FT reports a fall in first-quarter revenues, earnings as mobile price war bites

24 Apr 2013

French heavyweight France Telecom-Orange (FT-Orange) has reported a 4.1% year-on-year fall in revenue to EUR10.28 billion (USD13.39 billion) and a 9.0% dip in earnings before interest, taxes, depreciation and amortisation (EBITDA) to EUR3.12 billion, impacted by an ongoing price war in France sparked by a market newcomer – Iliad’s Free Mobile – which has entered its second year of operations.

FT-Orange, France’s biggest phone company by subscribers and revenue, fell short of market forecasts for revenue of EUR10.34 billion, although the EBITDA performance was broadly in line with expectations in a poll compiled by Thomson Reuters. However, operating cash flow for 1Q13 dropped 12.9% to EUR1.98 billion, an indicator that the operator’s home market has become less profitable following Free Mobile’s launch of low-cost services.

On a more positive note, FT-Orange reported a total of 229.8 million customers at 31 March 2013, up 5.9 million (2.6%) year-on-year. In France, the operator noted ‘very strong growth’ of its ‘Sosh’ and ‘Open’ offers, which it says helped it to maintain a mobile market share of 37.0% at end-March. Meanwhile in Spain, FT’s local units reported sustained growth in mobile contract user (9.7%) while the ADSL customer base increased 11.1% on an annualised basis. Additionally, the carrier’s Africa and Middle East operations reported a total of 82 million mobile customers at 31 March 2013, up 8.2% y-o-y (6.2 million additional customers).

However, it is the company’s domestic market that continues to cause it a headache. FT-Orange is looking to steer a path through a market increasingly marked my price-cutting from rivals, while simultaneously striving to persuade its own customers to spend more on faster mobile broadband internet packages. Cellular tariffs have dropped dramatically overall since Iliad’s Free Mobile unit started offering a monthly package starting at EUR2 last year. The impact on FT-Orange has been clearly evident, with 1Q13 wireless revenues in France slumping more than 8% to EUR2.16 billion and average revenue per user (ARPU) falling 10.7% in the period. The group’s CFO Gervais Pellissier has also admitted that falling ARPU is likely to remain in fiscal 2013 – and could drop by up to 13%. ‘We’re really focused on cutting costs and you’re starting to see the impact in the first quarter,’ Pellissier told reporters. ‘It’s the first time in two years that we lower costs as much.’

Commenting on the Q1 2013 results, Stephane Richard, chairman and CEO of FT-Orange, said: ‘In a French mobile market that has remained under pressure, we have again demonstrated our ability to react quickly with forceful commercial offers. In the mobile segment, this is due to the success of the Open and Sosh offers while in fixed-line services, over 300,000 customers subscribed to Livebox Play offers in just two months and subscriber numbers for fibre exceeded 200,000. Operations in Spain, Africa and the Middle East have once again made a positive contribution to the group’s revenues. The acceleration in the reduction of operational expenses, including indirect costs, made it possible to limit margin erosion to less than one point. Investments, up more than 6% over the year, were concentrated on the faster rollout of fibre and 4G in France. In addition, I have renewed and strengthened the management team, to enable greater efficiency, particularly in the field of innovation. Altogether, I am very confident in the ability of the men and women of the group to achieve our goals for 2013 and beyond.’

France, Orange Group