Orange SA (ORAN) 2006 Q4 法說會逐字稿

[Audio starts in progress] good afternoon.

[Spoken in French].

-- to our 2006 full-year audited results, as approved by the France Telecom Board of Directors. It's a real pleasure to welcome you here, and particularly for this presentation.

These 2006 results place France Telecom among the very few European TelCos able to announce 2006 numbers that are in line with the stated objectives and even slightly better. Of course, they are perfectly in line with the preliminary figures we presented on February 3, 2007.

A year ago I had a strong and clear commitment to the market, both in financial and operational terms. Those commitments were aligned with our NExT strategy, defined in July 2005, which anticipates the dramatic increase of competition and the advent of a convergent world that we are experiencing now.

This good performance on both the commercial and financial level is largely due to the acceleration of the transformation of the Group that we decide early 2006 [internally] to be more efficient and more responsive to the current context of very strong competition.

2006 was the first year of full convergence and, for France Telecom, the year where the success of this strategy has started to become visible, both in terms of services and numbers.

As I have already said, 2006 full year financial figures are in line with our objectives and even slightly better. Let's remind you of the highlights of these figures.

It's even better -- organic cash flow is slightly ahead of target at EUR7.15b compared to the EUR7b initial guidance. It's even better if we [include] Pages Jaunes only up to its sale closing which produced a guidance of EUR6.95b.

The GOM commitment has been successfully achieved with the decline of 1.4 points versus 2005; the commitment having been in a range between minus 1 and minus 2.

The CapEx objective has also been successfully achieved, standing at 13% of revenues.

Those financial commitments have been delivered in a globally challenging market, with less market growth than initially planned, with fully intense competition in all of the countries where we operate, with strong regulatory pressure although this seems to be now more predictable.

At the beginning of 2007, the Group is on track to become the [preferential] European telecom service provider. If you remember, it was a motto we send when we announced the NExT program. France Telecom has consolidated its leading commercial position, mainly with around 160m customers across the world, of which about 100m are under the brand Orange, its European leadership both in ADSL and mobile broadband, its very strong position in Mobile's fast-growing markets, its leadership in innovative services.

These key strengths are critical to our success for the following reasons. In fast-growing countries, Mobile is the service that drives growth today and tomorrow, with excellent profitability. The revenue from these countries is becoming an increasingly significant part of our total revenue.

In mature markets, we know that we have the capacity with our Fixed and Mobile Broadband services revenue to compensate for the decline of the switch voice and mobile voice. Our 2006 financials give [switch] dynamics, with Internet revenue growth compensating for legacy services' revenue decline. I will come back on these fundamental dynamics in my conclusion.

In 2006, our leading position in innovative services has been re-affirmed. The growing success of Livebox will not be a surprise to you. We have now reached 4.1m subscribers, and we are number one in Europe. We are also number one in Europe for IPTV.

On the Enterprise market, the success of Business Everywhere services puts us also in pole position, not only in Europe but also worldwide, with more than 650,000 users of this excellent service.

We are also the first major telecom operator in Europe to roll out FTTH, fiber to the home, on a commercial basis. As you all know, we have launched last week our commercial offer in France, "la fibre".

Of course, I cannot resist the pleasure of underlining the success of Unik, the first convergent fixed mobile phone. 64,000 Unik phones has been sold at the end of December '06. And the new range of Unik phones is presented today as a part of our Spring Collection. With this leading position, the France Group -- the France Telecom Group is emerging as the leading telecom service provider in Europe, this slide in [the arc] of our ambitions, as set our in the next strategy.

As you were given most of the information on our five week -- on our results five weeks ago, I thought it would be interesting today to go into more detail on some of our key countries. Accordingly, this afternoon's presentation is organized as follows.

Gervais will present and comment on consolidated result and the good margin evolution by business. Then we will zoom on Spain, the U.K. and France, with presentation by each country manager of his 2006 results and 2007 outlook. I will then return to share with you our outlook for 2007 and beyond. And, of course, we will have plenty of time for a Q&A session at the end.

So thank you, and now I call Gervais to make the next presentation. Gervais, you have the floor.

Thank you, Chairman. So, no news on this page. This is the confirmation of the preliminary results that were released one month ago. Let me quickly come back on them.

As far as the revenue is concerned, I just remind you that we posted 1.2% growth in the second half of 2006 and around the same figure for the last quarter of the year which gives, over the total year, the 1.2% organic growth that we already achieved in the first half of 2006.

Regarding the actual changes on the historical terms, you may remember that we said at the beginning of the year it would be above 7 and we are at plus 7.5% achieved today.

Regarding the financial objectives, they have been met and some of them even over-achieved so I don't come back on them.

As regards the profitability, the GOM, at 1.4 or 1.6 decline; that was an objective between 1 and 2. CapEx at 13% to revenue, and the organic cash flow at EUR7.15b.

The last piece of news on this slide is the confirmation of the net results which is at EUR4.139b, in line with our preliminary indication here [in the bracket]. Excluding exceptional items, our net income, we will come back on that, is EUR4.15b, to be compared to a little less than EUR4b a year ago.

In terms of revenues, on this slide you have the split of the revenue for the three business segments, and for the two major business segments, by geographies as we usually publish them. And you see that overall growth has been driven first by the continued growth in Mobile, with a growth in the emerging markets. This is the line Rest of the World, where you have the weight of the emerging markets in Eastern Europe, Africa, Middle East, where growth has been above 20%. But [for Europe], Rest of the World, including middle-sized Western Europe countries like Belgium, The Netherlands and Switzerland, [the average] showed 13.7%.

The Mobile business in Poland has been growing by 17 -- more than 17%. And there is some good resistance, especially in [front] of the Western Europe compared with some of peers.

Regarding the Home revenues, the trend has been improved in the second half of the year, mainly thanks to the good resistance of the business on the French market where, and Louis-Pierre Wenes will comment that further on, where the decline from traditional PSTN revenue is now more than offset our growth of revenue in Internet and associated services.

And as far as Enterprise is concerned, erosion has been limited to a little less than 5 points. And if you remember, at the end of third quarter we were still at more than 6 points of revenue erosion. So this is a good fourth quarter for the Enterprise division.

Regarding the profitability, again, so this is an erosion of 1.4, 1.6 points depending the way we measure it and [is] an erosion in three segments. It's in one in 2 points of the Mobile business. And we'll come back on that. It's mainly linked with the need to spend more in commercial expense to sustain the business and sustain the market share. 1.3 point erosion on the Home business, and 2.8 points on the Enterprise business.

Again, to come back and without giving here precise comparisons with some of our peers, I think if you look business by business, our performance on Mobile related to some of those is really good. Our performance on Home, especially on our domestic market in France remains also good in terms of the evolution of the margin.

And also for the Enterprise division, I just remind you that if we compare ourselves to some of the other players who have invested a little more than us on the new areas of services, they have only an EBITDA which is lower than the one we have.

If we look at the situation now a little more in detail for the Personal segment, you see that most of the erosion is on the increase of commercial costs, and with some higher price pressure linked with the regulations. We just remind you that the overall effect for Group, we mentioned it on the Investor Day on December 15, is about 600m in terms of the operating margin for our -- gross operating margin [inaudible] for the total Group. So you see the huge part of this is on the Mobile business.

So we have an erosion of 5 points in the U.K. Bernard will come back that. Just to be clear that in terms of profitability or even cash flow, we remain one of the best operators in the U.K. Some of them may have a better EBITDA but are still investing much more than us because they are not yet at the level of coverage where we are.

Regarding Spain, we have lost 3 points, out of which a huge part has been linked with the increase of commercial expense, mainly due to the acquisition of new customers. And Belarmino will come back on that, especially customers in contracts, with [call] payment-free customers which was one of the big objectives we had when acquiring Amena, to move Amena more to high-value customers.

Then in France, the gross operating margin rate has increased in terms of published figures by 1.6 points. Excluding the fine that was paid last year, it is a rate down by 1 point. And, again, this is the increase of the commercial costs which is explained in both [service]. And Louis-Pierre will come back on that.

Regarding the Home business, you see that the erosion is 1.3 points, out of which 1.5 points was the French market. They're linked with the level of investment on the network and on the equipment of our platform -- services platform and other tools to implement the new technologies. So, again, if you restate the situation in France with a reversal that was taken on the 2005 account, the decline is between -- is just minus 0.4 points.

Regarding the Rest of the World, you see that there is 1 point erosion which is also linked with the increase of commercial expense and the need to continue to equip the LLUs, especially in the countries like the U.K. and Spain.

Regarding the evolution of the profitability by looking at the cost structure of France Telecom and, again, this is not something new for you because we commented that at length on December 15, there are four areas on which we have to work to better [master] our costs.

