Orange SA (ORAN) 2009 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to France Telecom's first-quarter 2009 conference call. The call will be hosted by Gervais Pellissier, Group CFO, with members of FT's executive committee for the question and answer session that will start after Gervais Pellissier's presentation. Thank you and I will hand over to Gervais Pellissier. Please go ahead, sir.

Thank you very much. So good afternoon, ladies and gentlemen. Thanks to all participants for joining us this afternoon. I'm pleased to welcome you with my colleagues from the Group Management Committee and my colleagues who are the country heads for the presentation of the first-quarter 2009 results for France Telecom.

Let me comment on the key points from those results, so I don't read the cautionary statement as usual. But I guess everybody has it in mind, and I would like to start with page four.

The main figures as usual that we present to you regarding the main KPIs will report on a quarterly basis. I remind you that according to the French reporting scheme, we don't report a full P&L on a quarterly basis.

So first of all, my main comment is on the revenue. Noticing that in spite of deteriorating environment, first-quarter results confirm our view on the year, and as mentioned, in March for the full-year results, Q4 trends showed some sign of slowdown that has been confirmed in the first quarter unfortunately as expected. So in spite of a difficult economic environment, group (inaudible) revenue gross of 0.4% in Q1 on a comparable basis with EUR12.7 billion revenues.

Most of the regions where we are present are now facing economic deterioration, except France which continues to be resilient. Resident performance of our domestic business plus 2.1% gross in Q1, and I will come back on that, compared to 1% in Q4 and in the enterprise segment with a slight growth of 0.4%, even if it is slowing down compared to previous quarters.

Emerging market performance is, in fact, quite differentiated from one country to the other, and there's no global trends. Even if some countries are impacted by the economic downturn, some are still growing at a very high space, and some of those are more impacted by social or political crisis not by the world economic downturn.

As expected, our EBITDA has decreased by 4% at EUR4.3 billion with an EBITDA margin rate decline of 1.7 points compared to a year ago. This is mainly linked with lower revenue growth but also with higher costs in terms of inter-connection linked with the development of unlimited offers. This is also linked with the increase of content costs, which are now in the run-rates. We now have the full run-rate of our content investment on a quarterly basis, which was not the case in the first quarter of 2008.

CapEx at EUR1.2 billion decreasing by a little less then 16% on a comparable basis. We are, however, to exclude from first-quarter 2008 figures a little less than EUR150 million real estate purchase, and if you compare apple to apple what has happened, the decline of CapEx is emitted to 6.5% with a CapEx to sales ratio going down from 10.4% to 9.7% in the first quarter.

The level of operational cash flow measured as EBITDA minus CapEx has increased by a little more than 1% in comparable terms and is quite stable in historical terms.

On page five some comments on the revenue, global picture of the revenue. You remember that we have been using the comparison with the GDP since the release of our third-quarter results, and what we can observe today is that the gap between GDP trends and our revenue trend is slightly increasing with better relative performance of our revenues compared to the evolution of the GDP. Unfortunately, and we were expecting that, GDP is decreasing now starting first-quarter 2009, and this will probably continue if we believe IMF forecast has recently published.

This resilience, as I said, is mainly coming from France and from the enterprise business. We see, however, more negative or more let's say worrying trends in Spain, in Central and Eastern Europe and, in some emerging markets, as I mentioned, even if it is not a global trend for emerging markets.

On page six you have the detail of the revenue evolution for our reported segments. You remember also and there was, by the way, I guess most of you participated in the call last week where we presented the new segment reporting for group, which is now split by major countries or major regions, and you have here the revenue evolution for those major countries and regions.

The first comment I would like to make on this slide is the impact of Forex. We have been mentioning, if you remember, on March 5 that we would have an impact of Forex on our 2009 performance. This is already the case in this first quarter with more than EUR500 million revenue lost just on two countries, Poland and UK, because of the weakness of the British pound and of the Polish zloty.

The second point to comment, growth coming from France, we saw growth on the mobile -- I will come back on that. The situation in the UK in local currency, which is more or less at par with what we have observed in the last quarter of 2008, more deterioration in Spain where revenue decline has accelerated especially for mobile in this first quarter of the year, and relatively a good situation in Belgium which is afterwards.

Regarding Poland, also a situation more or less like in Spain with an acceleration of the negative trend for mobile. We will come back also on that, but I guess most of you have also observed and listened to the results published by TP Group yesterday morning, so you know already what is behind this. Regarding the rest of the world, I recommend this back again. This is quite a stability we observed, plus 0.4%. It is the result of very different situations, even if in terms of trends, we had say we have seen some growth in Africa and Middle East and rather a difficult situation in Central Europe.

Enterprise at plus 0.4%, as already commented, and we will come back on that, and ICSS where most of the revenue is coming from our activity as international carrier, and there is still some growth affecting the dynamism of internal exchange in terms of telecommunications.

