
65
7
3,549
30.9%
(a) Costs relating to the acquisition of SFR and Virgin Mobile.
(b) In 2013, these restructuring costs included restructuring costs incurred by Numericable in connection with the acquisition of Altitude
Telecom by Numericable Group and restructuring costs for the voluntary redundancy plan proposed by SFR and introduced in 2012 (see
Note 4.2 of SFR’s combined financial statements as of December 31, 2013). In 2014, these restructuring costs included settlement payments
and other costs relating to strategic workforce planning (Gestion Prévisionnelle de l’Emploi et des Compétences, or GPEC).
(c) In 2013, these costs consisted of advisory fees relating to refinancing transactions carried out by Numericable Group (€4.9 million);
provisions/costs associated with tax and social security audits (€11.3 million); an exceptional charge of €1.1 million for legal costs paid in
connection with the litigation against France Telecom in the International Chamber of Commerce; an exceptional charge of €6.1 million
corresponding to penalties relating to the legal proceedings with Free; and a (non-cash) loss of €14.7 million resulting from (i) the
accelerated depreciation of set-top boxes and routers that were returned damaged or were simply not returned by subscribers, and (ii) the net
carrying amount of assets transferred to local authorities following the withdrawal from the public service contract. In 2014, these costs
included (i) costs relating to tax audits notified during the fiscal year as well as the advisory fees connected with the refinancing transactions
by Numericable-SFR totaling €20 million and (ii) costs relating to non-recurring disputes borne by SFR for the 11-month period ended
November 30, 2014 totaling €196 million.
(d) Expenses relating to IFRS 2.
(e) Additional depreciation recognized when writing off assets.
(f) The business value added contribution (Cotisation sur la Valeur Ajoutée des Entreprises, or CVAE) is restated to the extent that some of
the Group’s competitors classify this tax, assessed on value added, as an income tax in the sense of IAS 12.
(g) These include €2 million of other operating income and €10 million of other operating expenses, as described in Note 4.2 of SFR’s
combined financial statements at December 31, 2013. For 2014, these correspond to various non-recurring costs.
203
Pro forma adjusted EBITDA, once adjusted for the contributions of Virgin Mobile and Telindus in
2013, was down €385 million from 2013 to 2014, an 11% decline. This decline mainly reflects the
erosion of the ARPU of mobile operations, which has a greater effect on EBITDA than declines in
customer bases generating cost savings, partly offsetting the implementation of cost savings plans by
former SFR management.
9.4
ANALYSIS OF NUMERICABLE’S INCOME STATEMENT FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2013 AND 2014
Sections 9.3, 20.5.3 and 20.5.4 of the Registration Document update filed with the AMF on October
28, 2014 under number D.14-0803-A01, which include the analysis of the statement of income of
Numericable for the nine-month period ended September 30, 2014 and the unaudited condensed
interim consolidated financial statements as of September 30, 2014 and the corresponding review
report, are incorporated by reference in this Registration Document.
9.5
REVIEW OF THE RESULTS OF THE COMBINED SFR GROUP FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 2013 AND 2014
Readers are invited to read the following information on the results of the Combined SFR Group in
conjunction with the condensed combined financial statements for the first nine months ended
September 30, 2014, as set out in Section 20.3.3 “Combined financial statements of SFR, SIG 50 and
their subsidiaries for the nine months ended September 30, 2014” of this Registration Document.
9.5.1
9.5.1.1
Presentation of the combined financial statements of SFR, SIG 50 and their
subsidiaries
The condensed combined financial statements for the first nine months ended September 30, 2014
cover the following scope:
-
SFR S.A.;
-
the entities directly or indirectly owned by SFR S.A. and its subsidiaries;
-
Vivendi’s stake, via SIG 50:
o
in the business of distributing telecommunication services and products and of
telecommunications operator for Futur Telecom (subsidiary of CID), by virtue of
their operational attachment to the business of the Combined SFR Group, and
primarily SFD and 5/5; and
o
in the business of network and telecom integration, in particular via the Telindus
France Group acquired by SFR S.A. on May 1, 2014.
In the absence of a specific International Financial Reporting Standard dealing with combined
financial statements, the Combined SFR Group defined the basis of preparation of its combined
financial statements for the first nine months ended September 30, 2014 and 2013.
The condensed combined financial statements for the first nine months ended September 30, 2014
were prepared in accordance with IFRS, as adopted by the European Union. The condensed combined
financial statements of the Combined SFR Group were reviewed by KPMG Audit, a division of
KPMG S.A., for the fiscal years ended September 30, 2014. The Statutory Auditors’ report on these
condensed combined financial statements can be found in Section 20.3.4 “Statutory Auditors’ Review
204
Report on the combined financial statements of SFR, SIG 50 and their subsidiaries for the nine
months ended September 30, 2014” of this Registration Document.
9.5.1.2
Introduction
The convergence of fixed-line and mobile telephony and high-speed broadband services led
management of the Combined SFR Group to take a unified and integrated approach to operational
monitoring. The Combined SFR Group accordingly only identified a single operating segment.
Similarly, considering that almost all the Group’s operations are carried out in France, only one
geographical segment has been identified.
The revenues of the Combined SFR Group are generated by the following three markets:
-
the B2C market, which accounted for 65% of total revenues of the Combined SFR Group for
the nine-month period ended September 30, 2014, versus 68% for the nine-month period
ended September 30, 2013 and which encompasses the offers and services for B2C customers
in metropolitan France;
-
the B2B market, which accounted for 18% of total revenues of the Combined SFR Group for
the nine-month periods ended September 30, 2014 and 2013 and which encompasses the
service offers for micro-enterprises/SMEs, large corporations and public authorities in
metropolitan France; and
-
the Wholesale and Other market, which accounted for 16% of total revenues of the Combined
SFR Group for the nine-month period ended September 30, 2014, versus 15% for nine-month
period ended September 30, 2013, and which encompasses (i) the service offers for virtual
mobile operators or foreign mobile operators whose customers use the network of the
Combined SFR Group, as well as (ii) data and voice transmission services, (iii) wholesale
services built on the fiber optic network infrastructure and (iv) white label DSL packages for
telecommunications operators and Internet service providers. For the purposes of the
presentation of the revenues of the Combined SFR Group, this market also includes other
operations not included in the B2C and B2B markets, and in particular: Société Réunionnaise
de Radiotéléphone (SRR), SFR Collectivités and its subsidiaries as well as inter-segment
eliminations.
9.5.1.2.1
Key operating figures
The table below shows the breakdown of revenues by market for the first nine months ended
September 30, 2014 and 2013 as well as certain key business data relating to the Combined SFR
Group:
(in € millions)
First nine months ended September 30
% change in
2014
2013
2014 vs. 2013
B2C ....................................................
B2B(a) .................................................
Wholesale and Other ..........................
Combined revenues(a) .......................
EBITDA ............................................
4,831
1,349
1,217
7,396
1,777(h)
5,156
1,341
1,120
7,616
2,200
-6.3%
+0.6%
+8.7%
-2.9%
-19.2%
Group
Mobile customer base (in thousands) .
Internet customer base (in thousands)
Mobile acquisition costs (in € millions)
Mobile retention costs (in € millions) .
21,414
5,271
261
351
21,144
5,209
303
386
+1.3%
+1.2%
-13.6%
-9.0%
B2C(b)
205
(in € millions)
Mobile customer base (in thousands)......
Mobile subscriber base (in thousands)(c) …
Smartphone penetration(d) ...................
Rolling 12-month monthly Mobile ARPU
(€)(e) ....................................................
% change in
2014
2013
2014 vs. 2013
14,182
14,486
-2.1%
11,315
11,230
+0.8%
69%
58%
10.8 pts
Number of high-speed broadband
customers (in thousands) ....................
of which Fiber customers (in thousands)
............................................................
of which quadruple play customers
(“MultiPack”) (as a % of customer base)...
Rolling 12-month monthly ARPU high
speed broadband customers (€)(e) .......
22.8
25.0
-8.7%
5,217
5,163
+1.0%
249
172
+44.5%
49%
44%
+5.8 pts
32.2
32.6
-1.0%
(a)
Group revenues and B2B revenues include the revenues of Telindus from May 2014. On a 2013 comparable basis (excluding Telindus),
SFR revenues were down 4.2% and B2B revenues were down 6.7% in the first nine months ended September 30, 2014.
(b)
Metropolitan market, excluding SRR.
(c)
The total number of users is equal to customers subscribed.
(d)
Number of customers with a smartphone over the total Mobile customer base (excluding remote access).
(e)
Mobile ARPU is the average monthly revenue per user. It is calculated by dividing B2C Mobile revenues (excluding equipment)
generated over the previous 12 months by the average number of customers (excluding multi-sim and back-up keys) over the same period.
ARPU is expressed as monthly revenues per line. High-speed broadband ARPU is the average monthly revenues per B2C high speed
broadband line (ARPU). It is calculated by dividing average monthly revenues, over the previous 12 months, by the average number of
B2C high-speed broadband lines over the same period. The average number of B2C high-speed broadband lines is the average of the
monthly averages over the period under review. The monthly average is the arithmetic average of the number of B2C high-speed
broadband lines at the start and end of the month.
9.5.1.2.2
Geographic footprint
The B2C and B2B operations of the Combined SFR Group are based in metropolitan France. The
Wholesale and Other business of the Combined SFR Group also includes, in addition to the
operations located in metropolitan France, the operations of the SRR subsidiary, which is based in
Réunion and Mayotte and accounted for circa 17% of revenues in 2013.
9.5.1.3
Main items of the statement of income of the Combined SFR Group
9.5.1.3.1
Revenues
The revenues of the Combined SFR Group are primarily the result of the provision of services and the
sale of equipment.
The principles of revenue recognition are described in Note 1.3.4 to the combined financial statements
of SFR, SIG 50 and their subsidiaries at December 31, 2013, 2012 and 2011, set out in Section 20.5.7
“Combined financial statements of SFR, SIG 50 and their subsidiaries for the fiscal years ended
December 31, 2013, 2012 and 2011” of the update to the Numericable-SFR Registration Document
filed with the AMF on October 28, 2014 under number D.14-0803-A01.
(a)
B2C revenues
B2C revenues primarily include revenues excluding tax from the sale of retail services and equipment
to B2C customers (fixed-line and mobile) in metropolitan France as well as call termination revenues
from traffic to the Group’s B2C customers.
206
The main mobile telephony offers for B2C customers in metropolitan France are:
 the “Formules Carrées” plans, built around mobile Internet and SFR’s customer support with
premium content (“Extras“), enhanced by a range of services. These plans provide access to a
wide range of subsidized handsets in return for a commitment and are available through all
distribution channels, in particular the physical distribution network of Espaces SFR;
 the “RED” range of no-commitment mobile plans, primarily distributed through the Internet
and encompassing the low-cost offers;
 pre-paid offers sold under the “SFR La Carte” brand;
Most mobile telephony revenues are generated from the subscription offers (“Formules Carrées” and
“RED”). In fact, pre-paid offers generated close to 7% in the first nine months ended September 30,
2014 and this is trending downward following the launch of low-cost no-commitment subscription
offers.
Revenues from the sale of handsets and mobile telephony accessories plus revenues from related
insurance are included in B2C revenues.
The main fixed-line telecommunications offers for B2C customers in metropolitan France are:
 Internet access offers via xDSL or fiber optic technologies:
-
unlimited broadband offer via ADSL, offering subscribers minimum-speed Internet
access;
-
fiber optic (FTTH) broadband offer, the Combined SFR Group offering eligible fiber
customers speeds of up to 1 Gbps (download);
 Fixed-line telephony offers, with no associated Internet access:
-
pre-selection offer (call by call selection or automatic pre-selection), with customers
keeping their Orange subscription; and
-
offer including telephone line subscription, with customers signing up for their telephone
subscription directly with the Combined SFR Group and no longer with Orange.
Most B2C fixed-line telecommunications revenues are generated by Internet access offers. Fixed-line
telephony offers with no associated Internet access generated close to 6% in the first nine months
ended September 30, 2014.
The Combined SFR Group also offers B2C customers home automation solutions under the “Home
by SFR” brand.
Revenues from the termination of calls to B2C customers are also included in B2C revenues.
(b)
B2B revenues
B2B revenues include revenues excluding tax from the sale of services to SMEs/micro-businesses,
large corporations and public authorities in metropolitan France and in particular:
-
Mobile voice and 3G/4G data access services for smartphones, tablets and computers;
207
-
fixed-line data access services via xDSL or fiber optic technologies and Virtual Private
Network offers designed to link one or more corporate sites;
-
corporate fixed-line telephony services;
-
the Pack Business Entrepreneurs for micro-businesses, the Pack Business Entreprises for
SMEs and the Pack Business Corporate (for large corporations) in the range of unified
communications solutions;
-
added-value hosted services for large corporate customers, and Cloud services for SMEs and
integration solutions; and
-
revenues from connected objects (Machine to Machine).
Revenues from the termination of calls to B2B customers are also included in B2B revenues.
(c)
Wholesale and Other revenues
Wholesale and Other revenues basically include the following items:
 revenues generated by the Wholesale division of the Combined SFR Group which
encompasses:
-
revenues generated from virtual mobile operators, Combined SFR Group customers;
-
revenues generated from foreign visitors roaming on the SFR mobile network (“roaming
in”); and
-
revenues from fixed-line operations, including in particular the collection and termination
of voice traffic, data and special numbers on behalf of national and international
operators, the resale of national and international links or indeed the sale of end-to-end
voice service;
 Revenues generated by SRR, which is a fixed-line and mobile operator in Réunion and
Mayotte for B2C and B2B customers;
 revenues generated by SFR Collectivités and its subsidiaries from local authorities. The role
of SFR Collectivités is to support SFR’s network and services roll-out strategy according to
the requirements of local authorities; and
 inter-segment eliminations.
Revenues from the termination of calls to customers of the Wholesale and Other business are also
included in the revenues of the Wholesale and Other business.
9.5.1.3.2
Costs
Cost of sales are comprised of purchases of goods, interconnection costs, network operating and
maintenance costs as well as the share of related personnel expenses and taxes and duties. Purchases
of goods include, among other things, handset purchases. Commercial and distribution costs include
customer acquisition and retention costs, except for the cost of subsidizing handsets, which is
deducted from revenues, and include, among other things, distributor compensation, customer service,
and advertising and marketing costs. Selling, general and administrative expenses primarily include
IT costs, committed costs and taxes unconnected with the cost of sales.
208
9.5.1.3.3
EBITDA
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) represents operating
income adjusted for other operating income and expenses and net depreciation and amortization and
provisions for intangible assets and property, plant and equipment. The Group considers EBITDA, a
non-GAAP measurement, to be a performance indicator. It shows the profit made by the business of
the Combined SFR Group irrespective of financing conditions, tax constraints (income tax expense
(income)) and asset obsolescence (net depreciation and amortization and provisions for intangible
assets and property, plant and equipment).
EBITDA is equal to the combined revenues of the Combined SFR Group, less cost of sales,
commercial and distribution costs, selling, general and administrative expenses (excluding net
depreciation and amortization and provisions for fixed assets). EBITDA is not an approved indicator
under IFRS and there is no standard definition. Accordingly, the process used by the Combined SFR
Group to calculate EBITDA may not be comparable with other similarly-titled measurements used by
other companies.
9.5.1.3.4
Operating income
Combined operating income is equal to the combined EBITDA of the Combined SFR Group, less
depreciation and amortization and impairment of fixed assets, other operating expenses and other
operating income, which in particular include the amortization of subscriber bases recognized in the
course of business combinations, and restructuring costs.
9.5.1.3.5
Combined net interest and other income include:
-
-
the cost of financing which is comprised of:
o
interest expenses on loans, which depend on the level of financial debt and average
rates applied. In 2011 to 2013 as well as during the first nine months ended
September 30, 2014, this mainly involved the financial expenses on the current
account balance with Vivendi; and
o
interest income is mainly comprised of revenues from the investment of cash and
cash equivalents.
Other financial income and financial expenses mainly include interest on arrears, changes in
the value of derivative instruments and accretion effects from liabilities and provisions (in
particular on the liability associated with the GSM license, the provision for post-employment
benefits and the provision for site restoration).
9.5.1.3.6
Income tax
Income tax in the combined financial statements of the Combined SFR Group includes the income tax
calculated on the basis of the profits made by each combined entity and excludes other taxes and
duties paid by the Combined SFR Group, such as real estate tax, the flat-rate tax on network
companies (IFER) or the CVAE (Cotisation sur la Valeur Ajoutée des Entreprises), a French business
value-added contribution, which are presented in EBITDA and operating income. It also includes
deferred tax. The effective tax rate is defined as the ratio of income tax to pre-tax income. For further
details, please see Note 1.3.16 “Taxes” of the “Annual combined financial statements of SFR, SIG 50
and their subsidiaries at December 31, 2013, 2012 and 2011,” included in Section 20.5.7 “Combined
financial statements of SFR, SIG 50 and their subsidiaries for the fiscal years ended December 31,
209
2013, 2012 and 2011” of the update to the Numericable-SFR Registration Document filed with the
AMF on October 28, 2014 under number D.14-0803-A01.
9.5.1.4
Main performance indicators
9.5.1.4.1
Number of mobile and fixed-line customers
The Combined SFR Group uses the number of both fixed-line and mobile customers as performance
indicators. These indicators enable it to measure the success of the various offers.
Nevertheless, in order to dynamically analyze the behavior of its customers and to measure the
success of its various offers, the Combined SFR Group also uses the net sales indicator. In the mobile
segment, SFR separates out “subscription” and “pre-paid” customers because the offers differ in terms
of customer behavior and profitability.
None of these indicators is recognized as a measurement of performance under IFRS and these
indicators have not been audited by a statutory auditor, consultant or expert. These indicators are
taken from SFR’s internal operational and financial management systems. These indicators, as
defined by SFR management, may not be comparable with the indicators published by its competitors
or other companies.
9.5.1.4.2
ARPU (Average Revenue Per User)
The Combined SFR Group uses ARPU as an indicator to track the performance of both its B2C
mobile and fixed-line business.
The B2C Mobile ARPU is the average monthly revenue per B2C Mobile customer. It is calculated by
dividing B2C Mobile revenues (excluding equipment) generated over the previous 12 months by the
average number of customers (excluding multi-sim and back-up keys) over the same period. The
average number of customers is the average of the monthly averages over the period under review.
The monthly average is the arithmetic average of the number of customers at the start and end of the
month. ARPU is expressed as monthly revenues per customer.
B2C high speed broadband ARPU is the average monthly revenue per B2C high-speed broadband line
(ARPU). It is calculated by dividing average monthly revenues, over the previous 12 months, by the
average number of B2C high-speed broadband lines over the same period. The average number of
B2C high-speed broadband lines is the average of the monthly averages over the period under review.
The monthly average is the arithmetic average of the number of B2C high-speed broadband lines at
the start and end of the month.
9.5.1.4.3
Mobile customer acquisition and retention costs
The Combined SFR Group tracks mobile customer acquisition and retention costs as an operational
indicator. These costs consist of the compensation paid to the distribution network and handset
purchase subsidies when signing up to a package. For reference, handset subsidy costs are deducted
from revenues. Acquisition and retention costs are recognized in profit or loss for the fiscal year in
which they are incurred, namely upon acquisition or renewal.
9.5.1.5
Main factors affecting the results of the Combined SFR Group
Certain key factors along with certain past events have had, and may continue to have, an effect on
the operations and results of the Combined SFR Group. The main factors impacting the normal course
of the operations of the Combined SFR Group and its income particularly include (i) economic and
financial developments in France, (ii) competitive pressures, (iii) significant capital expenditure in
210
particular on acquiring licenses, (iv) changes in regulated rates and (v) the implementation of the
multi-annual transformation plan. These factors are described in detail below:
9.5.1.5.1
Economic and financial developments in France
The Combined SFR Group derives virtually all its revenues in France and is thus heavily exposed to
economic and financial developments in France. Over the first nine months ended September 30,
2014 and 2013 there was virtually no economic growth in France, along with a decline in household
purchasing power and a reduction in business spending. These items affected the results of the
Combined SFR Group over this period.
9.5.1.5.2
Greater competitive pressures
The Combined SFR Group wholly operates in the telecommunications sector in France, which is
experiencing intense and growing competition. In particular, in early 2012, the market was
significantly disrupted by the entry of a fourth operator, Iliad Group, which led to the wide-scale
development of no-commitment low-price offers. This market disruption adversely affected price
trends and the churn rate of the Combined SFR Group and its ability to attract new customers in the
first nine months ended September 30, 2014 and 2013.
9.5.1.5.3
Significant capital expenditures, in particular to acquire new licenses
The business of the Combined SFR Group requires significant capital expenditure to maintain,
upgrade and develop its networks. In particular, the Combined SFR Group, in order to grow its
operations and improve the performance of its mobile network, was able to acquire spectrum rights
awarded by the French authorities. Moreover, the Combined SFR Group was required to continue its
capital expenditure to meet its network roll-out and coverage commitments under its mobile licenses.
9.5.1.5.4
Changes in regulated rates
A portion of the revenues of the Combined SFR Group (circa 11% in the first nine months ended
September 30, 2014) is exposed to changes in the regulations applicable to the telecommunications
sector. This mainly relates to the decline in call termination revenues on the mobile network of the
Combined SFR Group, rates for which are set by ARCEP (French Regulatory Authority on Electronic
Communications and Postal Services), and roaming revenues in Europe, where rates are governed by
European regulations. The rate cuts approved by regulators over the past three years are as follows:
-
Cut in the regulated prices of mobile call termination: 33% on July 1, 2011, 25% on
January 1, 2012, 33% on July 1, 2012 and 20% on January 1, 2013;
-
Cut in mobile roaming rates on July 1, 2011, 2012 and 2013 as described on the
ARCEP website (www.arcep.fr), Major files section – Mobiles – International
roaming;
-
Cut in SMS call termination prices of 25% on July 1, 2011 and 33% on July 1, 2012;
and
-
Cut in the fixed-line call termination price of 40% on October 1, 2011, 50% on July
1, 2012 and 47% on January 1, 2013.
The table below shows the impact of regulatory measures on the growth of the revenues of the
Combined SFR Group:
211
At September 30
2014
(in € millions)
Combined revenues
Change excluding regulatory impact
9.5.1.5.5
7,396
2013
7,616
% change in
2014 vs.
2013
-2.9%
-2.3%
A multi-annual transformation plan
In 2012, the Combined SFR Group launched a global transformation plan designed to adapt to
changes in the telecommunications market and to pre-empt the challenges they represent for its
business. The Combined SFR Group pursued this transformation plan in 2013 and in the first nine
months ended September 30, 2014 to adapt its organization to market changes and to preserve its
ability to invest in fixed-line and mobile very-high-speed. This plan also helped reduce the operating
costs of the Combined SFR Group by over €1 billion between end-2011 and September 30, 2014.
9.5.1.6
Estimates and assumptions used to prepare the combined financial statements
When preparing the combined financial statements, in accordance with IFRS, management of the
Combined SFR Group was required to make estimates and assumptions that may affect the carrying
amount of certain assets and liabilities, income and expenses, as well as the information provided in
the notes. Management of the Combined SFR Group regularly reviews its estimates and assumptions
in order to ensure they are appropriate having regard to past experience and the current economic
situation. Depending on changes in these assumptions, the items in the future financial statements of
the Combined SFR Group may differ from current estimates. The impact of changes in accounting
estimates is recognized in the current and future periods affected by the change.
The main estimates made by management of the Combined SFR Group in preparing its combined
financial statements were as follows:
-
certain revenue items, in particular the identification of separable elements of a package
and the period over which the revenues relating to the service access fees will be deferred;
-
the amount of provisions for risks and other provisions relating to the business of the
Combined SFR Group;
-
the assumptions used to calculate employee benefit obligations;
-
the methods used to measure and impair goodwill;
-
recognition of deferred tax assets; and
-
the useful lives of intangible assets and property, plant and equipment.
The management estimates and assumptions made by management of the Combined SFR Group for
the purposes of preparing the combined financial statements are described in more detail in the
condensed combined financial statements of SFR, SIG 50 and their subsidiaries at September 30,
2014, included in Section 20.3.3 “Combined financial statements of SFR, SIG 50 and their
subsidiaries for the nine months ended September 30, 2014” of this Registration Document.
212
9.5.2
Analysis and comparison of the results of operations of the Combined SFR Group
The main line items of the income statement of the Combined SFR Group for the first nine months
ended September 30, 2013 and 2014 are as follows:
2014
2013
(in € millions)
Revenues ......................................................................................................................
7,396
7,616
Cost of sales(a) ................................................................................................................
(3,716)
(3,518)
Commercial and distribution costs(a) ....................................................................................
(1,213)
(1,412)
Selling, general and administrative expenses(a) ......................................................................
(690)
(486)
EBITDA ......................................................................................................................
1,777
2,200
Net depreciation and amortization and provisions for fixed assets ........................................................
(1,153)
(1,136)
Other operating income..........................................................................................................................
2
1
Other operating expenses .......................................................................................................................
(117)
(76)
Operating income ..........................................................................................................
510
989
Net cost of financing ..............................................................................................................................
(147)
(186)
Other financial income ...........................................................................................................................
2
1
Other financial expenses ........................................................................................................................
(9)
(13)
Net interest and other income ..........................................................................................
(155)
Share in net income (loss) of associates .................................................................................................
(7)
(198)
(6)
Pre-tax operating income................................................................................................
348
785
Income tax .............................................................................................................................................
(164)
(314)
Net income (loss) ...........................................................................................................
184
471
Of which attributable
To owners of the parent: ................................................................................................
178
465
To non-controlling interests ............................................................................................
6
6
(a)
Excluding net depreciation and amortization and provisions for fixed assets
9.5.2.1
Analysis and comparison of the results for the first nine months ended September
30, 2013 and September 30, 2014
The table below presents the combined statement of income of the Combined SFR Group for the first
nine months ended September 30, 2013 and September 30, 2014.
2014
2013
(in € millions)
Revenues .....................................................................................................
7,396
7,616
Cost of sales(a) ..............................................................................................
(3,716)
(3,518)
Commercial and distribution costs(a) ............................................................
(1,213)
(1,412)
Selling, general and administrative expenses(a) ............................................
(690)
(486)
EBITDA ......................................................................................................
1,777
2,200
Net depreciation and amortization and provisions for
fixed assets ..............................................................................................
(1,153)
(1,136)
Other operating income ............................................................................... 2
1
Other operating expenses .............................................................................
(117)
(76)
Operating income.......................................................................................
510
989
Net cost of financing ....................................................................................
(147)
(186)
Other financial income................................................................................. 2
1
213
Change
% change
(220)
(198)
199
(204)
(423)
-2.9%
5.6%
-14.1%
41.9%
-19.2%
(17)
1
(41)
(479)
39
1
1.5%
100
53.9%
-48.4%
-21.0%
100%
Other financial expenses ..............................................................................
(9)
Net interest and other income ...................................................................
(155)
Share in net income (loss) of associates .......................................................
(7)
Pre-tax operating income ..........................................................................
348
Income tax ...................................................................................................
(164)
Net income (loss) ........................................................................................
184
Of which attributable
To owners of the parent: ...........................................................................
178
To non-controlling interests: ..................................................................... 6
(a)
(13)
(198)
(6)
785
(314)
471
4
43
(1)
(437)
150
(287)
-30.8%
-21.7%
16.6%
-55.6%
-47.7%
-60.9%
465
6
(287)
0
-61.7%
0%
On April 30, 2014, SIG 50 acquired all shares in Groupe Telindus France for €88 million net of cash
acquired of €6 million. The main subsidiary, Telindus France, is a market leader in France in network
and telecom integration and the leading Cisco distributor in France. Telindus France posted revenues
of €171 million in the first nine months ended September 30, 2014, €98 million of which were
incorporated into the financial statements of the Combined SFR Group at September 30, 2014.
9.5.2.1.1
Combined revenues
The combined revenues of the Combined SFR Group declined by €220 million, a 2.9% decline in real
terms (-4.2% on a comparable basis), from €7,616 million in the first nine months ended September
30, 2013 to €7,396 million in the first nine months ended September 30, 2014. The decline in
revenues slowed: on a comparable base, it totaled -3.2% in the third quarter of 2014, versus -4.7% in
the first half.
At September 30, 2014, SFR had a total mobile customer base of 21.4 million, 1.3% up on September
30, 2013. The total mobile subscriber base stood at 18.3 million, representing 85.5% of the total
mobile customer base. The residential customer base with high-speed broadband subscriptions added
14,000 customers in the first nine months ended September 30, 2014, to 5.3 million.
Information by market
Combined revenues changed as follows by market:
First nine months ended September
30
2014
2013
% change
(in € millions)
B2C .........................................................................................................................................
4,831
5,156
B2B(a) ...............................................................................................................
1,349
1,341
Combined revenues .................................................................................................................
1,217
1,120
-6.3%
+0.6%
+8.7%
7,396
Combined revenues(a) .........................................................................................
-2.9%
7,616
(a)
The combined revenues and B2B revenues include the revenue of Telindus France from May 2014 (namely for a two-month period). On a
2013 comparable basis (excluding Telindus France), combined revenues declined 4.2% and B2B revenues declined 6.7% in the first nine
months ended September 30, 2014 compared with the first nine months ended September 30, 2013.
The performance indicators changed as follows:
30
2014
Group
Mobile customer base (in thousands) ..................................................................................21,414
Internet customer base (in thousands) .................................................................................. 5,271
Mobile acquisition costs (in € millions) ............................................................................... 261
Mobile retention costs (in € millions) .................................................................................. 351
214
2013
21,144
5,209
303
386
% change
+1.3%
+1.2%
(41)
(35)
B2C
Mobile customer base (in thousands) ....................................................................14,182
Mobile subscriber base (in thousands) .................................................................................11,315
Smartphone penetration .......................................................................................................69.3%
Rolling 12-month monthly Mobile ARPU (€ per month) .................................................... €22.8
14,486
11,230
58.4%
€25.0
-2.1%
+0.8%
+11 pts
-8.7%
Number of high speed broadband customers (in thousands)................................................ 5,217
Of which Fiber customers (in thousands) ............................................................................ 249
Of which quadruple play customers ("MultiPack") (as a % of customer base) ....................49.4%
Rolling 12-month monthly ARPU high speed broadband customers (€ per month) ............ €32.2
5,163
172
43.5%
€32.6
+1.0%
+44.5%
+6 pts
-1.0%
B2C
Revenues from the B2C business totaled €4,831 million in the first nine months ended September 30,
2014, 6.3% down from the first nine months ended September 30, 2013.
30
2014
2013
% change
(in € millions)
B2C
4,831
Revenues ..........................................................................................................
Mobile.....................................................................................................................................
3,231
Fixed-line ................................................................................................................................
1,600
5,156
3,560
1,595
-6.3%
-9.2%
+0.3%
In the B2C Mobile market, the subscriber base dropped by 66,000 subscribers in the first nine months
ended September 30, 2014 compared with the first nine months ended September 30, 2013. At
September 30, 2014, the B2C mobile subscriber base totaled 11.315 million customers, up 0.8% on
September 30, 2013. SFR’s total B2C mobile customer base (subscribers and pre-paid) stood at 14.2
million at September 30, 2014. The repositioning of customers to new rates continued in the first nine
months ended September 30, 2014: at September 30, 2014, 89% of B2C Mobile subscribers were on
post-January 2013 rates. Combined ARPU thus fell 8.7% at September 30, 2014 compared with
September 30, 2013 as a result of the revision of prices in the contracts of existing customers
following the introduction of a low-price offer by Free when it entered the market in 2012.
Mobile Internet usage continues to grow: 69.3% of B2C customers had smartphones at September 30,
2014 versus 58.4% at September 30, 2013.
In the B2C Fixed-line market, the residential customer base in Metropolitan France with high-speed
broadband subscriptions stood at 5.217 million at September 30, 2014, up 8,000 on end-2013. Within
the customer base with high-speed broadband subscriptions, the fiber customer base stood at 249,000
subscribers at September 30, 2014. The “Multi-Packs de SFR” offer added 328,000 customers
between September 30, 2014 and September 30, 2013, growing to 2.6 million customers (49.4% of
the high-speed customer base). The monthly ARPU of high-speed broadband customers thus declined
1%, from €32.6 at September 30, 2013 to €32.2 at September 30, 2014.
In the home automation segment, the “Home By SFR” offer was added to a premium offer packaged
with Internet access in the second quarter of 2014. At September 30, 2014, it had around 30,000
customers.
B2B
215
Against a background of difficult macroeconomic conditions and intense competition, revenues from
the B2B business totaled €1,349 million including Telindus France in the first nine months ended
September 30, 2014, -6.7% down on a comparable basis (+0.6% in real terms) compared with the first
nine months ended September 30, 2013. In the first nine months ended September 30, 2014, prices
were impacted by difficult macroeconomic conditions, with businesses streamlining their
telecommunications spending.
The SFR Business Team also continued to add services to its unified communications solutions offers,
such as the April 2014 launch of the Pack Business Entrepreneurs Initiale.
Telindus France was acquired by SFR S.A. in the second quarter of 2014. This allowed SFR to
strengthen its presence in markets connected with network and telecom integration and to offer new
services to its B2B customers in addition to the offers of the SFR Business Team.
Wholesale and Other
Revenues of Wholesale and Other (including in particular the Wholesale operations, SRR (as well as
the elimination of intra-group flows)) rose 8.7% from the first nine months ended September 30,
2013, to €1,217 million. This increase was mainly due to the growth of the Wholesale business, both
in Fixed-line and Mobile.
9.5.2.1.2
Combined EBITDA
2013
Change
% change
(in € millions)
Revenues ................................................................................
7,396
7,616
(220)
-2.9%
Cost of sales(a) ..........................................................................
(3,716)
(3,518)
(198)
5.6%
Commercial and distribution costs(a)..............................................
(1,213)
(1,412)
199
-14.1%
Selling, general and administrative expenses(a) ................................
(690)
(486)
(204)
41.9%
EBITDA(b) ..............................................................................
1,777
2,200
(423)
-19.2%
2014
(a)
(b)
The combined EBITDA of the Combined SFR Group includes the contribution of Telindus France to EBITDA from May 2014
The combined EBITDA of the Combined SFR Group declined €423 million in the first nine months
ended September 30, 2014 compared with 2013 (a drop of 19.2%), from €2,200 million in the first
nine months ended September 30, 2013 to €1,777 million in the first nine months ended September
30, 2014. EBITDA in the first nine months ended September 30, 2014 included a non-recurring
expense of €196 million connected with certain disputes described in the Financial Statements of
SFR, SIG 50 and their subsidiaries at September 30, 2014, December 31, 2013, 2012 and 2011.
Excluding this non-recurring expense, EBITDA in the first nine months ended September 30, 2014
totaled €1,973 million, 10.3% down from the first nine months ended September 30, 2013.
The combined EBITDA of SFR Group includes the contribution of Telindus France from May 2014.
The EBITDA of Telindus France totaled €10 million in 2013 and €5 million in the first nine months
ended September 30, 2014, €5 million of which were recorded in the financial statements of the
Combined SFR Group ended September 30, 2014.
Excluding non-recurring expenses, this change mainly reflects the €220 million drop in revenues.
Overall, excluding the non-recurring expense of €196 million and on a comparable basis (i.e.
excluding Telindus France which joined the scope of consolidation on May 1, 2014), costs declined
€89 million in the first nine months ended September 30, 2014 compared with the first nine months
ended September 30, 2013.
This reduction in costs in the first nine months ended September 30, 2014 reflected:
216
-
Lower mobile customer acquisition and retention expenses connected with the
implementation of a more selective policy as well as a reduction in other costs relating to
improved operational efficiency. The implementation of the multi-annual transformation plan
launched in 2012 is designed to adapt the organization of the Combined SFR Group to market
changes and to preserve its ability to invest in fixed-line and mobile very-high-speed. Since
end-2011, costs, both fixed and variable, have thus dropped by over €1 billion.
-
This decline in mobile customer acquisition and retention expenses offset the increase in
interconnection costs, which rose from the first nine months of 2013 to the first nine months
of 2014, the decline in certain regulated rates no longer offsetting the increase in volumes, as
had been the case in previous years.
9.5.2.1.3
Combined operating income
2014
2013
Change
% change
(in € millions)
EBITDA ..................................................................................
1,777
2,200
(423)
-19.2%
Net depreciation and amortization and provisions for fixed
assets .........................................................................................................
(1,153)
(1,136)
(17)
1.5%
Other operating income .............................................................................
2
1
1
N/A
Other operating expenses ..........................................................................
(117)
(76)
(41)
53.9%
Operating income ......................................................................
510
989
(479)
-48.5%
The combined operating income of the Combined SFR Group declined €479 million in the first nine
months ended September 30, 2014 compared with the first nine months ended September 30, 2013 (a
48.5% reduction), from €989 million in the first nine months ended September 30, 2013 to €510
million in the first nine months ended September 30, 2014.
This decline reflects the €423 million decline in EBITDA and the €17 million increase in
depreciation, amortization and provisions connected with higher capital expenditure in recent fiscal
years as well as the start of amortization of 4G licenses (2600 MHz and 800 MHz). Other operating
expenses rose €41 million compared with the first nine months ended September 30, 2013, mainly as
a result of non-recurring costs associated with the planned sale of SFR: as part of SFR’s sale by
Vivendi to Numericable Group, a bonus of €2,000 gross was paid in the form of an additional
incentive payment to the employees of SFR’s Social and Economic Unit, generating an expense of
€26 million recognized in the first nine months ended September 30, 2014.
9.5.2.1.4
Combined net interest and other income
The combined net interest and other income of the Combined SFR Group declined €43 million in the
first nine months ended September 30, 2014 compared with the first nine months ended September
30, 2013 (a 21.8% reduction), from an expense of €198 million in the first nine months ended
September 30, 2013 to an expense of €155 million in the first nine months ended September 30, 2014.
This lower expense reflects the €39 million drop in the net cost of financing compared with the first
nine months ended September 30, 2013. The lower net cost of financing was driven by the fall in
average net financial debt from €8,541 million in the first nine months ended September 30, 2013 to
€6,721 million in the first nine months ended September 30, 2014, the average cost of financing
remaining virtually unchanged (2.91% in the first nine months ended September 30, 2013 and 2.92%
in the first nine months ended September 30, 2014).
9.5.2.1.5
Income tax on combined profit
Income tax on combined profit of the Combined SFR Group declined €150 million in the first nine
months ended September 30, 2014, from €314 million in the first nine months ended September 30,
217
2013 to €164 million in the first nine months ended September 30, 2014. This €150 million saving
primarily reflects the decline in pre-tax operating income (tax effect: -€173 million), not offset by the
effect of the higher effective tax rate, which rose from 39.7% to 45.7%. The change in the effective
tax rate was mainly due to the higher statutory tax rate, which rose from 36.1% to 38% for large
corporates (i.e. companies with revenues of over €250 million) such as SFR and the increase in the
non-deductible portion of interest (which rose from 15% to 25%).
9.5.2.1.6
Combined net income
The combined net income of the Combined SFR Group declined €287 million in the first nine months
ended September 30, 2014 (a 60.9% decline on the first nine months ended September 30, 2013),
from €471 million in the first nine months ended September 30, 2013 to €184 million in the first nine
months ended September 30, 2014. This decline reflects the decline in operating income net of the tax
effect.
9.6
ANALYSIS OF SFR’S INCOME STATEMENT FOR THE FISCAL YEAR ENDED
DECEMBER 31, 2013
Sections 9.9, 20.5.7 and 20.5.8 of the Registration Document update filed with the AMF on October
28, 2014 under number D.14-0803-A01, which include the analysis of SFR’s income statement for the
fiscal year ended December 31, 2013 and the consolidated financial statements at December 31, 2013
and the corresponding audit report, are incorporated by reference in this Registration Document.
218
10.
CASH AND CAPITAL OF THE GROUP
10.1
The Group’s primary financing needs include its working capital requirements, capital expenditures,
interest payments and loan repayments. The Group’s financing needs also include the financing of
acquisitions such as SFR and Virgin Mobile, which occurred in 2014.
The Group’s main source of regular cash consists of its operating cash flows. The Group’s capacity to
generate cash through its operations in the future will depend on its future operational performance,
which is itself to some extent dependent on economic, financial, competitive, market, regulatory and
other factors, the majority of which are beyond the Group’s control. The Group has cash and cash
equivalents to finance its current operating activities needs.
The Group has also regularly refinanced its debt. In 2012, the Group completed two bond issues to
extend the maturity date of its debt. In 2013, the Group made three major changes to its financing
system. In July and August 2013, the subsidiaries Ypso France and Altice B2B France changed and
extended the maturity date of their primary syndicated loans. The capital increase that occurred in
November 2013, within the context of the Company’s IPO, allowed the Group to repay a portion
(approximately €150 million) of its Former Senior Secured Bonds (as defined below). In December
2013, subgroup Ypso France acquired subgroup Altice B2B and refinanced all of its debt. To do so,
the Group took out a new line of credit in the amount of €800 million (Line D) under the Ypso France
SFA. In addition to refinancing the debt of subgroup Altice B2B, this line allowed the Group to repay
all of its Variable Rate Bonds as well as a portion of its Former Fixed Rate Bonds (as defined below).
In 2014, as part of the SFR Acquisition (as defined in Section 5.1.5 “History and recent developments
of the Group” of this Registration Document), the Group issued bonds with a total principal of €7,873
million and took out a new Term Loan (defined below) with a total principal of €3,780 million. The
Group also took out a new revolving line of credit, €300 million of which was available immediately,
with an additional €450 million becoming available after the Acquisition of SFR was completed.
Initially, the maximum amount of this €750 million line of credit was raised to €1 billion; the
maximum amount was then subsequently raised to €1.125 billion. A portion of the resulting
drawdowns of the Term Loan served to completely refinance the Former Secured Senior Bonds, along
with the Ypso France SFA, including the related repayment fees and charges. The balance resulting
from the Term Loan drawdowns (after refinancing and payment of related charges and expenses), as
well as all bond proceeds, were used to finance the Acquisition of SFR and certain related charges,
and were placed in escrow while awaiting the completion of this acquisition.
The Group also carried out capital increases in 2013 and 2014. At the time of the Company’s IPO in
2013, the Company carried out a capital increase in the amount of approximately €250 million, along
with a capital increase reserved for the Group’s employees, in the amount of approximately €1
million. In 2014, the Company financed a portion of the price of the SFR Acquisition through a
capital increase, maintaining shareholders’ preferential subscription rights, for a total amount of
€4,733 million.
The Group estimates that in 2015 its financing needs will primarily consist of its working capital
requirement (see Section 10.3.3 “Financing of working capital requirement” of this Registration
Document), its capital expenditures (see Section 5.2.2 “Current and future investments” of this
Registration Document), its interest payable and the funds needed to repay its loans.
More specifically, the Group plans to finance payment of the purchase price Numericable-SFR owes
to Vivendi to buy out Vivendi’s 20% stake in Numericable-SFR (half of this price being owed by
Altice), i.e., approximately €1.948 billion, with its own funds, through a payment by Vivendi of the
€116 million price adjustment, and through a drawdown on its revolving line of credit, which the
Company reserves the right to use in part or in full on this occasion. See Section 20.8 “Significant
changes in the financial or trading position” of this Registration Document.
219
10.2
FINANCIAL RESOURCES
10.2.1
Overview
In 2013 and 2014, the Group primarily used the following sources of financing:

