France Telecoms top priority will be to develop the service elements that will allow customers to move easily from one service or network to another, so that customers can transmit or replicate their identities, address books, etc. The three types of fundamental services are:
context management services: primarily identity management, authentication management, presence management, contact list management, and payment management; communication applications such as messaging, instantaneous messaging, chat groups and other discussion forums; and personal or collective productivity services such as agenda management or generic workflows.
These fundamental services will be particularly effective when they are implemented by the companies of the France Telecom group. Naturally, these services will not be reserved only for France Telecom group companies to the extent that almost all of these functions must also operate between the services of France Telecom group companies and other market players. The ability of customers to communicate freely with all of their contacts depends on this development, as does the growth of the market, given the fact that new services develop even more quickly as use spreads among the different market players, and the fact that the market is self-educating (what is usually called the network effect). Therefore, the different companies of the France Telecom group, which all carry strong brand names (France Telecom, Orange, Wanadoo, Equant), enjoy an independence of development to the extent that they are addressing different customer needs and priorities or significantly distinct user segments. Working as a unit and through cooperative efforts, the goal of these companies will be to enable the group to offer its customers the best combination of services available on the market. They also give the France Telecom group a portfolio of activities that places France Telecom in a position to capture the global growth in the market, better than a single business could, given the diversification in customer uses and the fact that customers can now, or will be able to in the near future, substitute one service for another based on growth in the performance of communication tools and changes in the customers own communications needs. Although the substitution of services is working to the detriment of phone calls between fixed lines, the development of the Internet (both low and high speed), as well as the growth in the number of calls between fixed lines and wireless telephones, by contrast is adding to the use of the fixed network. France Telecom believes that this trend will continue, and that the intensity of fixed network and wireless network use will continue to show strong growth. Technological growth naturally drives a leading edge operator like France Telecom to upgrade its networks continually, for example by deploying ADSL (Asynchronous Digital Subscriber Line) on its fixed networks and UMTS on its wireless networks; these new technologies allow the deployment of new functions on these networks and lead, in the medium term, to the replacement of earlier technological generations. This sequence of progressive functional improvements and replacements is the normal life cycle for telecommunications networks, and the means by which high-tech, leading edge operators develop new uses for their customers and increase the size of the market they serve.

4.3.1.7 Roaming

Roaming allows wireless customers to make and receive calls while in the coverage area of a network of which they are not clients and to be billed for such service by their home network. Wireless customers who are roaming can expect to enjoy substantially the same services, features and security while travelling as they do within their home network. Oranges roaming services were created entirely within the framework of the GSM technical standard and the policies and procedures of the GSM Association. A bilateral relationship is created between two GSM operators by signing a roaming agreement based upon the GSM Associations standard agreement, amended as appropriate for particular circumstances. Generally, these agreements are for an unlimited period, each party being able to terminate the agreement after serving notice. At present, roaming agreements are generally concluded between one or more network operators in different countries, although they can also be negotiated between operators in the same country. After technical and billing tests are successfully concluded, the connection is opened commercially and each partys customers may use the other partys network. The roaming policy of Orange is set in accordance with local market conditions by the individual operating companies. Customer roaming charges reflect the wholesale charges between operators and the pricing policy applied by each operator for its customers. 68
For example, Orange UK offers a simple fixed-rate roaming tariff based on five different regions of the world. Orange UK contract customers, who meet certain credit requirements, can roam in more than 125 countries pursuant to the roaming agreements that Orange UK has concluded with approximately 280 different network operators. The coverage for Orange UKs pre-paid customers is less widespread due to technical issues. However, the majority of demand is concentrated in a smaller number of countries. Where this demand is not met, an aggressive rollout plan is being implemented to add major uncovered countries. Between October 1999 and the summer of 2001, Orange France implemented a pricing structure for its international roaming services for its national contract subscribers through a uniform tariff of 1.00 per minute for 25 regions in Europe and also for Runion and the West Indies, for calls within the zone. In June 2001, the free Orange Without Borders plan (which can be activated simply by calling customer service) was launched and allows Orange France subscribers to communicate throughout all European countries and the French overseas departments and territories, as well as North and South America, Asia, Africa and Australia (more than 150 countries in February 2003). With this option, Orange France introduced a simplified rate schedule which currently includes the following three zones: Zone 1: Western Europe and French overseas departments; Zone 2: The rest of Europe, North Africa and North America; and Zone 3: The rest of the world and French overseas territories. Services available from international locations include the following: customer service numbers and voice mail services from a number of countries (coverage is currently in the process of being launched); call back, call waiting, caller identification, sending and receiving SMS, access to WAP in CSD mode; and receiving of calls only and prohibiting the making and receiving of international calls (these options require a subscription).