Two areas have been improved in 2006. The people costs, and we come back on that, which have remained stable. And within the IT and network costs which is the second gray part which is decreasing by 360 -- which is increasing, excuse me, in terms of costs by EUR369m, where Interconnect costs have remained broadly stable. And the increase has been linked with IT support expense and network support expense. We'll come back on that.

So two areas which have remained stable and two areas which explain the deterioration of the margin; the IT and network, the commercial costs. And you remember that we have some programs to improve that. And I will come back on that.

Regarding labor costs, first of all, France Telecom has completed its plan to reduce the manpower. You remember that we have a forecast to reduce the manpower over the period 2006 to 2008 by 17,000 people net for the Group, out of which 16,000 in France. And we have achieved half of this forecast -- of this three-year forecast in the first year for France, which put us in a good situation for the next two years. This has helped us to contain the labor costs in 2006 and will help us to reduce them in 2007.

Regarding the IT and network expense, again, if you remember the split, it's about a little more than EUR8b of Interconnect costs and around EUR5b of other IT and network costs. If we look at the situation, it has remained stable in percentage points to revenue.

However, if you look at the detail of the evolution, it's stability in absolute terms for the Interconnect costs where, especially in the second half of the year, the decrease of the inter-operator expense has given us the ability to improve the situation and to quasi-stabilize the expense in absolute terms, whereas, the investment in the deployment of new technology, especially the Livebox, Voice over IP, IPTV, has led us to bring forth our call centers, our support centers, our services platform, and has increased our costs by the EUR330m you see on this slide, whereas, the internal costs have decreased in terms of manpower.

Our objective on those costs, as it was stated on December 15, is still to reduce them in absolute terms by the end of 2008.

Regarding the commercial expense, you remember that we presented a comprehensive action plan of the situation of the commercial expense which are [present in] our business are now 15% of the revenue in total, out of which most of it is dedicated to the Mobile business, with more than 82% of the commercial expense dedicated to the Mobile business.

There has been some small increase in the Home business. But most of the increase has been taken in the Mobile business and with more than 80% of the increase dedicated to re-enforce our competitive position in the major countries. And this is mainly linked with the fact that to complement the current acquisition expense with more retention expense.

This is a shift -- positive shift linked with the maturity of the market where we have to make now more effort to keep the customers and just, when the growth is there, acquire new customers.

And if you remember, we had announced in December the plans with the three main objectives. One, this is the realignment between loyalty and acquisition, especially with the implementation of loyalty programs which has been done in France, in the U.K., in Spain in the course of 2006.

The second objective is also to better master the distribution channels, especially in countries like the U.K. and, I guess, Bernard Ghillebeart will comment that when the distribution is highly indirect, it's very difficult to control or to master the loyalty of the customers. And so we are re-aligning also our distribution to have more direct and web channels.

And a third main action within our action plan is to leverage the brand. And the fact that we have now the same brand for our Internet and for our Mobile business to decrease those costs for the future and to keep the objective to maintain them constant in percentage points to revenue.

To come back on the rest of the P&L, as regards the operating income, main variations are linked with exceptional items, amongst them the goodwill impairments and the level of asset disposal, especially taking into consideration the fact, and I guess most of you have noticed it, that we have seen a difference of accounting treatment for the sale -- for the proceeds of the sale of the Pages Jaunes business compared to some other disposals.

So the size of Pages Jaunes has led us, according to IFRS rules, to account for it on a separate line which is discounted -- discontinued activities, sorry, whereas if it had been a smaller-sized disposal, it would have been accounted for in the line disposal of assets.

So this explains the major differences, whereas, if you look at the pure operating line, there is not much difference between 2006 and 2005.

The only [mainly] important change, to come back on that, between 2006 and 2005 is the fact, and you remember we announced it on February 1, is that we have posted an impairment of EUR2.8b on goodwill, mainly on the U.K. Mobile business of EUR2.35b, Poland for EUR0.27b, and Netherlands for EUR0.18b.

This is mainly linked with the fact that by re-organizing the management of the Group and having a management at country level, we have now analyzed the value of the goodwill, especially the one which has come from Orange at the country level, and so to check the value of the businesses at the country level, which was not done until the end of 2005.

And this, linked with the sum of the changes in the environment, especially in the competitive environment in the U.K. or the regulatory environment in Poland, has led us to post those depreciations, those impairments, and the difference between the value of the assets in our books and the value tested according to the method agreed by our auditors and by the advisors we have on this. Again, and I think you remember that, it is a minor adjustment compared to what some other operators have done in this field.

In terms of net income, so you remember we didn't give all the -- we didn't give on February 1 all the details of the net income. Here you have the details. To come on some of the major points we come back on, that was some improvement at the financial charge level, some increase of the income tax, but in terms of balance sheet movement there is a decrease, you will see that in terms of cash payment for income tax. This is the change of some items within the balance sheet for deferred tax assets, which explains the difference, and whereas minority interests has remained at more or less the same level.

Slight decrease, this is due to the sale of Pages Jaunes. This explains this decrease of the minority interests at the end of the year.

If we try to understand and to make -- to measure the net income in comparable terms, I think we have to take into account the capital gains on asset disposals or on discontinued activities to neutralize this impairment of tax and the impairment net of tax, and also to discount the exceptional items on deferred tax and financial expense. And you have the details in addition to this presentation.

As regards the financial cost, just to keep in mind that we have been able to reduce the cost of the debt from 6.5 to 5.9% in 2006. At the same time there have been some exceptional charges, especially linked with the buyback of TDIRA. We have booked for EUR645m of TDIRA. This improving our financial cost for the future, but also reducing some of the potential dilution that could be brought by the TDIRA.

For the income tax, as I mentioned it, in terms of the deferred tax we have consumed with the profit we have made, some of the deferred tax we have done. But we have had some movement in terms of income tax charged at the P&L level because of a change, mainly with the use of the tax loss carry forward for France with the sale of Pages Jaunes, which has consumed some of the deferred tax assets.

And regarding Spain, this is mainly a change of the tax rate. You know that the tax rate, the income tax rate has been decreasing in Spain. So it has reduced the value of our asset. On the same level, timing, because you know that we take our assets on average on a five-year period. So if the tax rate is reduced, by definition, you have less asset which creates a lot on your P&L by the effect of the reduction of the tax rate.

So this explains the movement, whereas, in terms of cash out you see that we have spent EUR200m less than a year ago. And our view -- and I think it's an important matter for you to plan our future. This is to say that we expect that effective cash payment for the future will be between EUR800m and EUR1b until 2010.

In terms of cash, to continue on cash, so to comment on the gross operating margin down to the net cash provided by operating activities. So you have the improvement of the GOM, you have lower interest expense, I already commented, less income tax cash out, and some stability at the level of the working capital, whereas, there have been some increase of the restructuring costs regarding the early retirement plan.

This leaves us with EUR13.9b of net cash provided by operating activities, so an increase by EUR700m [sic - see presentation] compared to a year ago. And this leads us to the organic cash flow that you already know of EUR7.15b so EUR200m ahead of the objective given at the beginning of the year. This including a CapEx of EUR6.7b which is, again, I will come back on that, an increase of EUR200m over 2005 on a comparable basis as it appears on this slide.

Maybe one thing which is important that we will comment further afterwards is the change in the CapEx. So it is small today. But it is a start to re-align CapEx on more growing activities or change of the business model. Out of this increase of CapEx, the net increase is EUR200m, but the gross increase is more than EUR300m because we have reduced the expense in traditional activities, Fixed or Mobile, by more than EUR100m.

Out of this increase -- gross increase of more than EUR350m, one third has been dedicated to emerging markets and more than two thirds has been dedicated to new services, either in Fixed or Mobile, again, Voice over IP, Livebox, Unik, platform services, etc. And this is the beginning of the shift. We will come back on that later.

Last item, this is the situation of the debt, to remind you that the debt is now at the EUR42b, the net debt. This is a decrease of more than -- a little less than EUR6b in one year, out of which EUR3b is coming from new activity and more or less EUR3b is coming from the sale of Pages Jaunes, which puts us at the net debt to gross operating margin ratio of 2.27, again, in line with the objective to achieve the 2 at the end of 2008. So, again, to remember you that at the end of 2002 the debt was EUR68b.

And this is my last comment in terms of financial structure of France Telecom where our rating is now back among the best in the industry, with A minus. And our spread measured in credit default swap spread at the end of January -- at the end of 2006 or early 2007, we have now the best rating also in terms of spread compared to our peers.

Thank you very much. Now I call my operational colleagues, Belarmino, Bernard and Louis-Pierre to comment some of our countries.

