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France was France Telecom’s most resilient market in the third-quarter of the year despite the firm suffering a severe public backlash in its home market during the period. The Orange-owner reported a larger-than-expected annual decline in both group earnings (EBITDA) and revenue for the quarter, blaming unfavourable regulatory conditions – notably reductions in Mobile Termination Rates (MTRs) – across its key European markets.
However, in France, where France Telecom is the incumbent fixed-line operator and the country’s largest mobile operator, its numbers remained solid. Annual revenue growth in France (on a comparable basis) declined by just 1.2 percent, the lowest level of decline across its principal divisions. If adjusted to exclude the regulatory impact, France was the only market to report revenue growth in the quarter (up 1.1 percent).
At Orange France – which accounts for almost 20 percent of France Telecom’s global mobile connections base – mobile revenues for the first nine months of the year rose 3.9 percent to EUR8,053 million compared to the same period in 2008. Growth was driven mainly by a 25 percent increase in non-voice revenues (data and SMS), and a 6 percent rise in the more profitable contract customers. In fixed-line, revenue growth from Internet services continued to partially offset declines in its traditional landline (PSTN) business, which declined 10.2 percent in the year to 3Q09. According to our data (see below), the French market accounted for 44 percent of group revenue in the quarter.
Ironically, the resilience in France Telecom’s home market comes during a period of serious reputational problems for the firm on the domestic front. A number of suicides (25 in 18 months) by French employees at the former state-owned operator led to its work practices – most notably its ongoing restructuring plan (‘Orange 2012’) – come under severe criticism by politicians, unions and the French public. France Telecom’s deputy chief executive Louis-Pierre Wenes resigned over the matter last month and the firm has subsequently committed to a so-called ‘stress reduction package’ for employees (in conjunction with unions) that will reportedly cost around EUR1 billion. France Telecom is still 27 percent-owned by the French state and 65 percent of its 100,000 employees in France are still classed as civil servants.
Outside of France, Orange Poland was France Telecom’s worst performing business unit in 3Q09 with revenues dropping 10.4 percent overall and by 12.7 percent in mobile. Orange attributed the decline to a 50 percent reduction in MTRs this year and a 23 percent cut in fixed-to-mobile rates. Annual mobile ARPU dropped to PLN551 (US$191) from PLN588 in the year-earlier quarter and its mobile customer base declined 2.3 percent to 13.7 million. Poland was the only division to suffer a decline in mobile customers.
In the UK – where Orange is in the process of merging its network with T-Mobile UK to create a new market leader – the firm blamed price competition and regulatory conditions for a 6.8 percent decline in mobile revenues in the year to 3Q09. Annual mobile ARPU in the UK dropped 4.5 percent to £261, despite a 24 percent rise in non-SMS data ARPU (to £24). It was a similar picture in Spain, where mobile revenues dropped 4.5 percent, and annual mobile ARPU dropped 8.1 percent to EUR271.
Meanwhile, France Telecom’s Rest of the World (ROW) division registered a 19 percent rise in mobile customers (to 62 million) in the year to 3Q09 and now accounts for almost half of the firm’s mobile connections base (48 percent). Growth was concentrated in regions such as the Middle East, which saw mobile customers rise by 29 percent to reach 19.3 million in total (now Orange’s second-largest mobile market after France). However, revenue growth in Africa and the Middle East (up 4 percent) was offset by weaknesses in smaller European markets such as Romania (revenues down 23 percent due to economic and currency issues) and Slovakia (revenues down 8.2 percent due to MTR cuts). Total revenue at the ROW division declined by 3.3 percent year-on-year in 3Q09, and accounted for 15.5 percent of total group revenue.
Joss Gillet, Senior Analyst, Wireless Intelligence
France Telecom remains under pressure to turn around its voice-centric business model in order to address a rapidly changing and competitive market. Half of the group’s total workforce is in France with a wage bill accounting for around 20 percent of its revenue in the country – compared to an average of 7 percent at most of its international markets (including the UK and Spain). Like many former state-owned incumbents in Europe, the group is focusing on new market opportunities and value-added services in order to sustain its position and offset declining fixed-line revenues. Therefore, from a cost management perspective, France Telecom has had little choice but to look into restructuring its domestic organisation, which has led to – among other things – its controversial ‘mobility programme’ under which employees are moved around key business areas. This has created problems for the large swathes of the entrenched French workforce used to working in the company’s traditional fixed-line business, which are often ill-equipped to adapt to its short-term commercial challenges. In addition, France Telecom is counting on an acceleration in the number of French-based employees retiring from the group in the medium term. Despite these problems – and the outcry over the high level of employee suicides – the Orange brand remains strong in France and the French market remains the group’s most important and stable source of income, a fact that was reinforced in the group’s 3Q09 numbers. The group is planning to unify all its operations under the Orange brand by 2012, by which point it plans to ditch the tarnished France Telecom brand altogether.