France Telecom S.A. (FTE)

(v) Impairment of goodwill and investments

Under both IFRS and US GAAP, goodwill is not amortized but is subject to impairment tests annually and when indicators of impairment exist. There may be differences in the recognition and amount of impairment charges between IFRS and US GAAP due to differences in the carrying amount of a cash-generating-unit (“CGU”) under IFRS and a reporting unit under US GAAP.

Under IFRS, a one-step impairment test is performed. US GAAP requires that goodwill be tested for impairment using a two-step approach at the reporting unit level.

Due to changes in the reporting structures that took place in the second half of 2006, certain goodwill were reassigned for the purpose of impairment testing to newly identified reporting units. As of December 2006, the following reporting units have been assigned the most significant portions of the outstanding balances of goodwill : Personal France, Personal UK, Personal Spain, Home France, Home UK, Home Netherlands, Home Spain and Enterprise (including Equant).

The following amounts for the impairment of goodwills were recognized since 2004 under US GAAP:

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Under IFRS, France Telecom’s investment in TP Group is fully consolidated in the France Telecom financial statements. Under US GAAP, TP Group is accounted for under the equity method of accounting. As such, an impairment test was performed in accordance with APB 18. Consequently, in 2005, France Telecom recorded an impairment charge of 0.1 billion euros. Under US GAAP, an impairment charge on investments has been recognized, amounting to 0.4 billion euros as of December 2006. The difference, compared to IFRS, corresponds to a higher carrying amount under US GAAP due mainly to the fact that goodwill was amortized in 2002 and 2003 under French GAAP, prior to the IFRS adoption date.