Orange SA (ORAN) 2010 Q3 法說會逐字稿

Good afternoon ladies and gentlemen, and welcome to France Telecom 2010 third-quarter results conference call. The call will be hosted by a Gervais Pellissier, Deputy CEO and CFO; and Delphine Ernotte, Executive VP, Deputy for French Operations; 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 Gervais Pellissier.

Good afternoon to everybody, and thank you very much too for joining us this afternoon for this call for France Telecom Q3 results. Together also with me on the call today, Delphine, as well as our colleagues to participate in the Q&A.

We present a very sound set of results for this quarter, and I think most of your questions are expected afterwards.

If I come on page 3 of the presentation, that just -- of the main headlines of what you will review of those results themselves, some comments by geographies, and to conclude with the outlook.

By the way, in order -- if you don't want to go immediately to the last page, just to tell you that there is no change in the outlook for year end. So no surprise on this page.

Some of the main points we would like to underline before going through the set of details on page 5. So let's go.

I think what has been good for us in this quarter is first a good commercial performance, more or less in most of Group's countries; and dividends, especially very successful momentum in France that will be commented by Delphine, on the DSL market first, but also a good performance on mobile, where stability of the market share has been achieved.

The second point for Group, this is the revenue evolution with gross before regulatory effects of 1.1%, which is now real growth compared to what we had in Q1, where we were still declining, and Q2, where we are just going by 0.3%. And this being achieved without jeopardizing all the efforts we had been undertaking to preserve the margin, and so our margin erosion for the first nine months of the year is limited to 0.8% of revenues. This will lead us to confirm our forecast for the end of the year to maintain the erosion below 1% of revenues.

And last point, which was also a question from some of you and a question of other stakeholders, whether this company will reach each of its financial objectives by decreasing its CapEx. It's not the case. We are increasing our CapEx compared to what we did in Q3 2009, and we confirm also the full-year guidance at 12% of revenue.

Page 6 gives you some of the main figures. I think we will come back on that -- just maybe to mention two of them. One is the fact that (technical difficulty) is now above 200 million customers as a whole. In this increase there is the consolidation of Egypt which has brought 19 million additional customers, but there is also the organic growth of the business globally speaking, especially in emerging markets, which has brought the other customers to reach this figure above 200 million.

The second figure to comment -- this is the broadband net adds of the French market at 32.8%. So France Telecom has achieved again, has reached again in Q3 the target. We add even to ourselves to come back and deliver a [30]% of net share of Conquests in the second half of the year.

Maybe another point is that you remember that we presented to you with Stephane early July our main priorities in Conquests two thousand -- now Conquests 2015, the plan around four priorities -- one on customers, on employees, on networks, and on international development.

In each of those areas we have already got some results. Employees, we commented that with the implementation of the social contracts amongst the French employees -- social contract is a summary of all what has been negotiated between the unions, discussed with the management and with some of the representatives of the employees in -- for the last 12 months and which is now more or less the mobile contracts in terms of commitments of the company vis-a-vis its employees to be covered in terms of morale, in terms of collective dynamics after the social crisis we have been facing last year.

Regarding customers, so there is a quadruple play offer opened in France; the iPhone launch in Spain, and with success we are -- we have been the number one iPhone seller in the third quarter 2010 in Spain; the extension of mobile segmentation around the animals offer, which was developed by the UK in most of the European geographies.

Regarding networks, just to mention what we have been doing mainly in the area of submarine cable by continuing the deployment of cables around Africa, but also by increasing our capacity to deploy submarine cable by acquiring the cable ship operator of Telecom Italia just a few weeks ago.

And last but not least, what we did regarding international development with the partnership with Meditel that was signed a month ago and the consolidation of Egypt.

The main key figures are reported on page 8, and there revenue evolution is plus 0.4% excluding regulatory impacts, as I mentioned. It is minus 1.7% (technical difficulty) regulatory impact, but for the year we commit to [EUR1 billion], [EUR1 billion] revenue, which is more or less EUR700 million in the first nine months of the year.

EBITDA erosion of 0.8 points to reach EUR12.04 billion.

CapEx at EUR3.374 billion.

And EBITDA minus CapEx, slightly eroding, but keeping our capacity to reach the EUR8 billion organic cash flow at the end of the year.

Our customer base so has increased by 5.1%, which is a good figure, more than 200 million customers, as I commented a minute ago.

Mobile customer base has increased by 8% with now smartphone in general, including iPhone, representing nearly 50% of all mobile devices sold in Q3 2010.