As we go to the profitability, I already mentioned the Forex impact on the revenues. There is also a strong Forex impact on the EBITDA with more than EUR120 million deterioration of the EBITDA linked with the currency effect just in terms of exchange. It does not include the parody effect, which is included in the P&L of the countries themselves. So in a sense, when UK is paying at more expensive price its terminals, Poland is paying at more expensive price its network equipment, it is included in the P&L of the countries themselves. So there is a second effect of currency, which is within the P&L of the countries and which is directly impacting the margins in some geographies. But if you just take it in terms of accounting the EUR120 million and then we have more than EUR240 million increase of our banks, partly linked with what I just said for instance in Poland and the UK, but also linked with higher interconnection costs and higher content costs.

If we have a look on the cost structure of France Telecom for this first quarter, I think the picture is a mix of good news and of signs we have to take care of. If I take the good points and good news first, labor costs are clearly under control, we fully benefit from the manpower reduction which has been connected in the group until the end of 2008, and this base in terms of improvement of the cost structure of the Company now at 17.8% of the revenues, this is a good achievement. Also, I think points which in my view are positive, this is the good control of the other IT and network costs, even if it is not fully reflected in the results themselves. Most of the increase, and it is not written exactly on the side, is also linked with a storm we had to face in the southwest of France, which has cost us a little more than EUR30 million in this first quarter.

So except these exceptional items, those costs are clearly under our control. I would say I think we have to pay more attention to the G&A where, in fact, there are two or three negative items impacting our cost structure. First of all, there is a slight increase of the bad debt, especially for the B2B segment. We have to take care of an increased number of mainly small and medium-size customers who are facing difficulties to meet their contractual requirements.

The second item, even if it is small for this first quarter, we have taken the first hit of the famous French TV tax, audiovisual tax, which has been accounted for early March, so we have one month of tax. The full impact for the year should be around EUR90 million, and we are currently working with our colleagues from marketing and from France on how to get some balance, some offsets of this tax as are delaying some type of decrease or maybe to accelerate a few tax increases on our business in France both for the consumer business but also for the B2B.

Then if I come to the last line, which are commercial expense and content costs, I must say that in spite of the apparent increase, our feeling is that those costs are clearly under control because soccer and cinema rights are clearly exactly at the level we were planning. And now, as I just mentioned a minute ago, they are in their full running rate for the Company, and regarding the commercial costs, in spite of some pressure in some geographies globally speaking, most of the increase is still linked in terms of comparison with the subsidy of 3G and smart phones, which were at a much lower level, including the iPhone in the first half of 2008 where we did not have a subsidy, especially for the iPhone.

In terms of CapEx, so I already mentioned the real estate operation done in the first quarter of 2008, so we have to compare EUR1.3 billion spent in '08 with the EUR1.23 billion spent in '09. We said on March 5 that we would immediately prioritize our CapEx and that in order to adapt to the economic environment, we would adjust our Ex spending. This is what we have been starting to do since the beginning of the year, and the CapEx prioritization is now operated in every country. In order to ensure that we don't cut, we tried to minimize the risk. I don't say we have fully got rid of it, but we tried to minimize the risk of cutting CapEx that could be necessary to the future development of the group. This is our main purpose.

But we are also seeing, and it is already the case in Central and Eastern Europe, that because of slower growth in traffic or even sometimes stabilization of traffic especially in the consumer market, we have less need to increase capacity in some parts of the network.

You have also noticed this morning that we have announced that we have repurchased the minority stake into France Telecom Spain, so this has been announced this morning. And just to mention that it was something we had to do linked with the initial shoulder agreement signed in November 2005 with the remaining minority shareholders. And after several weeks of negotiation, both parties have agreed on a repurchase price of EUR0.83 per share to be compared to the EUR0.91 that we have defined as a reference price in the liquidity mechanism. So the total amount paid by the group will be EUR1.37 billion instead of EUR1.5 billion, which would the reference price we had in the shareholder agreement.

You remember also that more than EUR810 million were already taken into account in our debt at the end of '08. So the impact of this transaction on our 2009 net debt will be the difference between the paid amount and EUR810 million, which means a little less than the EUR600 million.

I now switch to the operational performance by country, starting with France on page 12 -- excuse me, on page 12, and to mention that revenue growth remains very strong, especially on mobile at 7.4%, and that the decrease of [Home] business remains so-so as expected at minus 1.2%.

To give a little more details on mobile, as you see on the slide, it is linked with the increase of customer base at 25.1 million customers at the end of March. It is also an increase across our data revenue with an addition of more than 100 million of non-voice revenue on the period. That revenue is now 25% of service revenues.

Regarding the fixed business, the good news is that now on the retail market of the consumer market, Internet revenue growth is big enough to offset the decline of PSTN, and we come back on that in terms of number of customers. And if there is a decline, it is coming from the wholesale activities impacted by a regulatory price decrease on the (inaudible).

You have the operational performance on the next page 13, and there are two or three points to mention. First of all, there is a strong contract net adds in terms of mobile, a good residence of PSTN. Some market share from mobile has increased by 0.4% with continuous development of MVNO. Now MVNO customers are representing 7% of the total customer base for us and a little less than 2 million customers.

Second important fact, contract customer base is continuing to increase by 3 points year over year and represent now more than 68% of our customer base, and ARPU has been growing on the period with better ARPU growth by 23%, mainly increased by usage compensating the decline of voice ARPU in the same period.

For the fixed line, the French market is still a growing market with more than 2% growth of the total number of copper lines on the French market, and DSL market share is slightly decreasing in a slowing market.

