Global Insight Perspective | |
Significance | Despite declining revenue at its fixed line and business units, positive results from Orange have helped France Telecom Group to report rising revenues in the first quarter of 2006. |
Implications | Strong competition from the likes of Iliad means that there is no reprieve for France Telecom in the fixed telephony market in France. With the introduction of mobile/Wi-Fi services, Iliad and Neuf have set their sights on mobile revenues as well. |
Outlook | France Telecom's ambitions in VoIP offer it an opportunity to retain voice traffic on its network. In the long run, the rebranding of Wanadoo to Orange and the promotion of mobile broadband services under the NExT strategy would give the company better opportunities to take on its rivals in offering fixed-mobile convergence (FMC) services. |
France Telecom has reported a 2.2% rise in revenue to 12.8 billion euro (US$15.9 billion) for the first quarter of 2006, thanks to a 7.4% revenue increase at its PCS (Personal Communication Services) division - Orange. While announcing its results today, the group said revenues at Orange rose by 24.5% on a historical basis and 7.4% on a comparable basis year-on-year (y/y), to 6.63 billion euro. In contrast, revenue at its fixed-line unit HCSD (Home Communications Services Division) was down 2% on a y/y comparable basis to 5.56 billion euro, while revenue at its business division ECSD (Enterprise Communication Services Division) fell 6.3% to 1.92 billion euro (see World: 14 February 2006: France Telecom Profit Up 89.2% in 2005, Plans 17,000 Job Cuts and Europe: 12 January 2006: France Telecom Revises Revenue Targets for 2005, 2006).
Group EBITDA (earnings before interest, tax, depreciation and amortisation) increased marginally by 0.1% to 4.67 billion. The group reportedly lost 188 million euro from the decline in call termination rates in the first quarter of 2006 following a ruling by the French telecoms regulator. Expenses on capital investment rose to 10.8% of revenue, to hasten the implementation of the NExT strategy of rolling out mobile and fixed broadband services in 2006. France Telecom hopes to launch a mobile/Wi-Fi service before the year-end to match offerings from Iliad and Neuf Telecom (see France: 26 April 2006: Neuf Cegetel Launches Mobile/Wi-Fi Service; Posts US$160 mil. Loss, 21 April 2006: FMC Debuts with Iliad Wi-Fi/Mobile Service and 22 December 2005: France Telecom to Cut Fixed-to-Mobile Rates Next Month).
The group said that its total customer base nudged up by 8.5% to 147 million at end-March 2006. ADSL broadband customers across Europe have risen 10% since end-December 2005 to 8.1 million, including 4.9 million in France. The company claims it now has a consumer ADSL market share of 49.8% in France. The number of customers using its EDGE and 3G mobile broadband services rose 45% since end-December 2005 to 2.2 million. VoIP customers in France were also up by 45% since end-December 2005, rising to 1.2 million at the end of March 2006.
Outlook and Implications
No Reprieve from Fixed Network: Despite the increased adoption of its ADSL service, revenue from broadband internet services was unable to offset declining revenues at its fixed-line business in France and Poland (down by 1.7% and 4.8% respectively). In France, the number of broadband 'liveboxes' leased jumped by a huge 412% y/y, with 2.13 million units at the end of the quarter. The ADSL broadband customer base rose 46.4% to 4.93 million at the end of the quarter, while VoIP customers rose to 1.21 million, compared to just 245,000 in the same time last year. ADSL TV customers also doubled from 102,000 to 229,000. However, intense competition in fixed telephony from the likes of Iliad has eaten deep into the division's revenues. Consumer telephone lines decreased from 27.42 million in the first quarter of 2005 to 26.65 million in the first quarter of 2006. France Telecom also lost 0.1% market share in consumer PSTN (public switched telecommunication network) ending the quarter with a 67.7% market share. In Poland, the fixed telephony customer base dropped 2.9% y/y from 10.8 million to 10.5 million, although broadband customers rose 64% to 1.3 million. In contrast, revenues from markets where there is no legacy fixed telephone service - the United Kingdom, Spain, and Netherlands - rose by 1%.
Orange to the Rescue: Continued growth at its mobile division and the integration of its recently acquired Spanish unit Amena have helped offset the disappointment from its fixed-line division. With its Orange brand garnering awareness and success, France Telecom has reiterated its commitment to integrate its internet and mobile units in the second half of 2006 and rebrand its Wanadoo internet unit to Orange. In its key mobile markets of France, the United Kingdom, Poland and Spain, the group reported substantial subscriber growth, although ARPU declined in France and the United Kingdom. The impact of mobile broadband services - EDGE and 3G - has started to have an impact, giving the group an improved data revenue margin. Non-voice services contributed 15.9% of revenues in France, compared to 14.8% in the first quarter of 2005, and in the United Kingdom the contribution rose to 20.2% this year (compared to 19.3% last year). The company says that it now has about 1.5 million 3G/EDGE customers in France, compared to 52,000 in the first quarter of last year. In the United Kingdom, its 3G service had 425,000 customers at end-March 2006 compared to 36,000 a year earlier (see Spain: 29 July 2005: France Telecom Unveils Strategic Plan for Amena).