French state to hand out £60m subsidy to phone firms

The French government is defying the advice of the national telecoms regulator with plans for a big subsidy to the country's three mobile phone operators.

In a surprise change of heart, the prime minister, Lionel Jospin, is promising a grant of 80 million euros (£60m) to help mobile telecoms companies gain more geographical coverage of France. The money will be used to pay for masts and other equipment in rural and mountainous regions which are currently mobile "dead zones". The subsidy will be matched by an equal grant from the local governments of the relevant areas.

There are three mobile operators in the country – Orange, which is owned by France Telecom, Vivendi Universal's subsidiary SFR and Bouygues. In the government's scheme, the trio will only have to invest 60 million euros between them.

But the principle of a government subsidy runs against the recommendations of the French telecoms regulator, ART.

The body recently published a report on mobile coverage levels throughout France, pointing out that many areas were poorly served. The average geographical coverage by the three companies is only 80 per cent – a far cry from the combined UK levels of over 96 per cent.

The operators argue that they have done enough. The original licence to run mobile services only demanded that a certain proportion of France was served. Half the French population now has a mobile, and the phone companies provide coverage for 90 per cent of the overall population, but most of this is concentrated in urban areas.

ART said that it should fall to the operators to pay in full for the cost of improving their coverage, and did not approve of the government letting the companies off. Mr Jospin's move is taken by some analysts as a sign that the government could make more moves to protect French companies from the sort of costs that their European competitors have had to bear.

In a second boost to France Telecom, Mr Jospin has also indicated that the government will guarantee 1.5 billion euros in loans to local governments so they can set up high-speed internet backbones in rural areas. Each area will set up a bidding process and select an operator to build the network.

"Although alternative operators could be chosen to build such networks," said SocGen analyst Thierry Cota, "this is a blessing in disguise for the incumbent. In other regions, France Telecom has often been the one to be selected."