Regarding the number of fixed line, we can also mention that first-quarter 2009 is really a strong achievement in terms of preserving the base. We have lost 200,000 lines, retail lines. We lost more than twice this figure, two times this figure in 2008 and four times this figure in 2007. So you see the slowing down of the erosion on our copper line base.

The last point, this is the continuous development of TV, of multiplayer, especially IPTV. We have a little less than 260,000 net adds for IPTV and satellite TV on the customer base, increasing usage of video-on-demand multiplied by four in one year, and additional pay-TV subscriptions for our Orange channels with more than 233,000 net adds in Q1. This is 53,000 additional net adds compared to the end of February results to achieve now 363,000 pay-TV subscriptions on the French market.

UK, as I said, the situation in the UK is rather stable compared to what it was at the end of '08, in the last Q of '08, with a slight revenue growth on mobile, 0.4%, and, however, still some difficulties on the home market. Regarding mobile, the non-voice revenue is growing by 3% but with now a strong increase of data representing now -- those revenues are representing now also like in France more or less 1/4 of the total service revenues.

To come on the operation KPIs for the UK, we see a continuous move from pre-paid to postpaid with a 10% increase of the postpaid base linked with our strategy to focus on value to increase direct distribution as we presented it on March 5. And we see also, by the way, that even on an economic downturn, a lot of customers are preferring to take mostly fee subscription, which is stable and where probably they pay less than remaining with the prepaid contract.

Regarding the ARPU as continuing -- as in growing again, we use a strong push from data ARPU, (inaudible) ARPU, which has about 20% growth.

Regarding the equipment of customers, the 3G base has increased to a little less than 4 million customers with 230,000 new USB dongles sold in Q1 '08 compared with the 60,000 sold a year ago.

On the fixed business, we are continuing to concentrate our investments but also our customer investments on the unbundling investment we have already done with more than 45% of our customer base on our unbundled sides compared to 37% in Q1 '08.

As regards Spain, I mentioned that revenue has been declining, especially in mobile with a 5% decline. We think that our colleagues, our peers have not published their results yet for Spain, but we think that our performance should be better than average on the market, which is suffering for more -- one of the markets suffering more in Western Europe because of the strong impact of the economic downturn on the household's consumption.

Mobile revenue down by 4% out of reach. In fact, I said out of reach 4% is coming from the regulatory impact, but you have also a significant slowdown in usage growth, partially offset by a 3% increase of the customer base.

Mobile non-voice revenue has actually shown a significant increase, 16% increase in one year, and regarding the fixed business, revenues were up by 2.4%, mainly driven by the increase of wholesale revenue hubbing, but also supported by the increase of the broadband DSL revenues.

In terms of operational indicators, you see on page 17 that quarterly net adds of 52,000 customers are mainly driven by contract net additions. In Spain, like in the UK, like in France, the postpaid customer base is increasing. There is also there the impact of the -- if all done, to improve our distribution channels and with moderate and light distribution like in the UK.

Contract customers now represent 57% of the mobile base, which is 2% more than in Q1 '08. In Spain, however, mobile ARPU has been decreasing because the increase of data has not been sufficient to offset the decline of voice because of the strong impact of the termination rates has reflected in the figures you saw.

On the fixed side, the 4.2% of the (inaudible) ARPU is mainly driven by increased usage of value-added services among, for example, Voice over IP like voice and IPTV as reflected on this slide. You see that 8.5% of the customer base is using IPTV, and 30% is using voice over IP, which is one of the strongest achievements for an alternative player outside of France.

Poland, so TP Group published their results yesterday with a revenue decline of 4.7%; regulatory impact for mobile, but also an intensification of competition with descriptive DSLs from the fourth player on the prepaid market, which has obliged most of the other players to the act, and this explains this will be affected on page 19. This is one of the reasons for the loss of prepaid customers as reflected on page 19. This also explains why the mobile ARPU is down because of the regulatory and price pressure I just mentioned.

On the fixed business situation, it is far better than a year ago with less erosion. Erosion has been contained below 2%, and this is mainly due to the solid revenue growth of broadband with more than 12% revenue growth.

To look at the operational indicators for Poland, so I already mentioned the evolution of the mobile customer base with an increase of the contract base like in any other free country we are managing, but unfortunately a strong decline of the prepaid base, which has an impact on the revenue as I described.

Regarding DSL retail access, there is an increase of 7%, and TV access and TV client base has been multiplied by four in one year, and the number of fixed line is eroding at a lower base than what was done a year ago.

For the other countries, on page 20, the situation, as I said, is quite diverse with Africa and the Middle East growing 5%, mainly triggered by Egypt and Botswana, which still post double-digit growth, and a good performance in the incumbent -- in most of the incumbent countries, especially Senegal, Mauritius and Jordan. Some worries because of the political or social context in Madagascar or in a country like the Dominican Republic, which is growing a lot from a decrease of tourism, and I would say a more constructive situation in Europe. Some countries like Belgium with good revenues, not far from France, 2.5% revenue growth. However, more difficulties in Romania, which is one of the countries highly impacted by the economic slowdown, and our revenue has been decreasing by 14% in Romania, credit stability in Slovakia and some decrease in Switzerland.

