Orange SA (ORAN) 2009 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to France Telecom 2009 third-quarter results conference call. For your information, this conference is being recorded. The call will be hosted by Gervais Pellissier, Deputy CEO and CFO, with members of FT's Executive Committee for the Q&A session that will start after the presentation.

Thank you, and let me hand you over to Mr. Gervais Pellissier. Please go ahead, sir.

Yes, thank you very much. So good afternoon, ladies and gentlemen. I am pleased to welcome you, with my colleagues from the Group Management Committee of France Telecom and my colleagues from the countries, to help me presenting to you to the France Telecom third-quarter 2009 results. As you have seen, France Telecom is [positioned] quite well in global slowdown context regarding [consumables and] consumption. But this has allowed us to confirm our cash flow guidance.

Let me first comment the key points for the first nine months of the year in terms of financial performance. I'm referring to slide 4. In line with the comments made during our first-half presentation, first-quarter results are, revenues are down by 0.9%, excluding regulatory impact. For the nine months, revenue achieved is EUR38.1 billion, decreasing by [EUR1.6 billion] (sic - see Press Release) versus 2008. Results, excluding regulatory impact, the evolution would still have remained positive at plus 0.4%.

What can we say on this figure? We have a confirmation of the deterioration of the macroeconomic trends observed in most of the geographies where we operate. The only country where third quarter is better than second quarter is Spain for us, when you look at the figures.

We had also said in July that we would face much higher regulatory impact in second half than in first half, and this is what is happening, with more than two times more termination rate cuts and other price cuts in Q3 compared with Q2, mainly due, by the way, to the mobile termination rate cuts in the different countries.

As [announced in H1], the EBITDA margin decline is stable compared to H1 '09 results at minus 0.7 points compared to a year ago, and this is the consummation of our ability to manage our cost base, and I will come back on that later on.

We have continued to keep the same level of CapEx spending that what we did in first half, with minus 14% CapEx decrease compared to a year ago, and with total CapEx spending for the first nine months of the year of EUR3.7 billion.

And finally, this is an indicator we publish on the [cross-selling] basis in terms of cash [utilization]. Our EBITDA minus CapEx is up 3% for the first nine months to reach EUR9.6 billion, and stable in the last quarter -- third quarter -- stable compared to last year. This allows us -- and I can say it immediately -- this allows us to confirm our full-year objective in terms of cash flow at EUR8 billion.

Regarding revenue evolution, one or two additional comments, and I refer to slide 5. Strong ForEx impact in 2009, with EUR1.1 billion revenue lost because of British pounds and Polish zloty decrease against euro. And if we compare [I told you have] also in pro forma basis, total regulatory impact on the first nine months of the year is a loss of revenue of EUR750 million, whereas our activity has generated an additional revenue of EUR140 million.

Now, what you can observe, and I think it is a general comment on regulation in our industry, we think that regulatory price control and regulatory price decrease is something which can be offset when global economy and consumption is performing well. It is much more difficult for the telecom operators to fully offset it and to keep organic growth when overall economic situation is under strong pressure, as it is today.

In spite of all this, when we continue to watch the situation of our revenue evolution and to compare it to the GDP evolution, we are still better. Our revenue evolution remains better, more favorable than the GDP evolution, before regulatory impact.

Unfortunately, and this is linked with my previous comment, the weight of the regulatory impact now is putting the total revenue evolution below the evolution of the GDP. As it appears on this slide, one point to comment is that, at least for the last 12 months, our business and telecom business has confirmed to be more resilient than lots of consumer goods or consumer services in this race, which means that what we were expecting from the beginning, at the beginning of the economic slowdown, has proven to be true. We are suffering less than other industry sectors. That doesn't mean that we are not suffering at all, and that doesn't mean that there is no pressure on the consumption patterns of our customers.

To go into some more detail on our regions, our segments, so it is on page 7, we -- France continued to resist quite well, with a positive revenue evolution even in third quarter of the year, before regulatory impact. Some deterioration in the UK, where revenue has been eroding by 2.4% in Q3. Spain is slightly better, as I just mentioned at the beginning of my speech. Spain is quasi-stabilized in Q3 compared to a year ago, before regulatory impact. And Poland is still suffering with an acceleration of the revenue erosion.

As regards to the other countries, really two different groups of countries -- Africa/Middle East, where growth remains quite good, with nearly 5% growth in Q3, whereas other European countries are deteriorating, but also with very contrasted situations, where Romania is still suffering at a high level and Belgium and Switzerland remaining with a decrease, but rather in line with what we observe in other Western Europe countries.

And last element of our performance, the enterprise division, Orange Business Services is also under pressure in terms of revenue evolution, with strong price renegotiations from major customers and a decision to cut some lines and some access.

Two comments on the operating situation of the Company in a nutshell; we come back into more details of some countries just to mention a few main indicators. Regarding France -- and it is on page 8 -- we continue to push, and really quite successfully, to have more contract customers compared to prepaid customers on the mobile base, and now we have reached the 69%, more than 69% contract customers, so customers where the commitment when they sign is above one year.

As regards also to the mobile business, we are quite [active] with the increase of the debt ARPU, which is increasing by 23% in one year. And we still keep as an area of concern the evolution of the conquest share of ADSL, with the conquest share slightly above Q2 performance at 28.5%, but still very low to help us maintaining our market share.

In the UK, the same move to have contract customers, where the UK was mainly a prepaid market, and we are now increasing. And also regarding the home business, some increase of the unbundled base area, whereas for me one area of concern in the UK is the mobile ARPU, where there is some pressure on the ARPU, the increase of debt ARPU (technical difficulty) to offset other pressures down.

