Orange SA (ORAN) 2010 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to France Telecom 2010 first-quarter results conference call. 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 at this time let me handover to Gervais Pellissier. Please go ahead sir.

Thank you very much. So good morning ladies and gentlemen. I am pleased with my colleagues from the [ex com] from the financial team to welcome you and to present our Q1 2010 results. And I shall first start with page 3 of the presentation, which is more I think dedicated to the financial community. To understand what that means the (inaudible) moves for the last period, including all the M&A movements which are either finalized or underway.

So just to remind you that it has been two facts. One is the transactions which has been undertaken and for the UK finalized, which could entail a change in the accounting methods. There have been also the choice because of those transactions to apply probably one year ahead as the evolution of IFRS, which will prohibit proportional integrations like US GAAP.

So Orange UK, which has been considered as a discontinued operation until Q1 2010 will be accounted with the equity method as from April 1. And (inaudible) UK JV, so 50% of the UK JV.

Regarding entities which were proportionally consolidated in 2009, especially our Egyptian operations, ECMS, Orange Mauritius and Getesa, which is Equatorial Guinea and a few other small countries. They are included in associates in 2010. This is about EUR1 billion of revenues and about EUR0.5 billion of EBITDA, which are deconsolidated from what we had a year ago.

The organic cash flow includes the cash received from the operations, which are now the dividends towards the nonconsolidated assets, especially for the UK. And what are the two assets which could be considered for full consolidation, Egypt. So ECMS which has been deconsolidated in Q1 could be fully consolidated in that case in Q3 or at end of H1 once we have closed our current transaction, agreed transaction with Orascom.

As regards to Switzerland, Sunrise will be fully consolidated if we overcome the current regulatory issues, especially after the decision made by the Competition Commission last week.

So to come now to our Q1 itself in terms of main events and performance. Go to page 4 -- to page 5, sorry. And I would like to start with the commercial performance on which we will come back segment by segment with a continued strong performance on mobile. Customer base up by 7%. Resilience in in France, with a slight increase of the mobile marketshare, including the (inaudible), whereas on broadband, beside the one-off cleaning of the base for our Q1, our netted marketshare amounting to 14%, and we comment on that. Which is mainly due to the lack of attractiveness of our commercial offers during this period. But this will be handled from Q2 with a strong marketing plan that my colleague, Delphine Ernotte, our new head for French operations, will commence if you have questions.

In Spain we kept a good position in terms of mobile business, with a growth of the mobile pay monthly consumer base. In Poland there is some signs -- there are some signs of recovery. It is fragile, still insufficient, but a clear change of perspective compared to the situation last year. And you have seen that because Poland has already published their figures. But again, if you have questions we may come back on that.

For the other countries, just to say that there are two very good [bunch]. One is the strong growth in Africa and Middle East, which is above what we had at the end of last year, reaching more than 7%. But also the growth achieved in Belgium and Switzerland, which has affected some of the difficulties still remaining in Central European countries.

As regards to EBITDA, our EBITDA has decreased by EUR220 million compared to what we had a year ago, which is about 5.5% less. And most of this erosion is due to regulation effects and new taxes, whereas we have continued to decrease our fixed cost base also to absorb more pressure on (inaudible) expense and on content expense.

First one thing to mention here, compared to last year the pressure on margins in terms of comparable terms is higher from the first half of the year than it was a year ago. Whereas second half should be in terms of comparison give a better perspective for 2010.

About M&A, so we have completed the transaction in the UK with the cost addition of the JV, France Telecom becoming a 50% shareholder of T-Mobile UK, and T-Mobile UK having both Orange UK.

In Egypt, so we have disclosed most of the terms of the negotiation of the [Shola] agreements we have signed with Orascom Telecom. And we expect to go to a conclusion of this transaction in terms of finalization about mid-May.

As regards to Switzerland, so as I said, integration of Sunrise has been suspended until we clear the regulatory situation.

Follows the main figures on page 6. So revenue as stated from regulatory effects is a decline of 0.3%. And here for the first time organic growth has not been able to affect the regulatory impact.

Regarding EBITDA, again our EBITDA at EUR3.8 billion is a margin rate of 34.4% of revenues. This is in line with the total year trend. And again, we have, as I said, putting more pressure on H1 than what we should have in H2.

Our CapEx spending is below last year and represents 8% of the revenues. However, beside weather issues, especially the very long winter in Central Europe, especially in Poland, on top of different phasing some of the big investment, including fibre, which was part mainly in H2, explains that we are below in terms of phasing what we did a year ago or three years ago. We expect, and we commit, on a 12% CapEx spending on the year, and our plans remain completely in line with that.

Regarding EBITDA minus CapEx, no need to comment, everybody is able to do the subtraction. But this figure, which is the cash flow indication we give when we don't communicate on the cash flow explains that we are confident on our cash flow achievement.

Regarding the different trends by main segments of geographies. Let's -- we have received signs of improvement in European countries -- let's say small or medium-sized European countries like Belgium, Switzerland and Africa. Another good piece of news is that France remains resilient. Brazil, 0.3% excluding regulatory impact thanks to the mobile business. In Spain we think that we continue to outperform our competitors, even if the overall economic climate and consumption climate remain poor.

Regarding Poland, our Polish operations are still impacted by the price war, especially in mobile, which has started now a year ago, especially in mobile prepaid, and by the fixed-to-mobile substitution. However in terms of (inaudible) performance it was in terms of revenues a few signs of improvement that we comment.