Additional Withdrawal from STMicroelectronics NV
On July 29, 2002, France Telecom completed a bond issue in the amount of 442 million of 21,138,723 bonds obligatorily redeemable for existing shares of common stock in STMicroelectronics NV on or after January 2, 2004 and bearing interest at a rate of 6.75 % per year. France Telecom SA will deliver to bondholders a maximum of 26.42 million STMicroelectronics NV shares (representing the balance of its indirect holding in STMicroelectronics NV, assuming that all 1% bonds with exchange options issued by France Telecom in 2001 are exchanged for shares) and a minimum of 20.13 million STMicroelectronics NV shares, depending on the price of these shares at maturity on August 6, 2005. In the event the price of the shares is greater than 21.97 at maturity, France Telecom will have 6.3 million STMicroelectronics NV shares available for sale on the market. This transaction is part of France Telecoms sale of its stake in STMicroelectronics NV, a semiconductor manufacturer. It follows a private placement with institutional investors of approximately 69 million shares of STMicroelectronics NV common stock in December 2001 by STMicroelectronics Holding II BV on the joint behalf of Finmeccanica and France Telecom, and the simultaneous issuance by France Telecom of 1% bonds, with an option for exchange for 30 million existing common shares of STMicroelectronics NV on or after January 2, 2004 for a total amount of approximately 1.52 billion. Following these transactions, the shares were placed in a depositary by STMicroelectronics Holdings II BV and will be transferred to France Telecom or to the bondholders at the maturity date.
Withdrawal from Pramindo Ikat
On August 15, 2002, all of the shareholders of PT Pramindo Ikat Nusantara (Pramindo Ikat), the Sumatra-based Indonesian fixed telephony operator (in which France Telecom held 40%), sold their interest to PT Telekomunikasi Indonesia Tbk (PT Telkom), which acquired 100% of Pramindo Ikat. The Pramindo Ikat shares will be delivered by the shareholders in three stages:

The shareholder agreement between the parties on December 13, 2002: gives control of Tower Participations SAS to the investment funds which hold a majority on the supervisory board. In the event of non-compliance with the terms of the contract provisions regarding the composition or control of the supervisory board or the rules on majority at Tower Participations SAS shareholders meetings, the shareholders have undertaken to pay pro rata between the defaulting parties an indemnity of 400 million to the investment funds; and constitutes the liquidity rights of the shareholders by establishing subject to legislative provisions in effect, certain preemptive, tag along and drag along rights (see Note 3 in the Notes to the Consolidated Financial Statements).
For more information on the distribution of capital gains resulting from the subsequent sale of Tower Participations SAS shares, see Note 3 in the Notes to the Consolidated Financial Statements.

Sale of Casema

Following the decision of Liberty Media to pull out of the discussions on the purchase of Casema Holding BV, the third largest cable TV operator in The Netherlands, after the Dutch competition regulation authorities declared their intention to move into phase 2 of their review of the transaction, France Telecom pursued discussions with other potential buyers and, on January 28, 2003, sold its 100% interest in Casema to a consortium of financial investors comprised of Carlyle, Providence Equity and GMT Communications Partners. Under the terms of the transaction, the company was valued at 665 million. 92
A portion of the Casemas payment resulting from the transaction was allocated to repaying bank loans amounting to 163 million, while the remaining 502 million was used to repay all bank overdrafts granted by France Telecom to Casema.