The last point maybe to mention, this is a strong increase of the customer base with 21% increase of the customer base for those countries and a strong increase of the DSL customer base, plus 60% in one year with a strong development in Africa but also in Europe. In Africa we are now above 100,000 customers and more than 260,000 customers in DSL in total in those countries.

Last, and it needs to be commented, is enterprise division, with plus 0.4% organic growth, which in our view is a very good performance and especially if you compare it with the performance of our peers in the B2B segment as it is progressively published on the market.

What do we observe? First, legacy businesses are resisting better I would say because we do a good job, but also because of the economic downturn where some corporates are delaying the migration they may have plans, so we keep more traditional revenues.

Regarding the advance business network and the extended business services, we observe still some growth with more than 6% for our other business networks and 9% for services, which in our view is a good performance as reflected on this slide.

Page 22 is giving some operational indicators for the enterprise division. (inaudible) IT connections are continuing to increase at very high rates multiplied by more than 2.3 year on year. Business everywhere is still increasing in terms of access with a little bit more difficulties for the revenues generated because of the decrease of homing and go ballistic in the increase of homing is affecting all countries in all segments B2B to B2C, and IP VPN is growing but at a lower base. And one should insist, and this is what we said on page 22 on the need to continue to improve and to strengthen the quality of service, which is a key advantage if you don't want to fight only on prices, whereas some of the corporates are trying to negotiate their contracts.

What is now the outlook for the rest of that year? I shall be even more careful than what we said in March. Why? Because global economic visibility has not improved. If I just take the figures from the IMF, we are basing our reasoning on since Q3 2008 IMF was forecasting a GDP decrease of 1% for our footprint. There Q1 estimate is at minus 1.7%, and now the full-year forecast is at minus 2.5%. So in three months, economic downturn has been increased by 2. That is the pace of economic downturn is 2.5 times what was initially expected to be. And this in our view shows the risk and let's say the difficulty to make forecasts in terms of volume of activity. So we tried to adapt, and this is what we have been saying to you on March 5.

We realized that we take the necessary measure to adapt. So what do we say today? We will not say more in terms of forecasting guidance. That is what you've got on March 5 on revenues. We see deteriorating trends, but we confirm our view is that we will be better and remarkably better than GDP as expected already at the beginning of the year.

We also confirmed the pressure on the EBITDA margin that was mentioned at the beginning of the year and which we observed in this first half. The good news is that the group is well prepared to answer to this situation with marketing answers to boost the top line to keep the market share, and my colleagues may comment on that if you have questions.

And as we say on page 25, there are a couple of actions. So on the revenues, marketing, but OpEx reduction programs, which have been launched since the beginning of the year. The strong prioritization and piloting of our CapEx spending, and this is a slight change of guidance we give to you. You remember we said early March that we would guide the CapEx between 12% and 13% of the revenue. Today we consider that we will be slightly below 12%.

We explained in March that we have about 20% flexibility in our CapEx, 10% reliable result optimization and 10% depending on the activity level. We observe in some countries that activity level is lower than expected, and as most of our competitors, we will adjust our CapEx to the activity level. And you remember that we have introduced now for three years a methodology to prioritize our CapEx, and we are clearly using that very strongly this year, not to get at the same result level all CapEx whatever or wherever they are. So we're trying to be a little more subtle than just a general cut on CapEx to try to prioritize to see what is necessary for the business of today, what is necessary for the business of tomorrow, what is necessary for the business of the day after tomorrow.

Last but not least, we are rolling out our Orange 2012 ambition in all countries, especially with the actions to transform our processes and to optimize the cost structure. You remember the gain of EUR1.5 billion we expect at the end of 2011 both in terms of CapEx and OpEx, and we will give you more details on that with the first-half results where we will present to you a status of where we are on the Orange 2012.

And this is to confirm to you, and this is my last message on this presentation, to confirm to you our cash flow guidance for the year at EUR8 billion, which is the same level than what was achieved in 2008. So a confirmation of our cash flow guidance at EUR8 billion.

Thank you very much, and I am now available with my colleagues to try to answer to your questions.

(Operator Instructions). Nicolas Cote-Colisson, HSBC.

I have got two questions. The first one is on your strong performance in enterprise. I would like to know if you could give us a bit more color on the market share trends in France and outside France and how sustainable that trend is?

My second question is on the minority buyout in Spain. Does it change anything at the operational level? I mean is there anything you can do now with that minority that you could not do before?

So regarding the enterprise division, clearly we keep a strong market share in France. I don't think we are decreasing our market share. Outside of France I think the situation is in my view maybe slightly favorable in the sense that some of our big competitors are in, I would say, in a mixed situation whereas of the announced collectively poor performance and they have to take care of their margins and their cash flow at a broader extent. I may not mention the names, but I guess everybody understands who I'm mentioning. But even some of the solid performers are in this situation.

So on one hand, we see less commercial aggressiveness from these people, but on the other hand, we still see some crazy behavior, especially from operators of our fleet coming from the other side of the Atlantic. So based on that, I think there is a slight improvement at the current period. We are also very careful, and this revenue evolution is not done at the expense of the margin.