Good afternoon ladies and gentlemen. In the following 10 minutes I will make a revision and analysis of the Personal and the Home business in Spain. After that, I will make an analysis on the 2007 environment and the main action plans for the Spanish operations.

I will start with the Personal business. The Personal business had a very important customer base growth in the year 2006, growing from 10.3m customers to 11.1m, with an increase on revenues of 4.1% and the underlying growth before call termination rate has been 7.1%, achieving EUR3.35b in total.

The blended ARPU has been around EUR300 and the ARPU in the fourth quarter has been stabilized versus the third quarter.

Also important to highlight that, in the fourth quarter, we have been able to close the first two MVNO agreements in the Spanish market with Carrefour and Phone House.

In terms of the development of the customer base, I want to emphasize the [re-brand] of the business in the fourth quarter, having two difficult quarters in the second and the third quarter, but rebounding the results on the evolution of the customer base in the fourth quarter. And not only because the growth in the total number of customers, close to 300,000 customers, but also very important, 71% of those had been post-paid, that means near to 200,000 customers.

If I compare that matter with the first quarter, in the Q1 we achieved 47% of the total net adds were post-paid. So a big rebound and also a big improvement in terms of the quality of the net adds in the fourth quarter.

Also you can see that we improved the market share on the post-paid market dramatically in the fourth quarter, achieving near to 22% market share on post-paid in Q4 2006.

Looking to the year fiscal -- to the year 2007, and looking to the environment, we are forecasting a very competitive market in the Personal business in Spain, maintaining the same level of competition between the three most important operators, but having to add the entrance of the fourth mobile operator, Yoigo, and the entrance of new MVNOs. We have already in the market four MVNOs and we are expecting that new ones will enter into the market.

The mobile termination rates still are maintained -- regulated by the CMP, the local Regulator. But we already know what will be the cut until the year 2009. That will be much better than we thought at the beginning because the initial plans were to cut the termination rates until EUR0.06 per minute in the year 2008. And, finally, the number has been EUR0.07, not EUR0.06, and [with the Regulator] in the year 2009.

And we have been implementing a very important change from the regulation point of view. From March 1, we are now applying per second billing imposed by Regulator to all the businesses, not only to the Personal one, not only to the Mobile one, but also to the Fixed one.

In terms of the priorities, let me focus just on two out of the five I am mentioning here. The [focus] on the post-paid; we want to grow more in value than in number of customers. And the second one is the launch of the loyalty program -- loyalty point program that we are planning to launch at the beginning of the second quarter that, in parallel with the focus we are now implementing on increasing the quality of service, we are aiming to reduce the mobile churn across the year 2007.

And now let me move to the Home business. And in the Home business we accelerated a migration from a customer base that was mainly PSTN revenue [space]. And we passed through a transformation process to accelerate the move to ADSL. As a consequence of that, and also the changes in the market, where we have been transforming the business from Voice only to Internet class Voice bundles and also from Dial-up to Broadband, we suffer from the revenue point of view with a decrease of 13.7% on an actual basis or 15% on a comparable basis, with the main decrease based on PSTN and Narrowband revenues, with a decrease of 48%.

The revenues on Broadband grew by 5% and we achieved 640,000 customers -- ADSL customers at the end of the year 2006.

I think the most important point to highlight here are two-fold. On one side, is the [grew] of number of customers in Q4. And I will look at that in the following transparency. And the second one is the big change in the number of [private] customers.

At the end of 2005, we had 29% of private customers under local loop unbundling. And we moved from 29% to 55% of the total number of ADSL customers. We launched in the last quarter IPTV. And also we put in place a program to increase the gross adds on the ADSL market, taking profit of the existing mobile distribution channels.

In December, 20% of the total gross adds had been achieved through the mobile distribution channels. And still we believe we have a much larger opportunity to improve the gross adds on the ADSL markets in Spain.

Also important to highlight that we re-branded our business, not only for the Home business, but also for the Personal business on October 3. And, in parallel with the re-branding, we launched very unique services, one of them has been what we call in Spanish, Numero Plus or Family Talk, that is the same matter. And at the end of the year, after three months, we achieved 25,000 customers from ADSL using this service and 50,000 mobile customers using the service.

Also important to highlight that, apart from the growth in gross adds, we achieved a very important reduction of churn in the last quarter of the year. And based on the combination of the improvement on gross adds and the reduction on churn, we have been able to achieve in the last quarter of the year 47,000 net adds on ADSL. That means 150% the number of net adds adding Q1 plus Q2 plus Q3. So there is a clear [rebound] on our ADSL business in Spain in the fourth quarter, improving the acquisition of customers and improving the reduction of the churn level.

On the left side of the transparency, on your right-hand side, is the explanation of the revenues on the Home business, with the main deterioration on the PSTN with EUR91m, and changes on accounting standards of EUR34m. I think it's important to highlight, not only the growth of EUR5m on ADSL, but also the growth on the business customers where the revenue grew by EUR18m.

And just to finish, on my last slide, looking to the Home market in Spain for the year 2007 from the environment of the market point of view, we believe price pressure will continue on Broadband. Multi-play offers will be the most demanding services by the customers and will become a standard in the market. And we see an opportunity in terms of improving the margins as the Regulator in December decreased the prices of the wholesale of between 20 and 25% that will bring to us an opportunity to improve the margins on the ADSL idea.

In terms of priorities and action plan, I want to highlight two items. We want to accelerate the acquisition in ADSL customers, especially -- with a special focus on LLU. That is the area where we have better margins. And the second matter is to reduce the churn on the ADSL business.

Thank you very much, and I will be more than happy to give you any answer on the questions you may have later on. Bernard, the floor is yours.

Ladies and gentlemen, good afternoon. I'm going to talk about our performance in the U.K. last year and share some of our plans for '07.

So, let's begin with progress on our overall strategy. On December 15, at the FT Investor Relation Day, we spelled out the strategic priorities for Orange U.K. over the next few years; developing customer loyalty, increasing new revenues and transforming the business to compete more efficiently.

On developing customer loyalty, we are making progress in pay monthly, with churn on a monthly basis falling steadily over H2 '06 to around 24% in December. Well over 80% of our new contract customers are taking an 18 month contract and that will further reduce churn.

Our segmented customer strategy is helping us maintaining a strong customer mix and the highest pay monthly ARPU in the market.

In terms of new revenue growth, non-messaging data was up 15% on a comparable basis to the previous year, with non-voice data overall up nearly 6%. We also achieved the implementation of the 3 national roaming deal which we won last year.

Meanwhile, in terms of business transformation, progress continues to be made on realizing the full operational benefit of having both a [sale] mobile and broadband business in the U.K. In addition, we announced a radio network sharing deal with Vodafone, the first for the U.K.

We also acquired 47 retail stores from The Link, [refurbishing] them in record time, seeing an immediate impact on improving our direct distribution mix.

So moving on to the financial results, overall, Personal saw a slight revenue increase year on year, with the annual turnover reaching EUR5.87b. The additional growth was largely driven by stronger customer base, particularly in mobile pay-as-you-go, where the overall base grew almost 5%, generating in turn revenue growth of 6.2% year on year.

Mobile pay monthly was a story of two halves. In the first half of '06, aggressive price competition hurt our market share, so we decided to defend our position in the second half, and achieved a best H2 net addition with 237,000 additions; the highest figure for us in a semester since 2002.

Our continued focus on high value customers means we are maintaining the highest ARPU in the market, at GBP561 per customer per year. In addition, we doubled revenue from Blackberry and mobile data cards in the business market, and this assisted in the growth of overall non-voice data.

So turning to the Mobile business, we believe that the market will remain as intense as ever, yet there are some signs that the washing machine is slowing down, such as improving churn figures as well as quieter activity in the high street. We also anticipate that the U.K. Regulator, OFCOM, will rule on termination rate cuts around the end of March, and we have already factored their potential impact on our financials.

Orange's focus in the mobile business for '07 will remain on the three key strategic priorities. We will remain focused on our segmented approach to customer acquisitions and retention, maintaining a strong customer mix with relatively high ARPU, and reducing churn in the pay monthly segment. In pay-as-you-go, we are expecting slower market growth in '07, yet we remain focused on maintaining overall growth.

Activities to grow new revenues will continue around wholesale activities, non-voice mobile services and convergence, in particular with the full market launch of Unique Phone. Finally, business transformation will continue with internal operating synergies continuing to be realized across Mobile and Broadband service, and the implementation of the Vodafone network sharing deal.

