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France Telecom on acquisition trail as net profit falls
(Total Telecom Via Thomson Dialog NewsEdge) France Telecom is looking both to acquisitions and to further growth in content and convergence services to offset declines at its core business.
The French incumbent's net profit fell 28% last year to 4.14 billion, as competition began to bite.
Now the company may join its competitors such as Vodafone and Deutsche Telekom in seeking new opportunities overseas, particularly in Africa, but also Asia.
"There are still a few good pickings in Africa," said France Telecom CEO Didier Lombard speaking at the company's results presentation in Paris on Tuesday. "In Asia we have a partnership with China Telecom and we are in constant liaison with Chinese [players], but I can't say whether this will lead to an acquisition," Lombard continued.
France Telecom meanwhile remains interested in Vietnam, but it is still awaiting the government's position on foreign investment in telecom companies. "Vietnam is a great country; it's energetic and undergoing fantastic growth," said Lombard.
Investments may even be made in Europe, where Deutsche Telekom is known to be planning to divest its Spanish ISP, ya.com.
"We know of the process launched by DT and we're looking into it. It's still open and we're studying that possibility," said Belarmino Garcia CEO of Orange Spain.
Yet France Telecom stresses it will take a prudent approach to acquisitions and is betting on growth from content and convergent services. The company faces stiff competition in its domestic market, both from Iliad's Free in the residential field and Neuf Cegetel for both residential and enterprise services.
Lombard put a positive gloss on tough local conditions, claiming it gives it an edge over its incumbent peers, with whom it competes elsewhere in Europe.
The French market is well ahead of other markets, according to Lombard. "We have already cleared obstacles they [other incumbents] have yet to overcome," he insisted.
The company is betting in particular on content services, such as television and video.
"Content is an engine of growth," said Lombard.
Content services brought in revenues of approximately 400 million for the France Telecom group in 2006. The company did not provide a breakdown of this figure, but said that TV and video on demand made up the largest share, followed by music and then games, with news and services such as astrology trailing in fourth position.
France Telecom reported 590,000 IPTV customers at the end of 2006 and expects to achieve one million IPTV subscribers this year.
Advertising is also beginning to take off, having generated revenues of 100 million in 2006, a figure the group hopes to grow by 50% in 2007.
Indeed, France Telecom said multiplay contracts accounted for 41% of the operator's total ADSL ARPU in 2006, compared to 20% in 2005. Of its domestic ADSL customers, 58% had a Livebox at the end of 2006, up from 35% at the end of 2005.
At the same date 35% of the operator's domestic customers used VoIP, up from 19% at end-2005; it has 2.5 million VoIP customers in Europe.
On the downside, selling services and retaining customers in a competitive environment does not come cheaply. As a result, marketing and customer acquisition costs are weighing heavily on the group in developed markets.
"The company intends to stabilise commercial costs as a percentage of revenues," said Lombard. The company spent 7.8 billion on marketing during 2006, or 15% of its revenues. Annual turnover came in at 51.7 billion.
The biggest increase in marketing expenditure was lavished on mobile customers in developed countries. Orange spent an additional 392 million on marketing and customer retention for mobile services in 2006, compared to 2005, of which 84% was spent in developed markets, compared to 16% in emerging countries, said Lombard.
Convergence and a shift to emerging countries also means the company is changing how it allots capital expenditure.
During 2006, France Telecom spent 249 million of capex on new services, such as Livebox development, and 110 million on emerging markets. These two increases were offset by a reduction of 130 million in spending on traditional networks and services. Livebox, decoders and related services accounted for 17% of capex, customer service IT platforms made up another 24%.
Spending on mobile networks is set to fall, however, claimed Lombard. As a result capex should continue to make up approximately 13% of revenues between 2007 and 2012, despite spending on FTTH network.
"2G and 3G are a good example. 2G will soon be finished in all countries and 3G network-sharing [in Spain and the U.K.] means we will soon have a very significant reduction in mobile capex. Most of our DSL needs have been met this money can be reallocated on new investments such as fibre," said Lombard.
The company introduced initial FTTH services last week and plans mass deployment of FTTH networks and services in 2008.
Copyright 2007 Terrapinn Ltd
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