Cash flows generated by operating activities, which amounted to €570.3 million in 2013
and €1,134.9 million in 2014;

Free cash flow. The amounts of cash and cash equivalents as of December 31, 2013 and
2014 totaled €101 million and €546 million, respectively. See Note 22 “Cash and cash
equivalents” to the Group’s financial statements, which appears in Section 20.1.1
“Consolidated financial statements of the Group” of this Registration Document. The
increase in free cash flow comes, on the one hand, from the cash of subsidiaries acquired
(€254.6 million) and, on the other, from the Group’s operating activities.

Debt, which, as of December 31, 2013 and 2014, totaled €2,766 million and €13,632
million respectively. As of December 31, 2013, debt included Ypso France’s Senior
Facility Agreement (direct loans from banks and retrocession of the proceeds of bond
issues), perpetual subordinated notes from NC Numericable, finance leases, deposits
made by customers, and bank overdrafts. As of December 31, 2014, debt essentially
consisted of the New Secured Senior Bonds and drawdowns under the Term Loan, as
well as perpetual subordinated notes from NC Numericable, finance leases, deposits
made by customers, bank overdrafts and the potential earn-out payment to Vivendi for
SFR. See Note 24 “Financial liabilities” to the Group’s annual financial statements,
which appears in Section 20.1.1 “Consolidated financial statements of the Group” of this
10.2.2
Financial liabilities
The Group’s financial liabilities totaled €13,632 million as of December 31, 2014 and €2,766 million
as of December 31, 2013. The table below shows a distribution of the Group’s gross debt as of
December 31, 2013 and December 31, 2014:
(in € millions)
As of December 31,
2013
Bonds
Bank borrowing
Derivative instruments
Finance lease debt
Perpetual subordinated notes (“TSDI”)
Other financial liabilities(1)
Deposits received from customers
Bank overdrafts
Total financial liabilities
(1)
396
2,236
41
38
3
52
2,766
As of December 31,
2014
8,735
3,983
69
40
676
86
41
13,632
As of December 31, 2014, other financial liabilities primarily included the earn-out payment of €750 million that
would be potentially due to Vivendi following the sale of SFR to Numericable-SFR, depending on the future
financial performance of the new Group. In accordance with IFRS, the value of the earn-out payment is
discounted to take into account its late payment. The final agreements relating to the buyout of Vivendi’s 20%
stake in the capital of Numericable-SFR provides that Vivendi definitively waive this earn-out payment.
The following table presents the Group’s current financial rating:
Moody’s
Ba3 (negative
outlook)
S&P
B+ (negative
outlook)
220
Following the announcement of Numericable-SFR’s acquisition of Vivendi’s 10% stake in its capital
(the other 10% being purchased by Altice), Moody’s decided to put the Group’s rating on watch with
negative outlook.
The following section presents the primary categories of items that comprise the Group’s financial
liabilities. The section begins with a description of the main finance contracts that were in effect until
the May 2014 Refinancing Transactions. It is followed by a description of the main finance contracts
that are currently in effect.
The following table presents the Group’s net financial debt as of December 31, 2013 and 2014:
(in € millions)
As of December 31,
2013
As of December 31,
2014
Bonds
380
8,670
Bank borrowing
2,258
4,047
Finance lease debt
41
69
Other financial liabilities(1)
3
75
Liability items contributing to net financial debt
2,682
12,861
(a)
Cash
101
117
Cash equivalents (b)
429
Exchange rate impact on derivatives (c)
1,063
Total net financial debt
2,587
11,252
(a) Liability items correspond to the nominal value of financial liabilities (excluding accrued interest, impact of EIR,
perpetual subordinated notes, operating debts and any earn-out payment to Vivendi) – as all these liabilities were translated
at the closing price.
(b) As of December 31, 2014, they primarily correspond to money market UCITS.
(c) The value of derivative instruments, as of December 31, 2014, is broken down as an exchange rate impact of €1,063
million and an interest rate impact of (€151) million. The exchange rate impact is not included in the net financial debt in the
table above, but is included in Note 24.4 to the consolidated financial statements as of December 31, 2014.
The following table presents the calculation of the net leverage ratio of the Group, based on the
Group’s pro forma adjusted EBITDA for the year ended December 31, 2014, and the Group’s net
financial debt as of December 31, 2014, along with certain adjustments:
(in € millions)
Pro forma adjusted EBITDA of the Group in 2014(1)
Net Financial Debt of the Group as of December 31, 2014 (2)
3,100
11,252
Pro forma Net Leverage Ratio
3.6x
Pro forma Net Leverage Ratio including €350 million in
synergies
3.3x
(1) The calculation of the pro forma Adjusted EBITDA is presented in Note 38 to the Group’s annual financial statements, which appears in
Section 20.1.1 “Consolidated financial statements of the Group” of this Registration Document.
(2) Net financial debt as defined and broken down in Note 24.4 to the consolidated financial statements as of December 31, 2014, in other
words, excluding accrued interest, impact of EIR, perpetual subordinated notes and operating debts (deposits paid by customers); with the
exception that the exchange rate impact is not included in the net financial debt of the table above, but is included in Note 24.4 to the
consolidated financial statements as of December 31, 2014.
Former Senior Facilities Agreements
Until the May 2014 Refinancing Transactions, the main financing contract of the Group was the Ypso
France Senior Facility Agreement (as defined below), which included the liabilities related to the
Group’s Former Secured Senior Bonds (as defined below). Before the refinancing established in
December 2013, the Group also had a senior facility agreement (the Altice B2B France Senior
Facility Agreement, as defined below) which was established at the level of subgroup Altice B2B.
These facilities agreements are briefly described below.
221
Ypso France Senior Facility Agreement
Ypso France S.A.S. (‘Ypso France’) and certain subsidiaries entered into a senior facilities agreement
on June 6, 2006 (as amended “Ypso France SFA” or the “Ypso France Senior Facility Agreement”)
with a banking syndicate and BNP Paribas as Agent and Security Agent , primarily to acquire and
refinance Ypso France and its subsidiaries’ financial debt. Numericable Finance & Co. S.C.A. took
out loans under the SFA in amounts totaling the principal of the February 2012 Bonds and the
October 2012 Bonds (as defined below). Some members of the Ypso France Group were joint and
several guarantors under the Ypso France SFA, and on December 18, 2013, following Ypso France’s
acquisition of Altice B2B France, Altice B2B France and Completel also became guarantors. The
Company was not a party to this loan agreement.
The initial amount available under the SFA was €3,225 million. As of December 31, 2013, the
amount available (i.e., not drawn) was €65 million (corresponding to a revolving line of credit) and
the debt drawn was €2,638.1 million. The drawdowns under the SFA were in euros and accrued
interest at fixed annual rates or the equivalent of the EURIBOR, increased by a margin. The fixed rate
drawdowns corresponded to loans relating to the Former Secured Senior Bonds (as defined below)
which were issued at fixed rates in the amount of €380.4 million as of December 31, 2013. The
margin on variable drawdowns corresponded to a rate that was adjusted according to a net leverage
ratio equal to the Group’s total consolidated net debt, calculated at the Ypso France level, and in
conformity with the French accounting standards, based on its annualized EBITDA. The Ypso France
SFA also included a revolving line of credit in euros for a maximum amount of €65 million, fully
available as of December 31, 2013.
Former Secured Senior Bonds
The Former Secured Senior Bonds were issued by Numericable Finance & Co. S.C.A. (the “Former
Bond Issuer”), an independent special-purpose financing vehicle created for the purposes of issuing
the February 2012 Bonds, the October 2012 Bonds, and any other additional debt authorized under the
Former Issuance Agreements (as these terms are defined below). All payments due under the Former
Secured Senior Bonds came from payments that were first made by the Former Debtors for the Ypso
France SFA, and the terms and conditions of the Former Secured Senior Bonds and the corresponding
lines of credit for the Ypso France SFA reflected this function.
February 2012 Bonds
On February 14, 2012, the Former Bonds Issuer issued an amount with a principal of €360.2 million
(secured senior bonds with a fixed rate of 12 3/8% per year, maturing in February 2019) (the
“February 2012 Bonds”). The Former Bonds Issuer used the proceeds from the issue to acquire a
direct stake, and then to acquire an Additional Line of Credit C1, which was granted by J.P. Morgan
Ltd. as lender bank of Ypso France. Ypso France used the proceeds from Additional Line of Credit
C1 to repay the €350 million balance owed under the Ypso France SFA. The Former Bonds Issuer
was dependent on Ypso France’s payments for Additional Line of Credit C1 to make the payments for
the February 2012 Bonds. The February 2012 Bonds were issued under an issuance agreement (the
“February 2012 Issuance Agreement”) which was entered into on February 14, 2012 between the
Former Bonds Issuer, Citibank, N.A., London Branch, as Trustee, Citibank, N.A., London Branch, as
Security Agent, Paying Agent and Transfer Agent, and Citigroup Global Markets Deutschland AG, as
registrar (as amended and supplemented).
The February 2012 Bonds had a fixed maturity date of February 15, 2019 and accrued interested at
the fixed annual rate of 12 3/8%, due in cash on February 15 and August 15 of each year.
Following the IPO, at the order of Ypso France, the Former Bonds Issuer repaid 35% of the total
principal of the February 2012 Bonds, using a portion of the net proceeds from the capital increase
222
that was carried out as part of the Company’s IPO, at the purchase price of 112.375% of the principal
of the repaid February 2012 Bonds, plus interest accrued but not yet paid.
Within the context of the Refinancing Transactions of May 2014, the balance due for the February
2012 Bonds was purchased at the price of 126.434%, in accordance with the February 2012 issuance
agreement; the interest accrued but not yet paid was paid and the corresponding Additional Line of
Credit C1 was also fully repaid.
October 2012 Bonds
On October 25, 2012, the Former Bonds Issuer issued an amount with a principal of €225.0 million in
secured senior bonds at the fixed rate of 8 3/4% per year, maturing on February 19, 2019 (the “Former
Fixed Rate Bonds”) and an amount with a principal of €275.0 million in variable rate secured senior
bonds, maturing on October 15, 2018 (the “Former Variable Rate Bonds”), and together with the
Former Fixed Rate Bonds, the “October 2012 Bonds,” and together with the February 2012 Bonds,
the “Former Secured Senior Bonds”). The Former Variable Rate Bonds accrued interest at a rate
corresponding to the three-month EURIBOR plus 7.875%. The October 2012 Bonds were issued
under an issuance agreement (as periodically amended and supplemented, the “October 2012 Issuance
Agreement”) which was entered into on October 25, 2012 between, in particular, the Bond Issuer,
Citibank, N.A., London Branch, as trustee, Citibank, N.A., London Branch, as security agent,
principal paying agent, calculation agent and transfer agent, and Citigroup Global Markets
Deutschland AG, as registrar. The income from the October 2012 Bonds was used to acquire a direct
stake in, and to subsequently acquire, the Additional Lines of Credit C2A and C2B which were
granted to Ypso France by J.P. Morgan Ltd., as lending bank.
The income from Additional Lines of Credit C2A and C2B was used to refinance the €490 million
balance of the loans outstanding under the Ypso France SFA, with approximately €10 million
incurred as fees relating to the issuance of the October 2012 Bonds, and to the associated refinancing.
The Former Fixed Rate Bonds accrued interest at the annual rate of 8 3⁄4% and were payable semiannually, in arrears on February 15 and August 15, starting on February 15, 2013.
The Former Variable Rate Bonds were fully repaid on December 18, 2013, with a portion of the Line
D proceeds. Additional Line of Credit C2B was first repaid to Numericable Finance, its sole lender.
The latter then repurchased the Former Variable Rate Bonds at the price of 102%, in conformity with
the October 2012 Issuance Agreement. The repayment of Additional Line of Credit C2B (in other
words, €275 million) was authorized by Supplemental Agreement signed on November 22, 2013.
Following the IPO, the Former Bonds Issuer, at the order of Ypso France, repaid 35% of the total
principal of the October 2012 Former Fixed Rate Bonds, using a portion of the net proceeds from the
capital increase carried out as part of the Company’s IPO, at the purchase price of 108.75% of the
principal of the Former Fixed Rate Bonds repaid, plus interest accrued but not yet paid. This amount
was partially financed by the capital increase done in the context of the Company’s IPO, and in part
by a portion of the income from Line D.
Within the context of the May 2014 Refinancing Transactions, the remainder due under the Former
Fixed Rate Bonds was repaid at the price of 118.397%, in conformity with the October 2012 Issuance
Agreement, and the corresponding Additional Lines of Credit C2A and C2B were likewise repaid.
Interest accrued but not yet paid was also paid.
New Secured Senior Bonds, Term Loan, Revolving Lines of Credit and Associated Hedging
Obligations
On May 8, 2014, the Company issued new bonds and entered into new agreements for a term loan and
revolving lines of credit, in order to fund the Acquisition of SFR and refinance the majority of its debt
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then pending under the Ypso France SFA. Prior to these transactions, the Company and its
subsidiaries had debt of €2,638 million under the Ypso France SFA, including the February 2012
Bonds and the October 2012 Bonds. On May 21, 2014, Numericable fully refinanced this debt (the
“May 2014 Refinancing Transactions”); the Group’s leases and perpetual subordinated notes (see
Section 10.2.2 “Financial liabilities” below) remain recorded in the Group’s balance sheet. The main
stages of the procedure for issuing the new senior bonds and the May 2014 Refinancing Transactions
are described below:

On May 8, 2014, prior to the May 2014 Refinancing Transactions, the Company issued
New Secured Senior Bonds with a principal equivalent to €7,873 million (as defined
below);
o
Secured Senior Bonds in the amount of US$2,400 million at the rate of 4 7/8%
maturing on May 15, 2019 (the “2019 Bonds”);
o
Secured Senior Bonds with a principal of €1,000 million at the rate of 53/8% maturing
on May 15, 2022 (the “Euro 2022” Bonds);
o
Secured Senior Bonds with a principal of US$4,000 million at the rate of 6%
maturing on May 15, 2022 (the “2022 Dollar Bonds” and together with the 2022 Euro
Bonds, the “2022 Bonds”);
o
Secured Senior Bonds with a principal of €1,250 million at the rate of 55/8% maturing
on May 15, 2024 (the “2024 Euro Bonds” and together with the 2022 Euro Bonds, the
“Euro Secured Senior Bonds”); and
o
Secured Senior Bonds with a principal of US$1,375 million at the rate of 61/4%
maturing on May 15, 2024 (the “2024 Dollar Bonds” and together with the 2019
Bonds and the 2022 Dollar Bonds, the “Dollar Secured Senior Bonds,” and the Dollar
Secured Senior Bonds together with the Euro Secured Senior Bonds, the “New
Secured Senior Bonds”).

On May 8, 2014, the Company, Ypso France S.A.S. and Numericable U.S. LLC entered
into a Term Loan (as defined below) with a principal of nearly €3,780 million. On May
21, 2014, the following amounts were drawn under this Term Loan: The Company
borrowed €635 million, Numericable U.S. LLC borrowed US$2,600 million and Ypso
France S.A.S. borrowed €1,265 million.

On May 8, 2014, the Company and some of its subsidiaries took out a revolving line of
credit for €750 million (the “Revolving Line of Credit Agreement,” the “Revolving Lines
of Credit” designating the lines of credit provided under this contract). €300 million in
Revolving Lines of Credit were available as of May 21, 2014. The balance of €450
million was available as of November 27, 2014 (the date of completion of the SFR
Acquisition).