Now, onto the Home Broadband business. Home revenues stayed flat overall in 2006. This is the result of a 27% increase in Broadband revenues, offset by a corresponding decrease in Narrowband Dial-up customers' revenue. We achieved our targeted number of LLU exchanges in the U.K., with over 500 exchanges now unbundled, and we finished the year with 16% of our broadband customers on LLU lines. These are important metrics to improve both the profitability in the Home business, and our ability to introduce new services.

'06 also saw the re-branding of the Broadband business from Wanadoo to Orange, and we have continued communicating the benefits of taking both Mobile and Broadband services from us, in line with our convergence strategy. Lastly, we are seeing increased usage of our Fixed Broadband Voice over IP service, resulting in a significant rise in chargeable voice minutes.

Our convergence strategy centers on building a strong shared base of customers who take both Mobile and Broadband from us. We believe the benefits of building a large-scale share of the customer base will have positive loyalty impacts, as well as form the base to which we will be able to successfully market future convergent services. We now have over 250,000 shared customers, and this figure continues to grow at a satisfactory pace.

It is obviously still early days but, according to initial findings, these customers are spending more with us than mobile only customers, and around 50% of them opt to take a GBP5 per month extra paid for unlimited option. Furthermore, these findings suggest that they are far less likely to leave us and, the fact that all customers taking broadband and mobile together sign an 18 month contract has an obvious churn reduction impact.

So what is the outlook for our Home business this year? We believe that the market will continue to be as competitive as it has been in this past year, with a number of existing competitors and recent entrants battling aggressively to grow broadband market share. We also think that there is a chance that further consolidation may occur in the market, leaving a handful of key players.

Orange's focus for '07 remains on three key areas. We will continue to drive awareness and appreciation for our proposition as a quality broadband service provider. We will also complete our multi-play portfolio with the launch of a competitive primary line voice service and IPTV proposition. A number of key converged services are planned in '07. The integrated [Nex] portal will allow our customers to use integrated applications and tools across both Mobile and Broadband access such as Orange, Windows Live Messenger services.

We will also continue building on the success of our user-generated contents, like photo-sharing service, and our multi-network Business Everywhere service. In addition, we will continue with our LLU migration plans to drive greater economics, as well as reducing the unit costs of the Livebox router, which is now used by a third of our Broadband customers.

Business transformation is a key priority for the U.K. business, so what did we achieve in '06? First of all, the addition of 47 new retail stores acquired from The Link was an important step in our move towards a more direct distribution model, bringing the total number of our own stores to 340. This, together with increased performance in Orange Retail, gave a 17% increase in pay monthly contracts sold direct in December '06 versus December '05.

In terms of our network costs, the deal announced in February to share our 3G access network with Vodafone in the U.K. will bring significant OpEx and CapEx savings, in the range of 20% to 30% compared with stand-alone plans. In addition, integrated activities commenced in '06 will deliver 7% headcount cost savings in '07.

'07 will also bring [inaudible] to achieve greater service savings in our sourcing of 3G mobile handsets and broadband routers, while ongoing efforts to realize synergies in cost savings, be it in Mobile and Broadband businesses, continue. This includes a focus on sharing network, removing duplication, improving the efficiency of our organization, systems and processes, including call centers and retail. Thank you for your attention.

Thank you, Bernard. Good afternoon ladies and gentlemen, and before I start to give you some highlights on our 2006 performance, let me just tell you that we are proud of what we achieved in 2006 in France, our major country, because [to our extent] we clearly demonstrated that we are still leading, undoubtedly, the race in that country. And let me try to show you why we believe that, starting with the Mobile business.

The first lesson in the Mobile business is that we achieved 1% growth in terms of revenue, on a comparable basis, mainly due to two causes, the first one being our customer base. We had a 3.7% year-over-year growth. You could remember that we had, let's say, an average medium second quarter, but upon the third quarter and the fourth quarter, we were successful and we had a good growth overall for the year.

The second reason of that revenue growth is the non-voice revenues which have increased by EUR100m, and this is at least partially linked with our Broadband/Mobile customers, which have been multiplied by 3.4, year-over-year. You can see, of course, that if we would not have been hit by the termination rate impact, the growth would have been 5.9%.

The last point, which is also very important for us, we had a good performance with our MVNOs, which helped us address some niches of the market we were unable to address by ourselves. And, even more important for us, we are running, I would say, 55% of that wholesale business. So we believe that Personal in France, especially compared to some of our competitors, was a good year.

What are the key facts for this year? You know that we have, or we will have starting on May 21, the number portability in France, which is something really new in Europe, because just let me recall you that we will know that the customer has gone when he is effectively gone. We will have no chance, therefore, to have any retention action and, of course, this will be the same for everybody. This will be starting May 21.

The second point is about the fourth license, the fourth 3G license in France, again, where it will have no impact as such in 2007 but, of course, it might have some changes for 2008. The process is underway. We are waiting for the results. MVNO market, we told you. We are happy to be running ahead in that part of the market. The MVNO market will continue, we think, to grow next year, and we want to keep the same position.

On the regulation side, there is nothing new. You know there is a new customer -- sorry, termination rate cut beginning of this year, and the impact for us will be in the same order of magnitude as we had last year, so to say, EUR400m.

Now, what our actions to maintain our position and even to grow ahead of competition, the first one of course starting with portability. We want to work further on the churn, and we will have more proactive and reactive, for example, loyalty programs.

We will, of course, use our Mobile/Broadband base to continue to push our non-voice revenues. For sure, we will also continue to take advantage of our convergence offer, as you saw that we were able to sell 64,000 Unik last year. We are still pushing this offer this year, and we see our numbers going up. And, last but not least, as I already said, we want to be in the race with the MVNOs.

So good 2006, and I would say a good perspective for 2007 in the Mobile business. Now, if we move on to the residential business, the Home business, I think the first there important message if you take out what is completely on the right-hand of your chart, the EUR90m of the consumer services, which are mainly -- sorry, I don't know the English word.

It's some traditional, let's say, fixed services, which are declining, but if you take this out, you can see that what we managed to do which is, for us, very important news, we managed to compensate the decline of our PSTN business, by the increase in our Internet services, and I think this is something for us very important because it shows that now we are managing that market. How does it look like?

You have here the details. You see on the change of retail subscribers, the substitution fee increased, the commission rate impact, the volume mix on the PSTN side, and then the growth on the Internet side, but I will come back in more details just now.

If I move to the Fixed business, the first thing is that the number of clients has been increasing in France, in 2006 by 0.8%, and this is something which is happening in some other countries, like Spain, for example. It was just due to the fact that people want now to have a fixed line to be able to have ADSL. Of course, during the same time we had more people going to full unbundling.

And just let me comment that a lot of these people are people who were already, for example, in partial unbundling before or increased selection. And it's also for us more revenues on the wholesale side, which you can see on the right side of the chart, where you see that we increased these revenues by EUR171m, which then overall means that the access part as revenue increased by 4.1%, which is another good news for us in that business.

Now, if I look on the Internet side, then I will say, for us, the news is even better. We managed to improve our penetration rate on the IPTV over three years from 2% to 10%. On the Voice over IP, it's even better. We moved from 5% to 35%, and now we have 2.1m clients. We are the first Voice over IP provider in France.

And, on the Livebox, it jumped up to 58%, and the last news, I would say, is even better, because now more than 90% of the clients who are subscribing to our multi-play offers are taking the Livebox. As a consequence, what you can see on the right-side of the chart, our ARPU coming from these multi-play jumped from 20% to 41%.

How does this translate in terms of revenues? Last year -- in 2005, sorry, [above] 2004, the Internet revenues were growing about 19%. This year, 2006 over 2005, they grew about 28%. But what is even more important is, if you were to look only at the Broadband part of it, so meaning I would exclude Narrowband and Teletel part, you could make a translation and find out that in 2005 over 2004 and 2006 over 2005, our revenues in that area grew by more than 45% year over year. So this is for us also something very good which is, of course, what explained why we were able to compensate the decline of our PSTN business by our business in the Internet.

Now, if I look on the market share, you see that after the fixed start of the unbundling now, since 2004, we managed to have our market share around 49%, where it's up and down, though, it's depending on the promotion, depending on the aggressiveness of the market.

We had an average performance in the fourth quarter this year, which I will preempt your question, which was basically due to the fact that we were launching naked ADSL only in four major towns, while our competition was launching it across the country. But since we have now, since March 1, we have now based it across the country and our sales have tripled due to that fact, and we have also improved our offer, so that we are since the beginning of '07, in our normal range of [per] acquisition, which makes us comfortable by the fact that we will stay in the region of 49% of market share.

If I have now a forward [a] look on 2007, what do we say? The pick-up of naked ADSL offers, I already talked about it. We don't believe it will be an avalanche, based on what we see. Just remember that our competition has already been deploying that offer for almost now, four months, so we have seen the trend, and it doesn't like an avalanche, and now we are really in the game.

