France Télécom Reports Rising Earnings

PARIS (03/01/2000) - France's incumbent telecommunications provider today reported a net income of 2.77 billion euros (US$2.67 billion) for 1999, up 20.4 percent on the previous year.

Fixed-line telephony in its home market now accounts for less than half of France Télécom SA's revenue, the company announced today. But consolidated revenue for 1999 rose by 10.5 percent year on year to 27.2 billion euros, despite the swing away from its core business, the company reported.

The growth in revenue was largely due to the acceleration in its international businesses, said Chief Executive Officer Michel Bon at a press conference to present the results. "EBITDA (earnings before interest, tax, depreciation and amortization) is also higher than expected, despite increased competition and despite the greater proportion of our revenue coming from mobile and overseas operations, where our margins are lower than in our domestic, fixed-line business," he added.

In the fixed-line business sector, revenues rose by 2.3 percent, due mainly to the boom in Internet-related services, the company said.

During the year, Internet traffic more than doubled, to 12.1 billion minutes.

The market share of its Internet access provision subsidiary, Wanadoo, grew to 39 percent, "and this, even in the face of the arrival of so-called free Internet access providers," Bon said.

Total fixed traffic in France grew by 10.7 percent, Bon said, of which 5 percent was attributable to France Télécom. "The rest is down to our competitors. They take roughly 1 percentage point of market share from us every month," he said, "Nevertheless, our traffic is still growing faster than before the introduction of competition, faster than in 1995-1996."

France Télécom had 10.1 million mobile subscribers at the end of last year, an increase of 81.4 percent. Its share of the existing market slipped slightly, to 48.7 percent, but Bon said the company enjoyed an increase in its share of new subscribers. The company also had made strenuous efforts to retain existing customers, and reduced the proportion of the customer base switching to a competitor from 24.1 percent to 22.6 percent, he said .

Overseas revenues also saw sharp growth, up 48.7 percent. "Of all the European operators, France Télécom earns the greatest revenue outside its home country," Bon said.

This revenue growth was matched by an increase in investment. Of the company's 7.8 billion euros of capital expenditures and financial investments in 1999, the lion's share was overseas, where investment jumped 47.1 percent to 4.4 billion euros.

The company attributed this to the consolidation of Telecom Argentina, Sonatel in Senegal, and CTE in El Salvador, as well as to substantial investments in U.K. operator NTL and the young Italian mobile network Wind.

There will be more investment overseas in the year to come, Bon said. The company will move ahead with its European backbone network.

The break-up of the company's alliance with Deutsche Telekom AG has left its mark, however. "Germany is clearly a hole in our map of Europe, and we will fill it," Bon said.

He also expects to see the end of the company's 2 percent cross-shareholding with Deutsche Telekom by the end of the year or early next year.

This year, the company expects to continue to grow rapidly, especially overseas, Bon said.

"We expect to see double-digit growth again this year," he said. "We expect 22 to 23 percent of our revenues to come from international operations."

The company's Internet access provider Wanadoo will play a part in the growth.

Bon said he expects to double the number of Internet access subscribers outside France from 500,000 to 1 million this year.

Bon no longer rules out the possibility that the company's Internet activities might be spun off.

"So far, the market has recognized the value of our Internet activities. But the market attributes a greater value to companies which are exclusively Internet businesses. In six months or a year, we will have to consider the possibility of introducing to the stock market all or some of our Internet activities," Bon said.

Nevertheless, he was at pains to point out that the company has no definite plans at this stage. "It's not planned, it's simply something we must look at," he said.

France Télécom's board of directors will propose a net dividend of one euro at the company's annual general meeting.

"We have fixed our dividend at 1 euro per share, the same as for 1998. It's already higher than that of our competitors, and we see no reason to give away more. Telecoms is, after all, an industry requiring intensive investment," Bon said.

France Télécom, based in Paris, can be reached at +33-1-44-44-22-22 or on the Web at http://www.francetelecom.com/.

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