Spain, mobile business, so with a stable share of contract customers, some increase of the DSL ARPU, although there is also some pressure on the mobile ARPU in Spain. In Poland, increase of the contract customer base, which is good news in the current environment and market environment in Poland. Regarding home business, we are still with a strong increase of the triple play, especially with the IPTV base, whereas ARPU, mobile ARPU is also suffering. In other countries, there is still a strong increase of the customer base, 19% in terms of mobile, 26% in terms of fixed lines, and 58% increase for DSL customers.

We have introduced a new slide. It is on page 9, which unfortunately because of the timing of our results presentation includes only figures from Q2. But we are showing on this page the four major countries of the group and the value market share for mobile. And I think the main message is that we are rather stabilizing or slightly improving in three out of the four countries we are in, our only concern being Poland, where our value market share has been decreasing by 4 points in more than one year, a little more than one year, and where we lost our position of number one.

On page 10, the EBITDA evolution, so I will comment the third quarter. In the third quarter, there is pressure on the EBITDA linked with regulatory impact. We mentioned on the revenue, there is a margin impact for about EUR200 million. There is also a negative effect on the margin linked with the lack of revenue for about EUR100 million. And there is also some pressure on the interconnection costs, with more and more offers and bundles, including unlimited SMS or huge number of SMS, but also, in some occasions, unlimited voice.

And a positive point is that we still and we continue to have some benefit of our transformation programs, with EUR156 million improvement on the cost base compared to a year ago. When you look at the difference between 2009 and 2008 performance for the third quarter of the year, most of the difference is linked with the regulatory impact for the year, with a EUR440 million regulatory impact. And by the way, this is most of the decline on the first nine months' EBITDA compared to last year.

In terms of cost structure, and I think that is one important message in the current context, where there has been a lot of questions whether we are able to control our cost structure. And what we can say is that until end of September, there is clearly a good control on the cost structure of the Company.

A very slight increase of our labor costs, but mainly linked with the positive one-offs we had in September 2008, where we accounted for -- we took into account some reversal of accruals on the holiday. Some pressure, as I mentioned, on the interconnection costs, where there is a decrease in absolute terms, but some slight increase in percentage of revenues.

Other IT and network costs also slightly under pressure, but we are able to keep our general and administrative expense down, remaining exactly at the same percentage points of revenue as a year ago. And regarding (technical difficulty), we are slightly above in percentage point of revenues, but clearly down compared to what we spent a year ago in absolute terms. And this is what explains our performance in terms of EBITDA, where we have been able to lose only 0.7 points in EBITDA margin rate in spite of the negative revenue impact I had been commenting at the beginning of this conference.

In terms of investment, and I think it is also one of the big questions raised by some investors, but also by people -- what are we doing with our CapEx? For sure, we have been containing our CapEx, even reducing some of the investment plans, and this to keep the minus 14% reduction, which we -- where we were at the end of first half, if we exclude the related operation that was done in 2008. But -- and this is what is presented on page 12, on the right part of page 12 -- we have put some of the major items where CapEx continued to increase and those where CapEx has decreased.

Where do we continue to invest, and to invest more than a year ago -- for new operations, about EUR150 million spend more; for 3G coverage and capacity, mainly in France, Spain and Slovakia -- just to remind you that in France now we are ahead of our main competitor in terms of 3G coverage, which was not the case two years ago.

And a few other areas, which are very strategic for the future, [some variable]. You know that our strategy regarding emerging markets is also to have better control, but also more boundaries in terms of Internet and Web access, especially for the African continent vis-a-vis the rest of the world. It is a key tool to be sure that we master the global broadband development as on mobile and fixed in the African countries, but also an increase of investment for services that forms both for IPTV and [portals], whereas we have deliberately decreased our investment in 2G in terms of new investment. We have also reduced our 3G investment in terms of capacity investment. We have also reduced our investment in terms of unbundling for DSL in Spain and in the UK, mainly. And we have stopped our investment in FTTH in France, waiting for the clear and finalized regulatory framework.

Regarding some countries' business performance, I will go to the page 14, where we start with France. Just to remind you what I said a minute ago, where France continues to post very good revenue evolution in spite of the general climate, with 0.6% growth for the first nine months of the year, and with still strong growth for mobile, plus 3.9%, and a slight, slight deterioration for the fixed business, minus 1.4%.

What can we say on top of that? The fact that the mobile revenue growth is still strongly driven by nonvoice revenue increase, but also by customer base increase, which are the two sources of revenue increase on the French market, whereas for the home revenue, PSTN revenue decline is slightly above Internet revenue increase, not exactly -- there is a second one -- not exactly offsetting the first one, but not far from being able to do it, whereas other revenues, and mainly revenues linked with Minitel and [Publiphonis] have been decreasing in this quarter.

Regarding some additional aspects for the mobile business on page 15, I think the very good news is that we are keeping our global market share at 46.6% whilst leaving more space on the market to the MVNOs and decreasing our retail, slightly decreasing our retail market share.

Second item, which was already mentioned, is the share of contract customers. And the last very good point on our mobile business is the steady [DT] of the ARPU, thanks to the strong increase of the data, but also of the SMS ARPU, which continued to grow compared to what we had a year ago.

Maybe a last point to comment is that we have sold 1.3 million iPhones on the French market, and we keep very good base of sales, with 212,000 iPhones sold in Q3 compared to 211,000 sold in Q1, where we still had [positive activity].

Regarding the fixed business, so there our market share is more challenged because of the low level of our conquest share, even if it is slightly improved compared to Q3. We have also -- I think we did a couple of things to improve that by announcing new offers, especially a new DSL offer called Surf, which for EUR29.90 per month allow triple-play with TV over PC. We have been also launching Net offer with a special promotion which is starting on October 1.