On the price side, there is no specific news. The last important point is the discussions we have currently on FTTH, and there we are also happy to see that the regulations authority have a position which is close to what we wish, meaning that we want to have only one fiber in a flat, which can be shared among the different providers, and that we have to have fair discussions on the civil works which are needed.

Now, what is Orange planning to do? I have already spoken about it, but let me just recall it. Naked ADSL is the first one. We will, of course, grab wholesale on our churn rate. It's currently among the best, if not the best in the French market, but we want to continue to improve it. And, in that sense, we are launching now a new loyalty program, which is new in the Internet business. We make the one in the Mobile business more reactive, but this one is now brand new.

We, of course, are working on our Fixed offers, even if we consider that this is a declining market, and there also we are successful by selling "all included" contracts to our clients. We will, of course, push as much as we can on convergent offers. Unik, I spoke of it on the Mobile side but, of course, it has influence on the Internet side, because this is for us something that is differentiating us from competition. And, of course, we believe that with all that we will be able to continue to increase our ARPU.

So 2006 was a successful year for France and we believe that 2007 is looking the same way. Thank you for your attention and, Mr. Chairman, the floor is yours now.

So, thank you, Belarmino. Thank you, Bernard. Thank you, Louis-Pierre. Now you have a clear view of what happened last year in our main geographies and what are our outlooks in terms of performance for 2007. To have a general view of what has been the operation in 2006, I think 2006 was characterized by three main changes. The implementation of an organization by country, and is the reason why I have asked the three gentlemen in charge of the main geographies to be there to present their own datas. But we have also in the room the CEOs of the operations in the other main countries, who will be ready to answer your questions at the end of my presentation.

The second is a tightening of the executive team which is now in full operation and, of course, the announcement that I made in June about the extension of the Orange brand is now a reality. We now have 100m customers who are under the Orange brand. The structure is in place and the team is in command. We have also all the right management tools which give us [a real time] to -- capability to monitor our operation and our cost, almost in real time, and in a market which evolves so quickly, it's really a need for a TelCo which operates in the, as we call it, the new world.

We are already benefiting from the extended [core] Orange brand. It's very obvious on many markets that the Orange brand brings us a lot of customers -- gives us a lot of new customers. You have the main points, the key points about the three geographies presented right now. I would like to give a further picture of where my team and I are especially focused this year to deliver all the objectives we have in mind.

This slide summarizes the key points already presented by Belarmino, Bernard and Louis-Pierre. Of course, I will not comment each in detail, but I would like to come back to an important remark which Louis-Pierre made at the beginning of his [financial] presentation. The French market, which is still our biggest market, is well ahead of other European markets in terms of its evolution. In France, a symmetrical migration has really played its role, earlier and faster than in other countries.

Competition is very intense and very open in all market segments and, in general, it is also in France that new technologies, new services and new usage develop faster and earlier than in other places in Europe. I suggest that you look at the Voice over IP, IPTV, Livebox, Plug, the Web 2.0 and so on and so on. You see that all these technologies are quite widely spread out in France, which is not the case in all the European countries.

In this challenging context, our performance in the French market is particularly significant. This means that an incumbent operator in France, France Telecom, is clearly some way down the road from where its peers find themselves in their respective countries.

France Telecom has already overcome some of the hurdles on that road than some of its peers have yet to confront in their own countries. For me, this is a crucial element to properly understand the current [inaudible] impacts. We have already largely adapted to this new [predicament]. Its performance and leadership in France in '06 are one of the tangible proofs of it. I will come back to this at the conclusion of my presentation, to show you how we are -- we have, in fact, a business plan very different from most of the other incumbents in Europe.

If you looked on our key business priorities regarding those of key countries and businesses, first Poland, our colleagues, they have delivered a good performance in 2006. I expect them to continue their solid financial and strong commercial performance, to maintain their leadership position in that market.

In other European countries and emerging markets, which represent our key growth areas, I expect our colleagues to continue to grow in 2007 and we anticipate that economic growth in these regions will be good in 2007, and this should facilitate another successful year.

To Enterprise, and we seem to be on the first one, and we get ready to answer your questions. I expect the growth to continue in 2007, to increase service revenues. This is our main target, and at the rate that is faster than the market. In the more traditional network business, we will maintain our lead in IP transformation for servicing multinational corporations.

The performance expected from each country will be achieved also thanks to the ongoing cost reduction programs that we have detailed at the December Investor Day. As you are aware, the main elements relate to headcount. Here we are well on track with half of the three-year target already achieved and, of course, we will continue on this line.

On commercial expense, we aim at stabilizing these at a percentage of revenues in 2007. IT and network integration; here we are also fully on track. In December, for example, we announced the Spanish network sharing, more recently a similar arrangement in the U.K. and, of course, we will continue this way in all the space where it is possible. As we said in December, France Telecom Management is fully committed to delivering these programs.

[Four] key points for 2007. It's, of course, how we fuel growth today and growth tomorrow. We have seen the first results in 2006 and we are working on many medium and long-term developments. Some of them are known to you, but their impact might not have been fully [appreciated] yet. So I will just focus on some of them. Let's take the example of Livebox and the related services.

In France alone, in '06, this generated EUR300m in revenues. This represents a growth of 180% compared to 2005. This revenue stream will continue to grow, as our Livebox base grows in France, and in all countries where we offer this core product to our customers. Content is another very successful engine for growth. The target of EUR400m in revenue set out in the NExT program for 2008 -- you will remember, I quoted this target in July '05. This target is already reached in 2006.

This is a very rapidly accelerating revenue stream. Without going through all our growth drivers, I do want to highlight the growth of advertising revenues. We have generated some EUR100m in revenue in '06, from Internet advertising. We expect to see that figure increase by 50% in 2007. Market analysts consider that Internet advertising in Western Europe will be worth around EUR8b by 2010. We are able to attract a significant share of that market, thanks to our unique commercial position in both Mobile and Fixed Broadband, and to the strength of our Orange brand, of course.

The next question is obviously where will we find the CapEx to invest in all these growth drivers without impacting our cash generation target? I am sure, even if I don't include this slide, you would have asked this question. To be very clear, 2007 and 2008 are two key years. Some of our programs will reach completion. Others will require less investment in the future. 2G is a good example. 2G will soon be fully rolled out in all areas, in all countries. In combination with a sharp increase in 3G coverage, and network sharing agreements, there will soon be significantly less need for CapEx in these areas.

It also applies, to a lesser extent, to fixed network. In 2007 and 2008, most of the investment in ADSL coverage will have been completed in all countries, and this evolution will amplify over time. As from 2007, we expect this will free up some EUR1b from new investment. This [also] will complement those already invested in the new growth drivers, including fiber, whilst CapEx deceleration will remain constant at around 13%. This shows you that we have some flexibility available during the following years.

The Spring Collection. Three main factors put us in a position to develop a leadership in terms of commercial strategy; high utilization of our objective country per country, costs containment that will deliver additional room for maneuvers, a more efficient CapEx allocation to support innovation. The Spring '07 Collection -- you remember that I have announced in June that we will have three occasions during the year to present the Collection, which will focus on our new products on some specific meetings.

The Spring '07 Collection we are presenting this week is a good example of this commercial leadership position. I hope you had a chance to visit the new Collection in our new building, which we have arranged for this purpose, the Orange [Rive Droit], which is not too far from here. This collection is based on two principal concepts, of simplicity and community, or two [inaudible] of our clients' new expectations.

I think the counterpart of all the new technologies which are now available on the Net is that the client wishes really to have simple products, so it's essential for us to deliver simple products. The second tendency is they want to belong to a wider community, to have their families, their community, with whom they want to communicate by all the means available on the networks. And the different products you have seen in the [inaudible] are exactly focused on these two objectives.

We have also been producing in the collections kind of new concepts which are not for tomorrow but, perhaps, for the day after tomorrow. And one of the main concepts concerns the three dimensional TV, of course without Net, which shows that the FTTH when it will be available, will have a lot of very powerful and interesting signals to carry, and to deliver to our customers. And this is interesting, because it gives a good explanation of the reason why I haven't chosen VSDL as an intermediate step because, in fact, it will be very, very -- it will be only useful during a very short period. So we need really a situation, as far as we consider that HDTV channels will be available on the networks.

TV by Orange and la fiber also are part of the Spring Collection, [that's a] today operation of course. You probably remember that Orange offers the high definition channel on ASDL and on fiber. We have been the first in France and in the world, in May '06, to offer that, particularly, with two main [sport events] which were [inaudible] and the Football World Cup.

