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Paris-based France Telecom S.A. (NYSE:FTE) is the largest telecommunications operator in France, and the third largest in Europe. Under the unified "Orange" brand, FTE provides fixed-line and mobile telephone services, as well as TV and internet access to 193 million customers in 32 countries.[1] The seven operating segments of the company are: France, Spain, Poland, UK, Rest of World, Enterprise, and International Carriers & Shared Services.[2] In May of 2010, FTE's Orange announced a 50:50 joint venture with Germany's T-Mobile to merge the companies' UK networks, thereby creating Great Britain's largest mobile network, with 30 million users.[3][4]

Growth in Western markets has slowed in recent years and competition has intensified in countries with a significant number of operators.[5] These factors, combined with the significant infrastructure investments required to keep pace with the increased demand in data transmission has led to increased consolidation in the industry.[6] While the Euro economy area contracted by 4.1% in 2009, the market for telecom services contracted by a relatively benign 0.8%.[7][8] FTE's revenues and operating income were down 3.6% and 21.0%, respectively in 2009.

Globally, the market for telecommunication services in 2009 expanded by 1.8%, significantly higher than the 2.1% contraction of the world economy.[9][10] Developing countries represent growth opportunities for FTE as developing economies are projected to grow at least 6.0% over the next three years compared to less than 3% projected growth in the developed world.[11] At the same time, mobile telephone penetration in the developing world is only 57.9%, compared with 115.3 % in the developed world, and only 18% of those in the developing world have internet access, compared with a full two-thirds of those who live in developed countries.[12][13] Thus, robust general economic growth and industry development in developing economies should reinforce one another in the years to come, presenting tremendous opportunities for growth.

Company Overview

Business and Financial Metrics

Annual Financial Data, in millions of Euros[14] FY2009 FY2008 FY2007 FY2006 FY2005
Revenue€45,944 €47,699 €46,568 €51,702 €49,038
Operating Income€7,859 €9,945 €10,540 €6,988 €11,284
Net Income€3,465 €4,492 €6,819 €4,768 €6,360

Note: 25% Foreign taxes are withheld from dividend.

Business Segments

FTE currently has six distinct operating segments: “France” covers all personal (mobile telephony) and home (fixed-line, internet and services to operators) communications services in France; “Spain” covers all personal (mobile telephony) and home (fixed-line and internet) communications services in Spain; “Poland” covers all personal (mobile telephony) and home (fixed-line, internet and operator services) communications services in Poland; “Rest of the World” covers all personal (mobile telephony) and home (fixed-line, internet and operator services) communications services outside France, the UK, Poland and Spain, i.e. mainly Belgium, Botswana, Cameroon, the Dominican Republic, Ivory Coast, Jordan, Kenya, Madagascar, Mali, Moldova, Romania, Senegal, Slovakia and Switzerland; “Enterprise” covers communications services and solutions sold to business clients in France and world-wide;“International Carriers and Shared Services” (“IC & SS”) coversi) the roll out of the international and long-distance network, the installation and maintenance of submarine cables and sales and services provided to international operators, and ii) shared services including support and group-wide services as well as the new avenues of growth (Content, Health, Online advertising).[15]

Trends and Forces

Mature markets fuel fierce competition in developed economies

In 2009, European GDP decline by 4%, while the market for telecommunications services in the region declined by 0.8% (€293billion, down from €295).[16] A mobile penetration rate of 126% (measured as the number of SIM cards per population) suggests that there is little room for growth in the European Union.

Developing economies present large growth opportunities

In contrast to Europe and the United States, there is still room for development of the telecommunications services industry in developing markets. Mobile and broadband internet penetration rates for the Middle East and Africa are only 52% and 1%, respectively.[17] France Telecom's acquisition of a 40% stake in Morocco's Medi Telecom SA (Meditel) in September 2010 marks the first step in an attempt to expand the Group's presence in the Middle East and Africa, where it already has operations in 20 countries.[18] While political sensitivities may delay full acquisition of Meditel, the Group's ultimate goal is to completely absorb Meditel into its operations within the next four years.[19]