Finally, the Enterprise segment still remains under pressure, mainly linked with the [overall] status of the world economy, especially of the B2B as a whole, including the IT services, where markets in France, but also in other countries, remains depressed. Plus linked with the economic crisis a higher [quick] migration from legacy technologies to IT technologies, which is to a certain extent good for us, because we think that we are preserving, or even consolidating, our marketshare in the IT networks. However, it is at the expense of short-term revenues on the PSTN and (inaudible) side.

Page 8 splits the revenue evolution, or the revenue figures between fixed and mobile by geographies. And again, you see the different trends that I shall not comment, but if you have questions we may come back on this slide.

Regarding EBITDA evolution, and I know from the first comment some of you made this morning that there is a concern on our EBITDA evolution. Two points on that. First of all, we continue to put pressure on our cost structure, and you see that on page 9. We have been able to continue to decrease our G&A restructuring and mainly our fixed cost. Our fixed cost base continue to decrease, including the increase we have on labor costs. We have some increase on labor cost. By the way, headcount have continued to increase in the first quarter of the year, linked with the plans that were in place until the end of last year, and also linked with what we continue to do outside of France. However, because there is a pricing effect which explains some of the increase.

Actually I mean that on the labor costs we will see in the second half of the year the first positive impact of the senior part-time plan that will take some of the senior member workers outside of the cost structure of the company. So fixed cost are clearly under tight management to continue reductions. And as Stephane Richard announced when we commented the full-year results one or two months ago, we will continue to have a performance program and transformation program to decrease the cost of our processes, decrease the cost of our platforms, decrease the cost of how to provide the services to our customers.

Regarding the areas of increase. Two areas of pressure. One, which is clearly not under control, but clearly foreseeable, predictable, this is the regulatory impact. We know what is the regulatory impact. We are fully conservative in the way we are evaluating for the second half of the year. There are a few good news. For instance, we know that in Poland termination rate cut will be postponed to what was initially announced. However, we know and you confirm that we should have about EUR400 million total impact for the year.

What we know also is that this impact should decrease over time. If you take most of the countries where we are present we know that, even if there is still pressure to decrease termination rate, sometimes to very low levels, a huge part of the decrease is now behind us, and that we will not have again the big hit we had in 2005, 2006, 2007, 2008. So this is something not under our control, but at least possible.

Pick an area where there is cost pressure and there let's say where we have a strong impact in Q1 also compared to Q1 2009, this is on the interconnect costs. You know what interconnect costs are. These are the costs to provide calls, as voice calls or [submitted] to our customers coming from other networks. And there when you refer to your customers bundles with huge -- or large usage of voice or SMS, you increase the cost to provide the service. There has been a strong increase in terms of volume of many SMS provided to the customers in their bundles.

We don't see such an increase for the next couple of months. I hope it will never happen again, but I think we have come a big step between last year and the beginning of this year that should not reproduce (inaudible) in the next couple of months. Which means that we should have lower impact of interconnect cost deceleration in the second half of the year compared to what we have in the first half. And then there is some increase linked with the content costs. There we will continue to minimize this impact.

Regarding CapEx, so we have continued to increase in some areas, but as I said, globally speaking we are slightly lagging behind our [issuer] plan mainly due to the weather conditions in some European countries. However, we consider that we will catch up on that. And that some of the big investments, including fiber in France, including our DSL investments in Poland, will take place in the second half of the year, and that we will reach the 12% revenue that we have announced.

Another point maybe on the CapEx. We continue to decrease the CapEx on 2G drop where we think it is no longer necessary, and to be very tight in the management of CapEx resources for PSTN and all networks.

Now a few words on the situation by geography, starting with France. So revenue growth -- [sac] revenue growth for the French business before regulation, plus 0.3, minus 2.1 after regulation. Again I think this compares to other incumbents when they release their figures in Europe, I think it is not a bad figure as such.

On top of that I think a few other very positive points. The fact that mobile revenue continue to be positively driven by nonvoice revenue. Whereas voice revenues (inaudible) its effect continues to be offset by the growth of the customer base, including the MVNO customer base.

Second point, on the whole revenue decreased by 2% before regulatory impact. It decreased by 1 point additional linked with regulatory prices. We continued to maintain at a stable level the PSTN clients, which will come year after year and quarter after quarter. Legacy businesses will continue to decrease until eventually die. This is a fact of life.

But what is changing is that there is much less growth from the broadband revenue compared to what we had a year ago, linked with two facts. One, the dynamics of the broadband market itself, where growth of the market is more like two times less than it was a year ago, or 50% -- 40% less. Also our own ability to take our fair share of the market, taking into consideration the fact that it is more and more a [channel] market where we have to realign our marketing, and we will comment on that issue.

Regarding mobile activity in terms of KPI. So again we are very happy with our continued growth of our marketshare, 47.2 at the end of Q1, and with more than 4% marketshare linked with the Orange MVNOs. This is again in our view the best preparation to the switch (inaudible) change in the market that should be brought by the new end front at the end of 2011, or early 2012.

Second point, the move of the ARPU with more and more spending on data, on nonvoice, is also a very important point to face because of competition. Including by the way, introduction of Voice over IP on mobile. You have seen that we've introduced Voice over IP on mobile a few weeks ago. We think that will be also a trend in the medium term that will lead to more and more data expense and less voice spending, and that we positively adjust the price of voice and the price of data to this technological shift.