But now I have some very important news to share with you. Thanks to the agreement we have just concluded, Orange will be also the first to be able to broadcast TF1 in high definition for all our [IP] customers on ASDL or fiber, and subscribers to Channel HD option will also be able -- to watch Canal+ in high definition. Thanks to this agreement with TF1 and Canal, Orange consolidated its leadership position with six available high definition channels in France.

This illustrates perfectly the win-win strategy, where we -- our networks are very powerful to amplify the audience for [important] content operators and, of course, we need the contents to have our customer appear on the other end of the line.

Now, come back to the 2007 guidance, with the strong operational focus on each of our countries, with the efficient execution of our cost reduction program, with our growth drivers, which are already beginning to deliver. And, despite the context of moderate market growth in the principal Western European markets, we can -- I can reiterate the following guidance for 2007. We have stabilization of the gross operating margin rate in 2007.

CapEx in percentage of revenues maintained at 13%, which shows that we have enough capability to prepare for the future and organic cash flow of EUR6.8b, the same figures as we have posted in December, of course.

Shareholder remuneration policy maintained, of course. I confirm our shareholder remuneration policy for the fiscal year 2006; 1.2 dividend -- EUR1.2 per share will be proposed to the next shareholder meeting on May 23, and it will be paid on June 7. This corresponds to 44% of our organic cash flow.

And, concerning our use of cash policy, which has been approved by our Board of Directors we confirm, of course, the main target which is to continue to reduce our debt. And the target is the same as usual, which is to reach the ratio below 2 by the end of 2008. The second point continues to say the distribution target for the coming year, with an indication of maintaining the 2006 dividend level for 2007. And, finally, we reiterate our determination to lead a selective and cautious acquisition and divestment policy, focusing on opportunities that arise in high potential markets.

And now we enter the conclusion part of our presentation. This is the business model of France Telecom today, which incorporates 53% of Mobile access and voice. The [classical] PSTN access and voice is already at the level of 26% of our revenues this year, and you have seen that we have two segments, very important segments, 12% for the Internet access and 9% for the Data and New services. It's this type of [reposition] which allows us to have the results we have presented at the beginning of this meeting, but this reality in fact hides the fact that our business model is, in fact, very different in emerging markets where the business is led by Mobile activities and the mature markets, which is quite -- which are quite different.

So we have separated what happens in developing markets, in emerging markets, emerging countries. You have here what happens in 2002 where we had 72% of Mobile, 25% of Fixed, 3% of New Services, Data and New Services. And what happens between 2002 and 2006? First, we had a very important growth between these two levels of activity, 144% growth. The Mobile activities still grow, with 78% of the total. The PSTN comes to 10%. In fact, the volume remains the same, but as the overall bundle becomes higher, the percentage decreased. And we have a high growth, quick growth of Data and New Services, and Internet connection appears a little bit there.

And what we anticipate for 2011 is in fact that, of course, the Mobile activity will continue to grow. The PSTN will still diminish, due to the fact that we will have no, in fact, really new service but the percentage will decrease. And we will have a high growth of Data and New Services, and some Internet access, because there is no reason why all these emerging countries don't participate in the Internet growth worldwide. So that's for the part of our business which we are developing in this emerging market, emerging countries.

If now we look at the mature markets, what happens is very different because, if you look at 2002, we were with 35% of the activity in Mobile, 55% in PSTN and 5% and 5% on New Services on one hand and Internet access on the other hand. And that slide shows you that, in 2006, we have already with a very different repartition of the activity. We see that the Mobile has grown to 49%, the Fixed has -- are down to 28%. It's been reduced to 28%. It is the case of all the emerging countries where we have introduced competition, of course, and the -- [these two] sector has grown, 14% for Internet, and 9% for the Data and New Services.

In fact, in the presentation of [Louis-Pierre], which covered the French geography, it's the application to France of this [area] where [what we have to have] to have a profitable year is that we have replaced the gray part of this circle by Internet and New Services. It was exactly what I have introduced in the next strategy, because it was very obvious at that time that the competition on the PSTN and, in fact, all the regulation decisions, will reduce the our activity in PSTN so we need to have new activities, to in fact to continue to have good performance in terms of revenues and of margins.

And what we anticipate for 2011 is more or less, let's say, one half, or perhaps a little bit less of one half our activity in Mobile. And for the remaining part, we will have three balanced segments in which we will have PSTN, which I think will continue to slow down. But the growth of the Data and New Services will be impressive, and we will have also a growth of the Internet access. [Inaudible] is a model that we continue to implement in the mature market and this gives you an explanation of the statement I made right at the beginning, when I told you we are not exactly with the same business model that our colleagues in different -- in the other European markets.

It is because I think the right competition situation which we have in France has not yet reached that country, and so we are a little bit in advance in the deployment of this strategy. We think that, in fact, with this business model the future of France Telecom depends on the balance, in fact, the evolution between the different categories of its business portfolio.

And, obviously, we have to keep in mind that we have the two types of countries in our portfolio; the fast growing country and we have to continue to invest and to provide connectivity to these countries with a lot of mobile facilities.

Probably we will have also to bring them Internet through different types of connection, mainly with wireless because the fixed network don't exist in most of these countries. And, at the same time, in developed countries we have to continue our policy, which implies the development of new services, and we have seen in [Western Europe] is the example of this policy we have, which is to deploy simple and reliable new services for our customers, in countries like France, but also in Poland, in all the main countries where we are operating.

So that's, in fact, my conclusion. I'll show you a little bit more about our strategy during the following years and now we will turn to the Q&A part of this meeting. And I will ask my colleagues to come back on the floor, and with the help of those of them who will stay of [inaudible], of the audience, we'll be ready to answer your questions. So, first question?

[Inaudible] from HSBC. I have a question regarding the Enterprise segment. Could you indicate that if you expect further decrease in EBITDA margin in this segment, and could you also give us an indication on the revenue trend in this segment as well? Thank you.

[Barbara], you have the floor.

When you look at the evolution of the business in 2006, you can see that the legacy part has been decreasing quite strongly, due to the evolution of the market. The IT advanced services, meaning IP-VPN, Business Everywhere, these kinds of service is increasing well also, as the ITTP part which is growing above the market with, of course, very different profitability trends for each of them. So, in terms of trend, we expect them in the same kinds of trends for 2007.

I think one of the main -- the main driver we're seeing is certainly two things, the evolution towards Voice over IP in the business. It's still of course impacting the legacy part of our business. Second main driver can be the competitive landscape on the international part, which has been quite strong this year. We have seen very strong competition between the four main players. So I guess that, at this stage, we see the same kinds of trends for 2007.

[Jacob] from Societe Generale. Could I -- I have two questions if I may. First, could you give us an indication of what targets you have for U.K. and Spanish markets in 2007 on the Mobile side, and longer-term, notably taking into account the non-repetition of the '06 re-branding costs?

And, secondly, could you comment on market rumors of a disposal of Orange Holland, as well as possible interest in [Yacom] and, more generally, challenges of this type of consolidation of FT? Thank you.

Okay, thank you, three questions. Spain, the U.K., and Holland disposal. Well, Belarmino for Spain.

So, regarding for more information, resulting evolution of revenues and other types of things like margin, we normally don't -- our policies do not provide information. They are in the evolution of the wording provisions, so I'm very sorry.

Could you maybe just say whether the 30% EBITDA margin longer-term that you had indicated for longer-term target for a long time after the acquisition of Amena is still relevant, or whether you think it's going to be difficult to reach and stabilize at that level?

I think that the most important part of the margin deterioration in the last three years in the Spanish market that has been affecting our competition are Telefonica, Moviles and Vodafone since the year 2004, and [impacted us] also, but in the year 2006, because in the year 2004 and 2005, we have been able to improve the margins.

Let me say that the main elements have been the increase in the level of competition. I don't believe we will have beaten a much harder environment regarding competitive level in the market. Even we know there is a fourth entrant and there are some MVNOs entering in the market.

The fourth entrant, Yoigo, and the new MVNOs will focus mainly on the pre-paid market, and we are not expecting to have a worse environment regarding the commercial costs. So we are expecting to maintain commercial costs in the percentage very, very similar as the one we have in 2006 and, as a consequence, we are not now forecasting a deterioration.

Bernard?

And the remaining costs that will disappear in Spain represented how much in '06?

Regarding the running costs that we are working on several initiatives. One of them has been [inaudible] -- we -- I announced here in December, in the previous year, our pace of the agreement. We signed it with Vodafone to share 3G, and we will achieve some cuts on the running costs, and we have several other initiatives, like offshoring, and other matters that will help us on improving that model.

Okay, on the U.K., for those of you who were in the analyst conference call mid-year, I had a question about margin evolution in '06, and I said that we had a bad semester on pay monthly and that we needed to defend the position, and then I anticipated the margin for '06 to decline by -- year on year by 3 percentage points. Obviously, I underestimated the efforts we needed to come back on the market.