On the mobile division, growth has been driven both by value customers with a specific strategy for mature markets, especially to increase the value of the consumer base and prepaid customers, resulting in a total growth of 8% to reach 145 million customers.

Let me also point out that 63% of all customers are now under the Orange brand with significant further growth potential in the area of mobile data and new advanced services.

If we look at the revenue by regions, you see the figures for the first nine months of the year on page 10. The key point is that organic revenue has been improving quarter after quarter, reaching in Q3 1.1% growth, driven by mobile services in all major geographies.

Excluding regulation, year-to-date revenue for the Group turned positive at plus 0.4% year on year, with a regulation impact estimated to a little less than EUR200 million in this quarter, compared to EUR500 million in first half, so I said, EUR700 million for the first nine months of the year.

Mobile data has taken off in all major geographies including Spain, where Spain was lagging behind other geographies, and reaching more than 30% of service revenues in France and Belgium, and nearly 30% in Switzerland.

And last but not least, the enterprise division, Orange Business Services, has been able to contain its revenue erosion to a little less than 4% at minus 3.7% compared to a decline of nearly 5% in Q2 and 7% in Q1.

Same figures for Q3 only, and there I think if you compare page 11 with page 10, you see how the dynamics has been before revenue evolution in this last quarter of the year.

You see also the trend on page 12 where you have the revenue evolution quarter after quarter since Q4 2009, and you see that all geographies are improving in terms of trend, with one exception, which is Poland, but where we can comment we are not worried, and I think those of you who are investing into [the] Group have proven yesterday that there is no worry on the results published by [Citigroup].

As I said, this commercial performance and the revenue evolution has not been obtained at a too excessive price or too excessive pressure on our profitability. And this is reflected on page 13, where you see the evolution of the EBITDA compared to a year ago and where for sure we are adverse -- we have had adverse (inaudible), especially regulation and tax, which has cost us EUR[55] million in this quarter.

Also an increase of interconnects got linked with the extension of enriched and unlimited offers. So this has cost us nearly EUR100 million.

And also an increase of commercial expense compared to what we have spent in the first two quarters of the year, where we spent in Q3 -- we have been spending in Q3 2010 about EUR[190] million more than the year ago. This [increase] (inaudible) [by a few tens], millions, which are linked with content expense. But most of the increase is linked with the need to further the growth in customer acquisition and customer retention.

The cost structure -- and this is reflected in more details on page 14 -- has been under control. We knew and we have already commented at the end of July that we would have a slight increase over labor costs linked with the fact that there is a little reduction of the manpower in 2010. However, we have been putting our efforts to continue to control and even to reduce our OpEx for IP and network and our general expense. And you see that those two lines have been strongly reduced compared to a year ago, which has helped us to reallocate cash and resources to commercial expense.

As we get to the CapEx on page 15, so CapEx has been increasing by 9% compared to a year ago, in comparable terms, to reach EUR1.261 billion, especially in France where expenses have continued to grow. And again we confirm that we will reach the 12% of revenue guidance we gave at the beginning of the year.

And I will leave -- go to Delphine to comment on the Orange France.

It's a very good quarter for our French activities. Our revenue growth, up by 1.3%, excluding regulation, and it's mainly thanks to the mobile activity growth of 6.6%, including regulation, and this is driven by data growth, data and SMS growth.

One of our major issues of this quarter was to recover our DSL Conquest share. We committed to reach more than 30% of net adds Conquest share, and we did it in Q3. We are at 32.8% of Conquest share. And this is the best level since the first quarter of 2009. This is of course the results of our marketing plan we set up in the first semester, our new pricing policy in place since June, and also the success of our new quadruple play offer, which is called Open.

This new offer, quadruple-play offer, has already been chosen by 99,000 customers, and among those customers is a large part which are newcomers for Orange.

On the mobile markets, our market share is stable at 46.9%, including MVNO. So for us it is a successful commercial momentum.

Our broadband ARPU is increased -- has increased by 2.8% year-on-year, and this is mainly the result of a growing naked DSL customer base.

On the mobile ARPU, our new rolling ARPU, it has increased by 0.7%, excluding regulation, mainly thanks to the growth of data and SMS ARPU.

In Q3 the number of naked ADSL line has increased by 0.3 million due to the high level of migrating customers to our new naked ADSL offers.

So thanks to our new marketing approach, which has been very successful in Q3, we think we're in good shape to achieve our results in Q4.