Last point on mobile. I think this is a very good performance again in terms of 3G handsets, which drive the data revenue growth with about 8 million 3G mobile customers, and 1.9 million iPhone users on the Orange base, which leaves us with still by far the biggest marketshare in terms of iPhone on the French market. This in spite of the loss of exclusivity. I would just remind you that we lost exclusivity one year ago.

Regarding the home markets, as I said in terms of market positioning at the end of the quarter, the situation is more difficult. I think that is one point we have to be clear on. Our share of (inaudible) is 14%. But on top of that we have decided to check our customer basis, and when checking the [billed] base with the maintenance base, we have decided to clean the reported base by around 50,000 customers, which in that case would lead our (inaudible) if you take into account those customers which were not paying anything, by the way, like some of the inactive prepaid customers in mobile. but if we take this into account our (inaudible) is probably around zero. We will see what other figures reported by the competitors (inaudible) and then you can comment.

There, and again Delphine, as I said, will be available for comments in the questions. It is really an area of focus for the French management, where in fact we have really to adjust our marketing targets -- our marketing targeting and our situation to the new conditions of the market. The [channel] market, a strong push from (inaudible), probably more concern between quality and price. So a few items on that on which we will comment.

However, on the [program] market clearly very positive news for us. This is the continuous increase of the ARPU. Where we see that we are able to grow the spending of our customers by additional services on the DSL business.

On page 15, the figures for Spain. And there Spain is slightly better in Q1 than what it was in Q4 2009. And excluding regulation for instance the mobile revenue has gone by 3.4%, mainly driven by the customer base. And we have mobile net adds, which are multiplied by 2.3 compared to Q1 '09 thanks to the new tariff which has been launched in Spain in second half, especially (inaudible), 24.

On the fixed business, another good news for us. This is the stabilization of the customer base. We had continued deterioration of our customer base in the course of 2009, and Q1 '10 we have been able to stop the erosion.

Regarding some of the other operational KPIs, good commercial trend on mobile, in spite of the global market difficulties. Even if we have to absorb in Q1 the decrease of about 500,000 prepaid subscription linked with the implementation of phone security law, which requires now that telco operator keep track of the identity of each prepaid customer, this (inaudible) will impact all operators. And you'll see all operators reporting, spinning off the prepaid base implement (inaudible).

Excluding this effect, our mobile customer base has grown by 5% with a slight decrease of the ARPU. On the fixed business, as I said, the (inaudible) adds are now positive, and we continue to grow the share of our (inaudible) base compared to the total base, to which now 80%. Which we extend, by the way, while we have committed on breakeven EBITDA level for the broadband business in Spain.

Regarding Poland. Again, I will not comment too long, this is already published. Just to say that it is better than it was on the recovery, especially on the mobile part. And that on the home segment still under strong pressure of cannibalization by mobile services. However, we work on that, and we think that we see additional investments we have committed to vis-a-vis the Polish regulator we should get also a better positioning on the broadband business.

If you look at some of the KPIs on Poland, it is best to say that the number of mobile customers has reversed decline, so we are growing again the number of mobile customers, with a strong increase of the prospect base, which is also a sign of confidence and a sign of willingness to commit by our customers vis-a-vis our brands.

And on the fixed side media sell customers are slightly growing by 1%. A very good point in Poland is the development of triple-play. With more and more TV customers we have doubled the number of TV customers, which represent now around 15% or 17% of the customer base.

Regarding Orange Business Services, I briefly mentioned at the beginning of my speech that in fact we had two or three different trends into the revenues and they are detailed on page 19. So the service part, which is let's say under global economic pressure and where we are in a cyclical business, the continued growth of [advanced] business that work with (inaudible) the transformation throughout IT of our customers, whereas the legacy business is under pressure. Probably a good indication that we are not losing long-term value on this division. This is the growth of IT connections in France. We just took the French figure, where IT connection continue to grow at a pace of 60% compared to first quarter 2009.

Regarding other countries, let's say global positive picture, with continuous positive trend, very positive trend from Africa and Middle East. 7% growth, 8% before regulation with strong pushes. By the way, are people commenting some countries are not [performing] well. I will just remind you that the performance of the Africa and Middle East portfolio is also linked with the political situation of the different countries. And this is why in our view it is better to have a portfolio of 18 countries than to have a portfolio concentrated on one or two countries where you concentrate a lot of risks, maybe even if global performance could be better.

Regarding European countries, again, a slight revenue decrease, including regulation, positive evolution before regulation, especially thanks to Belgium and Switzerland.

Whereas as I said, situation in Central Europe, especially Romania and Slovakia, remains under pressure, mainly linked by the way with the economic situation.

We have commented -- and again this figure -- this page, page 21, is actually a [proposal] for questions. I will not read it again, just to say maybe in a few words that we have been negotiating with Orascom a higher degree of control of ECMS in exchange of an amenity. This is the basic principle of this transaction. The previous situation, which we had to share co-control with quasi-equivalent rights, especially that could lead to deadlock situation, has created the dispute as entailed -- has generated the dispute we have been in for the last three years.