Sale of Eutelsat

On February 4, 2003, France Telecom entered into an agreement with Eurazeo for the sale of its interest (23.14%) in Eutelsat to a holding company formed for that purpose and majority-controlled by Eurazeo. France Telecom will reinvest to hold 20% in the holding company, which in turn holds 23.14% of Eutelsat. The transaction remains contingent upon approval by the regulatory authorities. It does not affect the commercial agreements signed with Eutelsat by France Telecom and its subsidiaries in conjunction with their operating activities. Under the terms of the transaction, Eutelsat is valued at 1.93 billion and France Telecoms 23.14% holding is valued at 446.7 million. The holding company will borrow 92 to 120 million to pay for the acquisition. Depending on the final amount of the bank loan, France Telecom will reinvest between 68 and 74 million in the holding company resulting in a 20% holding. France Telecoms net income from this transaction will be between 373 and 379 million. This amount will be paid in cash to France Telecom on the date the transaction is completed, which is scheduled for the second quarter of 2003.

4.6.2 Wanadoo

Wanadoo operates in strong and rapidly changing markets, due primarily to the development of new access technologies, such as ADSL. In addition, Wanadoo faces significant competition in these markets due to the presence of powerful competing operators.
The Internet access market in France is rapidly changing and was marked in 2002 by further consolidation around the leading service providers. However, the French Internet access market remains extremely competitive. Wanadoos principal competitors in the French Internet access market include:
International Internet access providers affiliated with telecommunications operators, such as AOL, T-Online (Club Internet), Tiscali and 9 Telecom; cable companies, such as Noos; independent local and national (Free) Internet access providers; and businesses that provide Internet access to customers, such as banks and major retailers.
Most of Wanadoos competitors are now focusing primarily on broadband products (mostly ADSL). Wanadoo was one of the first Internet service providers in France to offer a wider range of ADSL products (128, 512 and 1024K) to assist its customers and prospects in making the transition from their narrow band products by offering additional convenience in terms of speed and unlimited connection.

International

Wanadoos principal competitors in international markets are local players, such as telecommunications operators, cable companies and local and multinational independent service providers, such as:
United Kingdom: AOL and BTOpenworld (British Telecom); Spain: Terra (Telefonica), Ya.com (T-Online), Arrakis (British Telecom) and AOL; The Netherlands: Planet Internet (KPN), Freeler and Tiscali World Online; and Morocco: Maroc Telecom.
As in France, Internet access providers in international markets where Wanadoo competes offer free or subscription-free access, as well as limited, semi-limited or unlimited all-inclusive packages including local calls. In the conventional narrow band market with or without subscription, semi-limited (for Spain) and unlimited packages (for the United Kingdom and The Netherlands) continue to make progress. However, as in France, the increase in unlimited packages was more pronounced for broadband products. Through innovative marketing, Wanadoo has helped to make these markets more dynamic by increasingly expanding access to its entire ADSL and cable offering.
Wanadoo faces competition in each of its markets from numerous global or local portal providers, which are categorized by Wanadoo into three principal types:

engaged by either party to rule on the dispute. In addition, since the order of July 25, 2001, the ART has had official decision-making authority under the conditions provided for in Article L. 36-8 to define the terms or set the specific conditions of an interconnection agreement, and to set the deadlines for the negotiation of such agreement. In terms of unbundling and providing local loop access, the ART has the power under the EU regulation of December 18, 2000 to modify the FT local loop reference plan. The ART is responsible for implementing and managing the numbering plan, allocating the band frequencies it has been assigned, participating in the preparation of technical standards, and overseeing the network interface statements. Numbering and frequency usage are subject to payment of an annual fee, adjusted pro rata temporis based on the first and last years of allocation in the case of frequencies. The ART is responsible for issuing notices on legislative bills, decrees or regulations relating to the telecommunications sector, and participates in the implementation of these. After the ART has reviewed the application, the Telecommunications Ministry issues licenses for the establishment and operation of public telecommunications networks and the provision of public telephone services. Together with the Ministry of the Economy, Finance and Industry, and subject to notification by the ART, it approves rates for universal service and other services for which there is no market competition. At the request of the ART, it verifies the cost of universal service and payments due by each operator (see Universal Service, below). As of January 1, 1997, the Agence Nationale des Frquences (ANFR) is responsible for planning, managing and monitoring usage of electromagnetic frequencies and coordinating the implementation of certain electromagnetic transmission facilities. The frequency spectrum is divided among eleven overseers: bureaus, the ART and the television and radio regulatory authority (the CSA, or Conseil suprieur de laudiovisuel). The ART and the CSA have the authority to redistribute frequency bands over which they are responsible to users. The use of frequencies by telecommunications operators, including France Telecom, requires a usage fee. The Agence Nationale des Frquences is a public administrative agency. Its board of directors is composed of representatives of radio frequency users such as certain ministries (for example, Defense or Foreign Affairs), of the CSA and the ART, which have oversight authority and of personalities chosen on account of their skills.

Licensing

Under the LRT, telecommunications activities are freely practiced, but certain activities are subject to authorization, which is known as licensing. A license from the Telecommunications Minister is required under the LRT in order to establish and operate a public access network and provide public telephone service. A license is also required for operators providing telecommunications services using radio frequencies. The reasons for refusing a license are strictly defined in the LRT. Refusal of a license is justified in only three cases: (i) when it is required to safeguard the public order or the needs of defense or public safety; (ii) due to inherent technical constraints related to available frequences; or (iii) when the operator does not have the technical or financial capacity to permanently fulfill its obligations, or when it has been subject to penalties relating to its telecommunications activities. Each license granted to a public access operator or telephone service provider under the LRT has an associated Cahier des Charges setting forth obligations relating to the specific network or service and incorporating a series of standard provisions established by decree. These standard provisions relate to the technical characteristics and coverage of the network or service, its quality, privacy of communications, defense and public safety, telecommunications research and development expenditures, provisions pertaining to universal service (currently relevant only for France Telecom), provision of directory information, rules pertaining to interconnection and interoperability, equal treatment of foreign operators, ART oversight procedures, the use of frequencies allocated to each operator, management and accounting procedures necessary to guarantee fair competition and publication requirements for rates and conditions of service. Licenses granted by the Telecommunications Minister have a duration of 15 years and are renewable. Licensing entails the 121

The Cahier des Charges also contained certain number of specific minimum obligations in terms of coverage, notably:
After two years, at least 25% of the population shall have access to voice transmission services and 20% of the population shall have access to data transmission services; and After eight years, at least 80% of the population shall have access to voice transmission services and 60% shall have access to data transmission services.
UMTS operators that do not have a GSM network may complete their network coverage, during the first few years of network roll-out, thanks to national roaming between GSM and UMTS networks. They will also be able to use existing sites to the same extent as their competitors.
Rights of way and easements
Public network operators may request rights of way over public roads, other parts of the public domain and private properties. The authority having jurisdiction over any such request may not discriminate among operators and may request the payment of a fee or indemnity. Where they benefit from a right of way over public property, they must obtain authorization from the competent local authority, and if necessary, reimburse the owners. An operator that already benefits from a right of way or easement may be required to accept shared use of its existing facilities with other operators, insofar as such use, in France Telecoms case, does not compromise its own public service mission. Any party to a dispute over any such arrangements between operators may request arbitration by the ART, which must proceed with a public consultation involving all interested parties. Public network operators may also establish, under certain conditions and subject to relevant authorizations and radio electric easements over public or private property in order to guarantee the optimal transmission of electromagnetic signals.
Limitations on foreign investment
The LRT provides that an operator may not be licensed to operate a public network using radioelectric frequencies, if foreign nationals or corporations own directly or indirectly, in the aggregate, more than 20% of the operators share capital or voting rights. An authorization already granted to a company that later becomes controlled under the above conditions shall be revoked. These limitations do not apply to ownership by nationals or corporations of member states of the EU or the European Economic Area or of states with which France has entered into reciprocity agreements. French corporate law and the bylaws of France Telecom contain notification requirements governing situations where a shareholder or group of shareholders exceeds certain ownership or voting rights thresholds.