A few other important points regarding our fixed business in France. The number of fixed lines has continued to increase in 2009, stabilized in third quarter, but we are still more lines today, with 29.1 million lines at the end of September compared to 28.8 million lines at the end of December 2008.

Second important point, we are losing less retail lines in 2009 than in 2008. We lost more than 1 million in 2008, we lose in 2008 for the first nine months of the year, and we have been losing 800,000 lines this year. And last point, this is the performance regarding pay-TV, with about 600,000 Orange pay-TV subscriptions at the end of September, which is more or less 12 times what we had a year ago and plus 50% compared to what we had at the end of June.

Maybe [a last 12] in France, just to comment especially for our foreign investors or analysts, what is happening on the social front. And we have tried to -- so I guess you write a lot of articles, [but we suggest] to update you on this.

A few measures have already been [increased], and most of the measures are with little impact on our accounts. [It is] a negative impact. We have decided to stop reorganization moves within the French operations or within the French entities until the end of the year.

And there has been a decision to hire some additional manpower, but this will be mainly people who are already working for us. So this is to transform temporary jobs into -- a few temporary jobs into permanent jobs, and also to convert from some subcontracting to insourcing for some other jobs.

Regarding ongoing negotiations, there is negotiations on five main areas -- working conditions, working environment, manpower and [carry] evolution, professional and private life balance, and better management of the relationship with the employees' representatives and workers' councils, different workers' councils in the Company.

And there is an ongoing negotiation to prepare a program for part-time work for more senior people in the Company. This is a program which has been already highly commented since this morning and which I think raised a couple of questions amongst some of you. And there are a few figures which have been raised.

And by the way, as was already the case months ago, where already some figures raised on what could be the cost and the impact of this program. This program is clearly a way to accelerate the turnover for some of the senior people of this Company and to have more early retirements, progressive early retirement for some of our colleagues. So this is a way to -- let's say to decrease earlier than as a natural date the cost of manpower of the Company.

You know that with that, as in any plan of this size, you need to negotiate a package, which gives some advantage to the employees ready for an early, progressive retirement, and this is what is under negotiation right now. This is why it is quite difficult to completely size and value this plan today, both in terms of cost, but also in terms of positive impact on the accounts of the Company.

What we can just say today is that it has no cash impact in 2009, and it will have probably little cash impact in 2010 because of the progressive implementation of this plan. What we can also say is that when we look at the manpower of the Company, this plan can maximum be applicable to probably a few thousand employees and with probably a maximum sizing around 10,000 employees, really not more than that.

So if you consider all those elements, you see what could be the reasonable sizing of such a plan, which will be very accretive once implemented. This is what we can say today. If you have additional questions on that, I may answer on them.

Just to say -- and probably this is where the comments was raised this morning, is that the question is, will we create and post reserve for this plan, an accrual for this plan, in the 2009 accounts? We'll discuss that with our leaders, but the intention of the Company would be rather to provide for the plan in 2009, so to have a P&L impact in 2009. But again, if you consider that it's a plan to be measured -- to be applied a few years, so the annual impact will remain quite limited, especially compared to the previous retirement plan, which we should not compare; the previous retirement plan was a very [good] plan, with still, by the way, an impact of [EUR670] million in the cash of this year.

So UK, difficult revenue performance overall on the market because of global economic downturn. We have seen, by the way, that the UK belongs to the Western Europe countries, where GDP has remained negative in first quarter of the year, and this has an impact on our business. This is reflected on page 18. And plus, a strong regulatory impact we didn't have in first half.

Just to mention on the operational indicators on page 19, that we continue to increase the weight of the contract customers compared to the prepaid customers, that we are also still a strong increase in gross -- a strong increase of data usage with about 5 million 3G customers compared to 2.9 million 3G customers at the end of September '08, and 330,000 dongles compared to 135,000 dongles at the end of September '08.

And maybe two last points. We will sell the iPhone in the UK. The first sales will be done before let's say mid-November. And we are also quite happy to be recognized as the best 3G network even before merging our network with T-Mobile and DT.

Regarding our JVs, the proposed JV between Orange UK and T-Mobile UK, no news, just to say that things are going on and that we maintain the timing we announced early September, which is to be able to execute the final documentation in the first days of November.

In Spain, so as I said, Spain is one of the few countries where Q3 is better than Q2, at least our revenue line, where we are in slightly better shape than we were in Q2. And mobile customer base continued to grow, whereas on the fixed activities, the broadband revenue is stable for the first nine months of the year.

Regarding [some] KPIs on page 22, we continue to grow the customer base, as I mentioned, 3.5% growth. And we have some pressure on the ARPU in spite of the increase of the nonvoice ARPU, but insufficient to offset decline in voice ARPU.

Poland's results have been published yesterday, so I guess most of you know them. Just to mention the view of the shareholder, two points. One is that we are quite active at TP Management Board, and TP CEO, who I congratulate, has been able to achieve -- to reach an agreement with the regulator and to avoid for the time being functional network separation, which was a big threat on the value of our fixed business in Poland. This is an exchange of some commitments on investment that we think those commitments of investment are quite favorable to us, especially to improve our competitiveness on the Polish market regarding broadband coverage.

Regarding the mobile business, we are still in a situation quite difficult, with the revenue decline linked with the pressure put by some of the competitors. I think we have been able, and when you look at the ARPU evolution, we have been able to contain ARPU decrease on the global customer base, so to avoid massive [replies], which is one of the dangers of strong pricings, on the Polish customer base. But we still have to work a lot to recover from what has happened in the first half of 2008 -- 2009, sorry.