At the same time, after evaluating the situation in Egypt for a couple of months, we have considered, like many other countries, that we could not stay in this country without a strong local partner. So I know I have come in our view is for the best partner we can have in Egypt, the best private partner we can have in Egypt. So take this into account, the relative principle we have considered that it was better to reach an agreement with [Mr. Fayrah] than to continue to fight in the different couts, either in Egypt or outside of Egypt.

Whereas -- and you have seen that by watching the relief of first-quarter of Egypt, even if we had been able not to ever expose Egyptian management to the conflict between shareholders, the first quarter of 2010 has shown that we are at the limit of this exercise of having a Chinese war between shareholders and operational management.

This is why I think the two main shareholders have come to this reasonable agreement, where France Telecom ensures its control over the asset, and keeping a strong minority partner at its side.

The last point, I guess everybody is following the potential transaction between [NTN] and Orascom, just to say Egyptian assets will be excluded from that transaction and will remain under[Mr. Fayrah's] differing holdings control.

Last slide of the presentation is the performance of Orange UK. This is the last time we present Orange UK as a standalone asset. Next time we will present you the JV figures, which we will aggregate Orange UK plus T-Mobile UK. But just to say that we have continued to manage correctly [the set] with the help of our British colleagues, and that they have achieved a good (inaudible) performance. And by the way, I know this time this is also the case for T-Mobile, which means that at least for this (inaudible) us our living together, we have not deteriorated. Some of the combined market position of the two assets has not decreased versus the initial addition of the two market positions.

Our last slide is well known. I guess you don't discover something new. By the way, if you're saying something different, you will probably ask us a lot of things. What we can say is that this first quarter is not tremendous. The overall economic situation has not proven -- drastically improved, even if it is not deteriorating versus our expectations. This is where we confirm our revenue perspective.

But we don't see additional signs of recovery in our main countries that we justified. We improved the trend or we have a better view of the trend versus what you told us two months ago. However we are in line with those trends. We keep a tight control of our margins. We keep a good control of our marketshare.

With the question of the marketshare of broadband in France, which is under scrutiny, but if I accept this point, which is under strong attention and is strong work for the French team, those are areas where we will be sticking our marketshares are operating, including the Enterprise division. We think that based on this, we feel comfortable enough to secure our cash flow objectives for the year, and not at the expense of the CapEx. Because we also confirm our CapEx guidance, which means that EBITDA will be in line with what we said at the beginning of the year.

Thank you very much.

(Operator Instructions). Frederic Doussard, Oddo Securities.

Three questions. For the first one regards -- you regard the (inaudible) fixed line business in France. You mentioned in your slide that maybe you could improve your marketshare thanks to cross marketing. Maybe if you can elaborate a little bit on that, when you think you can start. If you are sure to get the approval of the regulator on this point.

Then second question, regarding the EBITDA margin you said that stage H2 margins should have a better basis of comparison. Does that exclude the provision -- all the provisions for a senior plan, for instance?

Third question regards maybe trends in margin. So can we say that trends in margin in Q1 are comparable to trends in (inaudible)? So maybe if there is also a slight deterioration in EBITDA margin in fixed line in France and in enterprise, or not at all?

We will answer on the first question on France, especially France DSL.

So we have a strong commercial and marketing plan to increase our marketshare. But, of course, cross-marketing and cross-selling, like (inaudible) does, would be very, very helpful for our English situation to increase that marketshare.

Nevertheless, our plan is not based on cross-selling and cross-marketing, it is based on five principles. The first one is loyalty. Because, of course, we have the largest customer base, and therefore we are the first customer provider for our competitor. And we think we have a very strong (inaudible) in this aspect.

The second focus for us is on new offers on a segmented approach. The third one is the new tariff linked to this segmented approach. The fourth one is on new boxes, live boxes and set-top TV boxes, a strong policy -- renewal policy. And we think it is also a new engine for us for our retention policy. Of course, the sixth one is services and quality of service, because we can sustain premium price with a higher quality of service.

So you are considering that you could also do some cross-marketing?

We are expecting an answer in Q2 or H2, and we do feel we need also to do cross-marketing and cross-selling to improve our marketshare.

On the EBITDA evolution for Group as a whole, I think I tried to preempt your question. In fact when we look at the picture of cost evolution and of revenue evolution between first half and second half, the situation is more or less different or exactly the reverse from what we had in 2009. We expect less cost pressure in terms of evolution in H2 2010 compared to H2 2009, which means that growth deterioration should be lower as a whole on most of the lines.

At the same time, we keep thinking that we should have a slightly better revenue picture, if we continue to target revenue flat for the year. We are at minus 0.3, which means that in the second half we should be at plus 0.something. Which means that in comparative terms to last year, we should have a better situation. So this was my main comment.

By the way, I don't know what you mentioned -- what you wanted to mention on provisions. If that is okay for me what you are thinking and those words.

It was just regarding the provision for a senior plan, which is (multiple speakers).

Yes. For us the senior part-time plan has been provided for last year, and is outside of the normalized EBITDA. That is (inaudible).

And margin -- is margins slightly down in French home business in enterprise, or nothing significant to (multiple speakers)?

We don't publish the quarterly margins. We will not change that this year. So you have to wait until the end of the semester to think about that. And I think the global picture we give on the company will help you to understand what could happen on the different businesses.

Stephane Beyazian, Raymond James.

Regarding the business in France, could we have some comments on the big drop in business lines in Q1 in France? And what is the clean number that was in terms of net adds that was to include some adjustment? Is there any competitor in particular you think of that you might be losing some customers to, or who has been more aggressive in terms of Internet pricing recently? That is my first question.