Regarding Spain, there is clearly no change on the operational management itself. Now there could be a little bit more flexibility for tax optimization for instance.

James Britton, Nomura Securities.

I have got two questions, please. First of all, I understand that you said the margin pressure in the second half may actually be slightly less than in the first half. Can you explain why this might be the case given that regulatory pressure on termination rates should actually be quite a lot greater than in the second half and if you know what pressures will probably be worth as well?

And then the second question is on your pricing strategy in Spanish mobile. Can you explain what you hope to achieve with the new tariff plans that you launched this morning, which seem to offer abundant usage (inaudible) at very hefty discounts to current prices? And just on the fixed line side of Spain, what can you do to limit the EBITDA losses in that business?

So I will take your first question and I will leave Jean-Marc Vignolles, the CEO of Spain, to answer the second question.

Regarding the margin pressure, my comment is just fact-based. I have no clues on the future and on the trends. What I can just mention is that we will not have in the second half in terms of comparable basis the impact of content at a much lower extent and the impact of iPhone subsidies. Which means that when we compare apple to apple the second-half margins of '09 with the second-half margin of '08, it is about between 0.7 and 1 point impact just because of those two reasons. So it is just fact-based, and you should not -- I'm sorry if I have not been speaking clearly, but there is no intent in my comments to commence future trends, so future trends I'm very careful on the revenue. I would be as careful on the results of the revenue on the margins. Jean-Marc, if you want to comment on your pricing strategy.

Yes. Also, we launched this morning and particularly the [rent] is a similar matter, which is basically a reply to our competitors, our main competitors, Telefonica and Vodafone on this market segment, and this is a postpaid similar offer available only on the Web, and this is a differentiation offer to our competitor. And with including also the 10-year commitment from the salesman, the 10-year commitment from the customer, which is also a difference for our competitors, and this is the reason why we have been able to foreclose on two of our main postpaid type plants more or less this discount to our first competitor. It means the web alone distribution and this customer commitment.

As far as profitability of the big business is concerned, we are improving, and we are improving basically the things, and our efforts to improve are based on the growth of our unbundled customer base in which we have seen you have grown as well as the customer base. And we also focused our efforts on quality of service and quality of sales, quality of service enabling to reduce significantly our customer service, customer care costs.

Damien Maltarp, Credit Suisse.

I have got two questions. Firstly, in terms of EBITDA, I hope you don't give us a split at the Q1 stage. But at least directionally, can you give us any indications as to which of the operations if any are perhaps doing better or perhaps worse than you have been anticipating?

And then secondly, looking at French mobile and data growth, it is really doing quite well there. As the revenue mix changes more towards data, how should we be thinking about the gross margin changing? Because I guess the data you ought to have less termination costs, but maybe you have higher content pay. How should we be thinking about the gross margin shifts as data increases as a percentage of your revenues?

So, since you said we don't give the EBITDA by segment or by business at this stage, so I will not answer to a question we have decided not to answer. However, to give you probably a true indication, it is clear that the countries which are suffering from a strong revenue decline or a strong revenue pressure have more difficulties, even if some of them are more flexible in terms of cost. So it depends. I would say the mobile only operations have some flexibility. The fixed and mobile operations where they are suffering revenue declines have a little less cost flexibility. So there is an impact clearly where revenue is suffering. This is what we observe even if it is also a diverse situation. I don't think all geographies are exactly the same situation in terms of EBITDA rates.

Regarding France the situation is a little more complex than you describe because clearly we gain in data revenue, and it is true that our revenue has no termination rate. However, we are still and we will face a decrease of voice tariffs with more unlimited on voice and more unlimited on SMS where there are termination rates. So the balance between with what we gain regarding data in terms of margin rates and what we continue to lose on voice and SMS is not so clear to be positive I would say in this full year. There is not such a shift that we can achieve a positive balance.

Frederic Boulan, Morgan Stanley.

A couple of questions, please. First of all, if you could update us on the (inaudible) situation, if you are planning to do anything on the effort to secure control of the assets, and what kind of timing you are thinking about?

Second, please, come back on the margin question, all of the drivers with our (inaudible) potentially self, we capture labor costs, and so can you come back on the initiatives and implement to address this deterioration? And if I understand well from your Investor Day in March, you are now target around EUR260 million more CapEx reduction, which I believe is there to offset EBITDA pressure. Certainly if you can come back on Spain, very sharp slowdown in Q1. Can you come back on your explanation or your understanding on Company-specific slowdowns or market dynamics and if you can confirm how you see yourself performing versus competition on the mobile side?

I will answer to the second question on the margin and on the CapEx and leave Jean-Yves Larrouturou to answer on the Egyptian situation and Jean-Marc on Spain to come back on Spain more precisely.

Regarding the margins, I think, first of all, I would not say I'm surprised by your question, but France Telecom has been blamed for years for not being able to reduce its labor costs. So for once, we are able to achieve labor cost reduction; let's be pleased with that. That is my first comment.

I think at least when I took my job I remember a comment from most of you and your incredibility when -- or your lack of faith in our ability to reduce those costs. So we are able to reduce them, and I think in my view to a certain extent to reduce the other lines will not be as difficult. So I have some hope we will be able to reduce them.

