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From penniless youth to billionaire – how Free boss Xavier Niel became one of France's most powerful men

January 15, 2013 | By Laurent Mauduit

He is one of the most powerful and influential men in France today. Not only is Xavier Niel the founder and main shareholder of the country's second biggest internet service provider, Free, the billionaire businessman is also part-owner of the nation's best-known newspaper Le Monde. Such is his power – and personality – that he is not afraid to take on Google, while he is friends with some of the most prominent families who make up France's wealthy business elite. Yet in the late 1980s Niel was a 'brilliant but penniless' youth with no formal qualifications working as a technician in the twilight world of sex chatlines and dating in central Paris. In an investigation Mediapart charts Niel's career from his lucrative ownership of sex shops in Paris and Strasbourg to the day he seized total control of the company that would ultimately make him France’s 12th wealthiest man. Laurent Mauduit and Dan Israel report.

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In recent weeks the name of Xavier Niel has once more made the headlines in France and around the world. The country’s second biggest internet service provider (ISP) Free, in which he has a controlling interest, sparked huge controversy when out of the blue it excluded adverts from its customers' online pages. Inevitably the battle was seen as one between Niel and the internet giant Google, who were widely and rightly regarded as the real target of the ban; Niel wants Google to pay his firm for the right of the search engine to be present on Free's network. Ultimately Free backed down under pressure from the government but not before a marker had been laid down that the company – and its boss – would not quietly sit by and allow the American search engine dictate to the market. In doing so Free revealed something of the characteristics of its founder; mystery and unpredictability.

For, despite being the head of one of France's biggest companies, and being the 12th wealthiest man in France with a personal fortune estimated at 3.6 billion euros, Niel is discreet about his professional life. And especially so about how, in the space of just two decades, he went from being an unknown “brilliant but penniless” young man with no qualifications to becoming one of the country's most influential business leaders. His influence also extends into the media, for he is now one of the main shareholders of France's best-known newspaper Le Monde. And in the interests of full disclosure it must be stated, too, that Niel is also an indirect shareholder in Mediapart (see box marked boîte noire at the foot of this page).

It is because of Niel's powerful position in the world of business and his ownership of sections of the media that Mediapart has decided to delve into the entrepreneur’s colourful past; to discover how and where he started as a businessman, how he made such a large fortune so quickly and what the circumstances were behind his conviction in October 2006 for receiving the proceeds of undeclared company revenue.

It is not easy investigating Niel's past. He remains very discreet about it, and of all the major French business leaders it is he who most often files defamation suits against journalists. The French daily Libération, for example, has had legal action taken against it six times by either his company Free or by Xavier Niel in person, though none of them resulted in the newspaper being convicted.

It is not hard to see why Niel why might want to remain quiet about aspects of his professional past. He is now a major figure in the French business world, and is friends with the Pinault family, the Arnault family and other members of the country's ultra-rich business elite. Niel lives in the small and exclusive Villa Montmorency estate, the most upmarket corner of Paris's 16th arrondissement, where near-neighbours include other great figures in the French business firmament such as Vincent Bolloré and Arnaud Lagardère.To some observers his recent life has involved a quest for respectability, with which his decision to invest in – his supporters say “save” - France's most prestigious newspaper title Le Monde fits very well.

Contrast this with the fact that the early business experiences of Free's boss included running sex shops and sex chatlines via the now defunct Minitel communications system  Indeed, it was after being branded the “King of Porn” by a satirical magazine in 1999 that Xavier Niel decided to “rationalise” his businesses.

Fortunately, though Niel is today discreet about his past, it is still possible to shed some light on it - thanks to his own testimony at the time. In June 2004 an examining magistrate investigated the circumstances that would lead to Niel's eventual conviction in 2006. In the course of the investigation the judge twice questioned Xavier Niel in detail about his early business life. The transcripts of those interviews, published here by Mediapart, and other legal documents give a revealing and frank insight into the entrepreneur's early business life and how he amassed the beginnings of the vast fortune he enjoys today.

Part one of Mediapart's investigation looks at how Xavier Niel began his business career in the twilight world of France's sex shop and sex chat industries.

Sex shops and sex chatlines

In the two interviews with the judicial authorities that Xavier Niel gave in 2004 he spoke in detail and frankly about how and where he had started his business career. On June 8th 2004, he told the examining magistrate Renaud Van Ruymbeke – a judge who has led a number of prominent investigations -  that from the beginning he had been “passionate” about technology.

