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France Telecom Gives CFO Le Boot

Ray Le Maistre
1/31/2006

Less than three weeks after issuing a profits warning, Orange (NYSE: FTE) has axed its head of finance, Michel Combes, as part of a management reshuffle that cuts the number of senior executives from 20 to just eight. (See FT Revamps Top Table and FT Warns, Europe Quakes.)

On January 12 the carrier cut its revenue growth figures for 2005 and 2006, a move that sent its share price down 9 percent to €19.81 (US$24) on the Paris stock exchange. And that wasn't the first time in recent months FT had revised its outlook. (See FT, Alcatel Shares Slide on Q3 Results.)

Yesterday, after the European markets closed, FT said it had "streamlined the Group's senior management organisation in order to ensure maximum focus on the Group's transformation and operating performance," with CEO Didier Lombard naming Gervais Pellissier, a former CFO and CEO at French IT firm Bull SA who joined the operator only four months ago, as the new CFO.

The news sent FT's share price down €0.36, nearly 2 percent, to €18.72 ($22.70).

With the latest management shuffle coming only four months after the CEO's previous head table reorganization, Lombard's latest tinkering met with a mixed reaction from the carrier analyst team at Lehman Brothers . (See FT Reorganizes Top Team.)

The CFO's departure "is to be seen as a response to heavy shareholder criticism of FT's recent communication of deteriorating operational trends," and "will likely be welcomed by investors who had lost confidence in FT's market communications," Lehman Brothers' analyst noted.

In a follow-up report issued today they added: "Gervais Pellissier, the new CFO, oversaw strong share price performance while CEO at Bull, but investors will have some concerns over his views on shareholder returns and inherited financial guidance."

The CEO also came under scrutiny: "Lombard's decision to restructure the management board structure soon after his first attempt in September does not add to his management credentials."

The new CFO's task should, in theory, include a more pragmatic outlook on the sort of market developments that caught FT unawares in 2005, when, like most of Europe's major incumbents, it lost market share to its triple-play competitors and VOIP specialists. (See Euro Giants Lose Market Share.)

And it's clear from an investor presentation held in London recently by FT executives that the French incumbent was indeed caught off guard by its rivals. The carrier told investors its recent profit warning was the result of: a faster uptake of VOIP services than anticipated; higher than expected spending on 3G wireless infrastructure, driven by the faster than expected 3G rollout of mobile competitor SFR ; and higher than expected spending on customer acquisition, driven by fierce competition from broadband and mobile rivals.

FT's response has been to accelerate its NExT (New Experience in Telecom services) strategy, something the carrier's CEO believes will be made easier by having a more streamlined management structure. The carrier says it will reveal its updated NExT plans on February 14. (See Eurobites: Big Guns Fire Salvos and France Telecom Launches NExT.)

— Ray Le Maistre, International News Editor, Light Reading

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