On the broadband side we will benefit for our new ADSL pricing policy, as well of course as the success of our new quadruple play offer, Open, and besides the generalization of the new Livebox 2 and our new HD set-top box will also be powerful assets.

On the mobile side we have in October completely renewed our new -- the Origami portfolio. We have simplified it and also launched very a very segmented contracts approach which targets the young people as well as focusing on data usage differentiation.

Besides we will continue to implement a value policy leveraging on smartphones and launch as well tablets, especially the Samsung Galaxy Tab.

With our marketing convergence, marketing segmentation, it will help us to fine-tune our cross-selling campaigns. Besides we're improving our quality of service, as well as the service for customers in our shops.

And with all of this marketing plan, we are very confident in the fact that we will continue to build a very positive commercial momentum in Q4.

They're seeing some -- maybe now some information on the other geographies, and to start with Spain on page -- to start first of all with maybe, before Spain, just a reminder or maybe a quick information on the mobile marketing approach.

I've seen one of the strengths of the Group, and there are (inaudible) some questions about (technical difficulty) on top of the brands, on top of what you could do on purchasing. I think there has been for the last month some maturation, some improvements of the work on marketing with the ability -- more ability to replicate what has been working in one country to other countries.

Our British colleagues have been quite successful in terms of [implementing] three years ago the animals approach for mobile segmentation by segmenting the mobile market depending on the behavior and consumers' habits of the different consumer groups, and this has expanded to some other geographies, proven quite successful, especially it has been introduced in Spain just at the beginning of the year.

After the shock we had last year with the arrival of a fourth player, that's proving to be quite successful to recover both in terms of economic performance but also in terms of market share and market control, market [mastering].

And this is also used now in Romania, Moldova, Spain.

And globally speaking, this helps to target the most of what we can in each segment, with more focus on high-value segments, but also to protect those segments in terms of loyalty and to protect the value and the ARPU and to identify what are the tools, what are the customer usage and the customer services we can bring to our customers to keep the value and the ARPU at the best possible level.

Especially it helps to implement the switch between (inaudible) ARPUs, which are declining, and data or non-voice ARPUs, which are growing, the way to organize progressively the shift without jeopardizing the average ARPU for the Group.

On Spain, so on page 22, this I think is a good performance, but on top of that, you see the fifth quarter of revenue growth before regulation, especially on mobile, and with continued improvement of the (inaudible) [customer] base now 52% of the customer base is equipped with a 3G devise, and data business is really taking off. Now it is [17]% of the mobile revenue, mobile service revenue. It's far from the French figures commented by Delphine, or from Belgium. But with an ability for it to take off and to catch up compared to what is done in the north of Europe.

At the same time, the customer mix has improved with 39% growth on the unbundled base of DSL, now with nearly 600,000 customers on the DSL base, which represent now 52% of the customer base, and this helps us to confirm that we expect to achieve positive EBITDA for the DSL business for 2010.

In Poland -- so I will not comment so many details why -- you can refer to Poland (inaudible) group communication, just to mention that on mobile, revenue has grown by 1.7%, plus 2.2 excluding regulation, that our customer base has grown by 3%, with now 14.1 million customers, and with the contract mix, we're now nearly (inaudible) 48% of the customers are under contract.

Regarding the home business, the revenues are down by [7.6]%, slightly better than what we had in Q2. However, the number of broadband customers is stable, and the efforts of [ADSL] are really oriented to compete against cable, which provides TV, and this is why we are quite happy with the figures with IPTV and satellite customers, so triple play customers, either through IP or through satellite in Poland, with an increase of the customer base by 76%.

All the other geographies, so the so-called rest of the world -- and sorry for colleagues of the rest of the world -- just to say that Africa and the Middle East have been growing by 5.5%, including Egypt, and that's on Q3 2010; excluding Egypt, growth has reached 9% compared to Q3 2009. And this is even better than what we had in the first half. A few revenue issues with Egypt, where revenue had been eroding by 3.7% after a strong drop in Q2 2010, to the drop of 7% before Egypt was consolidated again into our figures.

In the other European markets revenue were down by 1% with a (inaudible) back from regulation in Belgian and Slovakia. However, excluding regulation in Belgium, growth achieved is nearly 8%, whereas Orange Moldova has been growing by 12%, and still some pressure and the economic (inaudible) in Romania, and to a lower extent in Slovakia.

So maybe just an additional comment on Africa/Middle East. You see that, as I said at the beginning, we're continuing to invest into submarine cable, and after the announcement of the agreement for throwing, deploying the ACE cable in June, we have signed the LION2 agreement in September. This cable will extend the existing LION cable to Kenya via the French island of Mayotte.