My second one, can I just come back on what you mentioned during the presentation, because I'm not sure of the number. What is the size of the ADSL end market net adds that you used to make your calculation of 14% net adds in the first quarter?

My last question is regarding Romania. Can we have some let's say more color on what is happening there in terms of improvement? And particularly I am thinking of volume, is there any improvement in terms of volumes that could be part of the explanation of the improvement at the top line we are seeing in the first quarter? Thank you.

Vivek, can you answer on the business -- on the enterprise lines in Q1 in the evolution?

Yes, of course. Just to be a bit precise on the number, out of the drop of -- that appears at 513 there is some base cleaning effect of 203,000, and a transfer to retail -- there's a [reclass], because as you know, the border between business and the retail side was -- is readjusted. That impacts the 130,000. So the net decrease on the enterprise market is 153,000, which is more than the previous quarters. And this is largely due to three effects.

One of them is the fact that we -- on January 1 there was a decrease in the wholesale line rental price, which led to increased competition pretty broadly. I'm not sure we have the breakdown of the destination of these transfers. And I'm not sure we would have access to it for obvious reasons.

The second thing is that on a traffic side there has been a level of substitution, customers transferring their traffic to VoIP type solutions. Which is what you also see on the converse side in terms of increase for us as well, as we show a 59% growth of our XYT connections.

And the third factor is that after a certain lag time a number of companies have looked at cost rationalization, and in some cases reduced the number of analog lines when they had VoIP lines on the site in terms of securing their sites or their locations by having side-by-side a VoIP and a PSTN solution. So I would say that covers those other three reasons that feed into what is net on the enterprise market represents 153,000 line decrease in the quarter. That is to respond to your point.

Then the question of the 14% of the DSL conquest share.

So on this question, the number of additional customers on broadband for Orange is 57,000. For all the markets it is 380,000. All those figures, excluding the base cleaning, so our marketshare is 14%. (multiple speakers).

This is just ADSL market? This is not including cable lines?

No, not including cable lines. And just to point out how the markets evolves, it is a 30% drop versus last year.

Nick Lyall, UBS.

There was still one question on Romania. Shall I answer that?

Please go ahead sir.

Olaf? Regarding the implement in Romania.

So the comment on Romania is that we see the GDP development is less bad compared to last year. So we are now in Q1 around minus 2.5. Our crisis indicators, which we have been measuring and following up on every week, is showing some improvement in usage. And in key revenue areas, such as roaming, we still see some issues on prepaid recharge.

So overall we are confident that the situation is improving. And we believe that Orange Romania with its strong marketshare position and the cost reductions that we have done last year, is in a very good position to take advantage of the recovery of the market, which we expect in the next couple of quarters.

Nick Lyall, UBS.

It is Nick, UBS. Can I ask two things on the DSL market first around broadband. Firstly in March when you had your new pricing out, could you give us a rough idea of what your marketshare of additons was purely in March versus the market?

Then secondly, it looks as if from the number you just quoted that the DSL market has slowed a little bit. Is that a general slowdown in the overall broadband market or is that more pressure, do you think, from new [Metacable's] new offers?

The final thing I was hoping to check was if you did see faster take-up of [Bree] products over the new Metacable network in the second half, would you consider raising new EUR100 million [Flite] fiber-to-the-home spending to try and combat the new Metacable and Bree offer faster possibly?

I will answer the first two questions. For March we did see an improvement in our marketshare, but we do not communicate on the monthly marketshare.

For the slowdown of the market it is not due to the cable market. It is just because the ADSL market is a more mature market and we expect it to slow down compared to last year.

The last question on the fiber investment, we have sized the 100 million investment. In terms of administrative and physical capacity to invest, you know that the process to invest in fiber require -- a section of the local loop part requires that you first consult other operators, and that you ask them whether they want to participate or not. It is a relatively lengthy process, a few weeks. And then we don't see any reason why we would invest -- or we would be able to invest under that.

The second point is that Bree has announced this affair, but it is still hesitating on its position on fiber, still considering whether they should rather do a real fiber-to-the-home business or a business which is more linked to a kind of DSL based on cable than a true -- a full fledged fiber business. So I don't think their strategy on this part is so secure.

And I see it more as a kind of marketing announcement to have a real portfolio of offer, because I think one point that Delphian commented in our marketing plan, but I should underline, is that DSL business is also moving from a very simple unique offer to a much broader portfolio offer between quadruple play, complex triple play with HDTV, triple-play with WebTV, etc., high-speed, lower speed.

So I think it is a much more complex portfolio, which is now under design by the different operators to capture more different segments, and more in each segment of the market. And it is fully part of the strategy of Bree, but in such marketing strategies there is always a huge part of announcement. And then afterwards you saw what are the real segments which will provide the (inaudible) and the profits, that is another issue.

Dimitri Kallianiotis, Citi.

It is Dimitri from Citi. Just going back on the broadband marketshare, I just wanted to know your CO last time mentioned targeting 35% broadband marketshare in France. Just waiting to check that if you think it is still a really thick target.

Also in terms of the premium that you charge against the other operators, do you feel the need now to cut that premium or are you thinking in a charter market you can still charge a charter premium?

My second question is on personal cost in France. First I wanted to know what you think in terms of evolution of headcount in France this year? Should we expect it to be flat compared to last year? And in terms of just the cash cost element of personal cost, so excluding any provisions and things like that, how do you think this cost will evolve this year? Thank you.