The Company entered into swap agreements which were intended to hedge its exposure
to US dollar/euro exchange rate fluctuations, and to the LIBOR concerning the payment
of interest and principal denominated in US dollars of the Dollar Secured Senior Bonds
and interest, and the principal of the drawdowns denominated in US dollars under the
Term Loan. See “Hedging Obligations” below.
The income from certain drawdowns under the Term Loan Agreement was used to refinance the
Group’s debt (as indicated below). The balance of these drawdowns, as well as the proceeds from the
issuance of the New Secured Senior Bonds, was placed in escrow while awaiting the completion of
the SFR Acquisition, and was then used to pay a portion of the price to acquire SFR. The table below
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breaks down the sources and uses of the funds relating to the new bond issues and to the Term Loan.
Therefore, in all, for the funds raised, €8.9 billion were placed in escrow, €2.7 billion were used to
repay the debt, and approximately €72 million were used to pay commissions:
(in € millions)
Amount
Funds placed in escrow and used to finance the Acquisition of SFR
Funds from the Issuance of New Secured Senior Bonds
Funds from the Term Loan
7,873.056
1,030.379
Total amount placed in escrow to finance the Acquisition of SFR
8,903.435
Funds used to Refinance the Existing Debt
Repayment of all Lines of Credit Due under the Ypso France SFA(1)
2,638.106
Including the Principal of the Former Secured Senior Bonds(2)
Premium for Former Secured Senior Bonds
Interest accrued from the Former Secured Senior Bonds
Total Debt Repaid
380.380
88.795
17.040
2,743.941
Other commissions
72,175
Total
11719,552
(1) In lieu of a cash repayment, the loans from Numericable U.S. LLC and Ypso France S.A.S. under the Ypso France
SFA were considered as traded for new credits under the Term Loan.
(2) The issuer of the Former Secured Senior Bonds used the proceeds collected from the repayment of the amounts
owed under the SFA to buy all of the Former Secured Senior Bonds due.
For the purposes of financing the Acquisition of SFR, in addition to the amount of debt already
incurred and placed in escrow under the New Secured Senior Bonds and Refinancing Operations of
May 2014, the Company proceeded with a capital increase, which consisted of issuing ordinary
shares, maintaining shareholders’ preferential subscription rights in the amount of €4,732 million
(“the Capital Increase”).
The New Secured Senior Bonds, the Term Loan and Revolving Lines of Credit are described below.
As this financing was related to the Acquisition of SFR, some of the applicable provisions varied
according to whether or not the Acquisition of SFR was completed.
The respective rights of these creditors (under the New Secured Senior Bonds, the Revolving Lines of
Credit Agreement, the Term Loan and certain counterparts to the hedging obligations mentioned
above) and the creditors of the future debts are governed by an agreement between creditors (“the
Agreement Between Creditors”) which was signed on May 8, 2014.
New Secured Senior Bonds
Each series of New Secured Senior Bonds was issued by the Company on May 8, 2014, under an
issuance agreement (each an “Issuance Agreement,” and together, the “Issuance Agreements”)
between the Company and Deutsche Bank AG, London Branch, as trustee (“Trustee”) for each series
of New Secured Senior Bonds. The New Secured Senior Bonds are “covenant light”; in other words,
these bonds do not have financial clauses that have been periodically tested, but merely financial
clauses that have been tested on the occasion of specific events (disposal of assets, incurring new
debt, dividend payments, etc.).
The 2019 Bonds will mature on May 15, 2019. The 2022 Bonds will mature on May 15, 2022. The
2024 Bonds will mature on May 15, 2024.
Excluding the impact of hedge instruments in place and modifying the interest rate effectively paid by
the Group, the Bonds bear interest at the following rates:
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(a)
The 2019 Bonds accrue interest at an annual rate of 4.875%;
(b)
The 2022 Dollar Bonds accrue interest at an annual rate of 6.000%;
(c)
The 2024 Dollar Bonds accrue interest at an annual rate of 6.250%;
(d)
The 2022 Euro Bonds accrue interest at an annual rate of 5.375%; and
(e)
The 2024 Euro Bonds accrue interest at an annual rate of 5.625%.
The New Secured Senior Bonds accrue interest as of the initial issuance date (i.e., May 8, 2014) or,
after the first interest payment date, following the most recent interest payment date. Interest is due in
cash semiannually on February 15 and August 15 of each year, as of August 15, 2014, noting that at
the first interest payment date, the interest accrued corresponded to a period of less than six months.
A 1% interest rate is applicable in the event of a delay in the payment of principal, interest or any
additional amount for the New Secured Senior Bonds.
Certain stipulations of the New Secured Senior Bonds apply exclusively to the Company and to some
of its subsidiaries (“restricted subsidiaries”). As of the date of issue of the New Secured Senior Bonds,
all of the Company’s subsidiaries were designated as “restricted subsidiaries”; however, the Issuance
Agreements provide for a mechanism that allows subsidiaries to be designated as not being subject to
restrictions, without prejudice to compliance with certain conditions.
With the exception of the conditions described below in the Section “Escrowing of Funds: Special
Mandatory Redemption,” the Company is not obligated to carry out a mandatory early redemption in
relation to the New Secured Senior Bonds.
Escrowing of Funds; Special Mandatory Redemption
On May 8, 2014, the gross proceeds from the issuance of each series of New Secured Senior Bonds
was placed into escrow (the “Escrowed Proceeds”) in the escrow accounts (the “Bond Escrow
Accounts”) pursuant to the escrow instruments (the “Escrow Agreements”), while awaiting
satisfaction of the payment terms. The Bond Escrow Accounts were under the control of Deutsche
Bank AG, London Branch, acting as escrow agent (the “Escrow Agent”) and are the subject of a
senior pledge to Deutsche Bank AG, London Branch, the Trustee of the corresponding New Secured
Senior Bonds. The Proceeds from the Escrowed Issue were released and used to pay a portion of the
SFR Acquisition price on November 27, 2014.
The documentation specifies that if (a) SFR’s Acquisition Documentation is cancelled before April
30, 2015; or (b) in the event of bankruptcy, insolvency or a judicial protection order from
Numericable-SFR on April 30, 2015 or earlier, Numericable-SFR will be required to repay all of the
New Secured Senior Bonds (the “Special Mandatory Redemption”) at a price (the “Special Mandatory
Redemption Price”) equal to 100% of the initial issue price for each of the New Secured Senior
Bonds, plus interest accrued but not yet paid. The Company was likewise required to carry out a
Special Mandatory Redemption if the SFR Acquisition had not occurred by April 30, 2015 at the
latest.
Guarantees and Security for the New Secured Senior Bonds
The New Secured Senior Bonds are the Company’s senior bonds.
The New Secured Senior Bonds are guaranteed by Ypso Holding S.à r.l., Ypso France S.A.S., Coditel
Debt S.à r.l., Ypso Finance S.à r.l., NC Numericable S.A.S., Altice B2B France S.A.S., Completel
S.A.S., Numericable US S.A.S. and Numericable U.S. LLC. These guarantors are jointly referred to
as the “Guarantors at the Completion Date”) and the New Secured Senior Bonds benefit from senior
pledges for the full amount of capital of the Guarantors at the Completion Date, the goodwill of NC
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Numericable SAS, certain bank accounts, intragroup credits and intellectual property rights of the
Guarantors at the Completion Date.
The 2019 Bonds and the 2022 Dollar Bonds have also been guaranteed by SFR SA since February
2015 (the “Guarantors after the Completion Date”).
The 2019 Bonds and 2022 Dollar Bonds benefit from a senior guarantee on the shares of SFR held by
the Company, a senior pledge on certain bank accounts of SFR and on the intragroup loan between
the Company and SFR which replaced, within the context of the Acquisition of SFR, the intragroup
loan SFR owed to Vivendi, in addition to benefiting from a senior guarantee on SFR’s goodwill
(including the intellectual property rights), a senior guarantee on the credits due to SFR by some of its
subsidiaries, and a pledge on the shares of SFR’s principal subsidiaries.
The same guarantees or security also guarantee the debt owed under the Revolving Lines of Credit,
Senior Lines of Credit and certain associated hedging obligations.
Redemption option
2019 Bonds
Before May 15, 2016, the Company can repurchase, in one or more transactions, up to 40% of the
principal of the 2019 Bonds at the purchase price of 104.875% of the principal of the 2019 Bonds,
plus interest accrued but not yet paid and any additional amounts, using the funds from the net
proceeds of one or more offers of equity securities (with the exception of a Capital Increase) specified
under the terms and conditions of the 2019 Bonds; without prejudice to the fact that at least 60% of
the principal of the 2019 Bonds must always be outstanding after said purchase, and that the purchase
must occur within 180 days of the aforementioned securities offer.
Furthermore, prior to May 15, 2016, the Company may purchase all or part of the 2019 Bonds at any
time, subject to providing prior notice within 30 to 60 days, at a purchase price that is 100% of the
principal, plus a “make-whole provision” stipulated in the issuance agreement, in addition to interest
accrued but not yet paid, and any other amounts due.
As of May 15, 2016, the Company may buy all or part of the 2019 Bonds at the respective purchase
price of 103.656%, 101.828% and 100.000 %, in all cases, plus interest accrued but not yet paid, and
any additional amounts due, if the purchase occurs within twelve months of, respectively, May 15,
2016, 2017 and 2018.
2022 Bonds
Prior to May 15, 2017, the Company may buy, in one or more transactions, up to 40% of the principal
of the 2022 Dollar Bonds and up to 40% of the principal of the 2022 Euro Bonds at the purchase price
of 106.000% of the principal of the 2022 Dollar Bonds, and 105.375% of the principal of the 2022
Euro Bonds, plus interest accrued but not yet paid, and any additional amounts, using the funds
arising from the net income of one or more offers of equity securities (with the exception of a Capital
Increase) specified under the terms and conditions of the 2022 Bonds; without prejudice to the fact
that at least 60% of the principal of the 2022 Dollar Bonds must always be outstanding after said
purchase, and that the purchase must occur within 180 days of the aforementioned securities offer.
Furthermore, prior to May 15, 2017, the Company may purchase all or part of the 2022 Dollar Bonds
and/or the 2022 Euro Bonds at a purchase price equal to 100% of their principal, plus a “makewhole provision” stipulated in the issuance agreement, and interest accrued but not yet paid, along
with any additional amounts due.
As of May 15, 2017, the Company may buy all or part of the 2022 Bonds at the following purchase
price (expressed as a percentage of the principal), plus interest accrued but not yet paid, and any
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additional amounts due, if the purchase occurs within twelve months of May 15th of each of the years
indicated below:
Purchase price
2022
Dollar
Year
Bonds
2017 ...................................................................................................................................104.500%
2018 ...................................................................................................................................103.000%
2019 ...................................................................................................................................101.500%
2020 and following ..................................................................................................................100.000%
2022 Euro
Bonds
104.031%
102.688%
101.344%
100.000%
2024 Bonds
Prior to May 15, 2017, the Company may buy, in one or more transactions, up to 40% of the principal
of the 2024 Dollar Bonds and up to 40% of the principal of the 2024 Euro Bonds at the purchase price
of 106.250% of the principal of the 2024 Dollar Bonds, and 105.625% of the principal of the 2024
Euro Bonds, plus interest accrued but not yet paid, and any additional amounts, using the funds
arising from the net proceeds of one or more offers of equity securities (with the exception of a
Capital Increase) specified under the terms and conditions of the 2024 Bonds; without prejudice to the
fact that at least 60% of the principal of the 2024 Dollar Bonds and at least 60% of the principal of the
2024 Euro Bonds must always be outstanding after said purchase, and that the purchase must occur
within 180 days of the aforementioned securities offer.
Furthermore, prior to May 15, 2019, the Company may purchase all or part of the 2024 Dollar Bonds
and/or 2024 Euro Bonds at a purchase price equal to 100% of their principal, plus a “makewhole provision” stipulated in the issuance agreement, and interest accrued but not yet paid, along
with any additional amounts due.
As of May 15, 2019, the Company may buy all or part of the 2024 Bonds at the following purchase
price (expressed as a percentage of the principal), plus interest accrued but not yet paid, and any
additional amounts due, if the purchase occurs within twelve months of May 15th of each of the years
indicated below:
Purchase price
2024
Dollar
Year
Bonds
2019 ...................................................................................................................................103.125%
2020 ...................................................................................................................................102.083%
2021 ...................................................................................................................................101.042%
2022 and following ..................................................................................................................100.000%
2024
Euro
Bonds
102.813%
101.875%
100.938%
100.000%
Purchase due to changes in the tax legislation
The Company may purchase all, but not merely part, of a series of New Secured Senior Bonds at any
time, as long as it provides reasonable prior notice, if changes in tax legislation impose certain
withholdings at the source, or other deductions of the amounts due under the New Secured Senior
Bonds or guarantees of these bonds, at the purchase price of 100% of their principal, plus any interest
accrued but not yet paid, and any additional amounts owed at the purchase date.
Change in control; Disposal of assets
Under the terms of the New Secured Senior Bonds, at any time after a Change in Control Event, as
defined in each Issuance Agreement, the Company must offer to buy each series of New Secured
Senior Bonds at 101% of their principal, plus interest accrued but not yet paid, and any additional
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amounts (an “Offer due to Change in Control”). Bondholders are not required to tender their securities
in the purchase offer.
For the purposes of this condition, a “Change in Control” means: (1) the effective completion of any
transaction (including a merger or consolidation) following which any party other than one or more
authorized bearers become direct or indirect beneficiaries of more than 50% of the voting rights
attached to the Company shares issued and outstanding; (2) throughout any period of two consecutive
years, a change in the majority of the members of the Company’s Board of Directors (including new
directors that have been appointed on the recommendation of a majority of the Board of Directors);
(3) the sale, loan, transfer or other direct or indirect disposal (other than through a merger,
consolidation or other restructuring), within the context of one or a series of related transactions, of all
or almost all of the assets of the Company and its restricted subsidiaries, considered as a whole, to any
party (other than a specific authorized bearer (i.e. the most recent controlling shareholder of Altice
S.A. and their close family members, their respective affiliates and subsidiaries, and direct and
indirect investors, and other entities or funds that are managed or controlled by these parties, or other
affiliates)); without prejudice to certain exceptions relating to any disposals that could be made within
the context of the Acquisition of SFR for the purposes or due to obtaining an authorization for the
operation for control of the concentrations, on the condition that the following terms are respected if
the fair value of the assets sold exceeds 2% of the pro forma amount of the assets of the Company and
its restricted subsidiaries: (i) the Consolidated Net Leverage Ratio of the Company and its restricted
subsidiaries does not increase; and (ii) the Company quickly offers to all lenders under the Term Loan
and, to the extent required, any pari passu debt (other than a registered offer or private placement),
pro rata between them, to buy, at 100% of the principal plus interest accrued but not yet paid at the
purchase date, for an amount equal to the net proceeds of said sale, loan, transfer or other disposal in
question, and if the principal presented at the offer under the Term Loans is less than the amount of
said net proceeds, the Company shall allocate the balance to early repayment of the principal of the
Term Loans, up to the par value, on a pro rata basis.
A “Change in Control Event” occurs when there is a Change in Control (as defined above) and,
insofar as Vivendi directly or indirectly owns at least 20% of the Company’s ordinary shares
outstanding, a downgrade of the rating for the New Secured Senior Bonds (if Vivendi no longer owns
at least 20% of the Company’s shares outstanding, only one Change in Control has to occur for there
to be a “Change in Control Event”). A rating downgrade means:

a downgrade of the rating of a series of New Secured Senior Bonds by at least one rating
agency (S&P or Moody’s, or, if one of these agencies does not rate the New Secured Senior
Bonds, another rating agency which rates these bonds in their place) of one or more ratings
(including the intermediary ratings and the ratings between categories) compared to the rating
that was given 90 days prior to the first occurrence of one of the following events: a Change
in Control, public notice of a Change in Control or of the Company’s intention to proceed
with a Change in Control; or

the withdrawal of a rating for such a series of New Secured Senior Bonds by any one of the
rating agencies, within the 60 days following the date of public notice of the first occurrence
of a Change in Control or of the Company’s intention to proceed with a Change in Control
(this period may be extended if the rating of the New Secured Senior Bonds for such a series
is re-evaluated, as publicly announced by one of the rating agencies).
If no rating agency announces any action regarding the rating of the New Secured Senior Bonds of a
series after a Change in Control occurs, the Company must demand that each rating agency confirm
its rating of the New Secured Senior Bonds of the series in question before the end of said 60-day
period.
Furthermore, if the proceeds collected by the Company following the asset disposals are not allocated
or invested, or if no commitment is entered in view of such an allocation or investment in order to
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(i) prepay, repay, purchase or repurchase debt, (ii) invest in or purchase additional assets, or (iii) incur
capital expenditures, and if the proceeds of such disposal exceed US$25 million, following a certain
period (366 days or, in some cases, 546 days), the Company shall be required to propose an asset
disposal offer (“Asset Disposal Offer”) to all bearers of the New Secured Senior Bonds and, to the
extent that the Company so desires, or where the Company or a Guarantor is required to do so by the
terms of another outstanding pari passu debt, to all bearers of said pari passu debt outstanding,
allowing them to purchase the maximum principal of New Secured Senior Bonds and all pari passu
debt in question to which the Asset Disposal Offer applies, and which may be purchased by using the
proceeds from the disposal, at a purchase price that is equal, for the New Secured Senior Bonds, to
100% of the principal of the New Secured Senior Bonds, and for the pari passu debt, less than 100%
of the principal of the pari passu debt, in all cases plus interest accrued but not yet paid.
Cases of default
The Issuance Agreements relating to the New Secured Senior Bonds contain the usual cases of
default, such as cases of default on payment, nonperformance of commitments, certain cross-defaults
and cross-acceleration relating to mortgage loans, issuance agreements or other instruments (subject
to a limit of US$25 million), certain cases of bankruptcy, insolvency or failure to execute judgments
(subject to a limit of US$25 million), conditions linked to the validity and enforceability of security
for New Secured Senior Bonds (subject to a limit of US$10 million) and conditions linked to the
validity and enforceability of the security of New Secured Senior Bonds.
Commitments
The Issuance Agreements relating to the New Secured Senior Bonds provide for certain restrictions
which benefit the bearers of the New Secured Senior Bonds. These provisions limit the capacity of the
Company and its restricted subsidiaries to:

enter into or guarantee any additional debt, subject to a Consolidated Net Leverage Ratio (the
ratio is 4.0:1.0 for the total debt, and 3.25:1.0 for the secured senior debt) (see definition in
Section “- Revolving Lines of Credit Agreement - Mandatory Early Redemption”);

make investments (including in joint ventures) or other restricted payments (including
dividends - see Section 20.6 “Dividend policy” of this Registration Document for a
description of the scope of this restriction and its exceptions);

dispose of the assets other than through the normal course of its operations, or of the
subsidiaries’ equity instruments;

conclude certain transactions with its affiliates;

carry out mergers or consolidations;

carry out an early repurchase or redemption of equity securities or of subordinated debt, or
issue shares in subsidiaries;

enter into agreements limiting the ability of its subsidiaries to pay it dividends or repay
intragroup loans and advances; and

create additional pledges or security interests.
These restrictions are nevertheless subject to a certain number of significant limitations and
exceptions which are customary for these types of financing, including, in particular new debts,
insofar as the Consolidated Net Leverage Ratio (after taking into account these operations, as defined
below) is not greater than 4.0:1.0; furthermore, these new debts may be accompanied by security if
230
the Consolidated Net Leverage Ratio of Secured Senior Bonds (after taking these operations into
account) is not higher than 3.25:1.0. More specifically, if the Consolidated Net Leverage Ratio is not
higher than 4.0:1.0, the Group may assume new debts within the aforementioned limit.
The “Consolidated Net Leverage Ratio” refers, for any determination date, to the ratio between:

the Consolidated Net Leverage (A) the sum of the Company’s total debt and that of its
restricted subsidiaries on a consolidated basis (excluding hedging obligations and debts that
arose from a line of credit of up to the higher amount as between €750 million and 4.0% of
the total assets) less (B) the total amount of the Company’s cash and cash equivalents and that
of its restricted subsidiaries on a consolidated basis), upon eliminating duplicate items from
the calculation; and

the total amount of pro forma consolidated EBITDA for the last two consecutive quarters,
finishing prior to the determination date in question for which the interim financial
information in terms of EBITDA is available, multiplied by 2.0.
The “Consolidated Net Leverage Ratio for Secured Senior Bonds” is calculated in the same manner as
the “Consolidated Net Leverage Ratio,” if this is only calculated in relation to the “secured senior
debt” and not to “indebtedness.” For Issuance Agreements, the secured senior debt includes the debt
guaranteed with security as well as the debt in existence as of May 8, 2014, the debt for the Term
Loan and the Revolving Line of Credit, the debt of restricted subsidiaries at the date when these
entities become restricted subsidiaries, and the debt authorized under the Issuance Agreements within
the context of certain thresholds or based on the net proceeds from certain issues of equity securities
or the issuance of subordinated shareholder loans.
The definitions of “debt” and “EBITDA” are as indicated in the Issuance Agreements, and are
different from those used in the Group’s financial statements appearing in Section 20.1.1
“Consolidated financial statements of the Group” of this Registration Document.
Term Loan
General information
As described above, on May 8, 2014, the Company, Ypso France S.A.S and Numericable U.S. LLC
(the “Term Loan Borrowers”) entered into an agreement for a secured senior line of credit for term
loans in euros and US dollars with a principal equivalent to €3,780 million, with the Bond Issuer,
Ypso France S.A.S and Numericable U.S. LLC as borrowers, certain lenders that were party to the
agreement, and Deutsche Bank AG, London Branch as Administrative Agent and Security Agent (the
“Term Loan Agreement” or the “Senior Credit Facility,” the loans granted under this agreement being
referred to as the “Term Loans”). The purpose of the Term Loan Agreement was to allow the Term
Loan Borrowers to draw on term loans through April 30, 2015, up to a maximum of the lenders’
commitment. As indicated above, the income from the Term Loans was used to finance the
Refinancing Operations of May 2014, and certain associated costs and fees, and the balance was put
into escrow until the completion of the Acquisition of SFR, and then used to pay a portion of the SFR
Acquisition price.
On May 21, 2014, the following drawdowns were made under the Loan Agreement: the Company
borrowed €635 million, Numericable U.S. LLC borrowed US$2,600 million and Ypso France S.A.S.
borrowed €1,265 million.
At the date of recording this Registration Document, the Term Loan was fully drawn.
Interest rates and fees
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The amounts in US dollars of the Term Loan accrue interest at an annual rate equal to (i) the higher of
(a) a LIBOR rate for the interest period corresponding to the loans in question, adjusted for certain
additional costs, and (b) 0.75% and (ii) a 3.75% margin.
The amounts in euros of the Term Loan accrue interest at an annual rate equal to (i) the higher of (a) a
EURIBOR rate for the interest period corresponding to the loans in question, adjusted for certain
additional costs, and (b) 0.75% and (ii) a 3.75% margin.
Principal and interest that have not been paid on the proper date accrue interest at 2% more than the
interest rate that normally applies.
Escrow
The amounts of €160 million and US$1,206 million of the Term Loans, drawn May 21, 2014, have
not been allocated to the May 2014 Refinancing Operations, and were deposited into escrow accounts
(the “Term Loan Escrow Accounts”) in conformity with the terms of the term loan escrow agreement,
and then released and used to pay a portion of the SFR Acquisition price.
Amortization and final maturity
The Company must repay the principal in quarterly payments according to an agreed-upon schedule,
with each payment being equal to 0.25% of the initial principal of the Term Loans, with payment of
the balance being scheduled for May 21, 2020. The first repayment occurred at the end of the first full
fiscal quarter after the Completion Date (in other words, March 31, 2015).
Early Mandatory Redemptions
If the Company or one of its subsidiaries sells, loans, transfers or assigns assets with a fair value that
exceeds 2% of the total pro forma amount of the assets of the Company and its restricted subsidiaries,
but this does not generate a “Change in Control” under the New Secured Senior Bonds, by virtue of
contractually prescribed exceptions (see the Section “New Secured Senior Bonds - Change in Control;
Disposal of assets”), and if the disposal does not result in an increase of the Consolidated Net
Leverage Ratio, the Term Loan Borrowers must quickly offer all lenders, under the Term Loan and to
the extent required, for any pari passu debt (other than a registered offer or private placement), pro
rata between them, to redeem them at the price of 100% of the principal plus interest accrued but not
yet paid at the date of purchase, for an amount that is equal to the net proceeds of said sale, loan,
transfer or other disposal in question, and if the principal presented in the offer under the Term Loans
is less than the amount of said net proceeds, the Company shall allocate the balance to an early
repayment of the principal of the Term Loans, up to par value, on a pro rata basis.
Furthermore, if the proceeds collected by the Company following the disposal of the assets is not
allocated or invested, or if no commitment is entered in view of such allocation or investment in order
to (i) prepay, repay, purchase or redeem debts, (ii) invest in or purchase additional assets, or (iii) incur
capital expenditures, and if these proceeds from the disposal exceed a certain threshold, the Company
shall have an obligation to propose an Asset Disposal Offer as described in the Section “New Secured
Senior Bonds - Change in Control; Disposal of assets” of this Registration Document.
As of the year ended December 31, 2014, the Term Loan Agreement also requires the Company to
repay early the Term Loans outstanding, without prejudice to certain exceptions, for up to 50% of the
Company’s annual excess cash flow, this percentage being reduced to 0% if the Group’s Consolidated
Net Leverage Ratio is less than 4.0:1.0.
Voluntary Early Repayments or Amendments to Reduce the Return on the Loan
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Borrowers of a Term Loan have the ability to repay the loan in advance at any time, in part or in full,
nevertheless without prejudice to the Term Loan Borrowers’ promise to indemnify each Lender for
any loss or expense incurred due to a payment made before the end of an interest period.
Security and guarantees
The Senior Line of Credit benefits from a senior guarantee from the Guarantors and SFR, senior
pledges on the entire capital of the Guarantors at the Completion Date, certain intragroup loans
entered into within the framework of these operations, the goodwill of NC Numericable SAS, certain
bank accounts, the intellectual property rights of the Guarantors at the Completion Date, a senior
pledge on the SFR shares held by the Company and the shares of any subsidiary that has become a
Guarantor after the Completion Date, a senior pledge on certain bank accounts of SFR, a senior
pledge on goodwill (including intellectual property) of SFR, and a senior pledge on the credits owed
to SFR by some of its subsidiaries, as well as on the shares of the main subsidiaries.
Restrictions
The Term Loan includes restrictions which substantially reflect the commitments prescribed in the
Issuance Agreements of the New Secured Senior Bonds and, in particular and subject to important
exceptions and reservations, limit the capacity of the Company and its restricted subsidiaries to:
(i) enter into or guarantee any additional debt, subject to a Consolidated Net Leverage Ratio test,
(ii) make investments or other payments that are subject to restrictions (including dividends) (see
Section 20.6 “Dividend policy” of this Registration Document), (iii) grant security, (iv) dispose of
assets and equity securities of subsidiaries, (v) pay dividends or make other distributions, or purchase
shares that comprise the share capital or subordinated debt, (vi) enter into certain transactions with
affiliates, (vii) enter into agreements that limit the capacity of subsidiaries to pay dividends or repay
intragroup loans and advances; and (viii) carry out merger or consolidation transactions. The Term
Loan contains a list of riders that were to be added to the Term Loan Agreement if the Completion
Date was not prior to April 30, 2015.
The Term Loan Agreement also contains the standard representations and warranties, as well as the
standard commitments.
Cases of default
The Term Loan Agreement contains the usual cases of default, in particular cases of default on
payment, non-performance of commitments, certain cross-defaults (subject to a limit of €20 million),
certain cases of bankruptcy, insolvency or failure to execute judgments (subject to a limit of €20
million), conditions linked to the validity and enforceability of loan instruments (including security
(subject to a limit of €10 million)) and guarantees, and the occurrence of a Change in Control Event.
If a case of default occurs, the lenders under the Term Loan shall have the right to take various
actions, such as immediately demanding the amounts due under the Term Loan and taking all actions
that a secured creditor is authorized to take, within the framework of the Agreement Between
Creditors.
Revolving Lines of Credit Agreement
The Company and some of its subsidiaries signed a Revolving Lines of Credit Agreement by virtue of
which some lenders (the “Numericable RLC Lenders”) granted the Company, Completel SAS, Ypso
France SAS and NC Numericable SAS secured senior revolving lines of credit for a total of €750
million (the “Company’s Revolving Lines of Credit”), which were distributed as follows: (i) a
revolving line of credit for €300 million (“Line of Credit A of the Company”), available as of May 21,
2014; and (ii) a revolving line of credit of €450 million (“Line of Credit B of the Company”),
available as of the Completion Date. In 2015, the maximum amount of this €750 million line of credit
was first raised to €1 billion; the maximum amount was then subsequently raised to €1.125 billion.
233
After the Completion Date, the Company, Completel SAS, Ypso France SAS, NC Numericable SAS
and SFR had access to revolving lines of credit.
Limits relating to Use of Funds
The Company’s Revolving Lines of Credit may be used by the Company and some of its subsidiaries
for the purposes of financing operations, the working capital of the Company and its subsidiaries (the
“Borrower Group”) and, before the Completion Date, the payment of interest due on income from the
New Secured Senior Bonds that were placed in escrow.
Drawdown conditions
No drawdown under the Revolving Lines of Credit Agreement may be made insofar as (among other
things) the credit agent has not received (or waived) certain standard conditions precedent, documents
and reasonably satisfactory evidence based on the merits and on form. The drawdowns are subject to
standard additional conditions, including the fact that at the date of requesting the drawdown and at
the drawdown date (i) no default is underway or would arise as a result of this drawdown, (ii) certain
representations and warranties indicated are precise in all of their essential aspects, and (iii) the
Consolidated Net Leverage Ratio of the Secured Senior Bonds is not greater than the ratio agreed to,
after consideration of such drawdown (see the Section “Financial commitments” below).
Interest, Interest Rate and Expense Periods
The Company and some of its subsidiaries are authorized to perform a number of drawdowns for each
Revolving Line of Credit for terms of one, two, three or six months (or any other period agreed to
between the Company and the agent), but the period in question must not exceed the final deadline of
the Revolving Lines of Credit Agreement. The drawdowns under the Revolving Lines of Credit must
be repaid at the end of the interest period of the corresponding loan, and the amounts repaid may be
borrowed again up to one month before the final expiration date.
The interest rate on each loan under the Revolving Lines of Credit Agreement for each interest period
is equal to the amount of: (x) the applicable margin and (y) EURIBOR. The margin under the
Revolving Lines of Credit Agreement is 3.25% before any cancellation of Line of Credit B of the
Company pursuant to a case for cancellation of the Company’s Line of Credit B, and 3.50% per year
following such cancellation. Interest accrues daily as of the first day of the interest period (inclusive)
and is due on the last day of each interest period.
As concerns the amounts under the Revolving Lines of Credit Agreement, the Company is obligated
to pay a commitment commission on the available amount not drawn at a rate equal to 40% of the
margin that is calculated on the commitments not drawn and not cancelled as of June 8, 2014, up to
one month before the final deadline of the Revolving Lines of Credit.
Repayment
The final maturity date of the Revolving Lines of Credit Agreement is set for May 21, 2019.
Automatic cancellation
The standard cases for full or partial cancellation apply to the Revolving Lines of Credit, including in
the event that it becomes illegal for any RLC lender of Numericable to finance, invest or maintain its
stake in these lines.
Furthermore, the Company’s Line of Credit B shall be automatically and definitively cancelled: (i) if
the New Secured Senior Bonds are repaid in conformity with a Special Mandatory Redemption or (ii)
if Vivendi enters into a purchase and sale agreement relating to SFR with a third party other than the
Company or one of its subsidiaries, or if the Company or one of its subsidiaries withdraws its offer to
234
acquire SFR (each situation representing a “Case for Cancellation of Numericable’s Line of
Credit B”).
The Company’s Line of Credit A may be partially and permanently cancelled, at the lenders
discretion, if a Case for Cancellation of Numericable’s Line of Credit B occurs, insofar as after any
cancellation, the amount of the Company’s Line of Credit does not fall below €150 million.
Early Mandatory Repayment
Upon the occurrence of a Change in Control Event, the Company and the other borrowers must fully
repay the Revolving Lines of Credit, along with accrued interest and any other amounts due under the
corresponding financing instruments; the Revolving Lines of Credit shall thus be cancelled.
Some proceeds received by the Company due to the disposal of assets, for amounts that were not
allocated, invested, or the subject of a commitment to allocate or invest in view of (i) prepaying,
repaying, purchasing or repaying debts, (ii) investing in or acquiring additional assets, or (iii) making
capital expenditures, shall be allocated to the early repayment of the Company’s Revolving Lines of
Credit.
Guarantees
All guarantors of the New Secured Senior Bonds and the Company have likewise guaranteed the
bonds of each debtor under the Revolving Lines of Credit Agreement and the corresponding financing
instruments, subject to the applicable limitations on guarantees specified therein.
The Revolving Lines of Credit are guaranteed and benefit from security granted by the same entities
as for the Term Loans.
Representations and warranties
The Revolving Lines of Credit Agreement contains the standard representations and warranties for
this type of contract, subject to the standard exceptions and limits
Commitments
The Revolving Lines of Credit Agreement contains restrictions which markedly reflect the
commitments of each Issuance Agreement.
The Revolving Lines of Credit Agreement also requires the Company and Borrower Company to
comply with certain general commitments which are subject to conditions of materiality and other
standard exceptions that have been agreed upon.
Financial commitments
Prior to the Completion Date, the Revolving Lines of Credit Agreement required the Company and
the Borrower Group to maintain a Consolidated Net Leverage Ratio of Secured Senior Bonds (see
below) that was less than or equal to 5.00:1.00, for which compliance had to be tested solely at each
drawdown or, in the event of loans or bank guarantees pending under the Revolving Lines of Credit
Agreement, at the end of each quarter.
After the Completion Date, the Revolving Lines of Credit Agreement requires the Company and the
Borrower Group to maintain a Consolidated Net Leverage Ratio of Secured Senior Bonds (see below)
that is less than or equal to 4.00:1.00, for which compliance must be tested solely at each drawdown
or, in the event of loans or bank guarantees pending under the revolving lines of credit agreement, at
the end of each quarter.
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Cases of default
The Revolving Lines of Credit Agreement provides for cases of default (similar in substance to those
of the Issuance Agreements), which, when they occur, without prejudice to certain exceptions and
limits, shall allow the lenders in question: (i) to cancel all commitments; (ii) to declare the forfeiture
of the term and enforceability of the loans pending, as well as all other amounts due and/or (iii) to
declare that all or part of the loans are redeemable upon request. The proceeds from any security
granted shall be allocated in conformity with the Agreement Between Creditors.
Hedging obligations
On April 23 and 28, 2014, the Company entered into various swap agreements with Goldman Sachs
International. On May 1, 2014 the Company and Goldman Sachs International transferred (by
novation) a certain number of swap agreements to various leading international banks. See Section 4.5
“Market risks” for a description of the Group’s exposure to the exchange rate and interest rate risks
under these agreements.
Swap agreements relating to US dollars in escrow
The Company entered into cross-currency swap agreements to hedge against the euro/US dollar
exchange rate risk associated with the net income in US dollars of the New Secured Senior Bonds and
the Term Loans in escrow (US$7,775 million in net proceeds from the Dollar Secured Senior Bonds,
and US$1,170 in net proceeds from the Term Loan), considering the Acquisition Price of SFR,
payable to Vivendi entirely in euros. In conformity with these swap agreements, on April 30, 2015,
the Company had to pay US$8,809 million to the swap counterparties (using the amounts released
from escrow) and received €6,371 million from the latter based on an exchange rate of €1.00 =
US$1.3827. The difference between the income put in the escrow account and the amounts paid at
term to the counterparties reflected engagement commissions and the OID on the Bonds and the
drawdowns under the Term Loan. Once the completion date of the SFR Acquisition was known, in
October 2014 the Group signed a foreign exchange swap with Société Générale to move up the date
of the first trade (originally scheduled for April 30, 2015) to end-November 2014, in order to have
available funds in euros to make the cash payment to Vivendi. The first leg of this swap was
successfully completed on November 25, 2014. The Company received €6,377 million from Société
Générale in exchange for the payment of US$8,809 million from the escrow account. This initial trade
occurred at the exchange rate of €1.00 = $1.38134. The second leg will occur on April 30, 2015,
based on an exchange rate of €1.00 = $1.3827. Therefore, Société Générale will pay the Company
US$8,809 million, which will be immediately paid to the various leading international banks that are
party to the principal swap agreements. Likewise, the latter will pay €6,371 million to the Company,
which will then immediately repay Société Générale. Following these two operations, the Company
earned a profit of €6 million.
Hedging of interest payments and principal at 5 and 8 years in US dollars
The Company also entered into swap agreements intended to hedge against the euro/US dollar
exchange rate risk associated with the interest payments to be made in US dollars for the Dollar
Secured Senior Bonds and drawdowns in US dollars under the Term Loan. Under the terms of these
swap agreements, the Company will swap amounts in euros for the amounts in US dollars to be paid
on each semi-annual or quarterly interest payment date, based on an exchange rate of €1.00 = USD
1.3827.
The swap agreements for the Dollar Secured Senior Bonds hedge the interest payments starting from
the first semi-annual payments on August 15, 2014, and until May 15, 2019 for the 2019 Dollar
Bonds, and May 15, 2022 for the 2022 Dollar Bonds and the 2024 Dollar Bonds. The swap
agreements for US dollar drawdowns under the Term Loan hedge the interest payments between the
first quarterly payments to be made starting on July 30, 2014 and the last payment, on May 21, 2019.
236
The Company also used these swap agreements to hedge the principal of these bonds and bank loans
in dollars. On May 15, 2019, the Company will pay €1,736 million and receive US$2,400 million,
which corresponds to the principal of the 2019 bank loans, and will pay €1,880 million and receive
US$2,600 million, corresponding to the principal of the bank loan, even though it will mature in May
2020. On May 15, 2022, the Company will pay €2,893 million and receive US$4,000 million,
corresponding to the principal of the 2022 bonds, and will pay €994 million and receive US$1,375
million corresponding to the principal of the 2024 bond loans, even though it will mature in May
2024.
It is noteworthy that the Numericable-SFR counterparts to the hedge agreements benefit from an early
termination clause after five years for 8-year hedge agreements, i.e. as concerns the interest and
principal of the 2022 Dollar Bonds and the 2024 Dollar Bonds. The latter can unilaterally back out of
the three-year hedge agreement before its maturity date, and have the Company pay, or pay the
Company (according to the market conditions at that date), the balance under the agreement.
Hedging of interest payments based on the LIBOR
In addition to the objectives of hedging the euro/US dollar exchange rate risk associated with the
payment of interest to be made in US dollars under the Term Loan, the swap agreements that hedge
drawdowns of the Term Loan in US dollars allow its LIBOR exposure to be converted for US dollar
drawdowns under the Term Loan to a EURIBOR exposure. The Group’s risk is nonetheless not
entirely hedged, since US dollar drawdowns under the Term Loan accrue interest at the LIBOR rate
plus a margin, subject to a 0.75% floor on the LIBOR, while the swap agreements do not include that
floor.
The swap agreements for US dollar drawdowns under the Term Loan hedge the interest payments
from the first quarterly interest payments to be made on July 30, 2014 through the last payment on
May 21, 2019.
The swap agreements described above are guaranteed and benefit from security granted by the same
entities as for the Term Loan.
Perpetual subordinated notes (“TSDI”)
In 2006, one of the Group’s subsidiaries, NC Numericable S.A.S., issued principal of €23.65 million
in perpetual subordinated notes (“TSDI”) to Vilorex, a subsidiary of GDF Suez (excluding capitalized
interest). The proceeds from the TSDI were allocated to finance the construction of connectors in
towns of the southern part of SIPPEREC (Syndicat Intercommunal de la Périphérie de Paris pour
l’Electricité et les Réseaux de Communication). The TSDI accrue interest at an annual rate of 7%.
Interest is capitalized, and the interest due under the loan was raised to €14.0 million as of December
31, 2013. The TSDI were issued for a perpetual term, and are repayable in the event of either
liquidation or dissolution of NC Numericable S.A.S., or if NC Numericable S.A.S. reaches a certain
level of revenues generated by the customers covered by the connectors. These triggers have not been
attained since the issue date of the TSDI. NC Numericable S.A.S. may choose to pay all or part of the
TSDI in advance by giving ten days’ prior notice.
Finance and other leasing
In November 2013, NC Numericable and Completel entered into a master lease with BNP Paribas
Rental Solution, relating to the purchase and subsequent leasing of various equipment supplied by
manufacturers of telecommunications equipment, such as Huaweï, Alcatel or others (excluding Cisco)
for a three-year term.
237
In May and June 2013, NC Numericable S.A.S. entered into a sales and leaseback agreement with
Lease Expansion for a 36-month term, concerning the LaBox decoders, for €12.7 million and
€5.9 million respectively.
In January 2011, the Group entered into a general leaseback agreement with Cisco, concerning the
majority of the equipment supplied to the Group by Cisco (primarily including parts of data networks
and CPEs, such as servers), for a 3-year term.
In 2001, NC Numericable S.A.S. entered into a finance lease for a 15-year term concerning a building
that was allocated as offices and business premises, located in Champs-sur-Marne. The Group has an
option to purchase the building at the end of the agreement, for a price which it considers to be
sufficiently lower than the market value of the property, on the date when the option can be exercised.
The recently acquired companies also have amounts outstanding under the leases: SFR Group has €8
million, primarily in agreements pertaining to real property, and Virgin Mobile, essentially within the
context of the lease with BNP Paribas Rental Solution, relating to the purchase and subsequent lease
of various materials supplied by the telecommunications equipment manufacturers, has a total of
approximately €15 million.
Furthermore, several companies in the Group have signed leases pertaining to real property (generally
for 20- to 30-year terms) and office equipment (primarily for four-year terms).
All of these leases are denominated in euros. Certain real property leases provide that annual rent be
set at the beginning of the lease, but will be subsequently indexed according to the rate of inflation
(which corresponds to a specific percentage of increase).
As of December 31, 2014, the Group’s commitments (current value of minimum rents) under the
leases totaled €69 million. The increase in outstandings corresponds to the consolidation of SFR and
Virgin Mobile into the Group. On a like-for-like basis (Numericable-Completel scope), lease
outstandings increased from €41.5 million at end-2013 to €45.6 million in 2014.
The average effective interest rate for finance leases was approximately 4.25% for the year ended
December 31, 2014, compared to 3.96% for the year ended December 31, 2013. This increase is
related to the recovery of Virgin Mobile’s leases, which had less favorable rates.
Deposits from customers
Deposits from customers totaled €86 million and €52 million as of December 31, 2014 and 2013,
respectively. These deposits were made by customers upon receiving the Group’s equipment. The
increase corresponds to the change in scope. The acquired companies used the same deposit policy as
Numericable and Completel. Therefore, as of December 31, 2014, the deposits made by SFR
customers totaled €29 million, and those of Virgin Mobile €0.1 million. On a like-for-like basis
(Numericable-Completel Group only) deposits increased by €7 million, which was due to customer
purchases in 2014 (LaBox deposits). The customer deposits were repaid when they cancelled their
subscriptions, provided they had paid their outstanding invoices and returned the equipment. Deposits
are recorded in the balance sheet as debts maturing in more than one year.
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Other financial liabilities
As of December 31, 2014, other financial liabilities mainly included the €750 million earn-out that
Vivendi may receive following the sale of SFR to Numericable-SFR based on the new Group’s future
financial performance. It is recorded in the financial statements as €644 million, which corresponds to
a payment in 2018, updated at the average rate of debt for a 4-year horizon, i.e. approximately 4.4%.
The final agreements relating to the buy-out of Vivendi’s 20% stake in the capital of NumericableSFR provide that Vivendi must definitively waive this earn-out payment. See Section 20.8
“Significant changes in the financial or trading position” of this Registration Document.
Equity
As of December 31, 2014, the Company’s equity totaled €7,975 million, compared to equity of €254
million as of December 31, 2013. This change primarily reflects:

the capital increase in the total amount of €4,733 million through a public offering (including
the €266 million increase in share capital due to the creation of new shares, and €4,467
million in issue premiums) carried out on November 20, 2014; the costs incurred within the
context of this capital increase were fully allocated to the issue premium, as a total amount of
€13 million;

the capital increase in the amount of €2,376 million (€97 million in capital, €2,278 million in
issue premiums), carried out on November 27, 2014 as part of the Acquisition of SFR, in
exchange for the contribution in kind by Vivendi, of SFR shares, such that Vivendi held 20%
of Numericable-SFR following the operations; and

the negative comprehensive income in 2014 of €282 million;
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10.3
PRESENTATION AND ANALYSIS OF THE MAIN CATEGORIES OF USE OF THE
GROUP’S CASH
10.3.1
Capital expenditures
The Group’s capital expenditures are divided among the following categories:

Network: investments to improve, renovate, extend capacity, expand and maintain the
Group’s networks (fiber, main network, DSL and mobile), carried out directly or, for
certain network extensions, through public-private partnerships;

Customers: capital expenditures related to the purchase of mobile terminals, equipment
installed at B2B and B2C customers (mobile equipment, high-speed routers and set-top
boxes), as well as connection of homes for new B2C customers and the creation of fiber
connections between business sites on the B2B segment; Service platforms: investments
in television and fixed-line telephony platforms; and