Telecommunications Act licenses
Telecommunications Act licenses permit licensees to install and operate a telecommunications system over which telecommunications services may be provided. Licenses may be granted to individual operators or apply to a class of persons. There are various types of both individual and class licenses. Certain individual licenses for both fixed and mobile networks are designated as public telecommunications operator, or PTO, licenses. PTOs are generally required to satisfy certain service obligations and other obligations. Holders of PTO licenses are granted certain rights and obligations relating to the installation and maintenance of 130
apparatus, such as cables and equipment on private or public land, and are permitted to undertake civil construction and public works in the same manner as other public utilities and to undertake certain permitted developments without having to obtain express planning permission. Pursuant to the Telecommunications (Interconnection) Regulations 1997, certain operators including substantially all PTOs have a right to request interconnection from, and are subject to a reciprocal obligation to provide interconnection when requested to, another operator. Some of the obligations contained in Telecommunications Act licenses are effective only when the Director General of Telecommunications has determined that the operator in question has SMP or market influence for the purposes of the license. No such determination has been made in respect of Orange UK. Orange UK holds a mobile PTO license under the Telecommunications Act, which permits it to operate a mobile telecommunications network and a fixed network. Orange UK also has full interconnection rights under the Telecommunications (Interconnection) Regulations 1997. Telecommunications Act licenses were granted for an initial duration of 25 years and are terminable by the Secretary of State for Trade and Industry on 10 years notice given at any time after the end of the fifteenth year. Orange UKs current Telecommunications Act license does not expire until 2020 at the earliest. However, upon implementation of the new European framework on July 25, 2003, Oranges Telecommunications Act license will be revoked and replaced with a general condition of entitlement of unlimited duration. Orange Paging, formerly Hutchison Paging, ceased activity on June 30, 2001. In November 2002, its license for telecommunications systems and for furnishing radio messaging services was ceded back to the Secretary of State for Trade and Industry. The DGT may modify the conditions of Telecommunications Act licenses with the licensees consent, subject to a limited power of veto by the Secretary of State for Trade and Industry. The DGT may also in certain circumstances modify the terms of an individual license where he does not receive objections from the licensee whose licenses are to be modified or if he considers the modification to be deregulatory. If objections are received, the DGT may decide not to revise the proposal or to refer the matter to the Competition Commission, which will consider whether the proposed modification would be in the public interest. The DGT must impose modifications if, following a reference by it to the Competition Commission, the Competition Commission considers that the matter referred operates or may be expected to operate against the public interest and the Competition Commission recommends a license modification to prevent or remedy any adverse effects that are identified. Before any license modifications are made, notice must be given to licensees and to all persons likely to be affected by the modifications. The Secretary of State for Trade and Industry also has power, under the European Communities Act 1972, to modify Telecommunications Act licenses to reflect the provisions of EU Directives. Freeserve does not hold a license as a public telecommunication operator under the Telecommunications Act. All of its telecommunications activities are regulated by a Telecommunications Service License. The networks infrastructure is supported by Energis, which supplies this service pursuant to a PTO license granted in accordance with Section 7 of the Telecommunications Act. Equant supplies data services and value added services abroad in virtue of a Telecommunications Service License. This license authorizes the provision of all telecommunication services other than international voice transport, distribution and conditional access. This license enables its holder (Equant) to connect its telecommunications system to almost all other licensed systems and authorizes provision of business services to third parties. EGN BV and Global One Communications Holdings Limited (wholly-owned subsidiaries of Equant) are authorized by their licenses to operate and exploit network installations of international 131

The following table sets forth consolidated revenues contributed by Orange UK and operating data presented on a comparable basis for the years ended December 31, 2000 and 2001, as well as the percentage changes between these periods.
Revenues ( millions). Number of customers (in thousands). Of which: Contract customers (in thousands). Prepaid customers (in thousands). Average annual revenue by user (in ). Average monthly usage per user (in minutes).

