France Telecom hit by poor domestic performance

Carrier France Telecom has announced net income after tax for 2011 fell 22 per cent to just €3.8bn from €4.9bn in 2010. Revenues also dropped 0.5 per cent for the full year 2011, to €45.3bn ($60bn)  from €45.5bn in 2010.

The results were largely affected by poor performances in France and Poland. Despite that, the operator saw an eight per cent increase in total customers to reach 226.3 million by 31 December 2011. It said that this was driven by rapid growth in mobile services in Africa and the Middle East, which now includes Iraq and the Democratic Republic of Congo.

However, the operator group also revealed that it plans to slash the payout given to shareholders this year by as much 14 per cent.

“We are conscious that the macro-economic and competitive context in 2012 remains uncertain, and are therefore further strengthening the rigorous financial and operational management approach taken in 2011, and we have decided to adapt our shareholder remuneration policy to ensure the financial strength of the Group at all times,” said CEO Stephane Richard.

Panos Loukos, senior analyst at Informa Telecoms & Media warned that competitive pressure in France is posing a real threat with the arrival of the fourth mobile operator, Free Mobile, in January 2012. As operations in France claim close to 50 per cent of France Telecom’s total revenues, the situation in the group’s domestic market may be more worrying than initially thought.

“France Telecom Group released an update specifically on the impact of Free Mobile’s launch on its own operations, to try and counteract the concerns being expressed on all sides. Although, the Group has partly succeeded in limiting the threat with the launch of its own sub-brand, Sosh, in October 2011, the next few quarters will be crucial in reshaping the competitive landscape of France’s mobile business,” said Loukos. He added that, according to market sources, Free Mobile has now surpassed the 2 million subscriber mark although a formal announcement is not expected until later in the year with Iliad’s release of its 1H12 results.

“Sosh, on the other hand, only counted a mere 90,000 subscribers on February 15, 2012,” he said. “France Telecom will now need to revaluate Free Mobile’s impact as, when the fourth operator’s market share becomes more substantial, it won’t be just an issue for Sosh any more. The Group will then need to react with price reductions for its main brand, Orange, hence making it difficult to contain the margin squeeze for much longer.”