As regards other countries, so on page 25, as I mentioned, Africa/Middle East still growing at a very good pace, with 4% growth in Q3, which puts us at the more than 5% of the first nine months of the year. And European countries, where the situation is rather differentiated between [phone] declining countries like Romania, but countries in better shape, like Belgium for sure, but also Moldova, which is still growing, and to a lower extent Switzerland.

Regarding customer base, it has increased by 19% for the mobile customer base, but one point also to mention is the increase of the fixed broadband customer base, which I mentioned at the beginning of this call.

Then to conclude, what do we say on the future? Regarding the business trends, we don't see a major change in the last quarter of the year compared to what we have been observing up to now. Regarding revenues, we don't think that the trend will be very different in the last quarter compared to what has happened in third quarter.

And this, however, does not prevent us from keeping our perspective on the EBITDA. We continue to think that we will be able to contain the EBITDA margin [origin] to what we have today, so minus 0.7 points. And this includes some let's say potential increased spending in commercial expense of some geographies where we think we have some opportunities to slightly increase our market share or to really consolidate our market share to better prepare 2010.

Regarding CapEx, we should have slightly more CapEx spending, as usual, in Q4 compared to Q3. Regarding cash flow guidance and use of cash, so we confirm our guidance of EUR8 billion, again, in cash flow for 2009. This guidance is excluding spectrum fee, but there will be to my knowledge [virtually] no spectrum free acquisition between now and the end of the year. And we confirm our medium-term use of cash, as already expressed at the beginning of this year. So to be quite conservative on net debt and maybe more conservative than some of our peers, but we think that we are consistent for the last -- we have been consistent for the last three years on our message on debt. And I think what has happened in 2008 has proven that we were probably right to be more conservative than less conservative. We have no refinancing issues. We have continued to refinance the Company for the last months.

Regarding -- so mainly the use of cash, this is dividend, and we confirm our dividend policy, to distribute at least 45% of the organic cash flow. And since most of you raise questions on our M&A policy, even if I try to be clear each time I speak with you, there is no transformation being contemplated, and the UK being one of the major possible deals we could do, and I don't see it as a transformation deal. And we continue to look at the emerging market opportunities of small or medium size, but also, when it could be possible and trade value, we may look at some in-market consolidations if they appear.

So I am now ready to answer your questions, with my colleagues.

(Operator Instructions). Jerry Dellis, JPMorgan.

Three questions, please. Firstly, can you reiterate your free cash flow guidance of above EUR8 billion a year for 2010 and 2011 as well?

The second question is on the EBITDA margin trend. Do you feel comfortable that you can continue the minus 70 basis points a year trend that you've seen in Q3 into Q4 and perhaps improve on it next year?

And then the final thing, just to do with slide 17 in terms of part-time working for seniors, just to give us a sort of a feel, what is the average longevity to retirement of the sort of employees who could be captured by this scheme, to give us some sort of idea of the period over which you might be looking to amortize the provision? Thank you.

Regarding the cash flow generation for 2010 and 2011, we said on March 5 that we had within Orange for 2012 an ambition to generate EUR8 billion a year. This is as a three-year view we expressed in March. This is our view today. We have not changed our view on that.

We said already in March that it would be based -- our assumption was based on the current economic outlook and excluding spectrum acquisitions. These are the two caveats we had been putting in March. Those caveats are still fully valid. Spectrum acquisition, we still continue to think that there will be a monetary spend on spectrum acquisition in the next two years.

And regarding the current economic conditions, on this we don't know yet what will be the economic conditions for 2010. By the way, in some of the conferences we have had since September, I have said that we have been delaying as much as we can the preparation of our budgets because we really want to be as precise and as updated as possible on the quality of the market information to better assess the level of revenues we will be able to generate next year. But as of today, we confirm our ambition for 2010 and 2011.

Regarding your second question, there I am a little more -- I will not answer exactly with the same precision. Why? Because we did not mention in the EBITDA guidance our ambition at the beginning of the year. And there you'll remember that when we announced especially the transformation program, we said that we would try to generate EUR1.5 billion savings both on OpEx and CapEx.

So this is why I cannot tell you today whether -- what will be the proportion between CapEx savings and OpEx savings and so to which extent we will have the EBITDA evolution. Clearly, our objective is to be able, and we have been doing that for the last three years, is to be able to keep as small as possible and even to minimize [I think] to stop the margin erosion. This is always a challenge we have in our business. However, and it has been mentioned, don't forget that a huge part of the erosion of this year, or let's say most of the erosion of this year, will be the regulatory impact and the tax, the additional taxes.

So again, we have an ambition on the cash flow. We keep some margin of maneuver to be able to see how we fare between CapEx and OpEx. And by the way, I remind you that between OpEx and CapEx, there is not a full or it is quasi-like [Chinese role] in banks. It is a very permeable role, where you just outsource your IT and you transform CapEx into OpEx, okay? So just to mention that the split between both -- or you outsource your network, as some of our peers are doing, and then you transform CapEx and OpEx or vice versa. So that is why I think we should look at those things in global and not just look at one line and the other.

So the third question, and maybe my colleague Olivier Barberot will answer to it, this is what is the nature of the plan and to whom will the senior part-time plan apply?

So as it is designed today, the plan will allow people to leave and to -- excuse me -- allow people to go part time three years before the normal age of their retirement. And the plan itself is for three years, meaning that it will start in 2010, as it is designed today. People who have only three years before retirement in 2010 can enter into the program. And three years afterwards, they definitely will retire. I don't know if it answers your question?

Thank you. So we could assume that if the number were EUR1 billion, it would be amortized over three years?

I think you have to consider two or three questions. First of all, we have never mentioned any figure for this plan. There are a few people, some analysts making some calculations. We don't know yet. What we know is that it will be very far in terms of global costs and much below what was spent in the 1996 retirement plan, which was a very expensive plan.