On the service side, we continue to design teleservices and products for African users, with a "develop once, launch everywhere" approach. For example -- and I think this is our biggest example -- Orange Money already launched in five countries and soon to be launched in many others. Orange Money is the way to use your mobile to transfer cash, and it is already used by more than 700,000 customers.

As regards the Egyptian operations, where we have taken control again on July 1, after a first half year, operations have been negatively impacted by a strong competitive environment, price pressure, and the shortage -- maybe something which happens in some countries, but not so often -- the scarcity of dials, of dial numbers to get the customers.

We're now moving in the right direction. We're satisfied with the operation in Q3 as regards to the commercial performance, and when we look at the ARPU, it seems to stabilize. This has been achieved thanks to a very efficient management of the dial number issue with the regulatory authorities, including the fact that you have obtained 1 million new numbers mid of June and that we expect to get another 1 million in October.

Last comment is for Orange Business Services, where revenue was still under pressure, reflecting challenging trends. We commented at the end of July, there is no specific change to the trends themselves, even if the picture and the figure itself is slightly improving, with minus 3.7% revenue decline, compared to a minus 4.9% in Q2 and minus 7.0% in Q1.

As regards to the legacy services, this is still driven by migration to new technologies and accelerating migration from (inaudible) customers to new technologies, and a higher level of competition. So the revenues from legacy services are down by more than 10%, or a loss of EUR75 million in the quarter.

Also revenues are up by 5.5%, mainly due to a strong rebound for (inaudible) [country] sale, but also helped by revenue growth in broadcast services. You'll notice that our Orange Business Services Division has also a dedicated company, GlobeCast, to provide a very high bandwidth broadcast services to TV operators all around the world.

Advanced services grew slightly with double-digit growth for voice over IP and IP solutions, but a drop in IP VPN and nomadism revenues. Most of the IP VPN migrations, most of the big European corporates, which are customers, has been done, and this is now behind us.

As regards to extended services, at minus 2%, similar to Q2, but improved compared to Q1, and this is mainly helped by some recovery on the French market.

Finally, in addition to being positioned in the leading quadrant of global data providers by Telemark, Orange Business Services have also announce that Conquests 2015 strategy with the ambition to become the global leader in B2B communication solutions. Global leader, in our view, means also being the most profitable. That's being the best in terms of size of revenues, but clearly the most performing also in economic terms. We think that this is the only way to be in the long term a supplier for our major corporates. If you don't make money on this business, you have a huge risk not to remain on the long term, and this is not what we want.

To conclude with our perspective for the year end, so on page 28, so I just said, starting to speak that, don't expect any change or any surprise, at least no bad surprise. So confirm our perspective for the end of the year, and we confirm our specific guidance on the CapEx, on cash flow for 2010/2011, and for sure the commitment on the dividend.

But also maybe one slight change compared to what we said in July, we are a little more optimistic as regards to the revenue evolution, where we see now that the trend before regulation should be slightly positive, as has been at the end of September.

We are now ready to answer to your questions. Thank you very much for listening to us.

(Operator Instructions) Nicolas Cote-Colisson, HSBC.

I've got two questions please. The first one is, what is to your view the price premium that France Telecom has in France since your new fixed and mobile offers have been launched? And do you think you may keep a kind of premium in the medium term?

My second question is on FTTH CapEx. So far the number of [whom passed] hasn't increased by your 50K year to date. And I was wondering what are the EUR100 million of FTTH CapEx expense on? And when do you expect to have a proper mass-market launch for fiber in France?

So for the prices and the premium prices, we still have a premium prices in our new Origami offers, for instance. But on the other side, we are focusing with those new offers on very precise segments of customers, because we know on those specific segments our market share is under our average market share.

For instance, we have a new offer, which is called Origami Style, which targets young people, digital trials, and we know we have to improve our market share on those digital trials.

So to sum up, we still how a premium price, both on mobile and (inaudible), but we need to be quite aggressive on some but some specific segments of customers.

As regards to FTTH, we have started deployments in second half of the year, as we said. However, it will be probably a little more lengthy [with the links] here than what we initially thought, mainly due, by the way, to the complexity of regulatory decisions between operators, and on top of that the fact that we are building now the vertical part, which is inside the buildings, where on top of getting an agreement between the operators, you also need to get the agreement of the landlords, and generally, at least in French cities, this is a -- these are condominiums with a shared property between the apartment owners. So the (inaudible) process is quite long.

