FT Revenues Up, Profits Down in '06

Orange (NYSE: FTE) reported full-year 2006 results today, which were in line with the company's preliminary results issued last month. The French operator confirmed its aspirations to seek acquisitions in emerging markets and consider asset disposals. (See France Telecom Reports 2006 and France Telecom Reports 2006.)

The operator reported net profit of €4.139 billion (US$5.42 billion) in 2006, which is down from €5.709 billion ($7.48 billion) in 2005. The drop in profits is due to restructuring and impairment charges, fewer asset sales in 2006 compared to 2005, and pricing pressures.

Revenues were up 1.2 percent from €51.1 billion ($67 billion) in 2005 to €51.7 billion ($68 billion) in 2006, mainly driven by mobile services growth in emerging markets, including Botswana, Egypt, Mexico, Poland, and Slovakia. Revenue from emerging markets increased by 18.6 percent while revenues from mature Western European markets decreased by 0.8 percent, compared to the previous year.

France Telecom is keen to pursue acquisitions in emerging markets and may look to Africa first. "There are a few targets in Africa where we can bring mobile," says chairman and CEO Didier Lombard, but he's not disclosing details.

Lombard confirmed that he will take a "selective and cautious" approach to acquisitions and disposals but is primarily interested in acquisitions in high-growth markets. Lehman Brothers suggests that "this means France Telecom does not rule out acquisitions in Western Europe."

Indeed, France Telecom says it is considering Deutsche Telekom AG (NYSE: DT)'s Spanish broadband operator, Ya.com . "We are looking at that, but we don't have a clear position yet," says Belarmino Garcia, executive vice president of Orange Spain , the FT subsidiary. Deutsche Telekom said last week that it might sell Ya.com as well as its triple-play service provider, Club Internet in France. (See DT Plans M&A, IPTV Push.)

But Lombard contends France Telecom is not the "best candidate" to buy Club Internet. "Our Internet position [in France] is strong enough," he says.

As for asset disposals, Lombard did surprise some analysts when he denied that Orange Netherlands was for sale, which has been reported recently. Lehman Brothers had expected a confirmation from Lombard about his interest in selling this unit. "Today there is no project for the disposal of this asset," says Lombard.

France is leading Europe in broadband, triple play, and IPTV services. At the end of last year, France Telecom had 577,000 IPTV customers. According to Multimedia Research Group (MRG) Inc. , FT is expected to be one of Europe's biggest IPTV players by 2010, along with French competitor Iliad (Euronext: ILD). France Telecom boasted 577,000 IPTV customers at year-end 2006. (See Europe to Dominate IPTV Growth.)

France Telecom is just starting to see revenues from new content services. The operator reported €400 million ($524 million) in content revenues, which was the target set for the end of 2008. "This is speeding far more quickly than we expected," says Lombard. Content services include video on demand, music downloads, and games. The operator also reported €300 million ($393 million) in revenues from Livebox services, which is a 180 percent increase, according to Lombard. FT had €100 million ($131 million) in revenues from advertising, which it expects to increase by 50 percent in 2007.

France Telecom also recently added a new high-definition TV channel, TF1, bringing its total to six. The operator boasts 500,000 mobile TV users, which have a mean air time of 45 minutes.

— Michelle Donegan, European Editor, Light Reading