So the EUR1 billion is only a maximum sizing of costs, if there is any sizing to be made today. What this means, the EUR1 billion, the EUR1 billion is not -- would be the gross cost, what would be provided for, if it were to be provided for, into 2009 accounts. That doesn't mean that it will be spent in one year, two years, three years. Again, like Olivier mentioned, it will depend on the profile of the people when they will leave because it is a part-time plan.

So what is the cost of the plan if you try to analyze the cost of the plan? The cost the plan is the cost of the time not worked by the people. This is the cost of the plan. So it has no increased cash effects compared to the situation of the Company today, because even if we'll hire some people to substitute some of those people, it will be included into our global hiring plans for the Company.

So you have to see it as a way to progressively decrease labor costs of the Company. This is probably, if there is one of the positive outputs in terms of cost structure of the social crisis we have today, this is the possibility to implement again a part-time retirement plan, which would not have been feasible without, unfortunately, the social crisis, because the general message, public opinion is that we have people working more, longer, and we still need, because of the [HR] needs of the Company, we still need to be able to reduce the number of senior people in the Company.

Okay, thank you very much.

Nicolas Cote-Colisson, HSBC.

I've got a question on OpEx. You mention on slide 10 EUR156 million reduction in OpEx for Q3 only. And is it coming from your transformation plan you announced earlier this year, or is it mainly from lower restructuring costs?

Yes, there is a [partly] restructuring cost evolution, minus EUR31 million. There is effect from the transformation programs, and there is also some expense cuts. I would not, I would be -- it would be unfair to say that 100% is coming from transformation. There are a few expenses which have been cut by managerial decisions [with reference] to transformations, a decision not to spend something.

So it is a mix of both. And we said when we presented the status of transformation, if you remember at the end of H1, we said that we would be having more and more positive impact from transformation in the next months. So there is some impact of transformation, we already agreed. And a huge part is there. There is also some pure, especially in G&A, some pure cost-cutting.

Okay, so you are happy so far with the progress of this transformation plan?

No, because it's always, as a CFO, no, because you always consider that it is too low. No, I am quite happy because -- when I look at the program because it implies a strong evolution of our business processes. It is not just the -- if it came very early, I would have doubted of the quality of the transformation. The fact that it takes some time is also the result that it is also quite difficult to do and that you have to change a lot of things in a complex company like France Telecom.

By the way, one point to remind to everybody is that when we presented the transformation program in July, I'll just remind you that 70% of the savings were expected from outside of France, outside of the French operation. So again, for those who could raise the question whether the current social situation would slow down the global transformation of the group, French operations represent one-third of the expected savings in transformation.

And what was the main driver behind the lower restructuring costs?

As I said, probably a few tens millions. So in my view, in a similar magnitude than the restructuring for cost-cutting [indirect] is really coming from the transformation of our processes. Be very clear, and you have understood what I said? Because it is EUR160 million. Out of the EUR160 million, consider that you have EUR60 million of cost-cutting and restructuring decrease and the rest is coming from transformation.

I see.

Frederic Boulan, Morgan Stanley.

Two quick questions, please. First of all, I am going to come back on the cost-cutting question. If you could comment on the impact of the social climate you are currently seeing in France on your ability to continue to deliver on the savings. Should we assume that for probably a year it is going to be difficult [that is] in France, or is that, as you said, because 70% of that is out of France you feel you will see a lot of flexibility to reduce costs?

Second question on the fiber, do you see any significant long-term business risk in fiber outside of dense areas? There are some talks of having some public funding. And also, is there a risk that at one point an entity which is set up outside of FT which would therefore drive the NGN deployments outside key cities, and that would be a risk for your local loop monopoly?

I think your question of fiber is quite complex, because you are -- and as you're mixing -- two points are mixing, are having two points. One is the fact that once [at liberty] move us to fiber, what happens to the copper local loop? And this is something which we've been through everywhere, and whatever the regulation scheme chosen, there is a change of technology. And this, we have to assume it. But there, we think that the move from copper to fiber will be very progressive. We don't think this would be a shift in just a couple of years.

Regarding the second part of your question, it is more related to some of the debates in France on how to finance and how to organize the extension of fiber network outside of the dense areas. And there, there are still a lot of debates. It is true that some schemes which have been put on the table could present risks to us. But we think that we are currently discussing with authorities, regulatory authorities and political authorities, and we think that it is also, if this risk is too obvious, then there is a risk that we will not invest. So I think it is a balance to be chosen. And we will be in there or probably will have more news on it in a few weeks.

So what kind of framework do you think is more likely at this point to kind of -- you would invest or you would lead the deployment? What is a realistic outcome of --

I think it is a little premature to speak about all this because it is still under discussion. And honestly, it is not -- the public discussion is not the best way to resolve those issues, especially for us. So we will communicate on that once we will be clear. We are quite happy with some of the progresses made in the discussion with the different stakeholders on the regulation itself. We have seen even that on the cost-sharing for vertical installation, we have made progress, at least viewed from our window. So that's not too bad.

Regarding your source question, two things to keep in mind. One is that labor cost is 17% of the revenue and a little less than one-third of the OpEx of the Company. So we have said from the beginning that transformation is not just amongst dealing with labor costs.

On top of that, if I just take the French organization, we have 100,000 employees, or 102,000 employees. And we have probably between 25,000 and 30,000 subcontractors. So the scope on which can be applied as a change of processes within the Company has to include this global picture. And we are taking into account this global picture. So this is my point.

The second point is just what I mentioned in the previous answer, is that about 70% of the transformation -- of the impact of transformation program is expected outside of the French operations. This is the second point.