What we adjust is a question of timing. As I discussed, it takes time. You cannot get cards from one day to the other. And this is why we have launched our Orange 2012 transformation where we say we will reduce in average the cost structure of the Company by 3 points as of CapEx or OpEx but in terms of running rates to see what we have promised to you on the long run.

In the interim period, before we get the full benefits of those programs, we have to take contingency actions, and this is what we have been doing. But even with those contingency actions, we know that they will not be sufficient if you want to prepare for the future, to keep the margin rates at the level where they are today. So this is why we said, if you remember already in March, that there would be pressure on the margin rates. And honestly today the pressure is clearly in line with what we have been internally planning. We don't see more pressure. We see more pressure on the revenues that one could think we would have based on the IMF forecast generally as I have explained, but we did not see more pressure in terms of margin rates. So sorry to give this long answer, but I think it is important to come back on that. We have contingency actions, but it would be, let's say, very imprudent just to have contingency action without preparing more structural cuts for the future. Jean, maybe on Egypt.

Yes, just to say with a two word answer -- nothing new. In fact, I'm sure you read our press releases and you know that we have to strictly comply with the obligation of the CMA to avoid any comment on this thing. So you have all the information in the press releases, and any other noise or rumor or declaration is wind, and as you know, cold or hot wind is wind.

Nick Lyall, UBS.

Could I ask you a couple of questions about the fixed business, please, on the French operations? Especially on French mobile, churn rose again this quarter. Could you just comment on why that is and how you would propose to cut churn back there?

And secondly, broadband share or share add seems a little bit weak in the quarter again. Is this going to take more commercial spending maybe to solve? Could you comment on maybe the competitive (inaudible) firstly, and then the action you might take if you need to to cut these two figures back down?

Thank you. Maybe first, Jean-Marc, could you answer to the question that was raised on Spain by our previous --?

Yes. On Spain basically obviously, as long as our competitors, our two main competitors, have not published their official Q1 figures, it is early days to claim that we have over-performed the market. But the statement that was made by Jean-Yves is based on two items.

The first one is that over the past three years quarters of '08 in terms of revenue evolution, we have seen declines, a decline that was less than our two main competitors. And so we had in relative terms over-performed the market and basically we do not see in the available data for Q1, and mostly commercial data, on top of the operators data, we have the regulator monthly figures about commercial performance. We do not see any indication that those trends have changed. I think all our sectors are the same and make the economic environment that we see deteriorating.

As you know, we are impacted by the same mobile termination rate decrease. And in commercial terms, when you look at our performance and particularly on contracts and our good performance and positive performance on portability, our first-time figures, we do not see any indication of underperformance in the first market.

Louis-Pierre Wenes can answer on France, on the French mobile churn, and on the broadband market share.

On the French mobile churn, yes, it has increased a bit. Nevertheless, we are still at what we see at very good levels if we compare to our history. We think it is partially due to some disconnect, reconnect, which our clients are doing. When they are not happy with an existing offer, they switch to a number one. But they disconnect first and then reconnect, and this is accounted within the churn. So we are investigating why this is happening to bring the churn back to the level we had previously, but so far we are not worried with that. Especially because we are seeing that the trend we had all over 2008 and starting 2009 is continuing, meaning we are leading the market in terms of especially in terms of contract acquisitions due to the success of the origami tariff plans.

On the broadband market share, this also is primarily a longer story than just Q1 '09. You have to remember that during the first part of '08 Neuf and SFR were busy merging, and during the period we had market share acquisitions, which were in access sometimes of 55% in months. Now since October basically Neuf is back in the market, and of course, they are starting to compete with us across the board and also in places in the non-dance areas. So we went down, but we have put in place some plans on the promotions and segmented approach so that we are slowly coming back, and we think that within the next month we will probably be again at our normal level.

Matthew Bloxham, Deutsche Bank.

A couple of questions on the French business. Firstly, just on wholesale revenues, I think you mentioned in the call that you might see some pressure from (inaudible). I just wanted to kind of clarify what you expect to happen on our bundling rates in France, and we might get some kind of communication from the regulator.

And the second question was a broader macro question. I mean it is clear that France, your French businesses are outperforming the kind of economic trends in France. I'm just kind of wondering what it is about France that you think means that that business can continue to resist the weakening economic trends, or do you expect that your French businesses will ultimately see some kind of more significant revenue pressure from what is happening to the economy?

I will answer to your second question, and Jean-Philippe Vanot will comment on the regulatory situation within bundling and wholesale.

I think the comment from -- IMS forecasts, including for 2010, are slightly better for France than for the average of European reunion. What are the reasons for that, especially for the ISO consumption? I'm sure I am the best expert to comment on that, but I can re-observe that there is more resilience in the consumption from the households on the French market than there is in some other Western Europe markets. So this is the second point. I think it has been hugely described and repeated by [Repeire].

Our own performance on the market, especially on mobile, is clearly above for this year of all whole market performance. We have our own merits to being slightly better. But in terms of resilience, we see that will that last forever? Honestly we don't know.