“At the age of 16 I worked for newspapers participating, when Minitel was created, in dating [services] between men and women,” he told the judge. Minitel, which was launched across France in 1982, was a communications network which customers used via phone-connected computersand  that provided online services, and was a precursor to the internet. These services included checking stock prices, purchasing goods and making rail reservations, but the system was also widely used for sex chat services and making sex contacts; Minitel subscribers paid for access to those services. This area of the Minitel services became known as 'Minitel rose' or 'pink Minitel'. Niel continued: “In 1986, while I was doing a preparatory class in maths and science (1), I decided to work in Minitel 'rose' companies.”

It was in this industry in 1990 that Niel met Fernand Develter, who was 25 years his senior and who had in a previous career worked in stock exchange transactions with the French bank Société générale (SocGen). Having resigned from the bank in February 1985, Develter had then embarked on a second career. Together with a friend Michel Artaud – an old colleague who had also quit SocGen – he set up a firm called Fermic, which provided stock exchange data on Minitel but which also worked in the Minitel rose sector. Niel and Develter met in a restaurant called Le Petit Ramoneur in rue Saint-Denis in Paris whose main clientèle were employee of local sex shops. In a later court transcript Niel was described then as being “brilliant but penniless”. He was not destined to remain poor for long.

At the time Fermic was losing money. “I acquired 50% of the shares for a nominal sum,” Niel told the judge. “Then I took control of Fermic which I developed in the Minitel rose sector until the end of 1993.” But that was not Xavier Niel's only involvement with Develter. “In this period Fernand Develter spoke to me of his investments in the Sylvialize sex shop [in Paris] and told me he was very happy with the returns on his money that it gave him,” the future boss of Free told Judge Van Ruymbeke. “I saw a double interest in investing in this activity,” Niel noted. “A good and untaxed return on my investment because it was based on hidden accounting and undeclared cash income. [And] a marketing opportunity for the Minitel dating services as this activity could attract customers to Minitel.”

However, Niel told the judge that by the years 1993 and 1994 the Minitel rose side of the business was declining. “So I created through Fermic, which would become Iliad in 2000 [editor's note, the parent company that today own Free], services such as 3617 Annu [editor's note, a reverse directory service], services relating to [employment] collective agreements and the sending out of birth, marriage and death certificates.” He added: “At the end of 1993 I also created the first internet service provider in France, Worldnet (2).”

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1: The French term used is 'Maths-Sup' (for Mathématiques supérieures), the common name for preparatory classes designed to prepare high school pupils for entry into one of the country’s top engineering or scientific higher education establishments.

2: In fact some sources suggest that World-Net – as it was styled – was created in 1994 by Sébastien Socchard, Philippe Langlois and Pierre Séguret, and that Niel, who had supported the project from the start, became its 'business angel' and investor in 1995.

'Sex shops? I wanted a return on my investment'

Niel then went on to describe his investment in sex shops during the same period. “Overall I invested ten million francs [about 1.52 million euros], mainly from 1992 to 1997, in sex shops, about a dozen in Paris.” These ten million francs had several origins, said Niel, who went on to describe them. “In 1991 I sold my first Minitel rose company for about one million francs. From 1993 to 1997 I received between 20 to 30 million francs in dividends from the company Phoneline, a sister firm to Fermic, specialised in telephone dating. I had also some large salaries.”

Questioned by Judge Van Ruymbeke, Xavier Niel gave more details about his and Fernand Develter's involvement with the sex shops. “Fernand and I were passive investors associated with managers who came from the sex shop world. In general Fernand and I each held 25% of the capital of each company. The other half belonged to the managers. At the end of the month these managers came to see Fernand and gave him cash corresponding to the share that was due to us, and which Fernand afterwards shared with me, generally on the basis of 50-50.”

When asked how much money Niel was taking in cash from the sex shops he replied: “Around 100,000 francs [about 15,000 euros] a month. Overall Fernand was receiving the same.”

The judge then asked Niel why he kept a business of this kind – the sex shops – that was generating undeclared income while at the same time he was developing a legally declared activity – his technological ventures – that bore no relation to it. “I was living off this money,” replied Niel. “I wanted to have a return on [my] investment. Fernand had presented Sylvialize as a golden venture in which he had invested one or two million francs and from which he got a return of 50,000 to 60,000 francs a month.”