New technologies offer increased revenues, demand increased investment

2009 marked the first time mobile data traffic surpassed voice traffic on a global basis, according to Ericsson.[20] Ericsson found that mobile internet usage grew by 280% in each of the last two years and is forecast to double in each of the next five years.[21] Despite the economic downturn in 2009, sales of mobile smartphones increased 25%, led by the iPhone. Sales of smartphones are expected to continue to grow at robust rates, according to industry research by TMC.net. TMC.net also forecasts that sales of smartphones will grow by 22% globally each year from 2010 through 2015.[22] A geographic breakdown is as follows: smartphone sales in the Asia Pacific region (excluding Japan) are expected to grow by 30%, led by China and India, with sales totaling 0.6bn units for the region. The North American market for smartphones is projected to grow by 21% p.a., and Central and South America by 32%, while sales across the Americas are expected total 0.7bn. Smartphone sales in Western Europe are predicted to rise by 18% p.a., dominated by sales in UK, France, Germany and Spain. Sales in Eastern Europe are expected grow by 24% p.a., and sales in Middle East and Africa are projected to rise by 19%.[23] In order to meet the demand for increased data transmission, telecom carriers across Europe estimate they will have to invest up to €300bn to upgrade their networks.[24] Cisco systems predicts that data traffic will increase 18-fold over the next four years

New EU regulations could squeeze service providers' profits

Proposed regulations would increase the obligation of large telecom operators, many of which, including France Telecom, formerly were state-owned monopolies. Many operators had hoped that they would be able to avoid the rules, which govern legacy copper telephone networks, as an incentive for them to invest the €300bn ($400bn) they say is needed to upgrade internet connections throughout Europe.[25] France Telecom chief executive Stéphane Richard claims that video services such as YouTube are straining data networks, and many operators have lobbied (unsuccessfully) to be able to charge content providers for delivering content to customers.[26] Without this ability, Franco Bernabè, chief executive of Telecom Italia, said that he feared that European networks could be turned into "dumb pipes" with little opportunity to profit from innovative web applications delivered by the likes of Google, Skype or Facebook.[27] Thus, it remains to be seen whether regulations will limit service providers ability to recuperate some of the investment necessary to support future data usage.


France Telecom's two biggest competitors are Bouyges Telecom, owned by Bouygues S.A., and Vivendi S.A., who owns a 56% share in SFR. In January 2010, Arcep, the French telecommunications regulatory body awarded a fourth 3G licence, to Free Mobile, a wholly owned subsidiary of the Iliad group.[28]


  1. FTE 2009 Annual Report, p. 58
  2. France Telecom S.A. (FTE) Interim management report for the first half 2010, p. 58
  3. FTE Press Release:Orange and T-Mobile Unveil Joint Venture Name, Team, Vision and Plans
  4. FTE 2009 Annual Report, p. 74
  5. FTE 2009 Annual Report, p. 74
  6. FTE 2009 Annual Report, p. 74
  7. The World Bank: The global outlook in summary, 2008-2012
  8. FTE 2009 Annual Report, p. 74
  9. The World Bank: The global outlook in summary, 2008-2012
  10. FTE 2009 Annual Report, pp. 74
  11. The World Bank: The global outlook in summary, 2008-2012
  12. International Telecommunication Union, Mobile cellular phone subscriptions per 100 inhabitants
  13. International Telecommunication Union, Internet users per 100 inhabitants
  14. FTE Annual Reports, 200
  15. FTE 2010H1 Interim management report for the first half 2010, Section 2 p. 57
  16. France Telecom Group 2009 Registration Document
  17. France Telecom Group 2009 Registration Document
  18. Hall, Ben. "France Telecom buys €640m Morocco stake." Financial Times. September 21, 2010.
  19. Hall, Ben. "France Telecom buys €640m Morocco stake." Financial Times. September 21, 2010.
  20. "Mobile data traffic surpasses voice." Ericsson Press Release, March 23, 2010
  21. "Mobile data traffic surpasses voice." Ericsson Press Release, March 23, 2010
  22. "Worldwide Smartphone Sales Forecast 2010 to 2015." TMCnet, May 13, 2010
  23. "Worldwide Smartphone Sales Forecast 2010 to 2015." TMCnet, May 13, 2010
  24. Pignal, Stanley. "Telecoms executives fear impact of EU regulation." Financial Times September 24, 2010
  25. "Telecoms fear impact of EU regulation." Financial Times. September 23, 2010
  26. "New France Télécom Chief Goes on Offensive." New York Times. February 13, 2011
  27. "New France Télécom Chief Goes on Offensive." New York Times. February 13, 2011
  28. "France Awards Fourth 3G License." cellular-news. December 18, 2009
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