Other: capital expenditures relating to projects on the wholesale market and other
investments.
In 2013 and 2014, the Group’s capital expenditures totaled €319.8 million and €557.1 million,
respectively. For more information concerning the Group’s prior, current and future capital
expenditures, see Section 5.2 “Investments” of this Registration Document.
10.3.2
Payment of interest and repayment of loans
The Group paid interest in the amount of €181 million and €436 million, respectively, in 2013 and
2014. It also paid, in repayment of its loans, €987 million and €2,668 million, respectively, in 2013
and 2014. The repayments reflect the refinancing carried out in 2013 and 2014, while the increase in
interest paid in 2014 is the consequence of the increased debt of the Group to finance the Acquisition
of SFR, which amounts were placed in escrow accounts between May 2014 and late November 2014,
and the low interest of these accounts as compared to the cost of the debt.
10.3.3
Financing of working capital requirement
The working capital requirement primarily corresponds to the value of inventories, plus trade
receivables and other operating receivables, and minus trade payables and other operating payables.
Structurally, the Group’s working capital requirement reflects the differences between its operations.
On the B2C segment, the Group generates working capital because its B2C customers have shorter
payment terms (generally 5 days), while on the B2B segment, the Group consumes working capital
because its B2B customers have longer payment terms. The Group generally finances its working
capital requirement from its operating cash flows.
In 2013, the Group generated €21 million in working capital. In 2014, the Group generated €725
million in working capital. This improvement is mainly explained by the reversal of SFR and Virgin
Mobile, and by the application of Numericable Group’s cash management policy.
10.3.4
Contractual obligations and off-balance sheet commitments
See Note 33 to the Group’s consolidated financial statements, appearing in Section 20.1.1
“Consolidated financial statements of the Group” of this Registration Document, for a description of
the Group’s contractual commitments.
The table below presents the Group’s contractual commitments and obligations as of December 31,
2014, which exclude future interest and commitments linked to the benefits granted to personnel, and
similar commitments (see Note 33 to the 2014 annual financial statements).
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Maturity in
Total as of December
(in € thousands)
< 1 year
1 to 5 years
> 5 years
31, 2014
Loans and financial liabilities*
283
2,597
10,753
13,632
Operating leases
279
872
503
1,654
Total
562
3,469
11,256
15,286
* including amortized cost, USD/EUR adjustments and earn-out payments at fair value
The maturity dates of the debt under the Term Loan and New Secured Senior Bonds as of December
31, 2014, is shown in Section 4.5.3 “Liquidity risk” of this Registration Document.
10.4
CASH FLOWS
The table below provides a summary of the Group’s consolidated cash flows for the years ended
December 31, 2013 and 2014.
(in € thousands)
2013
2014
Net cash provided by operating activities .......................
570,279
Net cash used by investing activities ..............................
(342,657)
(134,253)
Net cash used by financing activities ..............................
Total net increase (decrease) in cash and
93,369
cash equivalents ................................................................
1,134,901
(13,758,076)
13,068,243
445,068
Net cash flows from operating activities
The table below summarizes the net cash flows provided by the Group’s consolidated operating
activities for the years ended December 31, 2013 and 2014.
(in € thousands)
Net cash provided (used) by operating activities
before changes in working capital, finance costs
and income tax.................................................................
Change in working capital requirement ...........................
Corporate income tax paid ...............................................
Net cash provided (used) by operating activities ............
2013
553,918
20,653
(4,292)
570,279
2014
467,513
724,671
(57,284)
1,1349,01
_____________________________________________
Net cash flows from operating activities before changes in working capital, finance costs and income
tax
The cash flows provided by operating activities before taxes, dividends and interest decreased by
€86.4 million, going from cash inflow of €553.9 million for the year ended December 31, 2013 to
cash inflow of €467.5 million for the year ended December 31, 2014. This decrease was primarily due
to a make-whole payment in May 2014 in the amount of €88.8 million plus fees (excluding financing)
related to the acquisition of SFR and Virgin Mobile for €39.7 million. The increase in adjusted
EBITDA of €90.4 million between the year ended December 31, 2014 and the year ended December
31, 2013 enabled the drop in cash flows provided by the operating activities before changes in
working capital requirement, interest paid and corporate income tax, to be reduced. This increase in
the adjusted EBITDA is a result of consolidating one month of income of SFR, Virgin Mobile and
Telindus.
Change in working capital
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The change in working capital requirement represented a cash inflow of €724.7 million for the year
ended December 31, 2014, compared to a cash inflow of €20.7 million for the year ended December
31, 2014. This strong increase is essentially explained by (i) the effect of interest accrued on the New
Bonds of €202.4 million (in fact, the financial coupons for these bonds were only paid in February
2015) and (ii) the increase in SFR’s working capital requirement after the approximately €400 million
buy-out.
Corporate income tax paid
The corporate income tax paid represented a cash outflow of €57.3 million during the year ended
December 31, 2014, compared to a cash outflow of €4.3 million during the year ended December 31,
2013. This increase in tax payments corresponds to the tax paid by SFR in December (corporate
income tax balance) in the amount of €55.3 million.
Net cash flows from investing activities
The table below summarizes the net cash used by the Group’s consolidated investing activities for the
years ended December 31, 2013 and 2014.
(in € thousands)
2013
Net capital expenditures ..................................................
(314,752)
Acquisition of companies ................................................
(27,337)
(568)
Financial investments (net) .............................................
(342,657)
Net cash used by investing activities ...............................
2014
(549,005)
(13,206,141)
(2,930)
(13,758,076)
Net capital expenditures
Net capital expenditures are capital expenditures net of proceeds from the disposal of property, plant
and equipment, and intangible assets and investment subsidies received.
The cash used for net capital expenditures increased by €234.2 million, going from a cash outflow of
€314.8 million for the year ended in December 2013, to a cash outflow of €549.0 million for the year
ended December 31, 2014. This increase is a result of an acceleration of Numericable’s investment in
fiber, and the addition of SFR and Virgin Mobile’s capital expenditures for the month of December
2014 (change in scope).
Company acquisition
The Group acquired the LTI Telecom group in October 2013, along with the Auchan Telecom and
Valvision customer bases in March and June 2013, respectively.
In 2014, the Group acquired the SFR and Virgin Mobile Groups for, respectively, €13,366.3 million
and €294.5 million, €200 million of which were financed by a contribution from Vivendi. SFR and
Virgin Mobile had €254.7 million in cash in the opening balance sheet after the acquisition.
Acquisition
(in € thousands)
expense
Price of SFR acquisition .................................................
(13,366,346)
Price of Virgin Mobile acquisition ................................. (294,507)
Vivendi contribution to Virgin Mobile ........................... 200,000
Cash for acquired company ............................................ 254,647
65
Other ...............................................................................
(13,206,141)
Acquisition expenses ........................................................
242
Net financial investments
The cash used by the net financial investments increased €2.4 million, going from a cash outflow of
€0.5 million for the year ended December 31, 2013, to a cash outflow of €2.9 million for the year
ended December 31, 2014.
Net cash provided (used) by financing activities
The table below summarizes the net cash used by the Group’s combined financing activities for the
nine-month periods ended September 30, 2013 and 2014.
(in € thousands)
Issuance of shares ...........................................................
Issuance of debt ..............................................................
Repayment of debt ..........................................................
Interest on debts of the former SFA
Interest on the new debts used to repay the existing debt
Interest on the new debts to acquire SFR
Other interest paid
Total interest paid
Net cash used by financing activities
2013
236,490
797,223
(987,420)
(177,746)
0
0
(2,800)
(180,546)
(134,253)
2014
4,720,775
11,451,657
(2,668,678)
(55,168)
(83,208)
(289,572)
(7,963)
(435,911)
13,068,243
Issuance of shares
In the fourth quarter of 2014, the Group carried out a capital increase with preferential subscription
rights of €4,732.8 million. Net of commissions, the Group received a €4,720.1 million, which were
used to finance the acquisition of SFR Group.
In the fourth quarter of 2013, the Group carried out a capital increase for €250.0 million within the
context of its IPO. Net of commissions, the Group received €236.5 million, which were used to
refinance a portion of its existing debt.
Issuance of debt
During the first half of 2014, the Group established the New Secured Senior Bonds and the Term
Loan for a gross total of €11,653.4 million. The amount of €250.2 million in start-up costs and
commissions (essentially commissions of the guarantor banks) was incurred, the first part in May
2014, and the other in November 2014.
The remaining loan issues correspond to bank overdrafts of SFR Group (€33.5 million) which were
included in the opening balance sheet of SFR following the acquisition.
In 2013, the Group had established the new Line D in the amount of €800 million under the existing
Senior Facility Agreement.
Repayment of debt
During the first half of 2014, the Group repaid all of the Group’s historic debt in the amount of
€2,638.1 million. The €30.2 million in other repayments in 2014 correspond to repayments of matured
finance leases in the amount of €28.9 million and €1.3 million in other debt.
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In 2013 the Group had repaid €32.8 million under the SFA (in conformity with its obligations),
€479.8 million for the Secured Senior Bonds and all of the amounts due under the Altice B2B France
SFA, i.e. €453.9 million.
Interest paid
The Group paid interest in the amount of €435.9 million during the year ended December 31, 2014,
which represented an increase compared to the year ended December 31, 2013. This increase reflected
the increase in the Group’s debt payable following the debt assumed to acquire SFR. The amount of
€289.6 million corresponds to the interest in this new acquisition debt for the period from May to
December 2014. The interest for a debt on a like-for-like basis (refinancing) totaled €138.4 million in
2014, compared to €177.7 million in 2013, i.e., a drop of €39.3 million compared to the year ended in
December 31, 2013. This drop is due to the various refinancing operations for these last twelve
months (raising of capital through the Company’s IPO, establishment of Facility D and refinancing in
May 2014).
10.5
10.5.1
LIQUIDITY AND CAPITAL RESOURCES OF THE COMBINED SFR GROUP
The main financing needs of the Combined SFR Group include its working capital requirement
(“WCR”), its operational and financial investments, interest payments and loan repayments, as well as
the payment of dividends to its shareholders.
The Combined SFR Group responded to these financing needs primarily through the cash flows
provided by its operating activities and through current account advances and loans granted by
Vivendi, its prior shareholder. In the future, the financing requirements for the Combined SFR
Group’s operations will be covered by its operating flow and the financing at the Numericable Group
level.
The Combined SFR Group’s capacity to generate cash through its operating activities in the future
will depend on its future operational performance, which is itself dependent to a certain extent on
economic, financial, competitive, market, regulatory and other factors, the majority of which are
beyond the Combined SFR Group’s control.
The data analyzed in this section is based on the combined condensed financial statements for the first
nine months ended September 30, 2014 and September 30, 2013 for SFR, SIG 50 and their
subsidiaries which appear in Section 20.3.3 “Combined Financial Statements of SFR, SIG 50 and
their subsidiaries for the nine months ended September 30, 2014” of this Registration Document.
10.5.2
Financial resources
10.5.2.1 Overview
During the first nine months ended September 30, 2014 and 2013, the sources of financing of the
Combined SFR Group were primarily as follows:
-
net cash flow from operating activities: they respectively represented €1,339 million and €1,416
million during the first nine months ended September 30, 2014 and 2013;
-
free cash flow: the amounts of cash and cash equivalents totaled €141 million as of September 30,
2014 (including currency hedges); and
-
loans and financial debt: They included the shareholder debt incurred by SFR with Vivendi
through current account advances and loans. At the same time as Numericable Group’s
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acquisition of the Combined SFR Group, the aforementioned shareholder debt between SFR and
Vivendi was repaid and replaced by a new shareholder debt between Numericable Group and
SFR. As of September 30, 2014, the current account advances and loans for the shareholder debt
totaled €4,855 million. Since the acquisition of the Combined SFR Group, which occurred on
November 27, 2014, the business financing needs of the Combined SFR Group have been covered
by its operational flows and financing at the Numericable-SFR Group level.
The table below presents the amount of the Combined SFR Group’s net financial debt, which
corresponds to the “Loans and financial debt” net of “Cash and cash equivalents,” as of September 30,
2014:
As of September 30,
2014
(in € millions)
Loan and financial debt ...........................................................................
4,923
Cash, cash equivalents and hedges ..........................................................
141
Net financial debt ..................................................................................
4,782
The net financial debt of the Combined SFR Group totaled €4,788 million as of September 30, 2014,
compared to €8,700 million as of December 31, 2013. This €3,912 million drop is primarily explained
by the receipt of the sale price of shares of SPT, which held the stake in Maroc Telecom. As explained
in the basis of preparation of the “Condensed interim consolidated financial statements of SFR, SIG
50 and their subsidiaries as of September 30, 2014,” the proceeds from the sale, net of tax on realized
capital gains, in the amount of €4,056 million, were recognized through combined equity, as they
were considered a contribution paid in receivables accruing to the shareholder Vivendi, using the
amount received from the sale to reduce Vivendi’s current account. Restated for this amount of
€4,056 million, the net financial debt increased by €144 million, which is explained by the outflows
linked to operational expenditures in the amount of €1,244 million, and the interest paid in the amount
of €147 million, which do not offset the net cash from operating activities of €1,339 million.
For a more detailed description of changes in cash flows over the period, see Section 10.5.3 “Cash
flow analysis” in this section.
10.5.3
Cash flow analysis
The table below summarizes the Group’s cash flows for the first nine months ended September 30,
2014 and 2013, which have been presented in the Statement of Cash Flows in the “Combined
financial statements of SFR, SIG 50 and their subsidiaries for the nine months ended September 30,
2014” which appears in Section 20.3.3 of this Registration Document:
As of September 30
2014
2013
(in € millions)
Net cash flow provided (used) by operating activities ....................................................................
1,339
1,416
Net cash flow provided (used) by investing activities ....................................................................
(1,244)
(1,265)
Net cash provided (used) by financing activities ............................................................................
(354)
(161)
Change in cash ..............................................................................................................................
(259)
(10)
10.5.3.1 Net cash flow from operating activities
10.5.3.1.1 Net cash from operational cash flow
The Combined SFR Group considers CFFO (Cash Flow From Operations), a non-accounting
measure, to be a relevant indicator of its operational performance. CFFO corresponds specifically to
the net cash from operating activities, after deducting investments net of disposal, the change in
working capital and related requirements, and adjusting for corporate income tax payments. This
245
indicator is likewise described in Note 1.2.5 “The Group’s operating performance” of the “Combined
annual financial statements of SFR, SIG 50 and their subsidiaries for the years ended December 31,
2013, 2012 and 2011” which appear in Section 20.5.7 in the updated Registration Document of
Numericable-SFR, which was filed with the AMF on October 28, 2014 under number D.14-0803A01. “Cash Flow from Operations (before investments)” is defined as Cash Flow From Operations, as
defined above, before investments, net of disposal, and excluding purchases of licenses, and before
changes in working capital requirement linked to investments.
The table below presents CFFO as well as the net operating cash flows for the first nine months ended
September 30, 2014 and 2013; investment flows are analyzed in Section 10.5.3.2 “Net cash flow from
investing activities”:
First nine months
ended September 30
2014
2013
(in € millions)
(a)
1,777
2,200
EBITDA ............................................................................................................................
Change in adjusted WCR (not linked to net investments) .................................................
(b)
(321)
(406)
Restructuring costs paid .....................................................................................................
(c)
(59)
(101)
Other items .........................................................................................................................
(d)
127
8
Cash Flow From Operations (before Investments) (I) (a)+(b)+(c)+(d) ........................
1,526
1,702
Investments in intangible assets and property, plant and equipment (excluding
(931)
(1,012)
licenses)..............................................................................................................................
Disposal of intangible assets and property, plant and equipment .......................................
22
3
Investments, net of disposal (excluding licenses) .............................................................
(909)
(1,009)
Change in WCR linked to net investments .........................................................................
(329)
(233)
(e)
Investments (excluding licenses) net of the change in WCR ......................................................
(1,238)
(1,242)
Cash Flow From Operations (excluding licenses II) (I) + (e) ........................................
288
460
Acquisition of licenses and associated spectra ...................................................................
(f)
—
—
Cash Flow From Operations (III) (II) + (f) ....................................................................
288
460
The table below allows a connection to be made between the cash flows generated by the Combined
SFR Group’s operating activities, which are presented in the statement of cash flows, and the table
above, which presents the Cash Flow From Operations (before investments):
First nine months ended
September 30
2014
2013
(in € millions)
Cash Flow From Operations (before Investments) ..................................................................................
1,526
1,702
Tax paid ........................................................................................................................................................
(187)
(286)
Net flow provided (used) by operating activities ......................................................................................
1,339
1,416
Cash Flow From Operations (before investments) totaled €1,526 million for the first nine months
ended September 30, 2014, compared to €1,702 million for the first nine months ended September 30,
2013. This €176 million decrease is primarily explained by the drop in net flows provided by the
(EBITDA) activity of €423 million, which offsets a lower working capital requirement of €85 million,
which went from -€406 million at end-September 2013 to -€321 million at end-September 2014.
The flows connected to operational expenditures are analyzed in Section 10.5.3.2.1 “Net cash from
operational expenditure” of this Registration Document.
10.5.3.1.2 Change in working capital requirement (not linked to net investments)
The Combined SFR Group’s working capital requirement primarily corresponds to the value of stocks
(which are mainly comprised of mobile terminals, modems, set-top boxes and accessories) plus trade
receivables and other operating receivables, and minus trade payables and other operating debts. The
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Combined SFR Group’s working capital requirement is the result of the specific features of each of its
markets.
On the B2C market, the Combined SFR Group generates working capital that is in line with customer
payment terms (generally 30 days) that are shorter than those of suppliers (generally 60 days), while
on the markets of Businesses and Operators and Others, the Combined SFR Group consumes working
capital because Business and Operator/Other customers benefit from longer payment terms.
The Combined SFR Group generally finances its working capital requirement through cash flows
generated by its sales.
The change in working capital requirement for the Combined SFR Group’s operations is broken down
as follows for the first nine months ended September 30, 2014 and 2013:
First nine months
ended September 30
2014
2013
(in € millions)
Change in working capital requirements in the Statement of Combined
(323)
(404)
Cash Flows ................................................................................................................................................
Inventories
(21)
(14)
Customers and related accounts ............................................................................................................
(63)
(28)
Other receivables...................................................................................................................................
64
(46)
Trade payables - operations ..................................................................................................................
(7)
(110)
Other payables.......................................................................................................................................
(295)
(205)
Adjustments ...............................................................................................................................................
1
(2)
Change in adjusted working capital requirement .................................................................................
(321)
(406)
The change in the working capital requirement for operations of the Combined SFR Group caused
€321 million of the working capital requirement to be used up during the first nine months ended
September 30, 2014, compared to the use of €406 million during the first nine months ended
September 30, 2013. This change is primarily due to the increase and better recovery of receivables.
10.5.3.1.3 Tax paid
During the first nine months ended September 30, 2014, the corporate income tax paid represented a
cash outflow of €187 million, compared to a cash outflow of €286 million during the first nine months
ended September 30, 2013, in line with the drop in taxable income.
10.5.3.2 Net cash flow from investing activities
The table below summarizes the net flows of investment activities for the first nine months ended
September 30, 2014 and 2013:
As of September 30
2014
2013
(in € millions)
Net acquisition of property, plant and equipment and intangible assets
(909)
(excluding licenses) ....................................................................................................................
Change in working capital requirement linked to operational expenditure .................................
(329)
Investments (excluding licenses) net of the change in WCR .................................................
(1,238)
Acquisition of licenses and associated spectra ............................................................................ Net cash flow provided (used) by investing activities
(1,238)
Net cash from combined entities, net of acquired cash ...............................................................
(35)
Net cash from other financial assets ..........................................................................................29
Net cash flow provided (used) by investing activities
(6)
(1,244)
247
(1,009)
(233)
(1,242)
(1,242)
7
(30)
(23)
(1,265)
During the first nine months ended September 30, 2014, the net cash from investing activities
decreased €21 million compared to the first nine months ended September 30, 2013, going from a
cash outflow of €1,265 million in 2013 to a cash outflow of €1,244 million in 2014.
10.5.3.2.1 Net cash flow from operational expenditure
The cumulative net operational expenditure made by the Combined SFR Group represented,
respectively, €1,238 and €1,242 million as of September 30, 2014 and 2013.
The following table provides a breakdown of the operational expenditure of SFR Group between the
acquisition of property, plant and equipment and intangible assets for the years ended September 30,
2014 and 2013:
September 30
2014
2013
(in € millions)
Acquisition of intangible assets - licenses ....................................................................................... Acquisition of intangible assets - other ...........................................................................................
(358)
(364)
Acquisition of property, plant and equipment .................................................................................
(573)
(648)
Acquisition of intangible assets and property, plant and equipment................................................
(931)
(1,012)
Disposal of intangible assets and property, plant and equipment ....................................................
(22)
(3)
Operational expenditure, net of disposal .....................................................................................
(909)
(1,009)
Change in working capital requirement linked to operational expenditure .....................................
329
233
Operational expenditures .............................................................................................................
(1,238)
(1,242)
These expenditures primarily concerned priorities of the Combined SFR Group, which are detailed
below.
(a)
Acquisition of licenses
The change in recent years has been marked by significant expenditure on LTE (4G) licenses, as
concerns acquisition of these licenses, with, respectively €150 million in October 2011 (2.6 GHz
band) and €1,065 million in January 2012 (800 MHz band).
(b)
Expenditure excluding licenses
Excluding licenses, the main categories of expenditures are:
-
mobile and fixed-line networks;
-
information systems;
-
equipment installed at customer premises; and
-
other expenditure: real property, investments in the business distribution network.
Network expenditure:
Continued rollout of 3G
As of December 31, 2013 and September 30, 2014, SFR’s GSM/GPRS (2G) network covered more
than 99.7% of the French population, and the UMTS/HSPA (3G/ 3G+) network covered more than
99% of the French population.
The Combined SFR Group continued to increase the capacity of its network to accompany the net
uses of mobile Internet, as 3G+ and 4G data traffic had increased by more than 40% as of December
31, 2013, and 70% for the first nine months ended September 30, 2014.
248
In addition to the increase in debits, the Combined SFR Group continued to invest in increasing the
density of its 3G+ network and is rolling out 3G+ in dense zones on the 900 MHz frequency band,
specifically in Lyon, Marseille and Toulouse. This technology improves the quality of voice and
mobile Internet services.
In order to provide better coverage in terms of very-high-speed mobile, the Combined SFR Group has
broad exposure in Dual Carrier technology (latest evolution of 3G), thereby covering more than 75%
of the population as of September 30, 2014 and allowing download speeds to double.
Acceleration of 4G rollouts
The rollout of 4G in the 800 MHz band (the “golden frequency”) provides more effective coverage
with better service, particularly inside buildings. At the same time, the rollout of 4G in the 2,600 MHz
band in dense zones allows mobile Internet customers to have access to download speeds of up to 115
Mbits/s.
During the first nine months ended September 30, 2014, the Group continued to make 4G coverage
investments.
Fixed-line: unbundling and deployment of fiber optics (FTTH)
As of September 30, 2014, the Combined SFR Group had the leading alternative fixed-line network in
France. With nearly 6,500 unbundled MDFs (Main Distribution Frames), the Combined SFR Group
had nearly 28 million households with unbundled ADSL access. During the year ended December 31,
2013, more than 800 MDFs were unbundled, i.e. the largest annual volume since the launch of
unbundling in France in 2001. At end-June 2014, the number of MDFs totaled approximately 6,500.
The Combined SFR Group also made investments in the fixed-line very-high-speed sector: during the
year ended December 31, 2013, the Combined SFR Group thus invested in fiber to the home (FTTH),
making more than 1.5 million households in metropolitan France eligible for fiber (compared to 1.1
million in late 2012). As of September 30, 2014, this figure had risen to approximately 2.1 million
households.
Expenditure on information systems
Within the context of its ONE transformation plan, the Combined SFR Group has been making a
significant effort to renovate its information systems (14% of expenditure, excluding licenses in 2013,
i.e. more than €200 million). The purpose of these investments was to streamline the existing systems
by simplifying the architecture and reducing the number of application subsystems. This investment
strategy responds to a twofold objective: simplifying operations and thereby generating savings on
maintenance costs, and improving the quality of SFR Group’s customer service at all points of contact
(physical distribution network, call centers, Internet).
Expenditure on customer equipment
These expenditures cover equipment provided to customers, which are owned by the Combined SFR
Group, i.e., essentially:
- the costs of modems and Internet decoders provided to ADSL or fiber optic customers on the
B2C market;
- the additional costs associated with Internet customers’ connection, including, in particular,
the logistical costs of sending equipment, or even the costs of access to service that are billed
by Orange;
- the connection costs of fiber optics customers;
- SIM cards;
249
- the Femto Cell equipment offered to improve coverage within a home;
- the telecom equipment provided to businesses (modems, routers, PABX, etc.)
The majority of these investments corresponds to equipment and costs that are associated with the
marketing of ADSL and fiber optics offers on the B2C market.
10.5.3.2.2 Net cash flow from financial investing activities
The financial investments made by the Combined SFR Group represented respectively €6 million and
€22 million as of September 30, 2014 and 2013.
September 30
2014
2013
(in € millions)
Net cash from combined entities, net of acquired cash ........................................................................................
(35)
8
Net cash from other financial assets ....................................................................................................................
29
(30)
(6)
(22)
Over the first nine months ended September 30, 2014, these financial investments concerned:
- the acquisition of Telindus France Group’s shares for €36 million, as concerned the portion of
shares, net of cash, acquired for €6 million; the amount of debt acquired ended up increasing
the item “Repayment of loans” in the statement of combined cash flows. On April 30, 2014,
SIG 50 acquired all Telindus France Group stock from Belgacom Group for a total of €88
million net of cash and equivalents acquired for €6 million ; and
- the repayment of current account advances of Foncière Rimbaud (1&2) following the sale of
real property from the Saint-Denis site for €22 million.
10.5.3.3 Net cash flow from financing activities
The table below presents the composition of the net cash provided by financing activities for the first
nine months ended September 30, 2014 and 2013:
As of September 30
2014
2013
(in € millions)
(147)
(186)
(7)
(985)
(358)
(10)
239
895
(47)
131
(33)
(6)
(354)
(161)
Net interest paid
Dividends paid
Subscriptions/Repayment of loans (including bonds)
Change in shareholder debt
Change in other financial debt
Other cash linked to financial activities
Net cash provided (used) by financing activities
10.5.3.3.1 Net interest paid
The Combined SFR Group paid net interest in the amount of €147 million and €186 million
respectively during the first nine months ended September 30, 2014 and 2013.
The net interest paid essentially consists of interest paid on loans, less interest received for proceeds
of short-term cash investments.
During the first nine months ended September 30, 2014, the net interest paid decreased by €39
million, going from €186 million for the first nine months ended September 30, 2013, to €147 million
for the first nine months ended September 30, 2014, due to the drop in average net financial debt
which went from €8,541 million for the first nine months ended September 30, 2013, to €6,721
million for the first nine months ended September 30, 2014, with the average cost of financing
remaining stable.
250
10.5.3.3.2 Dividends paid
No significant payment (€7 million) occurred during the first nine months ended September 30, 2014.
10.5.3.3.3 Repayment of loans
During the first nine months ended September 30, 2014, loan repayments represented €358 million,
€58 million of which concerned the current accounts repaid to Belgacom within the context of the
acquisition of Telindus Group (see Section 10.5.3.2.2. “Net cash flow from investing activities” of
this Registration Document).
On July 9, 2014, €300 million of the bond loan were repaid.
10.5.3.3.4 Change in shareholder debt
The €239 million rise in shareholder debt over the first nine months ended September 30, 2014 is
essentially due to the rise in Vivendi’s short-term cash current account, restated for the amount
collected from the sale of shares of SPT, the company holding the stake in Maroc Telecom, which
reduced that account. The proceeds from the sale, net of tax on realized capital gains, in the amount of
€4,056 million, were recognized through combined equity, as they were considered a contribution
paid in receivables accruing to the shareholder Vivendi; the amount collected from the sale reduced
Vivendi’s current account.
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11.
RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
11.1
RESEARCH AND DEVELOPMENT
The NC Numericable research and development department is part of the technology department
located in Champs-sur-Marne, France. The main flagship innovation programs are the “LaBox
HTML5” software and back-end cloud services launched in 2012 and 2013: social network services,
carrier services for third-party partners on set-top boxes and multi-screen software. In 2012, NC
Numericable filed patent applications under certain screenshot-related in-house innovations on LaBox
“image capture in a video signal.”
SFR’s R&D department is located in Saint Denis. The main development programs concern Big Data
and the “Home by SFR” platform (home automation box).
11.2
11.2.1
INTELLECTUAL PROPERTY
Intellectual property
The Group licenses its television programming content from third-party content providers. The Group
enters into agreements directly with copyright collecting societies in France, including SACEM
(Société des Auteurs, Compositeurs et Editeurs de Musique), SDRM (Société pour l’administration du
Droit de Reproduction Mécanique), SCAM (Société Civile des Auteurs Multimedia), SACD (Société
des Auteurs et Compositeurs Dramatiques), ADAGP (Société des Auteurs dans les Arts Graphiques et
Plastiques) and ANGOA (Agence Nationale de Gestion des Oeuvres Audiovisuelles), as well as
broadcasters and distributors.
In general, the Group pays royalties to its content providers based on subscriber numbers. Under
certain agreements, the Group is sometimes required to pay content providers minimum guaranteed
amounts or flat fees. The Group also pays royalties based on its subscribers’ consumption of ondemand content. See Section 11.3.1 “Third-party copyright and relations with copyright collecting
societies” below.
11.2.2
Trademarks and domain names
The Group uses several trade names, trademarks and domain names in its business. The trademarks
“Numericable,” “Completel,” “Numericable Group,” “SFR,” “Virgin Mobile,” and “LaBox by
Numericable” are material to the Group’s business. All of the Group’s trademarks – particularly on
its devices – are protected in France, and in some cases within the European Union. The Group has
also registered various domain names, including www.numericable-sfr.com, www.numericable.fr,
www.completel.fr, and www.sfr.fr, www.virginmobile.fr.
11.3
11.3.1
LICENSES, USAGE RIGHTS AND OTHER INTANGIBLE ASSETS
Third-party copyright and relations with copyright collecting societies
As a broadcaster of musical and audiovisual works, the Group must comply with Articles L. 132-20-1
and L. 217-2 of the French Intellectual Property Code, which require the Group to pay royalties for
broadcasting such works to copyright collecting societies, such as: ANGOA (audiovisual rights
management), SDRM (rights management for sound and visual reproductions), ADAGP (rights
management for the graphic and plastic arts), SACD (rights management for audiovisual works of
fiction and the performing arts), SCAM (multimedia rights management), SACEM (music rights
management). ANGOA, SDRM, ADAGP, SCAM, SACD and SACEM collect royalties and pass
them on to producers, authors, composers and publishers whose works are reproduced, broadcast,
communicated or made available to the public.
In this respect:
252
-
In February 2011, NC Numericable signed an agreement with ANGOA for broadcasting
works included in television programs aired on the Numericable network. The agreement was
automatically renewed on December 13, 2013 for one year. It is renewable automatically for
successive one-year periods unless terminated by either party upon six months’ notice. The
royalties charged by ANGOA are based on the overall revenues of NC Numericable and are
paid quarterly. NC Numericable also guarantees ANGOA a minimum royalty per subscriber.
-
NC Numericable signed a similar agreement with SACEM, SDRM, ADAGP, SCAM and
SACD in October 2003. That agreement expired in December 2004, was extended until
December 2009, and has since been automatically renewed for successive one-year periods.
Under the terms of the agreement, NC Numericable must pay SACEM, on behalf of the other
societies, quarterly royalties based on its overall revenues. The agreement may be terminated
at the end of each renewal period by either party upon three months’ notice.
-
On March 13, 2006, SFR signed an agreement with ANGOA covering the broadcasting of
works included in television programs aired on the SFR xDSL network. Under this
agreement, the royalties charged by ANGOA were calculated based on the number and type
of television channels broadcast. The agreement was renewed automatically each year before
being terminated on December 31, 2014. SFR and ANGOA have since been negotiating a
new agreement.
-
SFR entered into similar agreements with SACEM, SDRM, ADAGP, SCAM, and SACD on
October 20, 2014 and November 5, 2014. These agreements regularize past exploitation and
cover future exploitation of works in the repertoire of these societies and included in
television programs aired on SFR’s networks. Under the terms of these agreements, SFR must
pay SACEM, which is acting on behalf of the other societies, quarterly royalties based on the
revenues that SFR earns from its television distributor business. These contracts may be
terminated by either party at the end of each calendar year upon three months’ notice.
In terms of the compensation for private copies provided by Articles L. 311-1 et seq. of the French
Intellectual Property Code, the Group pays Copie France royalties based on the type and recording
capacity of the equipment used by its subscribers.
253
12.
TRENDS AND OUTLOOK
12.1
BUSINESS TRENDS
For a description of the Group’s results in 2013 and 2014, see Section 9 “Analysis of the Group’s
results of operations” of this Registration Document.
12.2
OUTLOOK
The Group plans to continue modernizing and extending its fiber optic network to reach 12 million
homes by the end of 2017 and 15 million by the end of 2020.
12.3
LONG-TERM OUTLOOK
None.
254
13.
PROFIT FORECASTS OR ESTIMATES
None.
255
14.
ADMINISTRATIVE, MANAGEMENT
EXECUTIVE MANAGEMENT
AND
SUPERVISORY
14.1
COMPOSITION OF MANAGEMENT AND SUPERVISORY BODIES
BODIES
AND
The Company is a limited liability corporation (société anonyme) with a Board of Directors. A
description of the main provisions of the Company’s bylaws relating to the Board of Directors is
included in Section 16 “Operation of administrative and management bodies” and in Section 21
“Additional information.” This description covers the functioning and powers of the Board of
Directors, as well as a brief description of the main provisions of the rules of procedure of the Board
and its special committees. 14.1.1
Board of Directors
The table below shows the composition of the Company’s Board of Directors as of the date of this
Name; business
address; number
of Company
shares held
Age
Expiration of
term of office
Main position
held within the
Company
Principal appointments and positions held
outside the Company and the Group
within the last five years
Patrick Drahi
Appointed by
Altice
51
Shareholders’
Meeting called to
approve the 2014
financial
statements
Chairman of the
Board of Directors
Appointments and positions held as of the
date of this Registration Document:
- Chairman of Altice SA
42
Ordinary
Shareholders’
Meeting called to
approve the
financial
statements for the
fiscal year ended
December 31,
2014
Director
40
Ordinary
Shareholders’
Meeting called to
approve the
financial
Director
3 boulevard
Royal, L-2449
Luxembourg
Number of
Company shares
held: 0(*)
Dexter Goei
Appointed by
Altice
3 boulevard
Royal, L-2449
Luxembourg
Number of
Company shares
held(1): 100,890
Jérémie Bonnin
Appointed by
Altice
3 boulevard
Appointments and positions held during the
last five years that are no longer held:
- None
256
- Chairman and CEO of Altice SA
- Director of Altice Portugal
- Director of Coditel Management
- Director of Cabovisao
- Director of Winreason
- Director of F300
- Director of ONI SGPS
- Director of Hubgrade
- Director of Knewon
- Director of ONI Maderia
- Director of ONI Azores
- Director of ONITelecom
- Director of Vinluam
- Director of MTVC
- Director of WSG
- Director of Hot Telecommunication
Systems
- Director of Altice Blue Two
- Director of Wananchi
- Director of Titan Consulting
- None
- Director of Altice SA
- Director of Altice International S.à.r.l.
- Chairman and Director of Altice France
Name; business
address; number
of Company
shares held
Age
Royal, L-2449
Luxembourg
109 rue du
Faubourg Saint
Honoré, 75008
Paris
Main position
held within the
Company
statements for the
fiscal year ending
December 31,
2015
Number of
Company shares
held: 325(2)
Jean-Michel
Hégésippe
Appointed by
Altice
Expiration of
term of office
65
Ordinary
Shareholders’
Meeting called to
approve the
financial
statements for the
fiscal year ending
December 31,
2015
SA
- Director of Next GP
- Director of Uppernext GP
- Director of CPA Lux
- Director of Altice Portugal
- Director of Coditel Management
- Director of Cabovisao
- Director of Winreason
- Director of F300
- Director of ONI SGPS
- Director of Hubgrade
- Director of Knewon
- Director of ONI Maderia
- Director of ONI Azores
- Director of ONITelecom
- Director of Vinluam
- Director of MTVC
- Director of WSG
- Director of Hamaja
- Director of Hot Telecommunication
Systems
- Director of Hot Mobile
- Director of Penta GP
- Director of Altice Caribbean
- Director of Altice Blue Two
- Director of Altice Finco
- Director of Altice Financing
- Director of Cool Holding
- Director of Altice VII Bis
- Director of Altice Holdings
- Director of Titan Consulting
- Director of Altice Blue One
- Director of Green.ch
- Director of Green Datacentre
- Director of Auberimmo
- Director of Wananchi
- Director of Altice Securities
- Director of Altice West Europe
- Director of Deficom Telecom
- None
Director
Number of
Company shares
held: 100
- Chairman and member of the Executive
Board of Altice Blue Two SAS
- Chairman and chairman of the Executive
Board of OMT Invest SAS
- Chairman of the Executive Board of
Outremer Telecom SA
- Chairman and chairman of the Executive
Board of OPS SAS
- Chairman of Mobius SAS
- Manager of Informatique Télématique
Océan Indien SARL
- Chairman of Martinique TV Cable SA
- Director of Outremer Telecom Limited
- Chairman of Word Satellite Guadeloupe
SA
257
Name; business
address; number
of Company
shares held
Age
Expiration of
term of office
Main position
held within the
Company
- Director of ATG – television channel
Luce Gendry
65
Ordinary
Shareholders’
Meeting called to
approve the
financial
statements for the
fiscal year ending
December 31,
2015
Independent
Director
- Chairman of the Supervisory Board of
IDI
- Chairman of Cavamont Holdings Ltd
- Director of FFP
- Director of Nexity
- Director of INEA
- Senior Advisor of Rothschild & Cie
- Managing Partner of Rothschild & Cie
- Managing Partner of Rothschild & Cie
Banque
70
Ordinary
Shareholders’
Meeting called to
approve the
financial
statements for the
fiscal year ending
December 31,
2016
Independent
Director
50
Shareholders’
Meeting called to
approve the 2014
financial
statements
Director
- Senior Advisor of TPG Capital (San
Francisco, London, Paris)
- Senior Advisor (London, Paris) of Bank
of America Merrill Lynch,
- Director of International Power Plc
- Chairman of Financière de l’Audière
- Director of Air Canada
- Director of Eurotunnel
- Director of TDF
- Director of Televista
- None
23 bis avenue de
Messine, 75008
Paris
Number of
Company shares
held: 100
Bernard Attali
2 rue de
Villersexel, 75007
Paris
Number of
Company shares
held: 100
Angélique Benetti
Appointed by
Altice
Campus SFR
Rue Jean-Philippe
Rameau
93210 Saint-Denis
Number of
Company shares
held: 100
Jean-René Fourtou
First permanent
representative of
Vivendi
74
Shareholders’
Meeting called to
approve the 2016
financial
statements
Executive VicePresident, Content
– Member of the
Executive
Committee
Permanent
representative of
Vivendi, director
42 avenue de
Friedland,
75008 Paris
Number of
Company shares
held: 0(3)
- Honorary Chairman of Vivendi
- Director of Sanofi-Aventis
- Director of Assicurazioni Generali
(Italy),
- Director of the Bordeaux University
Foundation (President)
- Canal+ Group, Chairman of the
Supervisory Board
- Director of SFR
- Maroc Telecom (Morocco), Member of the
Supervisory Board
- AXA, Vice-Chairman of the Supervisory
Board
- AXA, Member of the Ethics and
258
Name; business
address; number
of Company
shares held
Age
Expiration of
term of office
Main position
held within the
Company
Governance Committee
- Cap Gemini, Director
- Nestlé (Switzerland), Director
- NBC Universal (United States), Director
- International Chamber of Commerce
(ICC), Honorary Chairman
Stéphane Roussel
First permanent
representative of
Compagnie
Financière du
42 avenue de
Friedland
53
Shareholders’
Meeting called to
approve the 2016
financial
statements
Permanent
representative of
Compagnie
Financière du 42
avenue de
Friedland, Director
42 avenue de
Friedland
75008 Paris
Number of
Company shares
held: 0(4)
Colette Neuville
4 rue Montescot
28000 Chartres
Number of
Company shares
held: 425
77
Shareholders’
Meeting called to
approve the 2016
financial
statements
Independent
Director
- Member of the Management Board of
Vivendi
- Member of the Supervisory Board of
Canal+ Group.
- Director of the IMS
- Member of Board of Directors of the SFR
Foundation
- Chairman and CEO of SFR
- Chairman of Arpejeh
- Member of the Board of Directors of
Activision Blizzard
- Chairman of the Board of Directors of the
SFR Foundation
- Chairman of the Board of Directors of
Digitick SA
- Director of See Group Limited (United
Kingdom)
- Director of UK Ticketing Ltd (United
Kingdom)
- Founding Chairman of ADAM
(Association de défense des actionnaires
minoritaires)
- Lead Director of the Board of Directors,
member of the Audit Committee and
Chairman of the Nominating and
Compensation Committee of GET SE
(Eurotunnel Group)
- Director of ATOS SE
- Member of the Board of Governors of
Ecole de Droit et de Management de ParisAssas
- Director of the AFER (Association
française d’épargne et de retraite)
- Member of the IFA group of
compensation committee chairmen
- None
_____________________________________
(*) Patrick Drahi is the controlling shareholder of Altice throughNext L.P., a company he controls.
(1) Dexter Goei indirectly has a marginal equity investment in Altice S.A.
(2) Jérémie Bonnin indirectly has a marginal equity investment in Altice S.A.
(3) Vivendi, represented by Jean-René Fourtou, has a stake in the Company.
(4) In addition, Compagnie Financière, represented by Stéphane Roussel, holds a stake in Vivendi, which in turn has a stake in the
Company.
The Board of Directors is partially re-elected each year to ensure that the Board is staggered.
259
The expiration dates of the terms of office of the ten current Board members are as follows: a first
group of three directors (Patrick Drahi, Dexter Goei and Angélique Benetti), appointed for a term that
will expire at the end of the Ordinary Shareholders’ Meeting called to approve the financial
statements for 2014, nominated for re-election at the Shareholders’ Meeting on May 28, 2015, (ii) a
second group of three directors (Jérémie Bonnin, Jean-Michel Hégésippe and Luce Gendry),
appointed for a term that will expire at the end of the Ordinary Shareholders’ Meeting called to
approve the financial statements for 2015, and (iii) a third group composed of Bernard Attali, Vivendi
(whose first permanent representative is Jean René Fourtou), Compagnie Financière du 42 avenue de
Friedland (whose first permanent representative is Stéphane Roussel), and Colette Neuville, appointed
for a term that will expire at the end of the Ordinary Shareholders’ Meeting called to approve the
financial statements for fiscal year 2016.
Fiscal year 2014 saw the resignation of directors appointed by Carlyle and Cinven, following the
reduction in their equity stake (February 2014) and their subsequent exit from the share capital (July
2014), the appointment to the Board of Jean-Michel Hégésippe (February 2014), the non-renewal of
the term of office of Olivier Huart (May 2014), the appointment to the Board of Bernard Attali (May
2014) and, following the completion of the SFR acquisition, of Vivendi representatives (November
2014), the resignation of Max Aaron and Nilly Sikorsky and the appointment to the Board of
Angélique Benetti and Colette Neuville, as well as Patrick Drahi as the new Chairman, Eric Denoyer
having been made Chief Executive Officer without a seat on the Board.
Upon completion of Vivendi’s sale of its stake in the Company to Altice and Numericable-SFR,
Vivendi and Compagnie Financière du 42 avenue de Friedland will resign from the Board. In this
case, assuming the re-election of the directors nominated for re-election by the Shareholders’ Meeting
on May 28, 2015, the Board of Directors would be composed as follows: (i) a first group of three
directors (Jérémie Bonnin, Jean-Michel Hégésippe and Luce Gendry), appointed for a term that will
expire at the close of the Ordinary Shareholders’ Meeting called to approve the financial statements
for 2015, (ii) a second group composed of Bernard Attali and Colette Neuville, appointed for a term
that will expire at the close of the Ordinary Shareholders’ Meeting called to approve the financial
statements for 2016, and (iii) a third group of three directors (Patrick Drahi, Dexter Goei and
Angélique Benetti), appointed for a term that will expire at the close of the Ordinary Shareholders’
Meeting called to approve the financial statements for fiscal year 2017.
Evaluation of the independence of directors:
The criteria used by the Board of Directors to evaluate the independence of directors are those defined
by the AFEP-MEDEF Code.
The directors’ independence was evaluated by the Board of Directors on March 4, 2015 and by the
Nominating and Compensation Committee on March 2, 2015, based on the criteria set out in the
AFEP-MEDEF Code.
During the evaluation, the Board of Directors established that three directors (Luce Gendry, Bernard
Attali and Colette Neuville) were independent according to these criteria.
The Board found that Luce Gendry and Colette Neuville met all the independence criteria set out in
the rules of procedure of the Nominating and Compensation Committee and in the AFEP-MEDEF
Code.
Since Bernard Attali’s situation is unchanged since his appointment, and since it has been confirmed
that his position as non-executive director of TDF is due to end upon completion of the sale of TDF,
the Board of Directors has, on the recommendation of the Nominating and Compensation Committee,
decided that its original evaluation of Bernard Attali’s independence conducted at the time of his
appointment still stands, and that therefore he should be considered an independent director.
260
Since that date, Bernard Attali has ceased to be a director of TDF.
Therefore, of the Company’s ten directors as of the date of this Registration Document, 30% are
independent. This is just below the threshold of one-third recommended by the AFEP-MEDEF
Corporate Governance Code for Listed Companies. However, upon completion of the sale of
Vivendi’s shares under the agreements entered into on February 27, 2015, Jean-René Fourtou and
Stéphane Roussel will resign from the Board. Thereafter the proportion of independent directors will
be 3 out of 8, or 37.5%; therefore the quota of one-third of independent directors will be met.
Directors’ biographies:
Patrick Drahi, 51, began his career with the Philips Group as head of international marketing (UK,
Ireland, Scandinavia, Asia) of satellite and cable TV (DTH, CATV, MMDS). In 1991, he joined the
Kinnevik-Millisat Group, where he was in charge of the development of private cable networks in
France and Spain. In 1993, he founded CMA, a specialist telecommunications and media consultancy.
He then decided to enter the French cable market, creating Sud Cable Services (1994) and
Mediaréseaux (1995). Following UPC’s takeover of Mediaréseaux (1999) and until the mid-2000s,
Patrick Drahi frequently acted as acquisitions advisor to UPC. In 2002 he founded Altice, a European
investment fund in the cable and telecommunications sector. Patrick Drahi is a graduate of Ecole
Polytechnique and Ecole Nationale Supérieure des Télécommunications de Paris. He holds a master’s
degree in optics and electronics (class of 1986).
Dexter Goei, 42, British, is Chairman and CEO of Altice. He joined Altice in 2009, having previously
been with Morgan Stanley. He is a graduate of Georgetown University’s School of Foreign Service
(class of 1993).
Jérémie Bonnin, 40, French, is in charge of corporate and business development and is Altice’s
Corporate Secretary. He joined Altice in 2005, having previously been a manager in KPMG’s
transactions department. He is a graduate of Institut d’Informatique d’Entreprise (class of 1998) and
of DECF (accounting and finance degree) (class of 2000).
Jean-Michel Hégésippe, 65, founded his own company, Infotel, in 1986. Based in French overseas
departments and territories, Infotel provided transaction processing services for the banking sector. In
1998, Infotel obtained a license from the French regulatory authorities to deploy fixed
telecommunications networks. From 1998 to 2004, Infotel (which changed its name to Outremer
Telecom in 2000) developed telephony and DSL services. In 2013, Altice acquired control of
Outremer Telecom, which had become a fixed and mobile quadruple play and mobile telephony
provider in French overseas departments and territories. Jean-Michel Hégésippe is a computer
sciences engineer and holds a master’s degree and advanced studies degree (DEA) in information
technology from the University of Paris VII.
Luce Gendry, 65, French, began her career with Générale Occidentale (1971-1990), a diversified
Anglo-French group of which she was, successively, legal representative (fondé de pouvoirs),
Corporate Secretary and Finance Director. She joined the Bolloré Group (1990-1993) as Deputy
Managing Director in charge of administration and finance, before moving to Banque Rothschild,
where she was a Managing Partner until mid-2011, specializing in mergers and acquisitions advice.
Currently, Ms. Gendry is a Senior Advisor of Rothschild & Cie Banque, Chairman of the Supervisory
Board of IDI, a member of the Board of Directors of FFP (the Peugeot family group), Nexity and
INEA, and Chairman of Cavamont Holdings Ltd. She is a graduate of Ecole des Hautes Etudes
Commerciales (HEC) (JF) and a Knight in the French Legion of Honor.
Bernard Attali, 70, French, is Chairman of the Financière de l’Audière, Senior Advisor at TPG
Capital (San Francisco, London, Paris), member of the European Advisory Board (London, Paris) of
Bank of America Merrill Lynch, director of the Association française des investisseurs pour la
croissance, director of TDF, director of International Power Plc, and member of the European
261
Advisory Board of Proudfoot and the Advisory Board of LEK. Prior to this, he was director of Air
Canada, Eurotunnel, Detroyat and Baccarat, Chairman of the Association of Managing Partners of
ARJIL Bank, Chairman of the IAYA Executive Committee, Air France Group, GAN Group, Banque
pour l’Industrie Française, director of CIC, BNP, Société Générale, SNCF and La Poste, CFO of Club
Méditerranée and Advisor for European affairs at Commercial Union (London). He has also worked
as a Professor at New York University (NYU) and Senior Lecturer at Sciences Po, Dauphine and
ENA, in addition to serving as an auditor at the Cour des Comptes. Bernard Attali is a graduate of
Institut d’Etudes Politiques in Paris and of Ecole Nationale de l’Administration. Furthermore, he is
Honorary Chairman of Air France, Commander of the French Legion of Honor and Commander of
the National Order of Merit. He has also been awarded the Médaille de l’Aéronautique.
Angélique Benetti, 50, is Executive Vice President, Content. She has been a member of the
Management Committee since 2008. She joined the Group in 2003 and holds a master’s degree in
public law.
Jean-René Fourtou, 74, is Honorary Chairman of the Supervisory Board of Vivendi, after having
been, from 2002 to 2005, Chairman and CEO of Vivendi and later Chairman of the Supervisory
Board until June 24, 2014. In 1963, Jean-René Fourtou joined Bossard & Michel as a consultant. In
1972, he became Chief Operating Officer of Bossard Consultants, then Chairman and Chief Executive
Officer of Bossard Group in 1977. In 1986, Jean-René Fourtou was appointed Chairman and Chief
Executive Officer of Rhône-Poulenc Group. From December 1999 to May 2002, he served as Vice
Chairman and Chief Operating Officer of Aventis. He is President of the Bordeaux University
Foundation. Jean-René Fourtou is an alumnus of École Polytechnique.
Stéphane Roussel, 53, has been a member of the Management Board of Vivendi since June 2014 and
Executive Vice President, Development and Organization at Vivendi since October 2014 after joining
the Group’s Management Team in August 2013. Stéphane Roussel was previously Executive Vice
President, Human Resources at Vivendi from 2009 to 2012, before being appointed Chairman and
CEO of SFR. Stéphane Roussel was SFR’s Vice President Human Resources from 2004 until 2009.
From 1997 to 2004, Stéphane Roussel worked for the Carrefour Group. He was appointed Director of
Human Resources for hypermarkets in France, before becoming Director of Human Resources
Development for international business and then Director of Human Resources France for the
Carrefour Group. From 1985 to 1997, Stéphane Roussel was employed by Xerox. Stéphane Roussel is
a graduate of the Paris College of Psychology (Ecole des Psychologues Praticiens).
Colette Neuville, 77, holds a bachelor’s degree in law and was valedictorian of the School of Law.
She is a graduate of Institut d’Etudes Politiques de Paris, and holds a post-graduate diploma (DES) in
economics. She worked for ten years as an economist, first with NATO’s International Secretariat,
then in Morocco for the National Irrigation Office, before joining the Loire-Brittany River Authority.
In 1991, after a lengthy career break for family reasons, Colette Neuville founded ADAM, the
association for the protection of minority shareholders, which she chaired for 23 years. At the same
time, she was member of the Supervisory Board of Paribas from 1995 to 2000 and member of the
European Corporate Governance Forum at the European Commission from 2005 to 2011. She is
currently lead director at GET SA (Eurotunnel), while also serving on the Audit and Governance
Committees and chairing the Nominating and Compensation Committee. She is also a director of
ATOS. Colette Neuville has been a member of the AMF’s consultative commission on the protection
of small investors and minority shareholders since 2004. She has been a member of the board of
governors of Ecole de droit et de management de Paris since 2009 and a member of the IFA group of
compensation committee chairmen since 2013. Colette Neuville has been awarded the Legion of
Honor.
Balance in the composition of the Board of Directors:
262
Since the listing of the Company’s shares on Euronext Paris, the Company has had three independent
directors according to the criteria adopted by the Company, as described in Section 21 “Additional
information” of this Registration Document.
Balanced representation of men and women on the Board of Directors:
As of the date of this Registration Document, the Board of Directors was composed of ten directors,
including three women – Luce Gendry, Angélique Benetti and Colette Neuville – who make up 30%
of the Board.
The Company therefore complies with the relevant provisions of Law 2011-103 of January 27, 2011
on the balanced representation of men and women on the Board of Directors.
Separation of the roles of Chairman of the Board of Directors and CEO:
The positions of Chairman of the Board of Directors and Chief Executive Officer were combined
when the Company was formed. Following the acquisition of SFR, these two positions were
separated, Patrick Drahi becoming Chairman of the Board for a period corresponding to his term of
office as Director, and Eric Denoyer being appointed as Chief Executive Officer.
The Board regards the separation of the positions of Chairman of the Board of Directors and Chief
Executive Officer as representing the best organizational choice for the Company and the Group. It
effectively allows the Management Team, in the period following the SFR acquisition, to focus on the
Group’s operational strategic priorities, particularly the integration of the two groups, and fits in with
the Group’s growth.
In accordance with the law, with the Company’s bylaws and with the rules of procedure of the Board
of Directors, the Chairman of the Board of Directors chairs Board meetings, organizes and directs the
work and proceedings of the Board, and ensures the proper functioning of the Company’s
management bodies. In particular, the Chairman ensures that the directors are able to carry out their
duties.
14.1.2
Executive management
On November 27, 2014, the Company separated the roles of Chairman and Chief Executive Officer
(see Section 14.1.1 “Board of Directors” above). Eric Denoyer was appointed as the new CEO.
14.1.3
Executive Committee
The members of the Executive Committee are:
▪ Eric Denoyer, CEO
▪ Eric Klipfel, Executive Vice President, B2C
▪ Eric Pradeau, Executive Vice President, Wholesale Division
▪ Philippe May, Chief Technology Officer
▪ Jérôme Yomtov, Corporate Secretary
▪ Thierry Lemaître, Chief Financial Officer
▪ Angélique Benetti, Executive Vice President, Content
▪ Olivier Urcel, Chief Information Officer
▪ Pascal Rialland, Executive Vice President, B2B
263
▪ François Rubichon, Executive Vice President, Human Resources, Corporate & Legal Affairs and
Internal Communication
Biographies of Executive Committee Members:
Eric Klipfel, 44, French, has been the Group’s Executive Vice President, B2C since December 2014.
He joined the Group in 2000 and was Deputy Chief Executive Officer from April 2008 to May 2010
and Executive Vice President, Marketing from November 2006 to March 2008. He obtained a
master’s degree from Fachhochschule in Stuttgart, Germany, in 2003.
Eric Pradeau, 44, French, joined the Group in 2000 and was made Executive Vice President of the
Group’s Wholesale Division in December 2014. He is a graduate of Ecole Nationale Supérieure des
Mines de Paris.
Philippe Le May, 45, French, joined the Group in 2006 and was appointed Group Chief Technology
Officer in December 2014. From 2006 to 2008 he was Numericable’s network director. He graduated
from Ecole Nationale Supérieure de Télécommunications de Paris in 1991.
Jérôme Yomtov, 42, French, joined the Group in 2009 and has been Group Corporate Secretary since
December 2014. From 2007 to 2009, he was a director in the mergers and acquisitions department of
HSBC France. He is a graduate of Ecole Nationale Supérieure de Télécommunications de Paris (class
of 1996) and of Ecole Polytechnique (class of 1991).
Thierry Lemaître, 46, French, joined the Group in May 2010. He was appointed as the Group’s CFO
in December 2014. Prior to joining the Group, he was CFO of Rentabiliweb from 2008 to 2010 and of
Streamezzo from 2006 to 2008. Between 1997 and 2006, Thierry Lemaître held various posts within
the France Telecom Group, including as Deputy Chief Financial Officer in charge of controlling from
2000 to 2004, and then Chief Financial and Legal Officer of Wanadoo from 2004 to 2006. Angélique Benetti, 50, French, has been Executive Vice President, Content since December 2014.
She has been a member of the Management Committee since 2008. She joined the Group in 2003 and
holds a master’s degree in public law.
Olivier Urcel, 43, French, joined the Group in March 2014 and has been Chief Information Officer
since December 2014. He began his career at Cap Gemini before becoming Director of Internet
Services at LibertySufr and then Director of Information Systems at Tiscali and Telecom Italia
France. In August 2008, he was appointed Chief Information Officer of Altice, part of the Iliad Group
(Free), before joining Bouygues Telecom’s IT department as a consultant. In August 2009, he
founded the IT consultancy Nova Nelson. He subsequently joined Canal+ as Project Manager, before
being appointed Chief Information Officer in January 2012.
Pascal Rialland, 52, French, has been Executive Vice President, B2B since March 2015 (having
previously been in charge of the Group’s B2C sales). Before joining the Group, he worked for the
Xerox Group in France and the United States, where he served in various marketing and sales roles.
He then joined SFR Group, where he spent three years as head of SFR’s B2B division. Between 2005
and 2010, he was Managing Director France and North Africa at German publisher SAP. Prior to
joining the Group in December 2014, he was CEO of Virgin Mobile.
François Rubichon, 51, French, was appointed in December 2014 as Executive Vice President,
Human Resources, Corporate & Legal Affairs and Internal Communication. He began his career in
1989 in the finance department of La Poste Group. In 1993, he served as technical advisor to the
French Minister of Infrastructure, Transport and Tourism. In 1995, he was appointed Managing
Director of Sofipost, before becoming Chairman of Publi-Trans (La Poste Group) in 1998, and
subsequently Chairman and CEO of GeoPost Logistics. Between 2002 and 2005, he worked as a
French government advisor, serving as social advisor to the French Prime Minister. Between 2005
264
and 2012, he was Chief Operating Officer of Aéroports de Paris. In 2013, he joined SFR as Executive
Vice President, Human Resources, General Affairs & Organization.
The Group’s Executive Committee meets weekly to review the Group’s operational and financial
performance and to discuss strategic products and business operations.
14.1.4
Statement relating to members of the Board of Directors and of the Management
Team
To the Company’s knowledge, as of the filing date of this Registration Document, there are no family
ties among members of the Company’s Board of Directors and its Management Team.
To the Company’s knowledge, within the last five years: (i) none of the persons referred to above has
been convicted of fraud, (ii) none of the persons referred to above has been associated with any
bankruptcy, receivership or liquidation, (iii) none of the persons referred to above has been the subject
of any official public charge or sanction by statutory or regulatory authorities (including relevant
professional organizations), and (iv) none of the persons referred to above has been disqualified by a
court from serving as a member of an administrative, management or supervisory body of any issuer
or from being involved in the management or business affairs of any issuer.
14.2
FOUNDERS OF THE COMPANY
As of the date of this Registration Document, the Group was 60% owned by Altice France S.A.
(“Altice”). Altice will own 70.35% of the Company’s capital and 78.17% of the voting rights after
Vivendi sells its shares in the Company pursuant to the agreements signed with Vivendi on February
27, 2015.
Information on the Group’s founders:
Altice is a European investment fund active in the cable and telecommunications sector. It was
founded by Patrick Drahi. Its purpose is to identify opportunities and make acquisitions in the
telecommunications sector, in order to create value through operational excellence. Altice has been
developing unique expertise in this area since 1994. It has consolidated the cable sector in France and
built a strong presence in Belgium, Luxembourg, Switzerland, the Caribbean and Israel. Altice mainly
operates through Altice France S.A. (a shareholder of Numericable Group) and Altice VII S.à.r.l.
(interests in companies operating outside mainland France, as mentioned earlier). Since February
2014, the shares of Altice SA, a Luxembourg limited liability corporation holding 100% of the share
capital of Altice France S.A. and of Altice VII S.à.r.l., have been listed on the Euronext Amsterdam
regulated market.
14.3
CONFLICTS OF INTEREST
To the Company’s knowledge, and subject to the relationships described in Section 19.1
“Transactions with the Altice Group” as of the filing date of this Registration Document, there are no
potential conflicts of interest between the members of the Board of Directors, its Management Team
and the Company’s founders and their private interests.
Since the Company completed the acquisition of SFR, a new shareholders’ agreement between Altice
and Vivendi has come into effect, the main provisions of which are described in Section 18.3 “Control
structure” of this Registration Document. The description of the composition of the Board of
Directors in this section reflects the terms of this agreement. The agreement also contains provisions
concerning the disposal of Vivendi’s stake in the Company. In addition, Vivendi’s governance rights
are limited by the commitments made by Vivendi as part of the review by the French Competition
Council of the Company’s acquisition of SFR. The purpose of these commitments is to prevent
Vivendi from obtaining, through the directors it has appointed, certain commercially sensitive
265
information. Accordingly, Vivendi has proposed (i) that an independent director redact this
information from documents intended for directors appointed by Vivendi, (ii) that the latter withdraw
from decisions involving such information, and (iii) that if one of these decisions should be subject to
the right of veto given to Vivendi, its adoption will require a simple majority of directors other than
those appointed by Vivendi, with no independent member voting against it. These commitments were
accepted in the context of the French Competition Council’s decision to authorize the transaction. The
agreement will cease to have effect and the commitments will lapse if Vivendi sells its entire stake in
the Company to Altice and to the Company.
To the Company’s knowledge, there are no other restrictions accepted by members of the Board of
Directors or the Chief Executive Officer, except for rules on the prevention of insider trading and the
recommendations of the AFEP-MEDEF Code requiring the Chief Executive Officer to hold shares.
266
15.
EXECUTIVE COMPENSATION AND BENEFITS
15.1
COMPENSATION AND BENEFITS OF EXECUTIVES AND CORPORATE
OFFICERS
The Company is a limited liability corporation (société anonyme) that was established on August 2,
2013 and for which the offices of Chairman of the Board of Directors and CEO, which had been
joined and held by Eric Denoyer until the acquisition of SFR, have, since that date, been separated;
the Board of Directors is now chaired by Patrick Drahi while the Management Team continues to be
led by Eric Denoyer.
15.1.1
Compensation of non-executive members of the Board of Directors
The Company’s Shareholders’ Meeting of October 21, 2013 set at €180,000 per year the total amount
of attendance fees granted to the Board of Directors, to be split among the independent members of
the Board of Directors. This amount will be confirmed each year, unless a subsequent Shareholders’
Meeting amends the annual amount in the future. No directors other than the independent directors
will receive attendance fees.
The attendance fees granted to the independent members of the Board are allocated as follows on an
annual basis:
-
a global total amount of €40,000 per year is allocated to each of the independent members
of the Board; each absence from a Board meeting is sanctioned by a reduction of €5,000 of
said amount;
-
compensation of €18,000 per year is allocated to each of the members of the Audit
Committee; each absence from a Committee meeting is sanctioned by a reduction of
€4,500 of said amount;
-
compensation of €4,500 per year is allocated to each of the members of the Nominating
and Compensation Committee; each absence from a Committee meeting is sanctioned by
the loss of said amount;
-
the compensation described in the two paragraphs above is €22,000 per year for the
Chairman of the Audit Committee and €11,000 euros per year for the Chairman of the
Nominating and Compensation Committee; any absence by the Chairman from a meeting
of a Committee chaired thereby is be sanctioned by a €5,500 reduction of said amount.
This total amount will remain in force each year, except if a subsequent Shareholders’ Meeting should
decide, in the future, to amend the total amount of the attendance fees allocated to the Board.
Moreover, the amount of the attendance fees is allocated annually and will therefore be prorated in the
event of termination, for any reason, of the office of an independent Board member during the
Company’s fiscal year.
Attendance fees are generally paid quarterly.
The attendance fees and other compensation paid by the Company or by all Group companies to nonexecutive Board members of the Company were €0 in 2014 and €219,000 in 2013 and 2012.
267
Table showing the attendance fees and other compensation received by non-executive corporate
officers (Table 3 of the AMF Recommendation)
Non-executive corporate
Amounts paid in fiscal year 2013 Amounts paid in fiscal year 2014
officers
Other
Attendance fees
Other
Attendance fees
(amount paid in €)
compensation
compensation
0
0
0
0
Marco de Benedetti(1)
0
0
0
0
Dexter Goei
0
0
0
0
Jérémie Bonnin
0
0
0
0
Max Aaron(2)
(3)
0
0
0
0
Jean-Michel Hégésippe
0
0
74,445
0
Luce Gendry(4)
0
0
54,934
0
Olivier Huart(4)
(4)
0
0
62,345
0
Yaffa Nilly Sikorsky
27,276
0
0
0
Bernard Attali(5)
Angélique Benetti(6) (7)
0
0
Jean-René Fourtou(6)
0
0
0
0
(6)
0
0
TOTAL
0
0
Stéphane Roussel
Colette Neuville
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(6)
0
0
225,599
0
0
0
0
219,000
225,599
0
Marco de Benedetti was appointed by the Company’s Shareholders’ Meeting of September 6, 2013 and resigned from his office
of director on February 14, 2014.
Max Aaron was appointed by the Company’s Shareholders’ Meeting of October 21, 2013 and resigned from his office of director
on November 27, 2014.
Jean-Michel Hégésippe was co-opted as director by the Board of Directors on February 14, 2014, to replace Marco de Benedetti
and resigned from his office of director with effect as of November 27, 2014 and was re-appointed by the Company’s
Shareholders’ Meeting held on that same date.
Luce Gendry, Olivier Huart, and Yaffa Nilly Sikorsky, independent directors, were appointed by the Company’s Shareholders’
Meeting of October 21, 2013, with effect as of November 12, 2013. They did not receive any attendance fees or compensation
from the Company or any other Group company in 2013. Olivier Huart resigned from his office of Company director with effect
as of May 20, 2014 and Yaffa Nilly Sikorsky resigned from her office of Company director with effect as of November 27, 2014.
Bernard Attali was appointed as director by the Company’s Shareholders’ Meeting of May 20, 2014 and is considered
independent by the Company’s Board of Directors.
Angélique Benetti, Vivendi, whose first permanent representative is Jean-René Fourtou, Compagnie Financière du 42 avenue de
Friedland, whose first permanent representative is Stéphane Roussel, and Colette Neuville were appointed Company directors by
the Company’s Shareholders’ Meeting held on November 27, 2014. Colette Neuville is considered as an independent director by
the Company’s Board of Directors.
This compensation was received by virtue of the employment contract of Angélique Benetti.
Award of stock subscription or purchase options
At its meeting of October 28, 2014, the Board of Directors, having first sought the opinion of the
Nominating and Compensation Committee, decided to submit a draft resolution to the Shareholders’
Meeting to be held on November 27, 2014, intended to decide, among other things, on the
contribution of SFR shares, delegating authority to the Board of Directors for the purpose of awarding
stock subscription or purchase options to employees and corporate officers of the Company and its
eligible subsidiaries, up to the limit of 1% of the share capital and without exceeding the sub-ceiling
limit of 0.3% of the share capital, considering that the awards were made to corporate officers.
On the basis of this delegation of authority, a stock option plan was adopted in relation to the
acquisition of SFR.
Ten recipients (including the CEO) were concerned by this plan, the characteristics of which are
similar to the plans currently in force, such as:
268
-
The plan bans beneficiaries from using transactions to hedge the options awarded thereto;
-
The exercise of options is subject to several cumulative conditions:
-
-
Terms of exercise:
50% of options awarded to each beneficiary become exercisable as from the 2nd year
after their award;
25% of options, as from the 3rd year after their award; and the balance (i.e., 25%) as
from the 4th year after their award
-
Performance conditions:
The start of each option exercise period is contingent on the evaluation, in accordance
with the methods established by the Board, of performance conditions, among other
things, in relation to the variable compensation of the categories of beneficiaries
concerned.
-
Employment condition:
The beneficiary’s employment with the Company at the time the options are
exercised
-
It is, however, specified that in the event of a public offer of Company shares, the
beneficiaries of the stock option awards may, as of right, exercise the options
awarded thereto that have become exercisable, simply based on the length of time
during which they were held (without applying the performance conditions), as from
the date on which the offer was opened.
Term of options:
The options are exercisable for a period of 8 years as from the date of award.
The periods during which the stock options may not be exercised are in compliance with the
Company’s Code of Stock Market Ethics adopted by the Board of Directors.
Finally, the CEO will be required to retain at least 50% of the number of shares acquired through the
exercise of the remaining options, in registered form, after the transfer of the number of shares
necessary to finance the exercise of the options and payment of tax, payroll charges and expenses
relating to the transaction, until the termination of the CEO’s appointment.
Compensation paid by the subsidiaries or parent company of the Company, in accordance with
Article L. 233-16 of the French Commercial Code
This information is not provided as the compensation paid by the Company’s parent companies is not
to compensate the powers exercised within or on behalf of the Numericable-SFR Group.
15.1.2
Compensation of executive corporate officers
At its meeting of November 27, 2014 and on the recommendation of the Nominating and
Compensation Committee, the Board of Directors resolved that Patrick Drahi, the Company’s
Chairman, would not receive any compensation of any type from the Company, for his role as
Chairman of the Board.
269
The terms of the compensation and other benefits of Eric Denoyer for his role as CEO for the
Company since the acquisition of SFR, are described below.
▪ Fixed compensation
For his role as Company CEO, Eric Denoyer receives gross fixed annual compensation of €400,000,
payable monthly in arrears.
▪ Variable compensation
However, the Board of Directors may grant Eric Denoyer, for his role as Company CEO, additional
variable compensation to be paid annually, the amount of which will be determined by the Board
based on performance criteria set before the end of the previous year by the Board. The maximum
amount of variable compensation will be 150% of the amount of fixed compensation paid to Eric
Denoyer for the relevant fiscal year. For fiscal year 2014, the variable part of the compensation of
Eric Denoyer will be based on the following: achievement of the EBITDA-CAPEX budget and
growth in revenues realized during the year (criteria that will each year account for 50% of variable
compensation).
▪ Retirement benefits
Eric Denoyer does not have retirement benefits.
▪ Non-compete and severance pay
Severance pay will apply only in case of forced termination as a result of a change in control or
strategy (except in the event of gross negligence or misconduct in the performance of his duties).
Severance pay for Eric Denoyer is set at six months’ compensation (fixed and variable), which will
only be paid if the performance criteria of the variable component of said compensation have been
achieved during the two years prior to that during which Eric Denoyer leaves office.
Eric Denoyer is not bound by a non-compete clause and therefore will not receive non-compete pay if
he leaves the Company.
▪ Other benefits
Eric Denoyer has the use of a company car.
Stock options and performance shares
For information on the characteristics of stock option subscription plans implemented by the
Company and the award of options to Eric Denoyer, refer to Section 17.2.2 “Stock subscription or
purchase options and bonus share awards” of this Registration Document.
At the meeting held on January 10, 2014, the Company’s Board of Directors, on motion of the
Nominating and Compensation Committee, decided for fiscal year 2014 to apply the same fixed
compensation for Eric Denoyer, Chairman and CEO of the Company until November 27, 2014 and
CEO of the Company after that date, and, mutatis mutandis, the calculation methods of said variable
compensation for 2014; all other elements of his compensation, as set at the meeting of the Board of
Directors held on September 27, 2013 will remain unchanged and continue.
Extraordinary compensation for fiscal year 2014
270
At the meeting held on November 27, 2014 and on the recommendation of the Nominating and
Compensation Committee, the Board of Directors decided to pay Eric Denoyer an extraordinary
bonus of one million euros due to the successful acquisition of SFR.
The tables below show the compensation paid to Eric Denoyer, Chairman and CEO of the Company
until November 27, 2014 and CEO of the Company after that date, by the Company and by all Group
companies, in 2013 and 2014:
Summary table of compensation and stock options awarded to Eric Denoyer (Table 1 of the
AMF Recommendation)
Fiscal year 2013
Fiscal year 2014
Compensation due for the fiscal year(1)
381,644.81
1,639,815.37
(detailed in table 2)
Valuation of options awarded in the fiscal
3,880,894.00
4,438,737
year (detailed in table 4)(2)
Valuation of performance shares awarded in
None
None
the fiscal year (detailed in table 6)(2)
TOTAL
4,262,538.81
6,078,552.37
(1)
On a gross basis (before social security charges and tax).
(2)
Tables 4 and 6 are provided in Section 17.2.2 "Stock subscription or purchase options and bonus share awards" of this
Summary table of the compensation of Eric Denoyer (Table 2 of the AMF Recommendation)
2013
2014
Amounts due Amounts paid Amounts due Amounts paid
Fixed compensation(1)
214,722.25
214,722.25
308,333.33
308,333.33
Variable compensation(1)
140,400.00(2)
140,400.00(2)
295,500(3)
37,565(4)
(6)
1,000,000
0
Extraordinary compensation(1)
20,040.52(5)
20,040.52(5)
Attendance fees
Benefits in kind(7)
TOTAL
(1)
(2)
--
--
6,482.04
6,482.04
381,644.81
-6,482.04
-6,482.04
381,644.81 1,639,815.37
352,380.37
On a gross basis (before social security charges and tax).
Variable compensation based on the achievement of the EBITDA-CAPEX budget and growth in revenues realized during the
year.
(3)
(4)
(5)
(6)
(7)
This amount accounts for 90% of the targets for 2014 and was set by the Board of Directors on April 13, 2015.
Balance of the compensation paid for 2013, but actually paid in 2014.
Paid leave payments in relation to the termination of the employment contract held by Eric Denoyer until November 12, 2013,
the date on which he resigned from said employment contract in compliance with the recommendations of the AFEP-MEDEF
Code.
This extraordinary compensation corresponds to the bonus that the Board of Directors, at its meeting of November 27, 2014 and
on the recommendation of the Nominating and Compensation Committee, decided to pay Eric Denoyer due to the successful
acquisition of SFR. This compensation was paid in 2015.
Company car.
Employment contracts, supplementary retirement plans and payments or benefits (Table 10 of
the AMF Recommendation)
Payments or benefits Payments in
Supplementary due or potentially due as connection
Executive corporate
Employment
retirement
a result of the
with a nonofficers
contract
plan
termination or change of compete
duties
clause
Eric Denoyer
No(1)
No
Yes(2)
No
Office: Chairman and CEO
271
until November 27, 2014
and CEO thereafter
Office start date: August 2,
2013
Office end date:
Shareholders’ Meeting
called to approve the
financial statements for the
fiscal year ending
December 31, 2015
(1)
(2)
15.2
Eric Denoyer was an employee of Ypso France SAS until November 12, 2013, the date on which he resigned from said
employment contract in compliance with the recommendations of the AFEP-MEDEF Code.
See above. The approximate amount of these payments or benefits as of the date of this Registration Document was €500,000
(based on Eric Denoyer’s average monthly compensation for 2014).
AMOUNTS ACCRUED OR RECORDED BY THE COMPANY OR ITS
SUBSIDIARIES FOR THE PAYMENT OF PENSIONS, RETIREMENT OR OTHER
BENEFITS
The Group has set aside approximately five hundred thousand (500,000) euros as of December 31,
2014 for retirement benefits (general pension plan) for Executive Committee members.
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16.
OPERATION OF ADMINISTRATIVE AND MANAGEMENT BODIES
16.1
OFFICES OF MEMBERS OF ADMINISTRATIVE AND MANAGEMENT BODIES
The expiration dates of the terms of office of members of the Company’s Board of Directors and
Management Team are listed in Section 14.1 “Composition of management and supervisory bodies”
of this Registration Document.
16.2
INFORMATION ON THE SERVICE CONTRACTS LINKING MEMBERS OF THE
ADMINISTRATIVE AND MANAGEMENT BODIES TO THE COMPANY OR TO
ANY OF ITS SUBSIDIARIES
The few contracts concerned are disclosed in Section 19 “Related party transactions” of this
16.3
COMMITTEES OF THE BOARD OF DIRECTORS
In accordance with Article 17.4 of the Company’s Articles of Association and Article 1.4 of the Board
of Directors’ bylaws, the Board of Directors decided at its first meeting held following the listing of
the Company’s shares for trading on Euronext Paris (November 8, 2013) to create an Audit
Committee and a Nominating and Compensation Committee; the composition, functions, powers and
duties, and rules of operation of the Committees are described below.
The composition of the Committees complies with the recommendations in the AFEP-MEDEF Code.
Since the completion of the acquisition of SFR, i.e., since November 27, 2014:
-
the Audit Committee is composed of five members, three of whom are independent; and
-
the Nominating and Compensation Committee is composed of three members, two of whom
are independent.
16.3.1
Audit Committee
The Company’s Board of Directors has set up an Audit Committee. The bylaws of the Audit
Committee are as follows.
16.3.1.1 Composition (Article 2 of the bylaws of the Audit Committee)
Since the completion date of the acquisition of SFR, i.e., since November 27, 2014, the Audit
Committee is composed of five members, three of whom (Luce Gendry, Colette Neuville and Bernard
Attali) were appointed from among the independent members of the Board of Directors, one member
(Jérémie Bonnin) was appointed by the shareholder Altice from among its representatives on the
Board, and one member (Jean-René Fourtou) was appointed by the shareholder Vivendi from among
its representatives on the Board. The composition of the Audit Committee may be changed by the
Board of Directors on the request of its Chair; changing the composition of the Audit Committee is
mandatory in the event of a change in the composition of the Board of Directors.
Specifically, the applicable corporate governance laws require Committee members to have
significant financial and/or accounting expertise.
All Audit Committee members, upon being appointed, must be given full access to detailed
accounting, financial and operational information about the Company.
The terms of office of Audit Committee members coincide with their terms of office as members of
the Board of Directors. They may be reappointed to both bodies at the same time.
273
The Chair of the Audit Committee, Luce Gendry, was appointed on the recommendation of the
Nominating and Compensation Committee from among the independent members. Executive
corporate officers cannot be members of the Audit Committee.
The secretarial functions of the Committee’s work are performed by any person appointed by the
Committee Chair or with the Chair’s consent.
16.3.1.2 Functions, powers and duties (Article 1 of the bylaws of the Audit Committee)
The Committee’s mission is to follow up on issues relating to the preparation and auditing of
accounting and financial information and to ensure the efficacy of the risk management mechanism
and internal operational controls in order to be able to assist the Board of Directors in its oversight
and control duties.
Within this framework, the Audit Committee’s main duties are as follows:
(i)
Monitoring the process of preparing financial information.
The Audit Committee has a duty to review the annual and semi-annual statutory and
consolidated financial statements prior to their presentation to the Board of Directors, and
satisfy itself of the relevance and consistency of the accounting principles used in preparing
them. The Committee must also focus, as necessary, on all major transactions that may entail
a risk of conflict of interest.
The Audit Committee must, in particular, review provisions and adjustments thereto including
all circumstances that may generate a significant risk for the Group, as well as all financial
information and quarterly, semi-annual and annual reports on the Company’s business affairs
or those prepared for a specific transaction (contribution, merger, stock market transaction,
etc.).
Such reviews must be carried out no later than two (2) days before the Board’s review.
The review of financial statements must be accompanied by a presentation by the Statutory
Auditors indicating the key aspects of the results and accounting options adopted, as well as a
presentation by the Management Team describing the Company’s risk exposure and
significant off-balance-sheet arrangements.
(ii)
Monitoring the efficacy of internal control, internal audit, and risk management systems
relating to financial and accounting information.
The Audit Committee must satisfy itself of the relevance, reliability and proper
implementation of the Company’s internal control, identification, hedging and risk
management procedures relating to its activities and accounting and financial information.
The Committee must also review all significant off-balance-sheet risks and arrangements of
the Company and its subsidiaries. The Committee must in particular interview internal audit
managers and regularly review business risk mapping. It must also give its opinion on the
organization of the department and remain informed of its audit programs. It must be a
recipient of internal audit reports or periodic summaries of those reports.
(iii)
Monitoring of the legally required audits of the statutory and consolidated financial
statements by the Company’s Statutory Auditors.
274
The Audit Committee has a duty to monitor the Company’s Statutory Auditors (including
when members of the Management Team are not present) and remain informed of their audit
program, any problems encountered in the performance of their audits, changes that in their
view should be made to the Company’s financial statements or other accounting documents,
any accounting irregularities, anomalies or inaccuracies revealed, significant uncertainties and
risks relating to the preparation and treatment of accounting and financial information, and
significant weaknesses in internal control that they may have uncovered.
(iv)
Monitoring of the independence of the Statutory Auditors.
The Committee has a duty to steer the procedure for selecting and reappointing Statutory
Auditors, and to submit the results of that selection to the Board of Directors. When the
appointments of Statutory Auditors end, the selection or reappointment of Statutory Auditors
may be preceded, on motion by the Committee and on decision by the Board, by a call for
tenders supervised by the Audit Committee which ensures that the “best submission” and not
the “cheapest submission” is selected.
To permit the Committee to monitor, throughout the lifetime of the Statutory Auditors’
appointment, the latter’s required independence and objectivity, the Audit Committee must
ensure that it receives on an annual basis:
-
the Statutory Auditors’ statement of independence;
-
the amount of fees paid to the Statutory Auditors’ network by the companies controlled
by the Company and by the entity that controls it when rendering services not directly
related to its Statutory Auditors’ mission;
-
information on the services rendered that are directly related to the Statutory Auditors’
duties.
The Committee must also, with the Statutory Auditors, review all risks impacting their
independence and the protective measures taken to mitigate those risks. It must also satisfy
itself that the fees paid by the Company and the Group, or the percentage of the firm’s (and
firm’s network’s) total revenue that they represent, do not compromise the Statutory Auditors’
independence.
The Statutory Auditor’s appointment must be totally separate from all other work unrelated to
the statutory audit. The selected Statutory Auditors and the network to which they belong
must refrain from all other direct and indirect advisory activities (legal, tax, IT, etc.), when
focusing on the Company that selected them or the companies that such Company controls.
However, provided the Audit Committee has given its prior consent, they may perform work
that is ancillary to or directly complements their mandate such as acquisition or postacquisition audits but excluding valuation and consulting.
The Committee reports regularly on its work to the Board of Directors and informs the latter
immediately of any problem encountered.
16.3.1.3 Operation (Article 3 of the bylaws of the Audit Committee)
The Audit Committee may validly deliberate when meeting physically or by phone or
videoconference, under the same conditions as the Board, when convened by the Chair or Secretary of
the Committee, on condition that at least half its members participate.
Notices of meeting must include an agenda and may be communicated by any means including
verbally.
275
The Audit Committee makes decisions by a majority vote of its members participating in the meeting,
with each member exercising one vote.
The Audit Committee meets as often as required, for any reason, and in any case at least twice a year
for the preparation of the annual and semi-annual financial statements.
Its meetings are held before the Board of Directors’ meeting and, if at all possible, no later than two
days before the Board Meeting if the Audit Committee agenda includes the review of the annual or
semi-annual financial statements prior to their review by the Board of Directors.
16.3.2
Nominating and Compensation Committee
The Company’s Board of Directors has set up a Nominating and Compensation Committee. The
bylaws of the Nominating and Compensation Committee are as follows.
16.3.2.1 Composition (Article 2 of the bylaws of the Nominating and Compensation
Committee)
Since the completion date of the acquisition of SFR, i.e., since November 27, 2014, the Nominating
and Compensation Committee is composed of three members (Bernard Attali, Luce Gendry and
Dexter Goei), two of whom are independent members of the Board of Directors. They were appointed
by the Board from among its members in view of their independence and their expertise in the
selection and compensation of the corporate officers of listed companies. Executive corporate officers
cannot be members of the Nominating and Compensation Committee.
One member of the Nominating and Compensation Committee (Dexter Goei) was appointed from
among Altice’s representatives on the Board.
The composition of the Nominating and Compensation Committee may be modified by the Board of
Directors at the request of its Chairman, and in any case must be modified in the event of any change
in the overall composition of the Board of Directors.
The terms of office of Nominating and Compensation Committee members coincide with their terms
of office as members of the Board of Directors. They may be reappointed to both bodies at the same
time.
The Chair of the Nominating and Compensation Committee (Bernard Attali), was appointed from
among the independent members of the Board of Directors on the recommendation of the Board’s
Chairman.
The secretarial functions of the Committee’s work are performed by any person appointed by the
Committee Chair or with the Chair’s consent.
16.3.2.2 Functions, powers and duties (Article 1 of the bylaws of the Nominating and
Compensation Committee)
The Nominating and Compensation Committee is a special committee of the Board of Directors
whose main mission is to assist the Board in deciding the composition of the Company’s and Group’s
management bodies and in reviewing on a regular basis all the compensation and benefits paid to the
Group’s corporate officers and executives, including deferred benefits and/or packages for voluntary
or involuntary severance.
Within this framework, the Committee’s main duties are:
276