The third point, your question is that do we have more flexibility if revenue is worse than expected. Maybe I did not completely catch the question. This is more or less what I understood behind your words.

There is a limit to flexibility. This -- I shall be honest. We have been able to accommodate the revenue decrease of this year. I am not sure we could accommodate another strong revenue decline every year, as this is quite difficult to accommodate. But we also do not expect that the economic situation will continue to worsen.

So our basic plan, our basic assumption, our basic scenario is not to work with strong revenue decrease for the next couple of years. If -- and by the way, we have to work to keep our market share, to continue to develop adjacent businesses because of that. We know that we also have cost structure which would not allow us to decrease the costs more than what we have already said, which is a EUR1.5 billion savings we announced at the beginning of this year.

Okay. Thanks.

Antoine Pradayrol, Exane BNP Paribas.

Two questions, please. The first one, on your part-time plan, just to try and understand, if let's say 10,000 people choose to use this plan, what do you think -- how many people do you think you would have to hire to offset partially the people leaving? That is the first question.

And the second question is on the enterprise revenue trends. Q3 was worse than Q2. You said it is both prices and maybe volumes. Can you just give more color on how much is price, how much is volume, etc.? And also, about the outlook for enterprise, is Q3 the bottom in your view, or would it get worse in the coming quarters?

So regarding your first question, again, one point I mentioned is that once the plan will be agreed upon with the unions' representative, we will make a specific communication. We will have a call for the financial community to describe the plan and to explain what we will do. So that is something we do.

Again, I think today, you can consider several assumptions. But we are still in the negotiation process. We are communicating on it because it has been announced into the press release reflecting the negotiations we have with the unions that it is a very important part of the negotiation. And I have tried to explain what are the global consequences we expect with [the standard]. I don't think there is more to say today on it unless, Olivier, you have --

Just to comment, 10,000 for me is the maximum of people going through the program. We think it will be between 5000 and 10,000. 10,000 is really the maximum.

Second comment, we should never forget that at the end of this three years' plan, we will be at risk to have a shortage in manpower because there will be very strong acceleration of the people who will retire. We have today around 1500 people leaving for retirement per year. We will have starting in 2013 and 2014 the triple of the number of people who will retire. So the real risk we will have is not to have redundancy, but to have a shortage in manpower.

Barbara, do you want to comment the enterprise outlook?

So a couple of information on the enterprise market. I think there are two main reasons of this I would say acceleration of the revenue decline coming from voice, first in France and equipment resale and integration services, both in France and internationally.

So first, on voice, we have seen an acceleration of the decline both on the access side and on the traffic side. So the main reasons for that are -- I would say there are multiple reasons for that. I guess the first one can be just coming from the number of employees. If you do the math, and this is true both for the fixed and mobile network, by the way, if you have 450,000 employees that are unemployed compared to the previous year, of course it's an impact in the traffic.

Second is the very strong acceleration of the migration towards voice over IP, I guess, for [plus] reasons, for the companies. Third reason being also [a keying] of the access. We have seen quite a strong decline of the access on voice due to multiple factors, one being the fact that companies have multiple access. And I guess that because of the crisis, they've tried to have a very strong look of their access, and because of the stability of the voice over IP solution, decide to cut some of the accesses. Also, part of that is due to the unbundling, and last, of course, due to renegotiations of contracts. So this is why we see overall a declining trend on voice.

And to answer to your further question, we expect for the time being I would say a kind of slight acceleration of these declines for Q4. The other reason is equipment resale and integration services, and here once again, a couple of reasons. One is certainly the economical downturn, meaning that customers have a tendency to postpone their equipment and to keep some projects, I would say, a day if they do not forecast a very strong, immediate ROI.

Second reason also on equipment resale, and I think it is a positive impact for us on the EBITDA margin, is the fact that we have decided, as you know and I have mentioned a couple of times, to focus on profitable growth. The equipment resale business was in some cases quite unprofitable. So we have put in place some very strong measures to make sure that the contract we are taking we are making sense. So these are the two main areas where we have seen a decline.

Now, if I compare with the analysis from the market analysts and from the publication I've seen from our colleagues or competitors both in the IT world and telecommunications world, our decline is a little slower than our colleagues, which means that our market share is not strongly impacted. Perhaps in certain cases even we are getting some market share, especially on the international side. And so when I look at the others, it is also for us a question -- a reason to forecast potentially a stronger decline in Q4. So this is what I can say.

Hugh McCaffrey, Goldman Sachs.

I've got three questions, please. Just on the total annual OpEx base that you guys are seeing, in '08, you reported around EUR34.5 billion of OpEx. And if you adjust that for the UK, this year it looks like it will be about EUR30.1 billion, is that the kind of total OpEx level something you're comfortable with in the medium term?

And secondly, just on the TV business in France, obviously very good growth this quarter in subscriber numbers. And is that just the start of the new football season? And what sort of sustainable growth do you see there?

And then finally, on Spain, you are going to buy the minorities in this year from Amena. And can we expect to see a new or a revitalized strategy there?

We have not completely understood your first question on OpEx. Regarding -- so maybe just to start, regarding Spain, we have already bought back some minority share in Amena. It was done in the first quarter of this year. So we are now more or less near from 100% ownership.

So what is our strategy? Our strategy has not changed. Because of that, we had already showed our agreement, which was in fact giving us the obligation and the right to defend the strategy of the operations. What can we say, that our strategy is to recover in terms of mobile business and mobile market share, and this is what has been applied for the last year and a half, and to continue to grow our business in DSL.

Could you come back on your first question?