This being said, the variance between '06 margin and '05 margin is mainly explained by two facts. One is that now if we center in the pay monthly proposition in the U.K. to have cross or -- cross-net or off-net minutes, which obviously has an impact on the gross margin. And the second obviously impact is about customer investment, and especially because you see that we have been able to retain quite a high mix of customers. With higher ARPU, obviously, our commissions are skewed to higher ARPU, because it was [skewed] to 18 month contracts. So this explains why we have more customer investments.

The question is is the business [transformation] bringing effect? I think, yes. Some effect is now available, but this is counterbalanced by some other cost drivers that are going well still, such as network costs, and this is the very reason why we took the bold move to have this agreement of network sharing with Vodafone. So we are not [increase] past guidance, but we are absolutely focused on '07 to stop the decrease of the margin further.

There has been a decrease from '04 to '05, and '05 to '06, so we are absolutely focused on stopping the decrease of the margin. So when the business transformation will kick in, and this will take more than one year, and if we have a less intense washing machine effect, and I said there are some signs, but you never know. Maybe next week, or next quarter, we will have another price war going on, then we will [either] have some flexibility, then the question for us is whether we will improve margin or we will improve our customer base to have more potential for revenue growth, or a mix of both.

And now the question about Holland. [Inaudible]. Orange Netherlands, if you remember, we have re-branded the Wanadoo business last June, to have Orange. And we have launched also the convergent offers, including Unik in the second half of 2006, which means that we are really committed to continue to develop the business in the strategic [way] we have.

So there is no mandate even for disposing of this asset today. But, again, as Didier Lombard mentioned, we are reviewing our different assets, which is the portfolio. And the [reference] belong to them. And this review will go on over the year and over the next months to focus on convergence and to continue to check whether we are able to create value on our different assets in Europe especially.

Okay, so next question? Where's the mic?

Terry Sinclair from Citigroup. Two questions, firstly on the U.K. In the details on the impairment test, you're forecasting a 2% perpetuity growth from free cash flow which is faster than the revenue growth you did last year and, obviously, margins fell last year. Are you assuming in your assumptions that there's a structural change in the U.K., for example, [inaudible] equity that improves that environment?

And second question, forgive me, I'm a little confused about what you're saying about churn in Spain. You've indicated it's high. You've indicated you want to get it down. How high is it? And have you already made progress with that or are you expecting to during 2007 as the new competitors has come into the market?

So, U.K. Sanjiv? Give him the mic. I'm sorry.

Let me just walk you through the trend in the U.K. As you see, our churn quarter over quarter is reducing. We have 80% of the customers on 18 month contracts now. Our ARPU has been very steady. Bernard said we have 7% headcount reduction. That will come in effect this year. So that will impact the cost. We are reducing costs for 3G due to network sharing with Voda.

So cost trend and we are stabilizing commercial expense. So 2% organic growth, the number that you calculated, that does assume revenue and margin growth is a reasonable assumption. However, what I would tell you is that the two months this year has started out very well.

Okay. Regarding the churn in Spain, our blended churn, that is the composition of pre-paid and post-paid is around 25%. The churn has been increasing in pre-paid -- in the pre-paid market and has been decreasing in the post-paid market, with a very important decrease in the business environment in the year 2006.

Next? You have the mic, no? Okay.

James Britton from Lehman Brothers. Two questions please. First of all, there's no mention of IPTV in your plans for the U.K. business in '07. So I just wanted to understand the latest reason for the delay. And are you not risking becoming a bit uncompetitive in the face of the TV-led bundles from Virgin and Sky?

Second question, are you happy with the development of the convergence strategy in Belgium, and how could you improve that convergence position over the medium term?

So, on IPTV, I did mention in my presentation that in the action plan as a whole we are complementing our multi-play offers and that we would introduce IPTV proposition this year. So we are not [precise on] something, exactly when it will be, but we are going to introduce an IPTV proposition. We will be focusing on providing a reliable service with content, part of it at Group level, part of it at local level.

And, obviously, we are going to differentiate in bundling of Home multi-play and Mobile multi-play and offering similar services on Mobile access and Broadband access [services].

Thank you.

Regarding Mobistar, I remind you that we are on the majority for Mobistar, but we are not the only shareholder. So this is Mobile business with minority shareholders. And the Board -- so this is up to the Board to make decisions on the future of Mobistar as regards to commercial implementation, including the brand, which is one of the discussions we have.

Just also to remind you that Mobistar published its results which are good. So, again, the pure mobile performance of Mobistar is very good up to now. And now, as for any other assets of France Telecom, at the point or at another time, another point in time, we are looking to pursue and to apply our next strategy. So it will come one day or another, based on our ability to convince also the other shareholders that this is the right place to go.

Yes?

Hello. Good morning. It's Fred Bouland from Morgan Stanley. Two questions on French regulation. First of all, what do you think [ART] is planning for mobile termination beyond 2007? You mentioned in your slide on France that they were starting a second phase of cuts.

And, secondly, what do you think they will do if the fourth license is not awarded? Given the impact of the MVNO so far, do you think they will try to push forward joint dominance of the mobile operators as they did last summer? Thank you.

I think they have started to work. We are in contact with them. We will wait what they will say. What else can I tell? We don't await that there will be something like a breakthrough from that perspective. There will be probably additional pressures. But let's wait for the results.

I'm not part of the [inaudible], I'm sorry.

Thanks. It's Damien Maltarp from Cazenove. Two questions. Firstly, on the guidance you gave us for CapEx to sales in the medium term, how can we pick that up being split between mobile and fixed, yet, for example, what would be a sustainable mobile CapEx to sales ratio in a mature European market in a few years' time?

And the second question, at the Investor Day you indicated that in France PSTN line loss was slowing down. But looking at the numbers it looks like it might have even picked up in the fourth quarter. What gives you confidence that this line loss slowdown will happen, particularly, as you push naked ADSL? Thanks.

Okay, [inaudible] on the CapEx to sale ratio. First just to take into consideration that in the U.K., where the coverage in terms of 3G is the most advanced amongst the European countries, we are at an 80% CapEx ratio to sales. So I don't say this is an indication as a whole for everywhere, everybody.

But you see that when you exceed both the network sharing agreement, which is before even sharing part of the network with others, so you see that even through our own levels, once the coverage is more or less done, we can be below the 10% that, by the way, have been announced by Vodafone for their European countries. So this gives you an indication of where we can grow out the coverage with, let's say, 90% or 95% achieved.

As I mentioned in my presentation, the only number which is regularly published is the number of fully unbundled lines, which is only part of the landscape. What we see is that a lot of people who are moving to full unbundling are coming either from partial unbundling or from pre-selection. And in both cases there were already [not] clients any more from the PSTN business of France Telecom.

So it's probably in excess of two thirds of the full unbundling which is coming from these two areas, which is the first point of my answer.

The second point is don't forget that the number of lines has been increasing.

And the last point is we're making wholesale business. So, so far, we feel comfortable. There is no evidence. It's going on, but at a much smaller pace than what we could [see] when you look just at the unbundling -- full unbundling figures.

I think this issue is very important because we come from publication of the statistic, which gives number of people who leave France Telecom as subscriber. But you have no measurement of all the other numbers, of all the other moves; the people who come back, the people who come from partial unbundling to full unbundling. And all these numbers are not known.

If you look at the mobile market, in fact, you have the churn rate which shows how is the washing machine is running. We are not yet at the washing machine of the fixed network, but we are going in this direction, which means that the number which are now published, in terms of numbers of customers who leave us, don't give you a precise picture of the landscape.

What happens is, at the same time, you have these people who leave. You have new lines with ADSL connection. And that's the reason why we say it's slowed down because, in fact, we know that with a lot of new offers we have old customers who come back or people who are not with us come back. And I am sure that in the future you will have statistics which will be very different which will give, in fact, more or less the churn rate of the Fixed business. We are in between.

But obviously when the [analytical] regulation will be over, we will have different partners who share the fixed lines, and we will have movement among all the TelCos. That's what will happen. What we feel now is that we are entering this period.

Okay. Who has the mic?

It's David George from Credit Suisse. A couple of questions. On the cash flow payout ratio of 40 to 45%, if I look at what you've said today on cash, tax and the CapEx to sales medium term, it suggests you expect cash flow to remain pretty robust. Is there some point at which you would consider revising -- obviously upping that payout ratio? Is it when you hit that 2 times net debt to EBITDA target?

Secondly, on convergence in the Swiss market, do you plan to invest in unbundling in Switzerland this year as that becomes possible?