What I can just mention is that the IMS forecasts are slightly better for France. Another indication is that the average level of debt of the French household is much lower than as the rest of Europe, which means that the need for savings today is probably lower than the need for savings or the reconstitution of savings we see and some other European countries like Spain for instance where the levels of debt were very high and where people are now because of the crisis creating savings again. Jean-Philippe, what you do on the wholesale prices?

Yes, on the wholesale prices, spring is spring. It means it is time for discussing as always sale prices with the regulatory authorities not only in France. So it is difficult to comment ongoing discussions.

What I just want to say, and it is not quite different from what I said during the Investor Day, just to insist on the fact that regarding particularly in bundling with the figures we have on the table regarding the audited regulatory accounts, there is no reason to expect any major changes of these prices. And, as you can see with various decisions, not all the decisions in the same direction, but the mainstream is rather in favor of, let's say, (inaudible) pressure on this kind of strife on the European level. So just be patient on that, but don't expect anything major.

Terence Sinclair, Citigroup.

Could you try and just comment on voice trends in mobile in your principal markets? Obviously seeing some declines. Is that because of some sort of substitution by other products, or do you just put that to the general trend for customers to lower per capita expense?

Secondly, I wonder if you could just concern there would not be any change in the average borrowing costs as a result of your investment in Spain today?

Olaf, could you take the first question maybe on the mobile trends for voice across our geographies?

Yes. So on voice, first of all, the trends are different this year, as I pointed out already in the beginning of the call, country by country, but in general what we see as particularly in the countries where the economic slowdown is happening that the law of customers are staying within the contract customers or staying within their bundles when it comes to voice and are reducing their out of bundle voice activity. Point number one.

On the pre-pay side, we see again it is a very general point and again different by country, but in the countries where the economic pressure is mounting, we see recharge activities on voice being impacted. And lastly and particularly on the international side, so when it comes to voice roaming, clearly this is an area that is significantly impacted across the footprint.

On the debt, bearing the cost of debt in Spain, a few comments. First of all, the remaining portion of our debt, which is linked with the Spanish asset is very small. It is probably less than 5% of our total debt, and you have been progressively replacing for the last three years local debt by group debt. Why? Because Spain is in Euro and as there is no benefit to us to isolate the local debt or to back the debt on the local asset. It is much better for us, and it is especially even better now since we consolidate 100%. We have 100% of the assets or not far from 100% to have a group debt so the growing cost of debt in Spain is not an issue for us, which would not be the case on assets which are not fully controlled in some other geographies.

Frederic Doussard, Oddo Securities.

So first, one question. So since IMF forecasts have been revised on or over last month, can we say that so probably pro forma turnover will be at best stable? That in this context are you considering that EBITDA margin decline will not deteriorate in 2009 compared to Q1? That is the first question.

And the second question is, don't you feel restructuring costs to increase in 2009 compared to 2008?

And the third question, if there is a further economic deterioration, where could you do additional savings?

Again, we have not been giving any revenue guidance now for the last two years or even seeing two years and a half because we stopped giving any guidance in July 2006. So we will not start again, especially with the ability to forecast, which is clearly far below what it was. And if I look at my colleagues as in our industry or in other industries, I see more and more people in this position. What we say, and I think we have been saying it, is that we will be clearly above what happens for the GDP.

Now based on this current GDP forecast, we think that we can maintain the, let's say, the gap we currently have with the GDP over the period, which probably will lead with something you have yourself described.

Now regarding the impacts on EBIT, again if we are in this line, there will be more or less also some pressure on EBITDA clearly in the order of magnitude, which has already been achieved up until now. This is what we have if the situation is worsening. There is clearly, and I think it is a difference with some other operators who have already introduced their forecasts, we think we have still some margin of maneuver to take care of further -- or to mitigate, sorry, further steps of worsening, especially on the CapEx but possibly also on some OpEx. But now, and I think it is a difference between what has been said or written somewhere, we have not done yet things which are damaging to 2010 and 2011 business. Clearly if things are clearly worsening again and if instead of minus 2.5 GDP decline for our footprint, it is a 4% decline, we will have to take additional measures but so far probably some damage on future opportunity. It is not the case today with what we see in our plans.

Okay. And you mentioned that 10% of your CapEx is available.

Yes.

It is available for how long approximately?

To answer to that question, I think there are two things we don't master today. First of all, the CapEx is a question of competition and competitive position, which means that if all your peers or most of your peers are also delaying your CapEx, then there is no impact on your business at least on your relative position. This is what we think.

So until -- I don't know exactly what the others will do country by country, it is sort of difficult to answer. But my feeling today is that at least for the big players, they are also delaying their CapEx, and for the small player, it is even worse because most of them are highly leveraged. So they are doing crazy things in terms of pricing, which does not concern immediate cash at least in their immediate cash spending. They have less revenues, but they don't consume so much cash when they decrease their prices. But my feeling is that they will not decrease their CapEx. So that is one point regarding the CapEx evolution.

The second point, and maybe some of my colleagues can complement my answer, what you observed in terms of raises is impact on the traffic. The beauty of people is also that they consume less than what we plan and in some countries less than that what they were consuming. So the investment in capacity can be also delayed. Now what we are planning to attend, we will see where we will be at the end of the year.

Jerry Dellis, JPMorgan.