4,211 9,834 3,077 6,159

1,653 9,834 3,077 6,757
26.7 26.0 22.2 27.7 (12.5) (13.2)

222.7 26.0 22.2 27.7

Orange UK contributed 5.3 billion to France Telecoms total revenues in 2001. This represents a 222.7% increase compared to 2000, during which Orange UKs total revenues corresponded to the last four months of the year only, because Orange plc was only consolidated as of September 1, 2000 in France Telecoms accounts. On a comparable basis, revenues grew 26.7% in 2001, due mainly to the 26.0% increase in customers, to 12,387 thousand customers at December 31, 2001. Orange UK became the leader in the British wireless telephony market with approximately 28% market share (based on active customers). To a lesser extent, Orange UKs revenues benefited from a favorable exchange rate, as the average rate of exchange for the British pound to the euro increased 4.0% in 2001 compared to 2000. The rate of decrease in average annual revenue per user slowed to 12.5% in 2001, compared to 26.3% in 2000, due mainly to a stabilization in the proportion of prepaid customers in the total number of users in 2001 (70% at December 31, 2001, compared to 69% at December 31, 2000). The decrease in the average annual revenue per prepaid customer also slowed in 2001, decreasing 4.0% in 2001 compared to 18.7% in 2000. At the same time, the annual average revenue per contract customer increased 3.6% in 2001, after an increase of 6.1% in 2000. Average monthly usage per user decreased 13.2% from 159 minutes in 2000 to 138 minutes in 2001. The decrease was mainly due to the 16.2% decrease in average monthly usage per prepaid customer, partially offset by the 10.6% increase in average monthly usage per contract customer.
Orange Rest of World includes revenues from wireless operations in Belgium, Denmark, The Netherlands, Switzerland, Romania, Slovakia, the Dominican Republic, the Ivory Coast, Botswana, Cameroon, and Madagascar. The following table sets forth information concerning consolidated revenues contributed by Orange Rest of World and other information for the years ended December 31, 2000 and 2001, and the percentage changes between these periods.

The following table sets forth the costs of services and products sold, for each of the years ended December 31, 2000 and 2001, as well as the historical percentage changes and those presented on a comparable basis between these periods. Year ended December 31, on a comparable basis (unaudited) ( millions) Costs of services and products sold. 17,619 16,2001/2000 2001/2000
on a comparable basis historical (unaudited) historical (% change) 12,733 4.9 38.4
Costs of services and products sold increased 38.4% in 2001. This was largely due to the amounts that France Telecom pays to third-party wireless operators for carrying calls on their networks, which were recorded as costs of materials and other external charges and constituted a significant portion of the increases under this heading on a historical basis. On a comparable basis, the costs of services and products sold increased only 4.9%, while revenues increased 8.5% due to improved productivity realized on the fixed line network in France. This moderate increase was mainly due to development of:
France Telecoms activities in the wireless network sector in France, the United Kingdom and internationally (primarily through Globtel in Slovakia, Mobistar in Belgium, Dutchtone in The Netherlands and Orange Romania), in particular due to the increase in purchases of handsets due to the increase in the number of new subscribers; activities in the Internet sector; and activities in fixed line networks (primarily Uni2 in Spain).
In addition, costs of services and products sold (excluding depreciation and amortization) reflected the impact of an increase in charges paid to competing fixed line operators in France.
The following table sets forth information concerning selling, general and administrative expenses (excluding depreciation and amortization) for the years ended December 31, 2000 and 2001 and the percentage changes between these periods. Year ended December 31, on a comparable basis (unaudited) ( millions) Selling, general and administrative expenses. 12,520 11,2000 2001/2000 2001/2000
on a comparable historical basis historical (unaudited) (% change) 9,685 8.5 29.3
The increase in selling, general and administrative expenses (excluding depreciation and amortization) resulted mainly from the effects of the consolidation of Orange plc and its subsidiaries, the consolidation of the former Equant and the full consolidation of Global One (these two companies now comprise the new Equant), as well as the change in the method of consolidation for ECMS in Egypt. On a comparable basis, selling, general and administrative expenses (excluding depreciation and amortization) increased 8.5%, at the same rate as revenues. This increase, more moderate than the increase as calculated on a historical basis, resulted mainly from France Telecoms efforts to control spending, notably through:

1,(86) 568

1,165 (440) (104) 3,419 12,413 F-6
Year ended December 31, (Amounts in millions) INVESTING ACTIVITIES Purchase of property, plant, and equipment and intangible assets. Income from sale of real estate. Proceeds from sale of property, plant, and equipment and intangible assets. Cash paid for Orange plc. Purchase of own shares. Orange SA IPO proceeds. Repurchase of Orange SA shares: exercise of E.On put option. Exercise of the call option on NTL preferred shares. Change in net cash following the full consolidation of TP Group. Cash paid for investments securities and acquired businesses, net of cash acquired. Investments in affiliates. Sale of TDF sub-group and investment in Tower Participations. Proceeds from sale of investment securities and businesses, net of cash sold. Decrease (increase) in marketable securities and other long term assets. Net cash used in investing activities. FINANCING ACTIVITIES Issuance of long term debt. Repayment of long term debt. Increase (decrease) in bank overdrafts and short term borrowings. UMTS vendor financing. Minority interest shareholder contributions. Dividends paid to minority shareholders. Appropriation of earnings. Net cash used in financing activities. Net increase (decrease) in cash and cash equivalents. Effect of changes in exchange rates on cash and cash equivalents. Cash and cash equivalents at beginning of period. Cash and cash equivalents at end of period. SUPPLEMENTARY DISCLOSURES Cash paid during the period for: Interest. Income taxes. See notes to Consolidated Financial Statements F-21 Note 2002 $ 2000

5-3 3-3 8

(8,328) 2,(5,266) (996) (1,145) 151
(7,943) 2,(5,022) (950) (1,092) 144 (184) (146) 1,(673) (11,514) 4,394 (3,380) (1,077) (77) (395) (194) 131 (255) 2,943 2,819
(8,553) 296 (8,807) 6,102 (1,071) (3,284) 4,524 (31) (10,824) 37,244 (18,174) (13,556) (128) (1,075) 4,(75) 2,040 2,943
(14,313) 274 (21,693) (10,899) (7,969) 7,930 (218) (46,888) 21,528 (3,229) 21,002 1,847 (213) (1,025) 39,910 (365) (19) 2,424 2,040

GOODWILL RELATING TO CONSOLIDATED SUBSIDIARIES
Main goodwill arising from fully or proportionately consolidated subsidiaries is as follows: December 31, 2002 Accumulated depreciation Net book value December 31, 2001 Net book value 24,490 21,870 2,6,290 2,908 1,34,963
(in millions of euros) Orange. Orange PCS. Orange Communications SA (Switzerland). Orange SA. Other Orange. Equant/Global One. Wanadoo. Freeserve. QDQ Media (ex Indice Multimedia). Wanadoo Espaa. Pages Jaunes. eresMas. Other Wanadoo. TP Group. JTC. Mauritius. Other. Total.
(1) Goodwill in foreign currency is converted at the closing rate.
Cost(1) 25,667 21,901 2,737 5,976 3,445 1,2,38,986
(4,168) 21,499 (2,559) 19,342 (1,167) 1,452 (10) 400 (432) 305 (5,321) (602) (170) (29) (148) (72) (3) (180) (269) (199) (18) (734) 655 2,843 1,2,160 182

(11,311) 27,675

Movements in net book value of goodwill are as follows: (in millions of euros) Opening balance. Acquisitions. Divestitures. Effect of fully consolidating TP Group (see Note 3). Amortization. Exceptional amortization. Translation adjustment. Reclassification. Closing balance. 2002 34,(95) 2,564 (2,233) (5,247) (2,733) (394) 27,36,049 8,027 (6,489) (2,195) (560) 296 (165) 34,1,206 35,757 (966) 36,049
The effects of the main acquisitions and divestitures are set out in Note 3. In December 2001, divestitures related to the decrease in goodwill generated by the IPO of Orange and the contribution of Global One to Equant. F-25
The principal amortization charges to goodwill from fully or proportionally consolidated companies can be analyzed as follows: At December 31, (in millions of euros) Orange. Of which Orange PCS. Of which other Orange. Equant/Global One (2). Wanadoo. TP Group (3). Other. Total (4).