And the first question is just about the total OpEx base. So the UK office space is around EUR3.4 billion. So if I adjust your OpEx base and take into account the cost savings that you seem to be achieving this year on a reported basis, you're heading for about just over EUR30 billion of OpEx ex the UK. And is that a number, because you're going to be consolidating the UK from next year, is that a number that we can look to as a number that you'd be confident in achieving on the cost side?

Sorry, we don't publish in Q3 the EBITDA, and so we don't publish the OpEx figures of the difference reporting segments. So I don't know which figure you refer to; maybe on the H1 figures.

Just regarding the UK, it is true that once we will have deconsolidated the UK, our EBITDA rate, the global EBITDA rate of the group, will increase because the UK has a much lower EBITDA rate than the rest of the group. So we will have a mechanical increase of the EBITDA rate and mechanical decrease of the OpEx rates of the group. That is one point.

Now, when we will take the UK out, today, since the JV move has been announced, we will take the UK as a discontinued operation, so not included into the revenues and EBITDA line of France Telecom. After closing, it will be managed as a financial stake, so no longer consolidated.

So what can I say on top of that? I don't know what to say on top of that. And I don't understand exactly what you are trying to get through your question.

Sorry, I was just trying to clarify the final timing. If I look at the OpEx that you guys are reporting, you reported EUR8.1 billion of OpEx this quarter. And that is about EUR470 million lower than the same quarter last year. And so far this year, your reported OpEx is about EUR700 million lower than in '08. And this quarter, again, the interconnect cost is about EUR300 million lower.

So if your cost-cutting continues and the interconnect costs continue to come down, you are going to report an OpEx number this year about EUR1 billion to EUR1.1 billion lower than in '08? And then if I take out the historic run rate of OpEx in the UK, it looks like your -- sort of the underlying OpEx number for the reported operations is going to be about EUR30 billion or EUR30.1 billion this year. And I am just asking, is that kind of total level of costs something you feel confident in keeping stable in the medium term?

Yes. And now sorry to be a little long to get your question fully, because you are using an IP -- a voice over IP connection. This is the reason for which we have difficulty to understand your -- as you know, traditional PSTN is a very good product.

You are right, the fact that we take the UK out, this is an exercise we have not been doing. This is -- which OpEx savings that we included into our transformation plan regarding the UK. This is something we have not recomputed yet and that we will compute again probably for the end of the year. But normally, we should be able to keep the OpEx stable after UK, let's say, exit from our consolidated figures.

Okay, great. Thank you. And just on the TV business?

On the TV business, what is your question on the TV?

You just had a very good net out number on the sort of proprietary content.

We hope the trend to continue, because we are just -- this is [that is taking us]. And you'll remember we started the business for sport for [Circa] in August last year, and we started the cinema and series operations in November last year. So we are quite happy with the business. We have experienced some churn, which is usual in this business, but not according to our knowledge bigger than what is experienced in the business itself.

Okay. That is clear, but I guess what I was trying to get a sense of is do you think it is a seasonal uptick this quarter because of the new football season and just more customers in the Q3 because of the Orange [fade] offer?

No. To a certain extent, let's say there is a difference between cinema, series and sports. Seasonality is rather favorable for sports, because Circa matches are starting again in Q3. So you are right, there is an appetite to have more subscription on the sports programs. But this is not the case for other programs. And order-taking has been quite good also on the other programs.

Okay, thanks very much.

Damien Maltarp, Credit Suisse.

Two questions. If you do take a provision for your accounts this year, will that be tax-deductible? So will that help your cash tax in 2010, for example?

And secondly, you mentioned the potential to increase commercial expenses in some markets. Would France be one of those? And maybe in relation to that, could you just update us on any discussions you are having with [RSEF] about the potential to reduce your triple-play pricing in the French market? Thank you.

Regarding the possible accrual for the part-time plan, I don't know yet what could be its tax impact. What I'll just remind to the audience is that we are still with a good situation in terms of cash payments for tax, with probably no cash payments in 2010 and 2011 and probably some part of 2012.

So we really communicate on that again when we publish our yearly results. But we are quite, let's say, positive, quite optimistic in the possibility to probably have a little more capacity or a little more time not to pay tax in France, so for a longer period than initially expected.

By the way, if there is spending on this plan, it will be creating costs for the Company. So it will decrease the taxable profits by definition. It is not an expense excluded from income tax calculation.

Regarding the triple-play pricing, we are working on that. You know that the regulatory scheme is quite complex in order to work on our cost structure and our pricing, because we are quite controlled by [asset]. It is also linked with much better segmentation of the offers.

And since we have been launching on October 1 a Net offer at EUR34.90, which is today the basic price we can use, and we think that the more we'll be able to segment the DSL business, which by the way has not been very segmented up to now. It was more or less a kind of one-size-fits-all, whoever are there customers, wherever they live and whatever they do. And I think more segmentation will also help us.

And I hope that within maybe a couple of months, probably at the beginning of next year or at the end of first quarter, we will be able to have a better situation regarding the regulatory framework. This is our hope. We are not there yet.

And in the meantime, we should expect commercial expenses to rise in France?

Maybe a little, with what I said, but this will not jeopardize our global view on EBITDA margin for the group. So we may spend a little more [fact and mainly asset] fees on the French market when it looks good, mainly, by the way, for mobile. And there could be some slight increase of commercial expense on the DSL business, especially because there is another item, you'll remember we commented, is that if you want to expand a little more your DSL penetration, we are now at the limit of penetration in France compared to the penetration of PCs. And so maybe some help given to customers by our two entities could be reviewed.

Nick Lyall, UBS.

Could I just ask back on the fiber question, please, could you set out what you assume in your guidance for fiber spending in 2010, please, including France and Poland, if you include Poland as well?