Recommend candidates for membership on the Board of Directors, Management Team and
Board Committees
The Nominating and Compensation Committee’s main mission is to recommend candidates for
membership on the Board of Directors (to be ratified by the Shareholders’ Meeting or by
cooptation) and candidates for membership on the Management Team, as well as the members
and Chairs of other Board Committees.
To this end, it sends reasoned proposals to the Board of Directors. The Board’s decisions are
guided by the interests of the Company’s shareholders. In general, the Committee must strive to
reflect the diversity of experience and points of view, while ensuring a high level of
competence, internal and external credibility, and the stability of the Company’s corporate
structure. It also keeps updated a succession plan for members of the Board of Directors and the
Management Team as well as for the Group’s key executives so that it can quickly recommend
to the Board of Directors candidates in the event of an unforeseen vacancy.
When recommending appointments specifically to the Board of Directors, the Committee takes
the following criteria into account: (i) a balanced composition to reflect the composition of the
Company’s shareholding including any changes to it, (ii) the desired number of independent
members, (iii) the gender balance required by applicable regulations, (iv) the opportunity to
renew appointments, and (v) the integrity, expertise, experience and independence of each
candidate. The Nominating and Compensation Committee also has a duty to set up a procedure
for selecting future independent members and for carrying out its own due diligence on
potential candidates before the candidates are approached.
When it makes its recommendations, the Nominating and Compensation Committee must make
sure that the Board and its Special Committees, in particular the Audit Committee and the
Nominating and Compensation Committee, have at least the minimum number of independent
members required by the governance principles to which the Company adheres.