On the first question our goal is to return to the level of net adds marketshare we had in Q4 '09 during the second half of 2010.

On the premium prices, we still think Orange has the capability to sustain the premium prices. Besides we cannot, for regulatory effect, go under a certain amount of price. We do think that premium services can sustain a premium prices for ADSL.

As far as headcount is concerned, we think that headcount will be flat in France in 2010. And the salary agreement we just signed should lead to growth between 2.5% and 3% of the level of cost in France this year.

Damien Maltarp, Credit Suisse.

Just a couple of questions. On Switzerland, what do you think needs to be done in order to overcome those regulatory hurdles to close the deal there?

And secondly, looking at your consumer PSTN, I guess, line loss, it has continued to accelerate. I guess that was in contrast with some of your European peers, many of whom are seeing improvements in their line loss trends. What do you think you need to turn the corner on that line loss?

Pierre Louette, our new Corporate Secretary, will answer the question on Switzerland.

On Switzerland I think we really need to come up with a different offer if we want to make this deal. We are assessing our options right now and looking into the 110 pages decision that the [record] has produced. So we are not completely certain that -- of the structure of the new deal. We know that we have to work on the MVNO side and other aspects too. This is also what makes us believe today that we will look into this new project with new eyes, but we are not completely sure we will make a new proposal.

So just to be clear on that, so you're not sure whether you are making a new proposal or is it just a matter of changing the proposal?

What we know is we are certainly going to file an appeal. This is one thing. And we're going to work in the new proposal, but as of today I cannot tell you much more than that. Since making a new proposal changes the numbers and the overall structure of the deal, so we need to work on that.

There is a kind of timing that we should be thinking about this? Are we back at square one, and therefore it is another 6 to 12 months or something?

Timing is -- the timeframe is variable, depending on the legal options that you take. One option could be to ask the (inaudible) to reconsider its decision. That is a relatively short route. I mean, it is less than two months. But it still needs us to come up with a new proposal.

The second question on PSTN line loss. I don't think -- I think it is very difficult to appreciate that on a quarter. I think if you look backwards on the trend for France Telecom for the last three years, I think we have been in measure better performing than most of our peers in Western Europe.

Now it is clear that there is an effect in France linked with the economic situation, and with the fact that, linked with the challenge from the DSL markets we have today putting more interest than we had in the past to push -- to convince our customers to migrate to naked DSL -- so DSL including Voice over IP -- than to stay with a PSTN. Keeping in mind that there is no cannibalization, or not more than before, which is very little in France of cannibalization by mobile. Cannibalization by mobile has never been an issue on the French market as compared to Poland, for instance.

So it is more of a fact that because of the price pressure -- of the economic pressure on the households, since Voice over IP is working better that we have more destinations -- more geographical destinations on our voice over IP offer, there has been more interest from our customers to move -- to migrate today from PSTN to Voice over IP. But again, it is a move we try to continue to control, because this is the best way to keep and preserve the marketshare for the future.

And it is not only price issue. We think that to between the change -- to change the price of PSTN we will not change anything in the picture.

Nicolas Cote-Colisson, HSBC.

The first question is about the move you make in the UK from unbundling your (inaudible) to wholesale. I was wondering if you could do the same thing in Spain, or do you think the economy there are a bit different?

And I got a second question regarding the French mobile. I am wondering what was the impact of increasing the share of MVNOs on margins in the medium term?

On the Spanish situation, I think the two businesses are in very different situations in terms of competition. I will just remind you that on the UK, except Sky and to a certain extent the incumbent, but even for the incumbent I am not sure it is completely true. Nobody has been able to create long-term value on the broadband market in the UK. And I can tell you, even those who have very positive speech outside with the -- when we discuss M&A and when we see how ready some could be for sale, I am not sure that everybody thinks there is a great value on the business.

But again because of the link between TV -- I will just remind you that the UK business, whether that has been very strong for Sky because they have sold DSL, let's say, Internet connection as an addendum to their Pay-TV market. This means that to resist on this market has been difficult. And you have seen that our customer base has been eroding year after year for the last three years, making the situation very difficult to keep a fixed cost base compared to a negative variable customer base. So very difficult.

I think in Spain we are in a very different picture, where you have only three competitors. Not so strong cable, not so strong cable, probably slightly stronger than in France, but not as strong as you can see it in the north of Europe. So the market where for the last three years we have rather improved the regulatory framework with the operator. And we think that we still can bet on making money with a fixed cost investment.

And by the way, we are not far from reaching this bet, because as I said when I presented the figures, we clearly focus and has the objective to be with zero EBITDA this year on our (inaudible) in Spain. So we think if by any chance we were in an adverse situation versus this, we may change your mind, but it is not the case today.

Regarding the MVNOs. The overall strategy of the group has been clearly to grow the MVNO base. Why? Because for two reasons. One is market coverage reason. And remember that maybe France Telecom Orange was the first to start with the licensees, so to expand the mobile business beside a strong brand with additional brands, so the fact that France Orange cover more of the market -- market segmentation may require different brands. Especially when you are already by yourself 40% or 45% marketshare. If you want to grasp additional marketshare this is through additional brands. And the best way is to do it with partners who have either a network, a name, a distribution capacity or any other thing.