And then secondly, just on the question you just mentioned on triple-play, could you tell us why now do you think has the price premium been more difficult for you to sustain in triple-play, please?

Sorry, I was without the mic. Just to say on fiber plan, we don't know yet what will be the impact in 2010. Just maybe a clue on that is that even if we start the real implement of the plan in 2010, it takes a few days or months to start to deploy massively. So we don't see that could be a very, very big impact because of the slow ramp-up of such plans, which I remind you are also to make installation in the homes of the customers and not just to change the core network. So it takes much more time.

So if there is an impact of an acceleration of fiber, I said already a few weeks ago that this could be maximum a few hundred million, and when I say a few hundred million, it is maybe EUR200 million, EUR300 million impact of an acceleration of fiber deployment.

And sorry, is that number just France, or does that include Poland as well when you say EUR200 million to EUR300 million?

Poland, first of all, is not fiber. Poland is copper, it is DSL coverage, it is extended DSL coverage and especially bandwidth increase. This is mainly -- so this is work on the core network more than on the local loop, as is this a -- and some renovation of the local loop. So it is a very different plan, which at group level is also -- I would not say small, because it is an important plan, but it is below the impact I mentioned for France.

So within that EUR200 million to EUR300 million number, would that Polish plan --

It is lower than that in terms of yearly impact.

I mean included -- when you give your guidance for EUR8 billion in 2010 cash flows, you already include both of those numbers, do you, in your thinking?

Two points. I would say yes for some part, but maybe not for the total. Sorry to be not so straightforward in my answer. In the sense that in France, we will have to see whether there is a real acceleration of the plan versus our initial program. This we don't know yet. If there is a very strong acceleration versus our initial plan, we would see whether we are able to include that into our cash guidance on that.

That's great. Thank you.

Mandeep Singh, Berenberg Bank.

I would like to ask you a question, please, on the cash flow and the dividend. You've got a dividend policy of 45% of cash flow minimum to be paid out. On an EUR8 billion number, that equates to about EUR1.36 per share. Last year, you paid EUR1.40. Can you actually confirm that EUR1.40 is the floor that you have in mind? That is for this year.

And then moving forward into next year and beyond, clearly if the EUR8 billion number is below or reduced due to either spectrum payments or economic impacts, is there a chance your dividend could be below EUR1.40? Thank you.

So I can answer to your first question; more difficult to answer to your second question. I think to your first question, I think by paying an interim dividend of EUR0.50, which is exactly the interim dividend of 2008, I think it is a signal that we intend to keep the dividend at the level of last year, which would be I think rather reasonable, especially because we generated EUR8 billion cash flow last year also.

Regarding your question on medium-term policy, I don't know yet. It will depend on the [consolidations]. I think if you want my first answer on that, I think for spectrum you could consider it. If it is economic deterioration, then you need to think on what is the right level of dividend. I am sorry, I am not sure that when the economic deterioration is deteriorating that you have to consider other things.

Just if I could follow up, please, the spectrum costs are pretty much one-off in nature.

Yes.

So you can probably disregard that in terms of ongoing cash flow generation.

Yes. And this is why I think you can keep in mind that the spectrum fees do not impact the dividend payment.

But your policy is also a minimum of 45%. So if there is any deterioration in organic cash flow ex-spectrum, are you able to increase your payout ratio?

We said the guidance given is a minimum of 45%. So this means that we keep the possibility to increase the payout ratio if needed.

Brian Rusling, Cazenove.

Two questions -- well, actually three. One on the spectrum costs. I haven't heard you say publicly in this forum how much you might spend on spectrum over the next three years, whereas I have had relayed to me some comments you've made. So I'd quite like to hear it from your mouth.

Secondly, on the DSL market in France, can you give some sense of whether you are trying to get your market share back to the sort of 40% level, or are you willing to see it sit at 24%, 25%, 26%?

And then the third question, just looking at Eastern European markets of Romania and Poland, are there any signs that we are seeing an upturn in those markets at all?

So regarding the spectrum, we gave an indication a few months ago. Honestly, we have not reworked that, and we need to check fully, and we do that in the next few weeks, to see what is the global envelope we are speaking about. We said when we spoke about it it would be around EUR1 billion spectrum spend for Western Europe and for Europe countries, globally speaking. That is one point.

Secondly, I don't think it could be far above that. Now, it will depend when those spectrum will be sold, and nobody knows under which conditions the auctions will take place. The UK is the first country to start the process. As a result, we are quite far from starting it.

Second question on DSL in France, we are clearly not happy -- by the way, not with 24%; we are at 28.5% (inaudible). We are not down at 24%, and we are slightly up. But clearly, and this is a point I confirm today, we are doing and undertaking any action to keep our market share, clearly, above the 45%. This is clearly the ambition of the group.

And by the way, an acceleration of fiber could be also a tool to do that if we did and under good conditions. So the global market share we want to keep on the fixed broadband is clearly more than 45% in the medium term.

The last question, maybe -- your first question, which we will be, by the way, the last question we take, Olaf, can you answer to it?

Yes, sure. So on the Eastern European footprint, we are, as you know, working in Romania, Slovakia and Moldova and Poland. The current GDP outlook is not showing a recovery quickly. We expect a continuous challenging environment from an economic perspective.

Having said that, we have been able to sustain our value market share in these markets. And we have shown, which we have talked about at the end of first half, strong flexibility on the operating expense and capital expense level as we have invested before 2009 heavily in our networks.

Thank you very much for your participation to this call. I am, with my colleagues of the investor relations department, at your availability for additional questions. And I think I will have the opportunity to meet some of you in the next weeks with different conferences which are organized in November and December.

Thank you very much, and I also thank my colleagues for their help into preparing and answering to this session.

That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.