And this is why we probably will not spend exactly the EUR100 million we have planned. It's probably slightly below this.

Now, to which extent, I don't know yet. We'll see at the end of the year. Probably for sure not very far from it but not exactly at this level.

However, we have considered that we have still some other investments to do, without -- keeping the money in advance in two areas. One is to continue to strengthen the core network (inaudible) fiber investment to just include most of the local loop in what [we have left to do] (inaudible) we don't include into the amount we communicate for fiber, all the fiber which is the backbone, where we consider that it is part of the core network itself. We may have some investment to do [as a substitution] to that. And also to increase the performance of the 3G network, as well to accelerate the coverage if we can in some areas, or to reinforce the capacity for data capture in some other areas.

This is the way we have decided to realign our expenses. If we don't spend a few EUR10 millions we should spend on fiber.

Antoine Pradayrol, Exane BNP Paribas.

Good afternoon everyone. Two questions please if I may. The first one is on your service revenue trends in French mobile. It was growing I think 0.6% in Q3. Do you think this kind of growth, service revenue growth in mobile in France is sustainable, at least in Q4, despite your price changes?

And the second question is on the cost trends and commercial costs. You had the big increase in commercial costs in Q3. Should we expect roughly the same year on year increase of EUR200 million in Q4? Thank you.

So I think your question on the sustainability of our revenue growth on mobile, this revenue growth is thanks to also the MVNOs and the equipment revenue, so we're not quite sure they (inaudible) staying exactly the same level of growth for the Q4, and besides, we'll see a very active commercial period. And besides we are going to protect of course our revenue for our customers.

My question was actually on the service revenues which exclude home sets, and they were still -- they were growing, excluding home sets. Do you think -- if we don't talk about home sets, do you think this is sustainable? Or not?

We are -- we think that we're going to have a very positive trend. It won't be as high as it is in Q3, but the trend will be positive.

Okay. Thank you. And on the cost?

On commercial costs, so maybe for Group as a whole, so you saw on the slide that we spent 192 additional million euro in Q3 compared to Q3 2010 (sic). The difference will be lower in Q4 for two reasons -- one is that the soft quarter, except for Spain, is a real quarter of peak commercial activity, generally speaking, for two reasons -- one is a change in introduction of new offers. There was a cheaper play with (inaudible) new tariff. At the end of Q2 there is Open. There are the new Origami offers. So there's a lot of new introductions, which led to lower spending globally speaking in Q4.

And however we will check, and depending on the way we are able to pilot and to drive our other costs, we will adjust also our commercial spending by volume and by mix.

Don't forget that behind the total commercial spending you have a commercial act, which is either you give a (inaudible) to a customer for retention or for acquisition. This is driven by a commercial act.

So we will decide week by week what we want to do, depending also on competition reactions. If they are huge subsidies on the new handsets (inaudible) by competition, we may have to spend more than what we think, but that is not (inaudible) our view today.

Matthew Bloxham, Deutsche Bank.

Just a couple of questions again on France. I see that on the personal side churn is a little bit higher this year, every quarter compared to last. I wonder if you could just give us a little bit more background to that and whether you think you can get it down. It's on the contract churn side.

And then just on the fixed side in France, we saw recently that we announced this intention to roll out superfast broadband I guess on the Maracaibo network, and just wondering your views on that and whether you think that materially changes the competitive landscape at all.

We have difficulties to hear you. I don't know whether -- what is the line you are using, but it has been a little difficult. I hope it is not an Orange line, because there we would be completely disappointed.

No, we more or less understood the first -- we have been more or less understanding the first question on the churn. I think we will answer on France on the churn. But what is your second question about?

Can you hear me better now? Is that any better? (multiple speakers) Okay. It was really on (inaudible). They announced the launch of this superfast broadband product using the cable network, and just really wondering if you think that is going to make a material change to the competitive landscape in the fixed market in France?

So I will answer on the -- first of all on the churn. So to contain the churn is a big issue for us. First of all because we have the biggest space as the leader of the market, so it's a real issue for us.

For this quarter we have contained our churn in -- within the churn of the market, so it's -- we are in better shape than we used to be in the first half of the year.

And we also are putting almost half of our commercial expenses to a retention policy in order to contain our churn.

Besides our churn is improving on our high hand contract, and as our mix -- contract mix is also improving, because we're up to more than 70% of contract out of our base, it is also a key element to understand how it is going on with our churn.