Niel said that his approach changed in 1999 “when an article in the [satirical weekly magazine] Le Canard enchaîné called me 'the King of Porn'. So I rationalised things.” The businessman said that this “rationalisation” involved getting rid of the less profitable and smaller parts of his burgeoning business empire for nominal sums. But he said he did not get rid of Sylvialize or two other sex shops, Roxane and Selena, which he part-owned in the eastern city of Strasbourg. “...I kept those parts...because they brought me easy money,” he told the judge. “This cash was usable instantly and did not give the same sensation of earnings as the money that I was earning in an orthodox manner in my activities as a telecommunications operator.”

During the same interview with the judge, Niel explained his reaction when he heard in early 2001 that prostitution had been taking place at Sylvialize sex shop. “Mad with rage I called Fernand Develter who told me 'No, no you must be mistaken'. He gave me the telephone number of Claude Monali, the main manager of Sylvialize, who swore to me that it was false. Three or four days later the police intervened and the establishment was closed for several months,” said Niel.

'I should have been vigilant'

At a second interview with Judge Van Ruymbeke, held on June 25th 2004, Xavier Niel was also asked about whether he had been aware of the “practices carried out” at Roxane sex shop, the “complementary services offered to customers”, namely the services of prostitutes. “No I was not aware,” he told the judge. However, he said that when he read the witness statements of the young women concerned, he was not that surprised. “I had read the same type of witness statements concerning Sylvialize and I had immediately put an end to it.” He added: “I was not vigilant enough...I knew the risks and I should have been vigilant.”

Two years after his questioning, on October 27th 2006, the 11th chamber of the Paris law courts delivered its judgement on Xavier Niel, Fernand Develter and several of their business associates. Once again the official legal transcript gives more revealing insights into Xavier Niel's life as a businessman at this time. It tells how, after the sex shop Sylvialize was raided by the police in 2001, Niel and Develter's two main business associates and sex shop partners Claude Monali and Edouard Montero, were prosecuted and later convicted for living off immoral earning in relation to the prostitution that had been taking place there.

In the meantime Niel, described as a “witness” in those criminal proceedings, had sought to oust his former associates from the sex shop business. He did this by “refusing to sign the [company] accounts and threatening to have a receiver appointed...the two [men] concerned finally agreed to sell their share for the official price of 7,300 euros” says the judgement. However, the two men's share in the sex-shop was signed over not to Xavier Niel but to his sister Véronique Niel, Xavier Niel's 'front-woman'. The judgement also states that there was an “under-the-table payment of 200,000 in cash shared between the two ousted associates”.

The transcript of the court judgement makes it clear why Monali and Montero's shares in the Sylviaize sex shop went to Véronique Niel and not to Xavier Niel himself. “Her brother...did not want to be seen in this kind of company because of his duties at the heart of Iliad”. The judgement notes than when later questioned about it Xavier Niel's sister Véronique “herself declared that she was not acquainted with [the] Sylvialize [sex shop]”.

It also points out that while Niel had made an “under-the-table” payment of 200,000 euros to his former Sylvialize associates to help him acquire their share of the business, he did not lose out financially. For in subsequent months the long-standing agreement between him and Develter to share the cash proceeds from the sex shop was put on hold and Niel took all the cash payments himself until he was “reimbursed” for the under-the-table payment.

As for the conviction itself, the judgement pointed out that Niel had already admitted having “received funds taken from undeclared income from Sylvialize since 1989...” It also described how Niel had received a total of 30,000 euros in cash coming from undeclared earnings of another company of which he was shareholder, Looksor, as part of a deal to transfer its ownership to another person. The judgement on October 27th 2006 found Niel guilty of “receiving goods which were the proceeds of a crime punishable by a prison sentence not exceeding five years”. In this case the crime concerned was non-declaration of income to the tax authorities.

 Xavier Niel was given a two-year suspended prison sentence and a fine of 250,000 euros. He initially launched an appeal against the sentence before withdrawing it.

 In part two of the investigation Mediapart examines the events of the day in March 2002 that were to make Xavier Niel his fortune.

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English version: Michael Streeter