Two questions, please. Firstly, on the UK, obviously revenue trends were pretty resilient in the last quarter, but for how long do you think the UK business can remain resilient? Thinking not only about topline trends, but I recall also that the UK margin was particularly good in the second half of last year.

And then just taking it back to Spain, I'm just interested in what you think the impact of the new Basico tariff will be on the profitability of Orange in Spain, obviously mindful of the fact that escalating off net traffic seems to have been margin dilutive to the French and UK mobile businesses in the last period. I guess you have some feeling from the promotional activity of -- Telefonica and Vodafone as to exactly how hard you're going to have to be pushing this new tariff. So any thoughts on that would be much appreciated.

Olaf, if you can answer on the UK question and then Jearn-Marc on the Spanish question.

Yes, on the UK, as Gervais pointed out, the environment is challenging, of course. The economic situation is very tough, and we are seeing a mixed impact on our business. We saw it with both pros and cons on the top line. I mean what is certainly having an impact on the top line is the fact that an increasing amount of customers are searching for lower tariffs. That roaming is, of course, a most significant pressure and that we see a tremendous amount of customers moving to SIM-only propositions.

On the other hand, there are continuous positive trends in the market, in particular as it relates to non-voice. I mean we now have non-voice, non-SMS being 8% of our revenue, up from 7 points last year. So we see a continuous, very strong appetite for non-voice products and services. We see a continuous movement from pre-paid to postpaid which is positive, and we see that customers are ready, and we see that in particular with the offers that we have put out over the last couple of months, are having a stronger appetite for a longer tenure so longer contracts, which is positive on churn and tenure in the long run. So that is really the overall situation. We feel that Orange is continuing to execute well, and we almost span the current environment, and we are taking advantage in particular when it comes to one, trying to drive tenure up of our customers; two, driving towards a more controlled channel environment, which in the current market situation is positive and is possible; and three, increasing efforts around customer retention and loyalty.

Regarding our SIM alone offer here in Spain, once again we do not have any issue or concern regarding the payback of a SIM alone, Web alone offer, and once again, as far as the share this offer is going to take in the market, this is a reactive offer that offsets the moves made by our main competitor last week. So this is still an unknown quantity.

What I can mention is that on the prepaid market, we are leading the SIM alone market, and this has enabled us to sustain sound growth of the business.

As far as interconnect cuts are concerned, we are improving our interconnect performance based on the one end on the improvement of the traffic on net traffic pattern, but also benefiting from the mobile termination rate decreases. And here I would point out that with the last mobile termination rates decrease implemented in April, we have ended the glide path, which gave us the necessary position versus the competitors, which means that any further NTR decrease now will have a more positive impact on our profitability in this space.

Thank you very much. Could I just come back on the UK, just picking up on the comment that the economic environment is very tough. I guess one way of kind of eliminating costs and maybe regaining some pricing power and improving your visibility would be to engage in end market consolidation. Certainly one competitor that you have got which looks notably weaker now than was maybe the case last time this week. So I just wondered whether you would completely rule out any sort of end market consolidation activity?

We have already commented that in several occasions on the UK, everybody says there are too many players. It is true that now there is probably more differentiation of performance between a certain group of players and another group of players. However, again one of the difficulties on the UK market which remains in spite of the efforts we do to repatriate distribution internally is there is a huge share of indirect distribution. So there is you asked by having consolidation that one plus one is not equal to two but is below two, and I think it is probably one of the obstacles to this consolidation on the market.

Hugh McCaffrey, Goldman Sachs.

I've just have two questions. Firstly, has the competition started selling the iPhone in France, and what kind of impact do you expect that to have on the business for the rest of the year?

And secondly, with the content spend in France, do you see this as structurally lowering the margin in the French business, or is it something that you can absorb over time with higher ARPUs?

Sorry to ask you to repeat your first question because I think we have not understood your first question.

Well, the first one was just on the iPhone, and it looks like the competition are going to be allowed to sell that as they move out competitors, and France is going to be able to sell that, and what kind of impact do you see that having on the business -- on your move on business I mean?

Louis-Pierre if you can comment on the iPhone competition in France maybe now.

I think we are very happy because we are still selling at very sustained rates, higher than what we expected. Because our sales since everybody knows that (inaudible) here is over. It went down only 20% to 25% when our market share is around 50%. So we should sell far less than we currently do. So we are very happy with that.

On the content, when we have decided to invest in content distribution, last year we have sized our plans based on what we could afford and what we thought was necessary to perform the right level of business. The beauty of the content business is that there is relatively huge minimum fixed costs in terms of content rights. It is a constraint, but we have planned to take it fully with a relatively low number of subscribers.

I just remind you again that in the pay-TV business generally it takes at least five years to become positive in terms of cash flow when you make such an investment. So it is fully taken into account, and if -- and this is we are now at the highest level of content spending. If there were additional content cuts, this would mean that we are performing at a very high level in terms of subscribers, which unfortunately is not just a case even if the performance is good up until now.

Okay. That is good. Thank you.

Thank you very much for participating to all of you to this conference, and we will see you and with my colleagues, Vincent and his team, we continue to have contact with you, and we will see you in the next days or weeks. Thank you very much. Bye, bye.

This will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.