If you look at the strongest of our MVNO partners these are people who have either been a strong brand, in the case of (inaudible), or who have a strong distribution network, in the case of (inaudible). This is also the best preparation in our view for being able to fight against a new infrastructure player. With the arrival of (inaudible), even now -- one year and a half from now. That is one point.

The second point is that through MVNOs, and again, the French and the MVNO scheme is not the less profitable of the European MVNO schemes. We are still with a way to manage the network and to speed the value added between the MVNO and the operator, which are (inaudible) good for both parties, as you can also have more aligned marketing strategy between you and your partner. I think no one has interest to try to cannibalize or to win back completely from others.

The second point is that it is also a lost freedom within your customer base, because you can never consider that your customers are tied forever, especially in the prepaid market, an easy one to be moved. If you want to be free, maybe it is better that you still continue to keep margin on your customers than to have them with competitors.

So the long-term effect on the margins are probably a slight pressure on the margin, which would have come either from infrastructure competitors, and then we have more in terms of volume, or which would have come from regulation, or which would have come from technology shift, including Voice over IP of our mobile in the future.

Matthew Bloxham, Deutsche Bank.

A couple questions. Firstly, just on M&A outlook for (inaudible). Monsieur Doussard was doing an interview with the Financial Times a few weeks ago, where he suggested you could perhaps look a bit more aggressively at M&A to deliver your revenue growth plans in that market. I am just wondering if you could expand a bit on your thoughts there?

The second question was just on the underlying revenue growth outlook for the year, this kind of target for stable revenues, which implies as you said, an improvement in the second half. I am just wondering whether you are expecting that improvement to be driven by one or two specific assets, or you are expecting an improvement across the whole footprint? Thanks.

Again, on your second question, I would like to remain very careful. I just remind you we don't give revenue guidance, so we will not give revenue guidance by country.

Just to say that in the way we see the future, we think that there should be a slight acceleration of the recovery in second half compared to first half. Now this is a result if this current financial crisis does not destroy again the whole market, and a lot ifs like that. But based on the view we have we think that it should go that way.

Now what would be the countries which would perform it? I think my view is that those who are already slightly in advance compared to others today will probably continue. At least this is my personal guess. Maybe I have been mistaking on one or two, but I think this would be rather the trend. Those who have shown some improvement already will probably continue to be ahead of others.

Regarding your first question, I think the point made by (inaudible) has not been very different, even if it was expressed in different terms. And on the longer duration period than what we said on February 26, the cash allocation we presented on February 26 remains valid. It allows the moves Mr. Richard has been speaking about. He has mentioned between EUR5 billion and EUR7 billion investment in emerging markets over a period of five years. Which in my view is not very different from what we said in terms of use of cash over the next two years.

We said, if you remember especially on our debt guidance, that if we could allow ourselves to be slightly above the guidance for a limited period of time, if we had a good opportunity of investment bank for this period, that we would come back to that guidance.

Why do we say that we should be (inaudible)? This is because we think that there are more moves on the market. We have seen the varying [party] move a few weeks ago. There is the current discussions between NTN and [Orascom]. By the way, we think that we belong to the two western Europe players in Africa with [a phone].

There are two big players coming from Western Europe. And if you want to keep and to continue to increase our presence on Africa (inaudible) we will have to look at potential assets, including those assets that, as we mentioned probably not the whole of them, not (inaudible) but we continue to. Whether we can increase, and need the help of (inaudible) to increase quicker than initially planned, we may look at it. But again keeping the same financial discipline vis-a-vis the shareholders in terms of distribution, and vis-a-vis the debt market in terms of debt structure.

Matthew Bloxham That's great. Thank you.

Thierry Cota, Societe Generale.

This is Thierry Cota from SG. Three questions if I may. First on broadband France, you made a comment earlier on the upcoming [range line] program that you would work on retention and customer loyalty. I thought that the churn rate of your base was already very low. If you could give us an indication of where it stands and where would your target could be?

Secondly, on the Egyptian deal that was just announced, do you feel that there is any legal risk with other shareholders that could be unhappy about the payment you are making to one of the shareholders of the company?

Lastly, just a question on broadband Spain. You did mention the Q1 interuption in customer loss. But this was also the case in Q1 2009. So I was wondering if there was anything seasonal or if you see something structural, and that we could see also in the coming quarters?

On the first question, the market is more and more a churner market. And we did see a slight increase of our churn. As we have the biggest customer base we need to have a strict control of our churn and to control our marketshare. So it is one of our main issues in our marketing plan.

So Marc, could you answer on the question on Spain?

Yes. Regarding Q1 performance this year, I think conditions are definitely different from last year. I think it has been supported on the one hand by an enhanced portfolio of offers. In particular, we have been successful with the launch of a wholesale line rental offer in the indirect environment, which has enabled us to slow down the churn of those customers which were under pressure from mostly Telefonica. And we also launched an offer enabling customers to migrate from alternative players directly to our network without translating through Telefonica, which also has proved successful.

So I think on the sales side we have had upside coming from new offers. And on the churn side also we have improvement due to improvement in our quality of service.

On your question on Egypt, I think in any situation of that type there are legal risks. By the way, this situation has been bringing with it legal risks since the beginning, so I don't think there is any news for that. And there are legal risks with the partner, with the authorities, with minority shareholders. So I think you have to analyze the risk picture globally and not just the risk vis-a-vis one group of stakeholders. That was the first point.