Annual review of the independence of the Board of Directors
The Nominating and Compensation Committee, on an annual basis, before the publication of
the Company’s annual report, reviews the circumstances of every Board member in terms of
the independence criteria adopted by the Company, and submits its opinion to the Board for the
latter to review the independence of its members in accordance with those criteria.

Review and recommendation to the Board of Directors regarding all the components and terms
of the compensation of the key executives of the Group
The Committee makes recommendations that include the fixed and variable compensation as
well as, if applicable, any stock subscription or purchase options, performance share awards,
retirement and other benefits plans, severance packages, benefits in kind, special benefits, and
any other direct or indirect element of compensation (including long-term) that may constitute
compensation paid to the members of the Management Team.
The Committee is kept informed of all such compensation elements for the Group’s key
executives and all pay-related policies implemented within the Group.
In performing its reviews and preparing its recommendations, the Committee takes into account
the corporate governance practices to which the Company adheres, in particular:
(a)
The total compensation paid to the members of the Management Team that is subject to
Board of Directors’ approval takes into account the Company’s overall interests, market
practices, and the individual performance of members of the Management Team.
277

(b)
Every element of the compensation of the members of the Management Team is clearly
explained and is consistent with the Company’s overall interests. The appropriateness of
the recommended compensation must be assessed in terms of the Company’s business
environment and by reference to prevailing French and international market practices.
(c)
The compensation paid to members of the Management Team must be calculated fairly
and consistently with the Group’s other management tiers, taking into account their
responsibilities, expertise, and personal contributions to the Group’s performance and
growth.
(d)
The Committee recommends the criteria for calculating the variable portion of the
compensation paid to members of the Management Team, which must be consistent with
their annual performance reviews and with the Group’s strategy. The performance
criteria used to calculate the variable portion of the compensation paid to members of the
Management Team, whether in the form of bonuses or stock subscription or purchase
options, or performance shares, must be simple to calculate and explain, must
appropriately reflect the Group’s performance and economic development targets at least
in the medium term, must be transparent and understandable for shareholders when
reading the annual report and at shareholders’ meetings, and must be consistent with the
Company’s business goals and normal practices in terms of executive compensation.
(e)
The Committee monitors changes to the fixed and variable portions of the compensation
to senior management over multiple years in terms of the Group’s performance.
(f)
When stock subscription or purchase options and performance shares are awarded, the
Committee verifies that such awards are driven by the goal to strengthen long-term ties
between the interests of the beneficiaries and the interests of the Company. All members
of the Management Team must make a commitment not to enter into hedging agreements
in respect of such stock options or performance shares.
(g)
The same methodology applies to the assessment of compensation and benefits paid to
Group executives who are not members of the Company’s Management Team and, in
general, to all related policies.
(h)
In all the matters mentioned above, the Group may make any recommendation on its own
initiative or at the request of the Board of Directors or of the Management Team.
Review and recommendation to the Board of Directors regarding the method for distributing
attendance fees
The Committee recommends to the Board of Directors how to distribute the total attendance
fees among the individual Board members, taking into account their diligence and contribution
to the Board and its Committees, their responsibilities, and the time they had to devote to their
duties.
The Committee also recommends the compensation to be paid to the Chairman and Vice
Chairman of the Company’s Board of Directors.

Exceptional assignments
The Committee is asked to recommend to the Board of Directors the compensation for
exceptional assignments that the Board may ask one or more of its members to perform.
278
16.3.2.3 Operation (Article 3 of the bylaws of the Nominating and Compensation Committee)
The Nominating and Compensation Committee may validly deliberate when meeting physically or by
phone or videoconference, under the same conditions as the Board, when convened by the Chairman
or Secretary of the Committee, on condition that at least half its members participate. Notices of
meeting must include an agenda and may be communicated by any means including verbally.
The Nominating and Compensation Committee makes decisions by a majority vote of its members
participating in the meeting, with each member exercising one vote.
The Nominating and Compensation Committee meets as often as necessary and in any case at least
once a year, prior to the Board of Directors meeting held to review the independence of Board
members as measured by the independence criteria adopted by the Company and in any case prior to
any Board of Directors meeting held to set the compensation paid to members of the Management
Team or how to allocate attendance fees.
16.4
CORPORATE GOVERNANCE STATEMENT
Since the listing of Company shares for trading on Euronext Paris on November 12, 2013, the
Company, subject to the following provisions, refers and adheres to the Corporate Governance Code
for listed companies published by AFEP and MEDEF in December 2008 and amended in April 2010
and June 2013 (the “AFEP-MEDEF Code”).
The AFEP-MEDEF can be consulted on the AFEP website (www.afep.com) and the MEDEF website
(www.medef.com).
Recommendations not adopted
Reasons
Regarding stock subscription options
awarded to the Chief Executive Officer
(the Company’s Chairman and Chief
Executive Officer until November 27,
2014 and thereafter its CEO) in fiscal
year 2014:
The portion of the Chief Executive Officer’s compensation
representing the stock subscription options awarded to him
represents approximately 77% of his total annual compensation
(including options) owed for the fiscal year ended December
31, 2014, which is a significantly higher percentage than the
average in companies that follow the AFEP-MEDEF Code
(according to the AFEP-MEDEF annual corporate governance
report). This percentage reflects the fact that the Chief
“Balance
between
compensation
Executive Officer’s fixed and variable compensation is very
items” (§ 23.1 of the AFEP-MEDEF
significantly less than the average compensation for (nonCode)
founding) Chairmen & CEOs of a basket of French companies
in the telephony, Internet and TV sector (compensation below
Balanced
distribution:
the 88% of the average).
determination of annual fixed and
variable compensation as well as all
multiannual compensation, including
the award of stock options and
performance shares, must be done
fairly” (§ 23.1 of the AFEP-MEDEF
Code)
“Stock options and performance
shares valued in accordance with IFRS
must not be a disproportional
percentage of the total compensation,
options and shares awarded to a
corporate officer” (§ 23.2.4 of the
279
AFEP-MEDEF Code)
“Grant compensation and benefits
over the same calendar periods, for
example after the publication of the
previous year’s financial statements,
and without fail every year, which
should limit windfall effects” (§ 23.2.4
of the AFEP-MEDEF Code)
The Company has adopted such a policy, subject to
exceptional circumstances. Accordingly, stock subscription
options were awarded in January, May and November 2014 as
new members joined the Group Executive Committee and the
SFR acquisition was completed, an exceptional event that
justified the award of options to the executives of the resulting
new Group, given the size of the Group and the executives’
new challenges resulting from the consolidation of the two
Groups. None of these awards were made with the goal or
intention of creating windfalls and countervailing the
recommendation, as the majority of awards were made on
identical terms and conditions, i.e., only slightly more
advantageous than the stock subscription terms widely
available for investors as a whole (in the IPO, capital increase
with preferential subscription rights).
Three of the ten directors are independent, which is a percentage (30%) slightly below the threshold
for third parties in the AFEP-MEDEF Corporate Governance Code for listed companies (the “AFEPMEDEF Code”). However, once the Vivendi shares are sold in accordance with the agreements
signed on February 27, 2015, Jean-René Fourtou and Stéphane Roussel will resign their directorships
with the result that, from that date, three (37.5%) of the remaining eight directors will be independent,
fully complying with the one-third-independent rule in the AFEP-MEDEF Code.
16.5
INTERNAL CONTROL
The Company’s Board of Directors is responsible for the Group’s internal control systems and for
reviewing their efficacy. The Group’s risk management procedures, and uniform and harmonized
internal control systems, are designed to limit and not to eliminate the risk of not achieving its
strategic goals. These systems cannot provide absolute or reasonable assurance of the absence of
inaccuracies or losses. Risk assessment forms an integral part of annual planning and budget
preparation and its results are reviewed by the Company’s Management Committee and Board of
Directors. The Company has also set up an ongoing program of operational controls and audits, and
coordinated self-assessments of financial controls. The results of these controls are sent to the Group’s
internal audit department which then, on behalf of the Group’s Board of Directors, carries out an
annual assessment of the efficacy of the Group’s internal controls and risk management system.
For more details, see also Section 4.6.2 “Internal control and risk management procedures” of this
The Chairman’s report on corporate governance and internal control, and the Statutory Auditors’
report on the Chairman’s report on corporate governance and internal control are available on the
Company’s website.
280
17.
EMPLOYEES
17.1
INTRODUCTION
17.1.1
Size and composition of workforce
As of December 31, 2014, the Group had 10,591 employees.
The Group’s unrecoverable payroll expense 15 for fiscal 2014 was approximately €843 million. As of
December 31, 2014, all Group employees, with the exception of SFR Group in Réunion, were located
in metropolitan France.
The following table shows, by type of activity, the Group’s workforce on permanent contracts at
December 31, 2012, 2013 and 2014 for Numericable Group and at December 31, 2014 for SFR
Group:
Numericable Group
At December 31
Type of activity
2013(1)
2012
SFR Group
2014
2014(2)
Administrative (central services/head
16
18
office) ..............................................................................................................................
20
Wholesale ................................................................................................................
26
44
30
182
HR, IT and Logistics ...............................................................................................
138
138
143
1,420
Sales and Marketing ................................................................................................
877
925
909
4,447
Finance ....................................................................................................................
133
134
145
353
Technical support ....................................................................................................
700
696
705
1,857
Secretarial, legal and compliance ............................................................................
20
23
31
348
TOTAL...................................................................................................................
1,910
1,978
1,983
8,608
(1)
(2)
Excluding LTI Telecom.
The scope may be different from that of Numericable Group
The Group’s HR departments have put in place a dynamic jobs promotion policy, aimed at:

attracting, integrating and retaining talent,

ensuring the employability of existing employees and helping them to boost their skills,

and encouraging their mobility within the Group.
The following table shows, by type of activity, the Group’s workforce on permanent contracts at
December 31, 2012, 2013 (including LTI Telecom for Numericable Group) and 2014 for Numericable
Group and at December 31, 2014 for SFR Group:
Numericable Group
At December 31
Occupational category
Managers
Senior technicians and supervisors
15
Payroll restated to include B3G and Altitude Telecom in 2011.
281
SFR Group
2012
2013(1)
2014
2014(2)
1,015
1,096
1,071
6,164
322
356
337
2,444
Operators, employees and technicians (Non
Managers)
573
625
575
TOTAL
1,910
2,077
1,983
(3)
(4)
8,608
Data includes LTI Telecom.
The scope may be different from that of Numericable Group.
The following table shows the proportion of women in the Group’s workforce at December 31, 2012,
2013 and 2014 for Numericable Group and at December 31, 2014 for SFR Group:
Numericable Group
At December 31
Percentage of women
2013
2014
2014
Women as % of workforce ................................................................................
32%
34%
34%
39%
Women
as
%
of
Managers
24%
25%
(supervisors) ....................................................................................................................
25%
30%
(1)
2012
SFR
Group(1)
The following table shows the distribution of the workforce by type of contract at December 31, 2012,
2013 and 2014 for Numericable Group and at December 31, 2014 for SFR Group:
Numericable Group
At December 31
SFR Group
2013
2014
2014(1)
Permanent ..........................................................................................................
97%
95%
93%
92%
Other ..................................................................................................................
3%
5%
7%
9%
o/w temporary employees .............................................................................
1%
1%
1%
1%
% by type of contract
2012
282
(1)
The Group may use temporary employees as a way of pre-selecting candidates for permanent
employment.
The following table shows the breakdown of permanent contracts by age bracket as of December 31,
2012, 2013 and 2014 for Numericable Group and December 31, 2014 for SFR Group:
Numericable Group
At December 31
2012
2013
2014
2014(1)
< 25
6%
4%
2%
1%
25 - 40
63%
58%
56%
49%
41 - 55
28%
34%
37%
46%
56 - 60
2%
4%
4%
3%
> 60
1%
1%
1%
1%
Age bracket
(1)
17.1.2
SFR Group
Jobs and working conditions
The following table shows the changes in jobs over the last three years for Numericable Group and at
December 31, 2014 for SFR Group:
2014
SFR Group(4)
Turnover of permanent staff(2) ........................................................................................
13%
10%
14%
5.8%
Voluntary turnover of perm. staff ....................................................................................
4%
2%
3%
1.1%
Hiring rate(3).....................................................................................................................
23%
19%
12.3%
10.6%
Hiring rate of perm. staff .................................................................................................
19%
14%
7.1%
4.4%
% registered disabled .......................................................................................................
0.5%
0.5%
0.6%
2.7%
Jobs
2012
2013(1)
(1)
Excluding internal transfers.
(3)
Total number of people hired in the period as % of total workforce at December 31 of the year concerned.
(4)
(2)
For meaningful analysis, total staff turnover must be broken down by business segment. The
following table shows absenteeism over the last three years for Numericable Group and at December
31, 2014 for SFR Group:
Numericable Group
2014
2014(2)
Absenteeism(1).................................................................................................
11%
9%
6%
5%
Overtime .........................................................................................................
31,360
21,280
22,351
8,676
Working conditions
(1)
(2)
SFR Group
2012
Number of days absent as percentage of total theoretical work days.
283
2013
The following table shows the workplace safety trends over the last three fiscal years for Numericable
Group and at December 31, 2014 for SFR Group:
SFR Group(4)
Numericable Group
Workplace safety
2013(1)
2012
Number of fatal accidents ...............................................................................
0
0
(2)
Frequency rate .............................................................................................
11
11
(3)
Severity rate .................................................................................................
0.63
0.52
2014
2014
0
0
13
3
0.43
0
Number of employees on strike
9
4
0
0
Number of days on strike
8
44
0
0
(1)
Number of accidents (involving one or more lost work days) per million hours worked.
(3)
Number of days lost per thousand hours worked.
(4)
(2)
Workplace equality
An enterprise-wide agreement on workplace equality was signed in June 2013 by the YPSO economic
and social unit consisting of Ypso France SAS, Numericable, NC Numericable and EstVideocommunication, making up the B2C component of Numericable Group. The management
bodies and trade unions signing it agreed that workplace equality extends beyond gender equality.
Wishing to broaden the concept and make it proactive, the parties agreed that workplace equality
should also include efforts to sustain employability, including access to jobs, training, support for
career plans, professional mobility and pay rises.
This three-year agreement lays the basis for joint analysis based on targets in five fields:
-
workplace equality in the literal sense of equal pay for equal work;
-
workplace equality in the sense of equal pay for women and men;
-
recruitment - employment: actions to promote gender equality;
-
actions to promote work/life balance (including parental); and
-
training.
17.1.3
Training
In 2014, the Group spent approximately €22.5 million on staff training, for 8,059 employees totaling
283,161.25 hours of training.
Numericable Group
2012
2014
SFR Group
2014(2)
2,449,978
20,037,693
Employees receiving training ...............................................................................
816
705
946
7,113
Total number of hours of training.........................................................................
28,560
32,592.5
17,607.25
265,554
Training
2013
Total training expense (in €) ............................................................................................
2,592,900 2,565,769
_____________________________________________
(1)
(2)
SFR Group
Average length of training per employee trained.
284
17.1.4
Compensation policy
The Group’s policy is to include a variable component in every employee’s total compensation. Its
percentage of total compensation varies by function. The percentage is higher for sales staff (in the
order of 50% of total compensation, on average) and rises for every higher management level. For
non-sales staff, the variable portion is on average 10% to 50% of the fixed component.
With the exception of sales staff, whose compensation is indexed to their business results (sales and
customer retention), the targets and basis for calculating variable compensation are set at the
employee’s annual performance review.
17.1.5
Industrial relations
Numericable Group
NC Numericable and Completel each have:

a works council;

a workplace health & safety committee;

staff representatives organized by geographical region.
LTI Telecom has one staff representative and a workplace health & safety committee.
As of December 31, 2014 Numericable Group had 1,983 permanent employees, some of whom are
union members. Numericable Group believes that on the whole it has satisfactory working
relationships with its employees and has not experienced major labor conflicts or strikes since early
2009 when some employees went on strike as a result of the Group’s decision to no longer employ
door-to-door salespeople.
Numericable Group negotiated the creation of a Group committee, formed from its existing company
works councils. This means that the Group has introduced an additional level of bargaining with
union representatives, which, on matters of common interest, may lead to Group-wide agreements
applicable to all Numericable Group companies. The subsidiarity principle would therefore apply,
which means that matters not handled at Group level would be resolved at local level by Numericable
and Completel entities.
The Group committee intends, in 2015, to include the representatives of the companies who have
recently joined the Group (SFR and subsidiaries, Telindus, Omea Telecom).
SFR Group
SFR Group set up an internal Economic and Social Unit (ESU) which covers the companies SFR SA,
SFR Collectivités, SFR Service Client (including Neuf Assistance and Neuf Center), SRR and LTBR. The ESU has:

a central works council;

three local works councils;

