France Telecom sees no recovery yet

Leila AbboudPARIS, FRANCE: France Telecom posted lower revenues and operating profits for the first quarter on Thursday in a sign that the nascent economic recovery has yet to boost the fortunes of Europe's telecommunications sector.

The group cut its spending on networks deeply, while its profits were also hurt by regulatory changes such as lower call termination fees and intense competition in the fixed phone and broadband market in France.

Revenues fell 2.7 percent to 10.96 billion, in line with expectations of 11.01 billion, according to a Reuters poll.

Earnings before tax, interest, debt and amortisation declined 5.5 percent to 3.76 billion euros, for an operating margin of 34.3 percent. Analysts had expected EBITDA of 3.84 billion euros, or a 34.9 percent margin.

"The recovery is clearly not here yet in the enterprise market and in the broader consumer market it is likely to be slow and gradual," Chief Financial Officier Gervais Pellissier said in a conference call on Thursday.

"If you look at our revenues overall, it does not reflect that the dynamism has fully returned to the economy."

Telecoms operators have weathered the economic storm of the last year relatively well, though growth in mature markets such as Europe is elusive and competition is fierce.

They should benefit this year as the nascent economic recovery leads consumers to spend more, but higher revenues have not yet materialised this quarter.

Last week Nordic operator TeliaSonera reported higher first quarter operating profits boosted by cost cutting, while Dutch operator KPN saw lower revenues and profits.

Given their heavy reliance on contracts and subscriptions, telecoms are less sensitive to swings in consumer spending, and therefore later to benefit from a recovery that sectors like retail or travel.

France Telecom's CFO said the group would likely appeal a recent decision by Swiss regulators to block its acquisition of rival mobile operator Sunrise."

"We will probably appeal, although the final decision hasn't been made yet," said Pellissier. "It is a way to protect our rights since we can always abandon the appeal later as we study the case and the issues."

In its domestic market that generates most of the group's revenues and profits, France Telecom competes with Vivendi's SFR Iliad and Bouygues Telecom.