The second point is that -- and this is the reason for which we have published the detail of the transaction yesterday -- it is also to make public the details of the transaction, and to ask the market authorities in Egypt to decide in due course, but in due knowledge of the situation. Because we meet the market authorities to decide whether this transaction remains a private transaction with no consequences on the market part of -- which is the minority part owned by minority shareholders of the listed company, ECMS. This could be one of their decisions.

Or another decision, which is to say there is a need to enter into a market offer for the minority shareholders. This is a question which is today in front of the [SSA], and which they have to respond. However keeping in mind the position that France Telecom has always defended, is that the price of the transaction which could be -- which is a private transaction at the holding level, is holding -- being able to invoice management fees and (inaudible) fees at the same value than the transactions, which is for the public shares of ECMS.

Do you have any timetable on when you expect the answer from the regulator or the market authority rather?

We have no precise timetable, and it is up to them to decide when they want to decide. Okay. We have been waiting for long in this situation. Honestly, myself, I am not in a hurry. We have been patient. We can be patient a few more hours, maybe a few more weeks. Probably it will be just a few more days.

And basically what drove you to make the decision to make a specific payment to Orascom, rather than to make another offer at the level that had been originally decided only for the Mobinil stake, because the overall cost, or the increment will have been probably different.

I think you have not probably listened to what I said when I commented it at the beginning of my speech. Maybe you were not there, which is a pity. But just to say that we have kept -- we have come to the view that we need a strong local partner. And if you want to keep the value of this asset, we need to have a strong local partner. Mr. Fayrah is the best local partner we can find. So we have to get an agreement with him. Okay.

This has a price for the value of this asset and for all its shareholders. If some of the shareholders are not convinced, we can sell their shares as at the current sale price.

[M.S. Kelly], Merrill Lynch.

I have just two questions please on the French wireless market. Firstly, it seems like you are performing very well in both the contract market and also in the area of non-SMS data revenues as well. I think you said you'd gotten nearly 2 million smart iPhones on your network. Could you just talk about the proportion of your subscriber base in France that is now using smartphones? And how quickly you were seeing a ramp up there and what type of upside you are seeing there as well?

My second question relates to the upgrade strategy. I would just like to know whether you are actively upgrading your existing customer base to smartphones and onto higher ARPU packages as well? Thank you.

Among our customers one-third of our customers are using a smartphone. And we expect that one device out of three sold in 2010 will be a smartphone. What we can see is that the increase of our -- first of our contracts and of data revenues are strictly compensating the decrease of the voice revenues. We are going to go on this way and to increase the value of the data to compensate the decrease of the value of the voice.

Excuse me, I didn't catch up your second question.

So the second question was whether you are actively upgrading your existing customer base? So customers who have made been with Orange France for one or several years so whether you are actually upgrading those customers onto smartphone packages and onto higher ARPU packages, including data components?

We are also working on loyalty for mobile market, of course. And we have just launched a new retention plan for mobile in order to be -- to give more high-value devices to our biggest customers, and to have very segmented effort also on retention plans.

Antoine Pradayrol, Exane.

I have one question and two clarifications please. So the question is about the revenue trends. Coming back to your comment that the H2 trend should be slightly positive, where the Q1 trend was slightly negative. And coming back on where it is coming from. Just do you think that the French fixed line revenue trend, which was minus 3.1% in Q1, do you think it can improve later this year, or whether it will deteriorate given the accelerating line losses, pressure maybe on both and ARPU, etc.? That is my question. Then I have two small clarification questions afterwards please.

Just for a second, because it is your question is a complex question. Just to say that at group level as a whole, the way revenue and volumes, because it is also we are in a business where revenue is also linked with traffic and volumes, we think that when we compare our perspectives for second half to what it was -- what was the actual figures for second half last year, our view is that we have less deterioration globally speaking,, and that we should have a better revenue picture in the second half compared to the first half.

As regards -- it is the case as regards to France as a whole. Now to answer on the fixed line itself, (inaudible) and by the way, we don't give in advance of revenue of fixed line, because at one point we don't know the fixed what we did the traffic on fixed line. You could have a very different event in seasonality, especially with what happened during the summer. We have very good revenues sometime some summers and much lower revenues on other summers. But globally speaking we think that what I say on the global group will apply on France as a whole. They just get to be more detailed today.

Okay, thank you. Then just to make sure, you said I think in answer to a question that there was 130,000 lines, which have been repositioned from the business to the residential. Does that mean that when we calculate the line losses in residential we should add this 130,000 lines loss?

Yes, it is right that we have just run through it 130,000 customers from business to mass market. So you have to take in account any calculation you have just taken.

And the second clarification. You said I think that you target the flat EBITDA in fixed line in Spain. But I think you said in 2010 -- I said that the target was at the end of 2010, rather than for the whole of 2010, can you clarify that please?

I think that [Jean Marc] you may correct this. That we should be able to reach this target to be at the whole, not flat, because flat would mean that it is exactly the same EBITDA than last year. So it is more EBITDA at breakeven, now zero.

Yes, this is the target we had.

Okay, for the full year?

Yes.

So I think this was the last question. So thank you very much for your participation. I hope that what we told you this afternoon led you to understand that our figures are less disappointing than what some of you saw that this morning. Thank you very much.

Ladies and gentlemen, that concludes this conference call. Thank you for your participation today. You may now disconnect.