20 workplace health & safety committees; and

employee representatives in every entity.
285
However, the entities consolidated under SIG 5016, which operate in the distribution sector (5 sur 5
S.A., SFD and Futur Telecom), are because of their shareholding (SFR holding less than 50% of
capital) outside the scope of the SFR ESU and have their own staff representation which negotiates
their own collective agreements.
In November 2012, SFR signed an agreement on social dialog setting out guidelines for social dialog
in the company.
Union representation within the SFR ESU consists of four unions recognized as being representative
in the last internal elections (the next ones are scheduled for October 2015), as follows:
1- UNSA
2- CFE-CGC
3- CFDT
4- CGT
SUD represents only customer service.
In 2014, bargaining with union representatives resulted in the signing of 13 collective agreements
covering most organizations.
Additionally, on November 28, 2012, SFR announced its restructuring project to migrate from
telecom operations to digital operations. As part of this project, employee representatives delivered an
opinion on the proposed restructuring and on an agreement for support measures for existing
employees. All these measures are covered by the Professional Mobility Plan (“PMP”) of April 11,
2013 to August 31, 2013, which defined the mechanism and guarantees for an internal mobility plan
and the terms & conditions of voluntary layoffs to suit each employee’s career plans.
The PMP involved more than 1,500 internal staff movements. A total of 855 jobs were lost and 158
jobs created, for a net total of 697 jobs lost.
As part of the acquisition of SFR, in a letter to Vivendi and SFR dated March 25, 2014, Altice and
Numericable Group made a unilateral commitment not to question SFR’s collective status and not to
dismiss SFR employees for economic reasons as part of a collective severance package, for three
years counting from the end of the exclusivity period between Vivendi’s Supervisory Board and
Altice and Numericable Group, i.e., until April 4, 2017, unless economic conditions unexpectedly
change. These commitments were confirmed during the bargaining for a collective agreement on jobs,
which was signed by all SFR unions and extend the guarantees until June 20, 2017.
The same commitment was confirmed regarding Numericable Group in the collective agreement for
NC Numericable, Completel and LTI Telecom.
17.2
17.2.1
SHARES AND STOCK SUBSCRIPTION OR PURCHASE OPTIONS HELD BY
MEMBERS OF THE BOARD OF DIRECTORS AND OF THE MANAGEMENT
TEAM AND CERTAIN EMPLOYEES OF THE GROUP
Employee shareholding
Increase in capital reserved for employees
16
Note that SFD and 5/5 are not part of SFR Group or SIG 50 Group. The two entities are consolidated simply on the basis
of the “puts” and “calls” between the major shareholders and SFR and SIG 50.
286
In November 2013, as part of the listing of the Company’s shares for trading on Euronext Paris, the
Company introduced a capital increase reserved for employees and certain other similar beneficiaries
of the Group’s French subsidiaries who are members of a company or Group savings plan, in the
amount of €1,034,417.92 (issue premium included) representing 52,138 shares, or approximately
0.04% of the Company’s share capital, on completion of the capital increase.
In extending the capital increase with preferential subscription rights in November 2014 to partially
fund the acquisition of SFR, on December 30, 2014 the Company introduced a capital increase
reserved for employees and certain other similar beneficiaries of the Group’s French subsidiaries who
are members of a company or Group savings plan, in the amount of €453,827.85 (issue premium
included) representing 19,353 shares, or approximately 0.004% of the Company’s share capital, on
completion of the capital increase.
17.2.1.1 Shareholding by members of the Board of Directors and of the Management Team
Directors
The following shows each director’s shareholding in the Company as of the date of the Registration
Document:
Number of
shares and
voting rights
Company Directors
Patrick Drahi, Chairman ...................................................................................
0(1)
Dexter Goei ......................................................................................................
100,890(2)
Jérémie Bonnin ................................................................................................. 325(3)
Jean-Michel Hégésippe ....................................................................................
100
Angélique Benetti .............................................................................................
100
Luce Gendry .....................................................................................................
100
Bernard Attali ...................................................................................................
100
Jean-René Fourtou (*) ......................................................................................
0
Stéphane Roussel (**) ......................................................................................
0
Colette Neuville................................................................................................
425
TOTAL ............................................................................................................ 1,150
(1)
(2)
(3)
(*)
(**)
In addition, Patrick Drahi is a controlling shareholder in Altice, through the company Next L.P. which
he controls.
In addition, Dexter Goei directly holds a very marginal stake in Altice S.A.
In addition, Jérémie Bonnin holds a very marginal stake in Altice S.A.
In addition, Vivendi represented by Jean-René Fourtou has an equity interest in the Company.
In addition, Compagnie Financière represented by Stéphane Roussel has an equity interest in Vivendi
which in turn has an equity interest in the Company.
Management Team
As of the date of this Registration Document, the Company’s Chief Executive Officer Eric Denoyer
directly owns 100 shares in the Company.
287
Lastly, with the exception of the stock subscription options described in Section 17.2.2.1 “Stock
subscription or purchase options” of the Registration Document, no securities have been issued giving
access to Company capital.
17.2.2
Stock subscription or purchase options and bonus share awards
17.2.2.1 Stock subscription or purchase options
17.2.2.1.1
Description of the stock subscription option plans set up by the Company
The Company introduced four stock subscription option plans, the first in November 2013, the second
in January 2014, the third in May 2014, and the fourth in November 2014. The first plan was directly
linked to the success of the Company’s IPO on the Euronext regulated market in Paris, the second and
third were connected with the arrival of new executives in the Group, and the fourth was connected
with the acquisition of SFR.
At its meeting of March 11, 2014, the Company’s Board of Directors decided, on the recommendation
of the Nominating and Appointments Committee, to set the schedule for the award of stock
subscription options and to limit them, except in exceptional circumstances, to the period following
the release of annual results in March and of first-half results in September.
Stock subscription option plans of November 7, 2013
At its meeting of November 7, 2013 the Board of Directors adopted a stock subscription option plan.
This plan (the “First Plan”) was adopted under the authority granted to the Board of Directors by the
Shareholders’ Meeting of October 25, 2013 to award stock subscription or purchase options to
employees and corporate officers of the Company and of its eligible subsidiaries, provided they do not
exceed 3% of share capital and the awards to corporate officers do not exceed 1% of share capital.
The First Plan consists of options to subscribe to 1% of share capital after the 2.5% contributions for
all allocations (including corporate officers) and for the Chairman and CEO, Eric Denoyer, in
particular. The plan covers a total 5,226,791 stock options equating to 5,226,791 shares (a number
adjusted by the effect of the capital increase in November 2014).
The beneficiaries are seven people, plus the Chairman & Chief Executive Officer.
Options are awarded by taking into account the beneficiary’s performance, primarily as assessed at
their September 30, 2013 performance review to determine the variable portion of their compensation.
The key features of the First Plan are as follows:
- The exercise price of the options is equal to the IPO price, i.e., €24.80, which is the best
estimate of the company’s value at that date by applying generally accepted methods;
-
The Plan requires the beneficiaries of options to refrain from hedging their risks. All
beneficiaries (including the Chairman & CEO) have signed a formal agreement not to enter
into hedging arrangements.
-
The exercise of options is subject to multiple cumulative conditions:
-
Exercise period:
 50% of the options awarded to each beneficiary become exercisable on the
2nd anniversary of their award date;
 25% of the options awarded to each beneficiary become exercisable on the 3rd
anniversary of their award date; and
 all remaining options (25% of the total) awarded to each beneficiary become
exercisable on the 4th anniversary of their award date.
-
288
The exercise period for options cannot start until and unless the performance
conditions for variable compensation, as set by the Board of Directors, have been met
by the beneficiary concerned.
However, in the case of a takeover bid targeting the Company, the beneficiaries of the
awards are automatically entitled to exercise the options that they have been awarded,
the options becoming immediately exercisable simply by virtue of holding them
(regardless of performance conditions), from the date of the takeover bid.
-
-
exercised.
Term of options:
The options are exercisable for a period of eight years as from the date of award.
Finally, Eric Denoyer is required to retain at least 50% of the number of shares acquired
through the exercise of the remaining options, in registered form, after the transfer of the
number of shares necessary to finance the exercise of the options and payment of tax, payroll
charges and expenses relating to the transaction, until the termination of his appointment.
Stock subscription option plans of January 10, 2014
At its meeting of January 10, 2014 the Board of Directors adopted a stock subscription option plan.
This plan (the “Second Plan”) was adopted under the authority granted to the Board of Directors by
the Shareholders’ Meeting of October 25, 2013 to award stock subscription or purchase options to
The Second Plan covers options to subscribe to shares representing approximately 0.23% of share
capital as the total for all awards combined. The plan covers a total 528,192 stock options equating to
528,192 shares (a number adjusted by the effect of the capital increase in November 2014).
The beneficiaries are four individuals, none of them a corporate officer.
The key features of the Second Plan are as follows:
- The option exercise price is €27.62. This price is 100% of the weighted average price of
Company shares on the Euronext regulated market in Paris over the 20 trading days
immediately preceding January 10, 2014, in accordance with Article L. 225-177 of the French
Commercial Code.
-
beneficiaries have signed a formal agreement not to enter into hedging arrangements.
-
-
Exercise period:
-
289
-
-
exercised.
Term of options:
Stock subscription option plans of May 28, 2014
At its meeting of May 28, 2014 the Board of Directors adopted a stock subscription option plan. This
plan (the “Third Plan”) was adopted under the authority granted to the Board of Directors by the
Shareholders’ Meeting of October 25, 2013 to award stock subscription or purchase options to
The Third Plan covers a total 91,855 stock options equating to 91,855 shares (a number adjusted by
the effect of the capital increase in November 2014).
The Third Plan has only one beneficiary, who is not a corporate officer.
The key features of the Third Plan are as follows:
immediately preceding May 28, 2014 in accordance with Article L. 225-177 of the French
Commercial Code.
-
-
-
Exercise period:
-
290
-
-
exercised.
Term of options:
Stock subscription option plans of November 28, 2014
At its meeting of November 28, 2014 the Board of Directors adopted a stock subscription option plan.
This plan (the “Fourth Plan”) was adopted under the authority granted to the Board of Directors by the
Shareholders’ Meeting of November 27, 2014 to award stock subscription or purchase options to
exceed 1% of share capital and the awards to corporate officers do not exceed 0.3 % of share capital.
The Fourth Plan covers a total of 2,346,160 options equating to 2,346,160 shares.
There are ten beneficiaries including the Company’s Chief Executive Officer Eric Denoyer and Board
of Directors member Angélique Benetti.
Options are awarded by taking into account the beneficiary’s performance, primarily as assessed
based on the performance criteria applicable to the variable portion of their compensation.
The key features of the Fourth Plan are as follows:
immediately preceding November 28, 2014 in accordance with Article L. 225-177 of the
French Commercial Code.
-
-
-
Exercise period:
-
-
291
exercised.
- Term of options:
- Finally, Eric Denoyer is required to retain at least 50% of the number of shares acquired
through the exercise of the remaining options, in registered form, after the transfer of the
number of shares necessary to finance the exercise of the options and payment of tax, payroll
charges and expenses relating to the transaction, until the termination of the his appointment.
17.2.2.1.2
Stock subscription or purchase options awarded to executive corporate
officers
The following tables show the stock options and bonus shares awarded by the Company and any
Group company to Chief Executive Officer Eric Denoyer in 2014. No stock subscription or purchase
options were granted to the Company’s Chairman Patrick Drahi.
Stock subscription or purchase options awarded in fiscal year 2014 to Eric Denoyer by the
Company or any Group company (Table 4 of AMF Recommendations)
Value of
options
Type of
using the
Name of
Number of
No. and option
method
executive
options
Exercise
Exercise
Performanc
date
(purchase or adopted
corporate
awarded in price
period
e conditions
of Plan subscription for the
officer
fiscal 2014
)
consolidate
d financial
statements
See Section
17.2.2.1
Fourth
“Stock
Until Nov.
Eric
Plan, Nov. Subscription 4,438,737 850,052
29.41 €
(1) subscription
27, 2022
Denoyer
28, 2014
or purchase
options”
above.
(1)
Requirement to hold 50% of the shares until term of office expires.
Additionally, 203,210 Altice S.A. stock options (1:1 entitlements to Altice S.A. shares) were granted
on December 19, 2014 to Eric Denoyer by the Board of Directors of Altice S.A. whose shares are
listed on the Euronext regulated market in Amsterdam.
Eric Denoyer may exercise 50% of his options starting two years from the date that they were
awarded (i.e., from November 27, 2016), 75% starting three years from their award date (i.e., from
November 2017), all these options being exercisable for a period of four years from their award date
(i.e., until November 27, 2018).
Stock subscription or purchase options exercised in fiscal year 2014 by Eric Denoyer (Table 5 of
AMF Recommendations)
Name of executive
No. and date of Number of options exercised in fiscal
Exercise price
corporate officer
plan
year 2014
First Plan, Nov.
7, 2013
Fourth
Plan, 0
Not applicable
Eric Denoyer
Nov. 28, 2014
292
The following table shows the historical record of stock subscription options awarded by the
Company and any Group company.
History of stock subscription or purchase option awards – Information on stock subscription or
purchase options (Table 8 of AMF Recommendations)
First Plan, Nov. Second Plan, Jan. Third Plan, May Fourth Plan, Nov.
7, 2013
10, 2014
28, 2014
28, 2014
Date of Shareholders’ Oct. 25, 2013
Meeting
Date of Board of Nov. 7, 2013
Directors’ meeting
Total number of shares 2,845,229
available
for
subscription
Total number of
shares
available
for
subscription
by:
Eric Denoyer
1,138,092
Patrick Drahi 0
Dexter Goei 0
Jérémie
0
Bonnin
Jean-Michel 0
Hégésippe
Bernard Attali 0
Angélique
227,618
Benetti
Jean-René
0
Fourtou (first
permanent
representative
of Vivendi)
Stéphane
0
Roussel (first
permanent
representative
of Compagnie
Financière, 42
avenue
de
Friedland)
Luce Gendry 0
Colette
0
Neuville
1st period:
midnight Nov. 7,
Starting date for
2015
exercise of options
2nd period:
midnight Nov. 7,
2016
Oct. 25, 2013
Oct. 25, 2013
Nov. 27, 2014
Jan. 10, 2014
May 28, 2014
Nov. 28, 2014
528,192
91,855
2,346,160
0
0
0
0
0
0
0
0
850,052
0
0
0
0
0
0
0
0
0
0
0
170,012
0
0
0
0
0
0
0
0
0
0
0
0
1st period:
midnight Jan. 10,
2016
2nd period:
midnight Jan. 10,
2017
1st period:
midnight May 28,
2016
2rd period:
midnight May 28,
2017
1st period: midnight
Nov. 28, 2016
2rd period:
midnight Nov. 28,
2017
3rd period:
293
3rd period:
3rd period:
3rd period:
midnight Nov. 28,
midnight Nov. 7, midnight Jan. 10, midnight May 28, 2018
2017
2018
2018
midnight Nov. 6, midnight Jan. 9, midnight May 27, midnight Nov. 27,
Expiration date
2021
2022
2022
2022
Subscription price
€13.50
€15.04(1)
€21.18(1)
€29.41
Exercise
procedures Not applicable
Not applicable
Not applicable
Not applicable
(when
the
Plan
includes more than one
tranche)
Number of shares 0
0
0
0
subscribed as of the
date
of
this
Registration Document
Total number of stock 0
0
0
0
subscription
or
purchase
options
cancelled or lapsed
Stock
options 2,845,229
528,192
91,855
2,346,160
outstanding at fiscal
year-end 2014.
(1)
After adjusting for the removal of preferential subscription rights in the Company’s capital
increase of November 20, 2014.
17.2.2.1.3
Stock subscription or purchase options awarded to non-corporate officer
employees
Stock subscription or purchase options awarded to the top ten non-executive corporate officer
employees and options exercised by them (Table 9 of the AMF Recommendation)
Weighted
Total number of
average Expiration No. and date
options awarded
exercise
date
of Plan
price
Options awarded in fiscal year 2014 by
the Company and any company
Nov. 6,
First Plan,
5,226,791(*)
€13.50(*)
included in the scope of option awards,
2021
Nov. 7, 2013
to the top ten employees of the
Company and of any company
included in this scope, with the highest
Second Plan,
528,192(*)
€15.04(*) Jan. 9, 2022
number of options
Jan. 10, 2014
Options held on the Company and the
aforementioned companies exercised
in fiscal year 2014 by the top ten
employees of the Company and of the
companies, with the highest number of
91,855(*)
€21.18(*)
May 27,
2022
Third Plan,
May 28, 2014
2,346,160
€29.41
Nov. 28,
2022
Fourth Plan,
Nov. 28, 2014
0
Not
applicable
294
Not
Not applicable
applicable
options thus purchased or subscribed
(*) After adjusting for the removal of preferential subscription rights in the Company’s capital
increase of November 20, 2014.
17.2.2.2 Bonus share awards
Performance shares awarded in fiscal year 2014 to corporate officers by the Company or a
Group company (Table 6 of AMF Recommendations)
As of the date of this Registration Document, neither the Company nor any Group company has
introduced bonus share awards and no performance shares were awarded by the Company or a Group
company in 2014.
Performance shares that became available for corporate officers in fiscal year 2014 (Table 7 of
AMF Regulations)
No performance shares became available because no performance shares had been awarded by the
Company or a Group company.
17.3
MANDATORY AND OPTIONAL EMPLOYEE PROFIT-SHARING AGREEMENTS
17.3.1
Mandatory employee profit-sharing agreements
Numericable Group
Under Article L. 3322-2 of the French Labor Code, companies with more than 50 employees and
taxable income exceeding 5% of equity must have in place a mandatory employee profit-sharing
agreement. Accordingly, mandatory employee profit-sharing agreements have been signed at
Numericable and Completel.
For Numericable, an indefinite-term agreement was signed in 2009. It may be rescinded before the
end of any fiscal year subject to three months’ notice.
For Completel, a three-year agreement was signed covering 2011 to 2013. The agreement is
automatically renewable unless either signatory terminates it.
SFR Group
An SFR ESU profit-sharing agreement was signed on December 17, 1999 for an indefinite term.
Amendments to the agreement were signed on June 30, 2005, June 30, 2006, and March 19, 2010.
A Memorandum of Understanding to increase every beneficiary’s profit-sharing for fiscal year 2013
by €100 (gross) was signed on June 21, 2014. This additional profit-sharing amount was paid on July
30, 2014.
17.3.2
Optional employee profit-sharing agreements
Numericable Group
The optional profit-sharing is a way for a company to align employees collectively, using a formal
calculation method, with the company’s business progress and in particular with its results and
performance, by paying immediately available bonuses, in accordance with Article L. 3312-1 of the
French Labor Code. Optional profit-sharing payments are uncertain and the calculation formulas are
linked to results or performance. Accordingly, optional profit-sharing agreements have been signed
with Numericable and Completel employees. Both agreements include profit-sharing formulas that
use budgeted EBITDA as the performance indicator for the entity concerned.
295
The Numericable agreement was signed for a 3-year period covering 2011 to 2013. The agreement
was renewed on June 27, 2014 for an additional three-year period.
Completel’s agreement was signed for a 3-year period covering 2012 to 2014. It is expected to be
renewed or superseded by a new agreement by June 30, 2015.
SFR Group
An SFR ESU optional employee profit-sharing agreement was signed on June 27, 2013 for the fiscal
years 2013-2014-2015.
The agreement uses criteria that include a trigger point and a target point for the ESU and also every
level of every entity (Operations, Customer Service, and Réunion). For fiscal years 2014 and 2015,
the thresholds and targets will be set by an amendment before June 30 of the fiscal year concerned.
An amendment to the optional profit-sharing agreement updating the trigger points and targets for
fiscal year 2014 was signed on June 21, 2014.
A Memorandum of Understanding to increase every beneficiary’s profit sharing by €1,900 (gross) for
fiscal year 2013 was signed on June 21, 2014 by SFR ESU. This additional optional profit-sharing
amount was paid on July 30, 2014.
17.3.3
Company savings and related plans
Numericable Group
Companies that have set up employee shareholding agreements under Article L. 3332-3 of the French
Labor Code are required to set up a savings plan. A company or group savings plan is a group saving
system that allows the employees of member companies to build up, with their employer’s help, a
securities portfolio. It can receive proceeds from a mandatory or optional employee profit-sharing
agreement, and can receive voluntary contributions by the employee. The sums invested in a company
savings plan are locked-in for five years, unless released early as permitted by law. A company
savings plan was set up in each Group entity when the first employee savings plan was introduced.
These plans offer employees of Numericable and Completel, subject to regulations governing
mandatory and optional employee profit-sharing, the option to immediately use their bonuses to buy
into the “open-ended” company investment funds (FCPEs) offered by BNP Paribas.
In November 2013, as part of the listing of the Company’s shares for trading on Euronext Paris, the
Company introduced a capital increase reserved for employees and certain other similar beneficiaries
of the Group’s French subsidiaries who are members of a company or Group savings plan, in the
amount of €1,034,417.92 (issue premium included) representing 52,138 shares, or approximately
0.04% of the Company’s share capital, on completion of the capital increase.
In extending the capital increase with preferential subscription rights in November 2014 to partially
fund the acquisition of SFR, on December 30, 2014 the Company introduced a capital increase
reserved for employees and certain other similar beneficiaries of the Group’s French subsidiaries who
are members of a company or Group savings plan, in the amount of €453,827.85 (issue premium
included) representing 19,353 shares, or approximately 0.004% of the Company’s share capital, on
completion of the capital increase.
SFR Group
Since the completion of the SFR acquisition by Numericable Group, the employees of the SFR ESU
companies can no longer benefit from the company savings plan set up at Vivendi but they retain their
existing assets under that plan. Numericable-SFR now has a company savings plan accessible to
employees of the other members of the new combined entity.
296
Furthermore, SFR ESU employees benefit from a Group Pension Savings Plan (“PERCO”) set up for
the SFR ESU by the agreement of February 25, 2008, as amended July 13, 2011. This optional plan
gives employees the ability to build retirement savings with the company’s help. The plan can also
receive the payments related to the mandatory and optional employee profit-sharing plans, as well as
voluntary contributions. The resulting retirement savings are invested in the open-ended company
investment fund (“FCPE”).
297
18.
PRINCIPAL SHAREHOLDERS
18.1
SHAREHOLDERS
The table below shows the Company’s shareholders as of the date of this Registration Document. To
the Company’s knowledge, this description is based on the information available to it as of the date of
this Registration Document on the basis of the shareholding disclosures required by law; it does not
take into account any potential statutory shareholding disclosures.
Shareholders
Number of shares
% of capital
Number of
voting rights
% of voting
rights
Altice(1) ...................................................................................................................................
293,885,022
60.35% 293,885,022
60.35%
Vivendi…………………………………………………
97,387,845
20.00%
The Capital Group Companies, Inc.. .......................................................................................
21,597,670
4.44%
21,597,670
4.44%
97,387,845
20.00%
Directors ..................................................................................................................................
2,201
-
2,201
-
Public ....................................................................................................................................
74,066,487
15.21%
74,066,487
15.21%
(2)
o/w liquidity contract(2)
25,808
0.005%
25,808
-
TOTAL ...................................................................................................................................
486,939,225
100% 486,939,225
100%
(1) On December 31, 2014, Altice, having become the sole shareholder of Fiberman S.C.A. following the acquisition of Carlyle, Cinven
(acquisition in cash) and certain executives and employees of the Company (acquisition paid partly in Company shares and partly in
Company shares), merged with Fiberman S.C.A. It should be noted that Altice has pre-emptive rights in any future sale of Company shares
awarded to said executives and employees of the Company (former shareholders of Fiberman S.C.A.).
(2) Shares held under the liquidity contract. By way of example, 25,808 shares as of December 31, 2014.
The following table shows the Company’s shareholders upon the completion of the sale of the shares
held by Vivendi under the terms of the agreements signed on February 27, 2015, as a result of which
sale Vivendi no longer held any shares in the Company (see Section 20.8 “Significant changes in the
financial or trading position” of this Registration Document for a description of those agreements). To
the Company’s knowledge, this description of the shareholding is based on the information available
to it as of the date of this Registration Document on the basis of the shareholding disclosures required
by law; it does not take into account any potential statutory shareholding disclosures.
Number of shares
% of
capital(2)
Shareholders
Number of
Number of
theoretical voting exercisable voting
rights
rights
% of
theoretical
voting
rights(2)
% of
exercisable
voting rights(3)
Altice(1) ...................................................................................................................................
342,578,945
70.35%
342,578,945
342,578,945
70.35%
78.17%
The Capital Group Companies,
21,597,670
4.44%
21,597,670
21,597,670
Inc.. ................................................................................................................................................
4.44%
4.93%
2,201
-
-
0
10%
0
Public. ......................................................................................................................................
74,066,487
15.21%
74,066,487
74,066,487
15.21%
16.90%
TOTAL ...................................................................................................................................
486,939,225
100%
486,939,225
438,245,303
100%
100%
Directors ..................................................................................................................................
2,201
2,201
Treasury…………………………
…………………..
48,693,922
10%
48,693,922
(1) On December 31, 2014, Altice, having become the sole shareholder of Fiberman S.C.A. following the acquisition from Carlyle, Cinven
(acquisition in cash) and certain executives and employees of the Company (acquisition paid partly in Company shares and partly in
Company shares), merged with Fiberman S.C.A. It should be noted that Altice has pre-emptive rights in any future sale of Company shares
awarded to said executives and employees of the Company (former shareholders of Fiberman S.C.A.).
(2) The percentages are calculated on the total number of shares issued by the Company, including treasury shares.
(3) The percentages are calculated on the total number of shares issued by the Company, excluding treasury shares which have no voting
rights.
This distribution mainly reflects the completion of the following transactions:
298
-
On February 6, 2014, the acquisition by Altice of additional Company shares from Cinven
and Carlyle (see AMF Decisions and Information No. 214C0226 dated February 11, 2014).
Because of this acquisition, on December 24, 2013 the AMF granted Altice an exemption
from the obligation to lodge a mandatory takeover bid (see AMF Decisions and Information
No. 213C2022 dated December 24, 2013).
-
On June 6, 2014 the exercise by Altice of the call options that it held on all Company shares
held by Pechel Fund and Five Arrows Fund, i.e., 3,247,612 shares representing 2.63% of the
capital and voting rights in the Company. That same day, the Shareholders’ Agreement signed
on November 7, 2013 between Altice, Pechel Fund and Five Arrows Fund, was terminated
(see AMF Decisions and Information No. 214C1065 dated June 13, 2014).
-
On July 24, 2014, Altice France acquired from Carlyle and Cinven a block of 42,869,291
shares representing 34.6% of the capital and voting rights in the Company (see AMF
Decisions and Information No. 214C1562 and No. 214C1563 dated July 29, 2014) increasing
Altice France’s equity interest to 92,446,476 shares (74.59% of the Company), representing
92,446,476 voting rights (74.59% of voting rights). Following this acquisition, Jonathan
Zafrani, a director of the Company appointed on Carlyle’s recommendation, and Nicholas
Paulmier, a director of the Company appointed on Cinven’s recommendation, resigned their
directorships. That same day, the Shareholders’ Agreement signed on November 7, 2013
between Altice France, Carlyle and Cinven was terminated. Because of this acquisition, on
May 28, 2014, the AMF granted Altice an exemption from the obligation to lodge a
mandatory takeover bid (see AMF Decisions and Information No. 214C0921 dated May 28,
2014).
-
As part of the capital increase launched by the Company on October 28, 2014, Altice France
on November 20, 2014 acquired 198,099,585 Company shares following the exercise of
preferential subscription rights attached to its shares.
-
On November 27, 2014, as a result of Vivendi’s contribution to Numericable-SFR of
57,227,114 shares in Société Française du Radiotéléphone - SFR paid by the issuance of
97,387,845 Numericable-SFR shares, Altice France held 290,110,733 shares representing
59.58% of the capital and voting rights in Numericable-SFR and Vivendi held 97,387,845
shares representing 20.00% of the capital and voting rights in Numericable-SFR (see AMF
Decisions and Information No. 214C2545 dated December 5, 2014). On November 27, 2014
Altice France and Vivendi signed a Shareholders’ Agreement, thereby acting in concert in
their dealings with Numericable-SFR. The AMF concluded that there was no need to lodge a
takeover bid because of this agreement to act in concert (see AMF Decisions and Information
No. 214C2256 dated October 29, 2014).
-
The sale to the Company of the 48,693,922 Company shares held by Vivendi under the
agreements of February 27, 2015. (For a description of these agreements, see Section 20.8.1
“Agreement for Vivendi to divest from the Company” of this Registration Document). The
acquisition of Vivendi’s holdings should be completed on May 6, 2015.
Additionally, The Capital Group Companies, Inc. (acting as investment advisor for the investment
funds) reported that on January 10, 2014 it had exceeded the 5% disclosure threshold of capital and
voting rights in the Company and held 6,278,778 Company shares representing the same number of
voting rights, i.e., 5.07% of the capital and voting rights in the Company (see AMF Decisions and
Information No. 214C0079 dated January 14, 2014), and that on December 1, 2014 it had fallen
below the 5% disclosure threshold of capital and voting rights in Numericable-SFR to 21,596,670
shares representing the same number of voting rights, i.e., to 4.44% of the capital and voting rights in
Numericable-SFR (see AMF Decisions and Information No. 214C2514 dated December 3, 2014).
299
To the Company’s knowledge, no other shareholder holds directly or indirectly, by itself or in concert
with others, more than 5% of its share capital and voting rights.
18.2
SHAREHOLDERS’ VOTING RIGHTS
The Shareholders’ Meeting of October 25, 2013 decided to introduce a double voting right, with
effect from the date on which the IPO price was to be set, i.e., November 7, 2013, and adopted the
amendment to the Articles of Association to reflect that decision.
Each share gives the right to attend and vote at Shareholders’ Meetings, subject to the applicable laws
and bylaws.
A double voting right was introduced for fully paid-up shares that had been held in registered form by
the same shareholder for at least two (2) years. The calculation of this holding period excludes the
period preceding November 7, 2013 which is the date on which all the shares issued by the
Luxembourg companies Ypso Holding S.à.r.l. and Altice B2B Lux Holding S.à.r.l. were contributed
to the Company.
In accordance with Article L. 225-123(2) of the French Commercial Code, in the event of a capital
increase through capitalization of reserves, profits or issue premiums, the right to a double vote is
conferred - immediately upon the issue of any registered shares allocated free of charge - to all
shareholders who had old shares benefiting from this same entitlement.
This double voting right may be exercised at any Shareholders’ Meeting.
This double voting right will automatically lapse in respect of any shares converted into bearer shares
or transferred.
18.3
CONTROL STRUCTURE
Since November 27, 2014, 60.3% of the capital and voting rights in Numericable-SFR are held by
Altice and, in concert with Vivendi, 80.32% of the capital and voting rights in the Company. If
Vivendi were to sell its entire stake, Altice would hold 70.35% of the share capital and 78.17% of the
voting rights in the Company.
These figures are the result of the following transactions: On June 6, 2014, following Altice’s exercise
of its purchase options on all Company shares held by Pechel Fund and Five Arrows Fund, the
Shareholders’ Agreement signed on November 7, 2013 between Altice, Pechel Fund and Five Arrows
Fund was terminated; on July 24, 2014, following Altice’s acquisition of all Company shares held by
Carlyle and Cinven, the Shareholders’ Agreement signed on November 7, 2013 between Altice,
Carlyle and Cinven was terminated; on November 27, 2014 Altice and Vivendi signed a
Shareholders’ Agreement thereby acting in concert in their dealings with Numericable-SFR (see
description of the Agreement below). If Vivendi were to sell its entire stake in the Company, this
Shareholders’ Agreement under the terms signed on February 27, 2015 would be null and void.
As of the date of this Registration Document, the Company’s governance structure is designed to
ensure that the majority shareholder’s control is not exercised in an abusive way. Therefore, of the
Company’s ten directors as of the date of this Registration Document, 30% are independent. This is
just below the threshold of one-third recommended by the AFEP-MEDEF Corporate Governance
Code for listed companies. However, upon completion of the sale of Vivendi’s shares under the
agreements entered into on February 27, 2015, Jean-René Fourtou and Stéphane Roussel will resign
from the Board. Thereafter the proportion of independent directors will be 3 out of 8, or 37.5%;
therefore the quota of one-third of independent directors will be met.
300
On November 27, 2014, the date of the acquisition of SFR ( the “Completion Date”), Altice, Altice
S.A. and Vivendi signed an agreement governing their relations as shareholders in Numericable-SFR,
specifying the principles that these parties have agreed to apply regarding the administration of the
Group (the “Shareholders’ Agreement”). The Shareholders’ Agreement will expire at the end of a 15year period as from the Completion Date or after Vivendi no longer holds any Company securities.
It should be noted that upon the completion of the sale of the shares held by Vivendi provided in the
Agreements signed on February 27, 2015, Vivendi will no longer hold any Company securities and
the Shareholders’ Agreement as well as the Call Options (whose terms and conditions are described in
Section 18.3.2 “Other provisions” of this Registration Document) will expire. The following
agreements were signed on February 27, 2015:
(i)
A share buyback agreement whereby the Company would buy back 10% of
its own shares (i.e., 48,693,922 shares) at a price of €40 per share. This
buyback was approved by the Shareholders’ Meeting of April 28, 2015,
which authorized the share buyback program and ratified the authorization
granted by the Company’s Board of Directors to sign that Agreement.
(ii)
A contract for the sale of shares, whereby Altice France would buy 10% of
the Company’s share capital (i.e., 48,693,922 shares) at a price of €40 per
share.
Based on the Shareholders’ Agreement, the composition of the Company’s shareholding as from the
Completion Date, and the intentions of the parties to the Shareholders’ Agreement:
-
Altice and Vivendi declare that they intend to act in concert (the “Concert Party”) in their
dealings with the Company, the main provisions of the Concert Party being described in
Section 18.3.1 “Composition of the Company’s Board of Directors” and Section 18.3.2
“Other provisions” of this Registration Document, and undertake, for the duration of the
Shareholders’ Agreement, not to form a concert party with any other Company shareholder
(with the exception of any other related beneficiary of an unrestricted transfer);
-
the members of the Concert Party together hold more than a simple majority of the capital and
voting rights in the Company (approximately 80% of the total) as of the Completion Date of
the acquisition of SFR and the date of this Registration Document;
-
since the Completion Date and taking into account its percentage holding (approximately
60%) Altice retains its status as controlling shareholder in the Company and is the dominant
member of the Concert Party;
-
Altice declares that it intends to bolster its status as controlling shareholder in the Company
and increase its percentage holding of capital and voting rights in the Company, primarily by
acquiring all or some of the Company shares held by Vivendi, in particular by Altice
exercising (i) the call options whose terms and conditions are described in Section 18.3.2
“Other provisions” of this Registration Document, and (ii) its pre-emptive right as well as, in
certain circumstances, its right of first offer whose terms and conditions are described in
Section 18.3.2 “Other provisions” of this Registration Document; this would permit Altice to
strengthen its stake in the Concert Party.
The main provisions of the Shareholders’ Agreement are summarized below.
18.3.1
Composition of the Company’s Board of Directors
▪ The Shareholders’ Agreement gives Altice and Vivendi the right to propose the appointment of
certain directors: Altice has the right to designate five directors (so long as it continues to hold more
301
than 40% of the capital and voting rights in the Company) one of them being the Chairman of the
Board of Directors who has the deciding vote in a tie; Vivendi has the right to designate two directors
(so long as it holds at least 20% of share capital without taking into account any dilutive effect
resulting from an issuance of Company securities after the acquisition of SFR (the “Minimum
Vivendi Percentage”), and one director so long as it holds more than 10% of share capital without
taking into account any dilutive effect resulting from an issuance of Company securities after the
Completion Date).
▪ The Shareholders’ Agreement also provides that the Board of Directors will include three
independent directors meeting the criteria specified in the AFEP-MEDEF Corporate Governance
Code for listed companies, one of them proposed by Vivendi (so long as it holds more than 10% of
the Company’s share capital without taking into account any dilutive effect resulting from an issuance
of securities by the Company after the Completion Date).
▪ The Shareholders’ Agreement specifies that if Vivendi’s holding falls below the required
percentage so that the number of directors that Vivendi can propose is reduced to one, Vivendi must
obtain the resignation of the director or directors that it had designated (as the case may be). Should,
in the above case, one director resign, he or she will not be replaced and the number of members
making up the Board of Directors will be reduced to nine.
▪ The Shareholders’ Agreement further provides that the composition of the Company’s Board of
Directors must comply with the rules relating to balanced gender representation and that the
Company’s governance structure must comply with the AFEP-MEDEF Code, with the exception of
the composition of the Board of Directors as a result of the completion of the acquisition of SFR
which is ten members (three of whom are independent directors, i.e., 30%, a percentage slightly less
than one third).
▪ Additionally, Vivendi’s governance rights are limited by Vivendi’s commitments made as part of
the French Competition Authority’s review of the Company’s acquisition of SFR. The purpose of
those commitments is to prevent Vivendi from obtaining, through the directors that it will appoint,
certain sensitive business information. To this end, Vivendi proposed (i) that one independent
corporate officer redact such information from the documents intended for the directors designated by
Vivendi, (ii) that those directors abstain from decisions involving such information, and (iii) that if
any of those decisions result from the right of veto granted to Vivendi, its adoption requires a simple
majority of the directors not designated by Vivendi, and that no independent member may vote
against it. These commitments have been accepted as part of the French Competition Authority’s
decision to authorize this transaction.
18.3.2 Other provisions
The Concert Party will no longer exist (i) if Altice and Vivendi together come to hold less than 50%
of the capital or voting rights in the Company, (ii) if Vivendi’s percentage holding no longer gives it
the right to designate a member of the Company’s Board of Directors, and (iii) if Altice comes to hold
less than 40% of the capital and voting rights in the Company.
Under the terms of the Shareholders’ Agreement, Altice and Vivendi have made the commitment to
confer and decide their concerted position prior to any Shareholders’ Meeting deliberating an
important decision that may impact in a general way the Company future prospects.
The Shareholders’ Agreement further provides that the strategic decisions listed below (with the
exception of decisions relating to the signing of agreements or transactions between the Company and
one of its Subsidiaries, or between the Company’s Subsidiaries) may not be made and implemented
unless they have been adopted by the Company’s Board of Directors on a simple majority vote of its
members present or represented:
302
a)
the adoption or modification of the annual budget including investments and
divestments as well as related financing plans;
b)
the adoption and modification of business plans;
c)
the appointment, revocation and compensation paid (and changes to pay) to
the Chairman, Chief Executive Officer, Deputy Executive Officer, Chief
Financial Officer, and cooptation of members of the Board of Directors to
comply with Section 18.3.1 “Composition of the Company’s Board of
Directors” of this Registration Document;
d)
the hiring/appointment, revocation/dismissal and compensation (including
change to pay) of the Chairman and/or one or more senior executives of the
Subsidiaries;
e)
the convocation and adjournment of Company Shareholders’ Meetings and
the adoption of draft resolutions and reports to be presented to such
Shareholders’ Meetings;
f)
the approval of annual financial statements (statutory and consolidated) and
the Company’s and SFR’s annual management reports, the allocation of
profits and any change to accounting methods not resulting directly from
legislative or regulatory changes;
g)
the granting of sureties, endorsements or guarantees (in the sense of Article L.
225-35 of the French Commercial Code) by the Company or one of its
Subsidiaries (with the exception of sureties, endorsements or guarantees by
the Company or one of its Subsidiaries for commitments of Company
Subsidiaries), exceeding €200 million (€200,000,000) each (excluding
guarantees and sureties authorized in the annual budget), it being understood
that the Board of Directors will each year give to the Chief Executive Officer
all powers regarding the granting of sureties, endorsements and guarantees
covering less than €200 million (€200,000,000), in accordance with Article R.
225-28 of the French Commercial Code, subject to an overall ceiling of €500
million (€500,000,000);
h)
the signing of any transaction or initiation of any court, administrative or
arbitration proceedings to which the Company or a Subsidiary is party if the
potential stake exceeds €100 million (€100,000,000);
i)
the signing by the Company or by any of its Subsidiaries of a sale,
acquisition, investment or divestment (in any form whatsoever including as
part of an exchange or contribution transaction, equity stake, formation or
winding-up of a subsidiary, partnership, joint venture, total asset transfer, etc.)
representing an investment or divestment exceeding €200 million
(€200,000,000) (in terms of enterprise value in the case of sales and
acquisitions) as well as any major change to the terms and conditions of such
sale, acquisition, investment or divestment;
j)
the signing of any contract to acquire or sell indefeasible rights of use (IRUs)
agreed by the Company or one of its Subsidiaries;
k)
the distribution of dividends or any similar distribution of proceeds (such as
buybacks or redemptions of treasury shares or its Securities in general);
l)
all decisions relating to the reduction or amortization of the share capital;
303
m)
authorization to implement share buyback plans by the Company;
n)
the signing of new borrowings or issues of debt instruments, when the total
additional borrowing or financial debt agreed by the Company and its
Subsidiaries exceeds the total €500 million (€500,000,000) threshold
approved in the initial business plan;
o)
change to Financing Terms adversely impacting the Company;
p)
the signing, amendment and/or renewal of any contract, any investment
decision by the Company or one of its Subsidiaries, that represents a total
expense or disbursement over its lifetime of at least €200 million
(€200,000,000), the funding of which is not provided in budget (excluding
internal allocation swaps);
q)
the implementation of any share subscription or purchase plan, any
shareholding plan for employees and corporate officers, including incentives,
profit-sharing, company savings plans, group savings plans, and any major
change to such plans or programs, with the exception of legally required
changes, (and if the plan has not been approved in the annual budget);
r)
any merger, demerger, or partial contribution of assets (or similar transaction)
involving the Company or one of its Subsidiaries and in general any legally
enforced restructuring of the Company and its Subsidiaries, when the
potential amount involved is less than €500 million.
Furthermore, regarding the decisions referred to in (a), (b) and (c) below, so long as its holding is at
least equal to the Minimum Vivendi Percentage, Vivendi can demand a review in the event that it
disagrees, it being understood that in such a case the Board of Directors will make its decision by
simple majority vote if the disagreement persists despite having been considered by the Chairman of
Vivendi’s Management Board, the Chairman of Vivendi’s Board of Directors, and the CEO and
Chairman of Altice S.A.
The Shareholders’ Agreement also provides that, so long as its holding is at least equal to the
Minimum Vivendi Percentage, Vivendi has right of veto over the following major strategic decisions:
a) all decisions relating to increasing the Company’s share capital or that of a Subsidiary and
any issuance of securities or rights giving direct or indirect access to Company capital or that
of a Subsidiary (with the exception of the issues referred to in (q) above), unless such
issuance is needed to reduce the Company’s external debt or that of a Subsidiary, or is
intended to prevent the Company’s insolvency or that of a Subsidiary resulting from that
debt;
b) any merger, demerger, or partial contribution of assets (or any similar transaction) involving
the Company or a Subsidiary and in general any legally enforced restructuring of the
Company and its Subsidiaries, when the amount involved exceeds €500 million (in terms of
enterprise value), with the exception of transactions between Company Subsidiaries (and not
involving the Company directly);
c) any proposal to amend the Articles of Association of the Company or its Subsidiaries at an
Extraordinary Shareholders’ Meeting;
d) any decision by the Company or a Subsidiary to sign, amend, terminate, or renew an
agreement between any associate (the associates being Altice France and Vivendi, the
304
“Associates”) or one of its Related Entities17 on the one hand, and the Company and/or any
of its Subsidiaries on the other, and/or any other agreement referred to in Articles L. 225-38
et seq. of the French Commercial Code, with the exception of:
(i) any agreement (including Sureties) signed for, or as part of, external
financing arrangements, and
(ii) regarding
-
agreements signed between the Company and its Subsidiaries, or
between the Company’s Subsidiaries: those relating to ongoing
activities and signed under normal terms and conditions;
-
agreements signed between an Associate or Related Entity (with
the exception of the Company and its Subsidiaries) on the one
hand, and the Company or a Subsidiary on the other: relating to
ongoing operations and signed under normal terms and conditions
amounting to less than €20 million per agreement;
(a “Decision Relating to a Regulated Agreement”);
e) all new borrowings or issuances of debt instruments, when the total additional borrowing or
financial debt agreed by the Company and its Subsidiaries exceeds the total €500 million
threshold approved in the Initial Business Plan;
f) any signing by the Company or a Subsidiary of an investment, acquisition, divestment or sale
of industrial assets excluding ongoing management or any operation of at least €500, it being
understood that transactions and activities are not considered to be ongoing management if
they do not include the normal activities of a telecommunications group, or if they risk
unbalancing major financial or asset positions at Group level, and that the right of veto does
not apply in the case of the divestment or sale of industrial assets intended to reduce the
Company’s external debt or that of a Subsidiary, or to prevent Company insolvency or that
of a Subsidiary at that date.
Upon the expiration of the unavailability period resulting from the escrow provisions in bank
guarantees for the Cash Capital Increase, and upon the expiration of the inalienability period for
Vivendi described below, transfers of securities held by the parties to the Shareholders’ Agreement
will be governed by the provision in the Shareholders’ Agreement. In this respect, the latter provides,
in the case of transfers of securities and in particular for their orderly sale by Altice and Vivendi, a
pre-emptive and preferential right granted to Altice by the other parties, a right of first offer in certain
circumstances and a joint right of disposal benefitting Vivendi, as the case may be, subject to certain
exceptions.
Unrestricted Transfers: Parties to the Shareholders’ Agreement may make unrestricted tr

Numericable-SFR (formerly Numericable Group) Limited liability

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