France Telecom’s 2010 Revenues Up 1.5%, Warns of Tough Competition

France Telecom has revealed that its full-year 2010 revenues were up 1.5% year-on-year (y/y) to EUR45.5 billion (USD62.4 billion), as strong growth in its emerging markets managed to offset continuing declines in Western Europe.

The French incumbent also announced its full-year adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) fell by 1% y/y to EUR15.64 billion, as the operator continued to feel the effects of increasing competition at home. France Telecom also reported its revenues in the fourth quarter rose 4.1% y/y to EUR11.73 billion, while adjusted EBITDA in the quarter rose 1.5% y/y to EUR3.6 billion.

Operationally, the company’s customer base expanded 6% y/y to reach 209.6 million customers at the end of December 2010. Mobile-services customers increased by 9.1% y/y to reach 150.4 million, with the majority of this growth in Africa and the Middle East, where the number of total customers jumped 23.1% y/y to reach 59 million customers at the end of the year. Elsewhere, in France, mobile customers were up 2.3% y/y to reach 26.9 million customers, while the customer base in Poland grew 4.5% y/y to 14.3 million subscribers. The group also saw mobile contract customers up 6.6% y/y, bringing the total to 51.2 million, led by the success of smartphones. Fixed broadband services customers totalled 13.7 million at 31 December 2010, for a y/y increase of 3.4%.

Looking forward, France Telecom says its revenue—excluding the impact of regulation—will “increase slightly” in 2011, while it expects its EBITDA margin to slide 1% this year, and plans to spend about 13% of revenue on capital expenditure. The company also confirmed its target for organic cash flow in the year of EUR8 billion.

Meanwhile, the operator announced that current chief executive officer Stephane Richard will also become its chairman, as of 1 March this year, combining the two functions after only a year at the helm of the telecoms giant.

Outlook and Implications

• Stiffer Competition in France Expected: Richard says that the operator is looking to guard market share and margins at home, where the company will face a further increase competition with the expected entry of Iliad's Free as a fourth mobile operator. France Telecom, which markets under the brand name Orange, was forced to launch a commercial offensive in August last year and again in October, to cope with stiff competition. It clawed back some ground in France in the broadband market, picking up 36% of new customers in the fourth quarter.
  
  Meanwhile, France Telecom has led calls for a new relationship with content providers such as Google, Yahoo!, and Facebook, looking at the possibility of making internet giants contribute to the cost of rolling out next-generation broadband networks in the country. The French government has led its support, saying the content giants were not contributing enough, with the entire investment burden falling on the operators (see France: 22 December 2010: French Government Looks to Tax Web-Content Giants to Fund Broadband Roll-Out).
  
  In the fixed-line sector, France Telecom has recently announced plans to extend its fibre-to-the-home (FTTH) network to reach some 60% of households by 2020 as part of its pledged investment of EUR2 billion over the five next years. Meanwhile, the alternative operators continue to push for the formation of a joint venture to invest in the fibre roll-out, with France Telecom as the biggest shareholder, to allow improved co-ordination of fibre deployment across the country and make it easier for the smaller operators to participate (see France: 7 February 2011: SFR Releases FTTH Plans, Calls for French Fibre Joint Venture—Report).
  
  In addition, the French telecoms regulator has recently published a list of proposals aimed at improving customer offers. These include the right to independently terminate a subscription to a fixed or mobile service that has been provided as part of a quad-play offer (see France: 22 February 2011: French Regulator Proposes New Consumer Rules, Including Right to Unbundle Offers).

• Sluggish Performance in Western Europe: France Telecom’s financial results no longer include its Orange UK unit, which merged with Deutsche Telekom's T-Mobile UK in April 2010 to form Everything Everywhere (EE). The joint venture revealed yesterday that its revenue fell 1.2% y/y to GBP1.8 billion (USD2.9 billion), blaming the effects of ongoing regulation for the drop (see United Kingdom: 23 February 2011: Everything Everywhere's Q4 Revenues Down 1.2%, Blames Regulation). Meanwhile, France Telecom has dismissed rumours that it is moving towards a merger with Deutsche Telekom, following the announcement that they are expanding their co-operation by expanding mutual network usage. While EE said the merged UK unit could "certainly be a template" for mergers in other European countries, both companies rejected the suggestions that current talks are the first stage to a full merger of the two European giants. Elsewhere, France Telecom's Belgian unit Mobistar recently announced that its fourth-quarter EBITDA fell 10.7% y/y. The operator also issued a warning of lower profits in 2011, blaming regulatory pricing pressures (see Belgium: 9 February 2011: Mobistar's Q4 EBITDA Down 10.7%, Blames Regulation).

• Continued Investment in Emerging Markets: France Telecom says that it plans to continue with its strategy of pushing the Orange brand further into fast-growing emerging markets, including Africa and the Middle East. It has pledged to spend as much as EUR7 billion on acquisitions in the next four years, as part of its goal to double revenue from emerging markets by 2015. Richard said the deals signed last year in Egypt and Morocco have allowed France Telecom to accomplish a large part of its goal, but added that there will be a few more acquisitions before it is on the right track. The global operator says this strategy is unchanged despite the ongoing unrest in the Middle East and Africa, although its operations in Egypt, Tunisia, and Côte d'Ivoire are currently being affected by ongoing political crises.

• Exploring New Business Directions and Synergies: France Telecom stated at the end of last year that it is beginning to see an increase in big-business spending, after a deep slump in the sector following the global financial crisis, and many of its corporate customers seek to expand in emerging markets (see France: 8 December 2010: France Telecom Business Head Sees Positive Trends in Corporate Sector). The operator sees its Orange Business Services unit as strategically important because of its international reach, while its clients spend more and sign longer-term contracts. Meanwhile, France Telecom recently acquired a stake in French video-sharing website Dailymotion, as part of its new strategy to move into the area of content to attract new clients and find alternative revenue sources (see France: 25 January 2011: France Telecom Signals New Direction Into Content with Acquisition of Video Site Dailymotion).