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France Telecom Battles Through 2010

Ray Le Maistre
2/24/2011

Orange (NYSE: FTE), one of the world's largest telecom operators with 210 million customers worldwide, limited the impact on its margins during a challenging 2010, during which only half of its revenues came from its highly competitive domestic market.

The French giant generated global revenues of €45.5 billion (US$62.7 billion), up 0.6 percent from 2009. The operator noted that it recorded a 1.2 percent increase in revenues in the second half of 2010 compared with the same period a year earlier, with sales growing across all territories and business lines.

Despite price erosion and other competitive pressures, FT saw its restated EBITDA (earnings before interest, tax, depreciation, amortization, and one-time costs) dip by just 0.9 percent to €15.6 billion ($21.5 billion), or 34.4 percent of its revenues. Its net income was nearly €4.9 billion ($6.75 billion), a 28 percent hike on 2009 figures.

The carrier's CEO, Stéphane Richard, who has just been awarded the chairman's role too, reiterated FT's plan to focus on four key areas -- its employees, networks, customers and international development -- as it works through the five-year plan it unveiled in July 2010. The operator says its African operations have not been adversely affected by the political upheaval in Egypt and other nearby markets, and that it still plans to make further acquisitions in growth markets in addition to the stake acquisition it secured in Morocco in 2010. (See FT Unveils New Action Plan and France Telecom Buys Into Meditel.)

And Richard is making some significant strategic moves to shore up FT's business and help further control costs in the next few years, the planned cooperation with Deutsche Telekom AG (NYSE: DT) being a prime example. (See FT, DT Team on Customer Benefit.)

Overall, Richard expects FT to grow its global revenues slightly this year, and again experience slight margin attrition (of less than 1 percent). The good news for its suppliers is that FT is planning to spend about 13 percent of its revenues on capital expenditures: In 2010 its capex budget was €5.5 billion ($7.6 billion), or 12.1 percent of its total revenues.

The carrier has some issues to address, though. Telekomunikacja Polska SA (TPSA), in which FT holds a controlling stake, had a disastrous 2010, with revenues and net income sliding by 5.1 percent and 6.5 percent respectively. (See Euronews: Feb. 23.)

And perhaps more worryingly, Orange Business Services (OBS) recorded a 4.8 percent year-on-year dip in revenues to €7.2 billion ($9.9 billion). The unit, which provides enterprise services in France and overseas, has suffered from competition, the migration to new technologies and a slowdown in the uptake of IP VPN services. OBS noted increasing demand for VoIP and high-speed access services, but that wasn't enough to counter the decline in other areas.

OBS recently shuffled its senior team and is pinning growth hopes on emerging sectors such as cloud services and machine-to-machine (M2M) applications. (See Orange Business Appoints Execs, Orange Touts Cloud Wins, Orange, Cisco, et al. Forge Cloud Alliance and Orange BS Gets Ambitious.)

— Ray Le Maistre, International Managing Editor, Light Reading

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