FT Warns, Europe Quakes

Orange (NYSE: FTE) set what might become a disturbing trend in European telecom late Wednesday by issuing new revenue guidance that sent its share price crashing by 9 percent this morning. (See FT Lowers Forecast.)

In its statement, the carrier said that "in light of accelerated technological changes, competitive pressure and the regulatory environment," revenue growth in 2005 would be between 2 percent and 3 percent, down compared with previous forecasts. (See FT, Alcatel Shares Slide on Q3 Results.)

In addition, the carrier said revenue growth in 2006 would be about 2 percent -- that's lower than the expected rate of inflation -- and this, coupled with its investment plans, would hit operating margins by between 1 percent and 2 percent this year.

Investors acted accordingly. The carrier's share price dipping €1.86, almost 9 percent, to €19.81 at lunchtime on the Paris exchange.

The carrier has been facing unprecedented levels of competition in its domestic market from rivals such as Iliad (Euronext: ILD), Neuf Cegetel Group (Euronext: NEUF), Bouygues Telecom , cable operator Noos , and Telecom Italia (TIM) , with the prospect of even more service rivals in the future. (See Paris Plans FTTH Network and Chirac Loves FTTH.)

FT's announcement had a knock-on effect on the share prices of other major European carriers: in London, both BT Group plc (NYSE: BT; London: BTA) and Vodafone Group plc (NYSE: VOD) dipped 2.5 percent; in Germany Deutsche Telekom AG (NYSE: DT) fell 1.4 percent; Telecom Italia dipped 1.6 percent on the Milan exchange; and Telefónica SA (NYSE: TEF) lost 1.7 percent of its value in Spain.

Daiwa Securities SMBC Europe Ltd. analyst James Enck says that trend hit almost every listed telecom operator in Europe today, with the exception of France Telecom competitor Iliad, which has had great success in the past few years with its triple-play package of voice, video, and data. (See Iliad's Free Strategy Pays Off and Iliad Reports Q3 Figures.)

And he believes the announcement could damage France Telecom's image with investors. "I expect many will see this as a credibility issue. FT was talking about revenue growth of between 3 percent and 5 percent when it was trying to raise money for its acquisition of Amena [in Spain]. Then in November it lowered its guidance to 3 percent, and now it's been scaled back even further." (See FT Takes on Telefónica.)

But Enck believes it's becoming more and more difficult for large incumbents to make accurate forecasts, especially in "a very hostile market" such as France. "I think forecasting is becoming much more difficult, and today's announcement shows just how quickly things are changing." And he believes other major carriers will follow in FT's Gargantuan footsteps. "I'd be astounded if FT was the only one making this sort of announcement."

Meanwhile, France Telecom says that, "faced with this context and in order to maintain its flexibility," it is accelerating its NExT (New Experience in Telecom services) strategy, "notably rolling out programs to simplify its brand portfolio as of 2006, setting up an integrated network and customer relations structure in each country and creating a 'technocentre' to enable the Group to rapidly and coherently develop convergent solutions." (See Eurobites: Big Guns Fire Salvos and France Telecom Launches NExT.)

The operator, which has bolstered its broadband subscriber base significantly despite competitive pressures, will also "continue to launch new services and make targeted investments aimed at developing its customer base and strengthening customer loyalty." (See FT Claims #2 ADSL Spot.)

Such targeted investments could include strategic acquisitions, especially in the IT and systems integration sector, where FT has just lost out to neighbor Belgacom SA (Euronext: BELG) in a bidding battle to acquire pan-European firm Telindus Group NV (Euronext: Tel.BR). (See FT Backs Off Telindus and Belgacom Secures Telindus.)

— Ray Le Maistre, International News Editor, Light Reading

shadowpawn 12/5/2012 | 4:09:37 AM
re: FT Warns, Europe Quakes What really can the PT&Ts offer the consumer that they can not get shopping around with better feature and functions. They can only lose marketshare as cable or alternative carriers eat their lunch with bundled services and better support. I will one day tell my children about the rough days of any colour as long as it is BT Grey.
digits 12/5/2012 | 4:09:37 AM
re: FT Warns, Europe Quakes Ever since BT began shouting about its 21CN plans, its executives have been saying, "If we don't do this now, and quickly, we are up the proverbial creek without the paddle."

This, to some extent, appears to back up that view. As a result, FT is speeding up its own transformation process.

Large carriers - take note. Get your skates on.
flyingsausage 12/5/2012 | 4:09:27 AM
re: FT Warns, Europe Quakes
well, incumbents can stay competitive and offer the consumer even better that what they can shop arround; if they invest well into their next services. Actually, sitting on the bag of monay they stole from the poor fixed line subscribers from the monopoly time, they are maybe the only ones with enough cash to invest in new fancy things like fiber.
but for sure, they'll loose marketshare. the goal of regulation in europe is to kill the telecom monopoly, and bring the incumbents market share below 50%, until then the regulators will continue to do their best to help incumbents loosing market share.
A major game to come for the incumbents will be to influence local governments to get easier regulations, allowing them to survive better, playing the lay-off blackmall
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