And finally, on the U.K. broadband market, one of the slides mentioned consolidation possibly in the U.K. Is that something that you would proactively get involved in?

Okay. Three questions. First question, regarding cash flow?

I think you are asking us the question that no one of our peers is answering, what should happen beyond 2008. So we are giving you an indication of the situation for 2008. It is true that we expect the cash flow to be strong after 2008.

We will make all the necessary operational efforts to succeed in that. And at that time I think it will be the right moment to decide upon the split. It's true that one wants the level of debt cost at the level of [2]. There are a lot of possibilities to decide upon the use of cash at that time.

And we will be more than happy at that time to give you good news, but not today. You have to wait a little bit. There was another question?

Sanjiv?

As you know, in Switzerland last three years, we have gained -- we have grabbed share from both Swisscom and [Sunrise] steadily. So that business is doing very well. We would like to see unbundling happen so we can enter, but with the right structure so that we can provide a convergent offer to our customers. But as a Mobile business, standalone, it keeps on doing very well, just like in Belgium. We are gaining share and we are growing faster than the market, so we're very [satisfied with that].

[Steve Moore] from [Barrett's]. I'll just go for one question, if I can. Can I just come back to the gross margins in the U.K.? It seems like -- we accept the fact that bundles and growing and increasingly popular, but your major competitors, O2 and Vodafone, aren't seeing as much gross margin compression as you saw, I think, in the second half.

Do you think you've got anything wrong on the bundles you're putting into the market? Is there anything you can do in '07 to improve them, to bring back the gross margins to where they've been, or is it just a function of more minutes [landing] off network as the bundle sizes get bigger? Thanks.

I mentioned that there were two effects on the margin evolution, one was this cross-net or off-net effect. And I guess that this is something that is probably in the order of magnitude that you see coming to the market.

The second was about customer investment. And I explained that the reason why we have more customer investment is probably because that on the second semester we have been, on a constant basis, number one on market share for bundles above GBP35 a month. And obviously these bundles are commissioned more than the others. So we have been playing the value game. And that is why this explains the increase in customer expense.

Okay. Next? Sorry, the other side.

Hello. It's [John Davis] here from Dresdner Kleinwort. I've got a couple of questions around the network sharing area. So, first of all, how did you end up picking Vodafone to be the partner in the U.K.? Did you talk to other people and what did they bring in particular which was exciting for you?

Secondly, would you ever consider doing a network share deal here in France?

And, finally, in the deals that you have signed, what sort of change of control provisions are there in that. If your operation or the operation you're sharing with changes ownership, what happens? Thank you.

So, management share deal, I remember that [Vivec] at the Investor Day said that you need to be two to tango. And obviously you need to be of the same size. So I think that's more or less, depending on the situation on the market, the two operators that have -- except 3, that have some similar rollout plans about 3G were Vodafone and us. So that's why, at the end of the day, it was the result. I'm not -- so I think that really you need to have a look at it on market by market basis.

If I might just add, nobody else has a 3G network besides us and Voda of any of these [number of sites]. So bringing in whether it's O2 -- 3 does, but they don't have a 2G network. And they're riding their 2G traffic on us. So whether it's 3 Mobile or O2, they're very, very early in their 3G network evolution. So essentially that would just be taking our network and giving it to them.

And Voda has a comparable network to us, although, we have a higher population coverage. So that seemed like an almost deal of people that are [parity]. That's why we picked Voda.

To give you the answer for France, because we have no partner to tango in France potentially. [They believe it].

There is no change of control [inaudible].

Next one? [Inaudible].

Jacques de Greling, IXIS Securities. I have three questions. First one, could you help us to understand which kind of line losses you expect for 2007 to 2008; staying stable, increase, [over]?

And second question regarding the chart on slide 65 regarding mature markets, you seem to imply that the pie is bigger. Do you expect an increased revenue base for 2011?

And, finally, an accounting question. You have split the goodwill and allocated it to various divisions. You have allocated EUR12b or EUR13b, in fact, to the Personal France division. Could you remind us to which acquisition this goodwill relates? Thank you.

Sorry, we didn't catch your first question.

Your first question disappeared in the voice of the mic.

The line losses, sorry, what kind of line losses do you expect; stable, increased or lower?

France or -- France.

Again, the question is what are you talking about? Are you talking about unbundling, full unbundling, partial unbundling? We expect that the rate of unbundling will probably stay the same or maybe a bit slow down. I think what's probably more important is the rate at which naked ADSL will pick up because unbundling now is going to smaller [NRRs]. So the ones which are [get] unbundled are smaller than the ones before. So we don't believe the rate will increase a lot.

But talking about loss of lines is, again, a switch between partial unbundling to full unbundling, pre-selection to unbundling, what goes to naked ADSL and so forth. Again, we don't expect any major change. And if anything happens, we believe it's going to be much more a slowdown than anything else.

Regarding your accounting question, it would be maybe a little long to give a detailed answer. Just maybe to remind to the [inaudible] that after the acquisition of Orange by France Telecom there was a reverse recover to include [inaudible] into Orange, and then to list Orange. And this is where the goodwill from Orange France has been created.

You are right, if it has remained 100% owned by France Telecom for all of the time, no way would we have created this exposure engineered at that time.

And your last question, it's true that the [base] figure for the major market in 2011, because it's clear that you expect that both New Services and Internet will bring additional growth in the years to come.

That's the last question because after that we have to move.

Yes. Good afternoon. Javier Borrachero from ING. Two questions, if I may. One, in terms of taxes, on top of the EUR6.5b of deferred taxes you have on the balance sheet, my understanding is that you have probably other tax losses not recognized in the balance sheet. Maybe you can comment on what would be potentially the amount of these tax losses and maybe some timing in terms of when they can be activated and used.

And my second question is regarding the headcount reduction plan. I'm not quite sure if all these different schemes that you've thrown up for this year, if they've already been implemented. But maybe you can give us some sort of indication of the level of acceptance and take-up of these plans or if you're confident to meet the guidance of headcount reduction.

Thank you. On the tax?

On the tax, it's true that we have included within the balance sheet EUR6.5b. And there are about EUR6.5b not recognized in the balance sheet as a kind of not-recognized asset [for the future]. This is because we have chosen to take a timeframe which is, depending on the countries, but [in general around] five years to consume the tax assets over the period. So you see that rate more or less on the same level. There is another five years, let's say, or four or five years on top of the five years which are accounted for in the balance sheet.

And also to keep in mind that, either in France or in Spain, we will not pay tax before 2012 based on this timeframe.

And the second question concerning the headcount evolution. First, of course, I will [leave] the floor to Olivier who is in charge of this program. But I would like to recall you that if you look at the -- my conclusion with all the segments, you can understand that the jobs which we need the Company now and in the future will be quite different from the job we had in 2002. The business is quite different. And we have to transform the population we have with -- according to the new jobs.

And the program we have consists mainly in this transformation. Of course, we have to hire new talent, because when you think about the very sophisticated software which we need, we need new people, and at the same time we have to transform the people and to train the people we have to make them fit with the new type of activity we have.

And, in the middle of that, of course, we have all the solutions for people who don't follow us, who want to retire early, who want to make a lateral job or, perhaps, to create a new company outside France Telecom, and then the collection of procedures which we have. But we are very confident due to the fact that we have already achieved one half of our provisions in terms of reduction of headcounts during the first year. But the process we have now will allow us to be on track for the end of the 2008 period.

But, Olivier will be more precise. Olivier?

Yes, we are fully confident in our forecast. And we confirm that we foresee a net reduction by 17,000 headcount, out of which 16,000 in France.

In '06 we have passed ahead our forecast by 500 people, meaning that we are running ahead. Some momentum has been created in the Company, as far as training is concerned, and also as far as external mobility are concerned. We need to make in two years, '07 and '08, what we have made in one year, in '06. So we are definitely confident.

Okay. Thank you. So I will conclude there. I would like to thank you very much for attending this meeting.

I try to organize the agenda so that you get some information about the evolution of our business model. The evolution of our business in the markets in which you are, perhaps, you have in mind some questions. And I understand that you raised a lot of questions concerning Spain and U.K., so it has been successful. All the other head of countries are here on the first floor of this room.

But, at the same time, I was willing to reassure you that the strategy which I have presented in '05, it's not only worked, the percentages are shown on the graphs, it shows that already now we have a significant business on the new activities, on the New Service and on the Internet which will, in fact, allow us to have a more balanced activities in the new world. And that is the reason we are very optimistic about what will happen in 2007. And probably after that we can have better news for the following period.

Thank you very much for your attention and for your attendance. For those who have not yet [inaudible], this building is still open to show you the Spring Collection.

Thank you.