Europe’s second largest phone company France Telecom said its first half profit dropped a full 30 per cent due to challenges in its fixed-line business.

Net income declined to 2.35bn euros (£16.08bn) from Eur3.36bn a year earlier. The company said its first-half revenue was Eur25.86bn (£17.70bn), up from Eur23.67bn twelve months earlier.

Chairman and chief executive Didier Lombard said in a statement: “We’re confident in our ability to generate organic cash flow of Eur7bn in 2006 thanks to cost reduction programs and optimised investments.”

The company noted that “non-voice” services as a percentage of network revenues was 19.8% in the first half of 2006, compared with 19.2% in the first half of the previous year.

The French giant’s fixed-line business has felt the effect of stiff competition in local markets with smaller, more agile players offer cheap broadband, prompting the firm to make acquisitions abroad.

Last year France Telecom bought the Spanish mobile firm Amena.