(1) (2) (3) (4)

2002 (1,300) (1,133) (167) (492) (256) (99) (86) (2,233)
2001 (1,366) (1,157) (209) (377) (248) (204) (2,195)
2000(1) (527) (458) (69) (251) (68) (120) (966)
In 2000, Orange PCS for 4 months. At December 31, 2001, Equant (for the period from July 1, to December 31) and Global One (12 months). At December 31, 2000 Global One consolidated for 12 months (3 months proportionally, 9 months fully consolidated). Fully consolidated since April 1, 2002. Does not include exceptional amortization.
Moreover the recoverable value of goodwill has been examined at the close using the method described in Note 2. At December 31, 2002, the following perpetual growth rates and discount rates have been applied to the expected cash flows by France Telecom on the basis of economic assumptions and forecast operating conditions used by France Telecom: Perpetual growth rate Orange. TP Group. Equant. Wanadoo Internet. Directories. 3% 3% 3% 4.5% 3.5% Discount Perpetual Discount rate growth rate rate 9% 10.5% 10.5% 12.5% 9% 3.5% 4% 5% 3% 9% 9.5% 10% 8%

The provision for risk corresponds to the best estimate of the MobilCom risk for France Telecom, on the basis of the Cooperation Framework Agreements with MobilCom, the Senior Interim Facility banks and the agreements with the equipment suppliers, at the date of the financial statements given the assessment of its legal position with respect to the different claims which could be made against it. F-56
On February 14, 2003, Mr Gerhard Schmid filed for personal bankruptcy. The same day, a temporary legal administrator was named by the Flensburg tribunal. This procedure, if continued, could give rise to a challenge of the validity of the transfer of Gerhard Schmids shares into the trust, and his waiver of any claims against the France Telecom group, including Orange.
18.2 Equant CVR provision
On July 2, 2001, France Telecom issued to all Equant shareholders other than the SITA Foundation and to certain owners of share options and restricted share awards granted by Equant before November 19, 2000, 138,446,013 contingent value rights (CVR). Each CVR gives the holder the right to receive a cash payment, on the third anniversary of the completion of the Equant transaction (June 2004), representing the difference if negative between the average Equant share price for a defined period and 60, limited to a maximum of 15 per CVR. Movement in market price in 2001 and in the beginning of 2002 has resulted in a CVR market value since issue corresponding to a payment of the CVR at maturity. As a result of this, France Telecom recorded at December 31, 2001 a provision for the maximum risk, amounting to 2,077 million.
18.3 Off balance sheet commitment for NTL preferred shares
On July 12, 2002, in the context of the put and call options between the parties involved in the acquisition by NTL of Cablecom (Switzerland), France Telecom purchased all of the preferred shares held by certain financial institutions for an amount of US$1.1 billion. The provision of 811 million set up at December 31, 2001 for the off balance sheet commitment on NTL preferred shares has been used to depreciate the shares acquired (see Note 8).

18.4 Kulczyk Holding

As part of the acquisition of TP SA by France Telecom and Kulczyk Holding, France Telecom and Kulczyk Holding and the banks financing Kulczyk Holding are bound by different commitments (see Note 28). Kulczyk Holding holds a put option to sell to France Telecom its 13.57% stake between October 2003 and January 2007 at a price equal to its purchase cost of 1.6 billion plus accrued interest less dividends paid. The amount of this commitment represents approximately 1.9 billion at December 31, 2002. The movement in the TP SA share price has lead France Telecom to record a provision for the difference between the commitment and the value in use of the TP SA shares to be received, i.e. a provision of 571 million in 2002 (of which 300 million in the first half of 2002).