IHS Global Insight Perspective | |
Significance | Despite some impressive subscriber adds and continued expansion, France Telecom has seen revenue fall across the board as customer spend drops and competition increases. |
Implications | In its key home market, France Telecom faces increasingly tough competition and regulation, a stalled fixed-line market, and a public-relations disaster following a spate of employee suicides. |
Outlook | France Telecom has said its outlook for 2010 is "uncertain" and the operator will be increasing searching for some signs of recovery as revenue drops become unsustainable. |
France Telecom has announced its third-quarter earnings (EDITDA) fell 8% year-on-year (y/y) to 4.56 billion euro (US$6.74 billion), missing analyst expectations in a Reuters poll of a drop of 7%, as increases in competition and regulation and a drop in consumer spend continues to hit the global operator.
The France-based company also reported third-quarter revenues were down 6.4% y/y to 12.7 billion euro, while the group's EBITDA margin was 35.9%, compared with 36.5% a year earlier. France Telecom's capex fell 18.6% in the quarter to 1.21 billion euro, representing some 9.5% revenues, compared to 11% in the third quarter of 2008.
The group had 189.1 million customers at the end of September 2009 (excluding MVNOs), up 6.6% y/y, representing 11.7 million net adds in the 12 month period. Growth in the number of mobile customers continued to rise, with France Telecom claiming 128.8 million customers at the end of the third quarter, a y/y increase of 9.5% or 11.2 million net adds, while growth in ADSL broadband services continued, with 13.4 million customers at the end of September, an increase of 6% y/y.
France Telecom, owner of the Orange brand and the third-largest operator in Europe, added that it was not expecting revenues to improve in the fourth quarter, and stated that there was "a lot of uncertainty" over when any signs of a recovery might begin. However, CFO Gervais Pellissier said the group was maintaining its objectives for the year in spite of a difficult economic climate.
Outlook and Implications
- France Telecom Faces Further Problems at Home: Despite some impressive subscriber adds—seeing a 3.4% rise in customers in France—revenues fell 1.6% y/y in the operator's home country. France Telecom saw continued growth at its mobile unit, particularly in the burgeoning mobile broadband sector, but this is set to be challenged by the imminent entry of a fourth mobile player into the market, as tenders for bids close today (see France: 23 October 2009: Iliad on Home Straight as Virgin and Numericable Pull Out of French Fourth Mobile Licence). Elsewhere, France Telecom's promising fibre-optic network expansion has all-but stalled due to ongoing regulatory wrangles (see France: 29 September 2009: France Sees Disappointing Take-Up of FTTH as Only 50,000 Customers Connect), and its rivals are turning up the heat in the fixed-line and triple-play markets as competition rises and stagnation sets in (see France: 24 September 2009: Numericable Starts Fixed-Line Price War with Cut-Price Triple-Play Offering). France Telecom is also beginning to feel the impact of recent regulatory measures introduced across Europe by the European Union (EU) (see Europe: 2 October 2009: Blow to Operator Appeals as EU Court Adviser Says Roaming Caps are Valid), and also faces the knock-on effects of fresh anti-piracy legislation, something it has attacked as unworkable (see France: 24 September 2009: French Parliament Passes Controversial Anti-Piracy Law). Finally, the operator has recently been embroiled in a public-relations disaster following the suicide of 25 members of staff this year (see France: 20 October 2009: France Telecom Launches Staff Stress Survey as CEO Says He Will Not Quit), seeing unions call for restructuring to end and France Telecom's chief executive to step down. Although the effects of this discontent have yet to be felt on the operator's financial margins, it is faced with a difficult task of pushing ahead with cost-cutting while avoiding any more of the bad publicity this affair has created.
- Disappointing Revenue Performances Abroad: Despite some impressive subscriber adds and continued expansion, France Telecom has seen revenue fall across the board. In its key U.K. market, third-quarter revenue has plunged 15.3% y/y, as its Orange U.K. unit has been dragged into a vicious price war as competition levels reach breaking point. The unit has recently signed a merger deal with rival Deutsche Telekom's T-Mobile U.K., which is largely seen as an admission that the market can no longer sustain five major mobile operators (see United Kingdom: 13 October 2009: Orange T-Mobile U.K. Merger Could Be Delayed by Antitrust Regulator—Report). Competition and market saturation is having a similar effect on France Telecom's Spanish unit, where revenue fell 4.7% y/y in the quarter. In Poland, revenue plunged 29.3% y/y, although this was affected by a weak local currency. Recent regulatory changes in the country are now promising more stability in the volatile market, and France Telecom's local unit TPSA has committed to significant broadband infrastructure rollout (see Poland: 23 October 2009: Promise of New Stability for Polish Telecoms Market as TP, UKE Agree on Network Access, Investments), as the group continues its modest expansion into Eastern Europe (see Armenia: 22 October 2009: Orange Armenia to Begin Operations on 5 November). Elsewhere in Europe, France Telecom has denied rumours it is interested in raising its stake in Belgian operator Mobistar, following hints from the French incumbent's CFO last week concerning consolidation in the European market (see France: 25 September 2009: France Telecom Eyes Further European Consolidation with Swiss Sunrise Deal). Indeed, the operator's focus has turned outside Europe in terms of expansion opportunities, as it makes impressive inroads into relatively untapped emerging markets in Africa (see Uganda: 9 October 2009: Orange Uganda Awards Contract to Alcatel-Lucent to Expand GSM Network). However, its revenue figures for the "rest of world" sector have fallen 1.5% to 2.08 billion euro, chiefly due to increases in competition in growth markets. Elsewhere, there was little joy at France Telecom's international carrier division, which saw third-quarter revenue down 2.5% to 351 million euro.
- France Telecom Sees Uncertain Outlook: France Telecom's third quarter continued to be very active, with 3.3 million additional mobile customers, but the earnings and revenue drops are a serious cause for concern. Elsewhere in the European telecoms market, Nordic giants TeliaSonera, Telenor, and Tele2, and Dutch telecoms group KPN have all reported impressive earnings rises in the last 10 days, but this has been attributed chiefly to effective cost-cutting, and few are reporting any signal of recovery in their markets (see Europe: 28 October 2009: TeliaSonera Q3 Earnings Up 9% Y/Y as Cuts in Costs and Capex Pay Off). France Telecom has said its outlook for 2010 is "uncertain", and the operator will be increasing searching for some signs of recovery, as revenue drops become unsustainable.