On the second question, it's the launching of the new [Wiig] offer. Well, we were well aware of this new offer. We knew it was going to be launched, but we launch ourselves our Open offer in mid-August, and we also had limited (inaudible) on fiber launched in June at EUR34.9, which could compete of course with the Wiig offer. And we will see how it works and especially how the quality of service is going to evolve for this offer.

Great, thank you.

Thierry Cota, Societe Generale.

Yes. Good afternoon. This is Thierry Cota from SG. I will have three question, if I may.

First, on Orange Business Services, you explained to us applying the changing mix in revenues between sub segments. Can you tell us whether you think this is leading to stable, rising or falling margin for the division as a whole going forward?

Secondly, on cost cutting you did give us EUR270 million, information on cost cutting for the whole of H1. If you could tell us on gross cost cust how much was done in Q3?

And lastly, more generally and more globally, if you could make some comments on the (inaudible) strategy of (inaudible) in terms of priorities going forward. We do see clearly in Q3 margin under pressure due to marketing spending. Going forward, what is the key benchmark for you? Is it plan market share? Revenue market share? EBITDA margin? Or an actual EBITDA absolute number? What is going to be the key criteria for you going forward?

I think you are asking questions which are (inaudible) easy to answer in -- for the -- when publishing the annuals, all the first half results. I think Q3 are internal results, so I don't think we have officially the ability to fully answer to your last question on strategy. I think you'll have to wait a little on that. Maybe we can give you some clues.

Regarding Orange Business Services, there is -- the economic slowdown, the economic crisis has in fact created an acceleration of some of the trends that we're practicing. The move from legacy business to IP VPN, from old technologies to new technologies, was existing before the economic crisis. What the economic crisis is doing or as a consequence is to increase, speed up some of the moves.

However, in our view the ending point is more or less the same. There will still be customers, including corporates, using legacy services. (inaudible) lines for some of the big users, who still want security and who don't want a transfer of their data over the Internet network, so this will continue to exist, especially banks, but insurance company, maybe some users in other industry segments.

There will be still some voice usage. If I just take the (inaudible) companies, they will continue to use PSTN still for a while for the security of their (inaudible) -- just to take an example.

So we think that we will reach a point. Are we at the end of the decrease? Not yet. What you can expect is that there will be a slowdown in the future of the trends in terms of reduction. This is why we consider that in spite of the strong pressure on the mix, we should be able to preserve the margin on the years to come.

When I say "preserve," I don't guarantee there will be no erosion at all, but at least not to us dramatic drops of margins of the Orange Business Services Division.

Regarding cost cutting, we don't comment in detail. What we can just say is that if you look at the figures we are publishing, on the EBITDA page it reflects that we are continuing to improve the cost structure of our operations, because the EBITDA before commercial expense is better in absolute terms for Q3 than it was in Q3 2009. So it is linked with all what we do on the cost structure, and we will communicate at the end of the year in more detail what are the performance programs in terms of cost cutting. But there is no change of trends. This is what we said at the end of H1.

On your last question on strategy, a thing you cannot consider, there is only one KPI or one priority you have to manage, because if you maximize EBITDA or cash in the short term, you are mature, you maximize your customer base and the value of your business for the future. So I think it is up to -- it's really in the responsibilities of management team to arbitrate and to find the right balance.

I think we know by discussing with our investors (inaudible) where we are, what is our position. We know that we are expected to deliver a return and a dividend. We have seen taking commitments on that. We have taken those commitments because we think we can deliver them for the years to come. So this is a priority.

However, we know also that the value of the company is linked with its ability to continue to deliver a return for more than three years. And there, this is why we think when we have flexibility in our commercial expense, for instance, to increase our customer base, or when, like in France, there is a real opportunity to recover market share and at the end of the game to get more revenues and more margins than we -- what we could have got without increasing the customer base, we have to do it.

So today it's a little difficult to completely answer to your question, but it gives me the occasion to tell you that we'll communicate into more details on that by presenting our main strategic objectives, not before the end of the year, as initially thought, but today I can tell you that we will deliver our main message to investors, strategic message to investors at the occasion of our annual results release, which will be on the 24th and 25th of February, next year.

Thank you very much.

Dimitri Kallianiotis, Citi.

Thank you. I just have two questions. The first one regarding cost reduction in France. Just wanted to get your view on the impact of the new retirement law in France regarding your senior plan. And also any thoughts on potential evolution for headcount in France?

And my second question is on the roaming 3G agreement with Iliad, just to see if you've taken any decision there, and in terms of what would you need basically to decide with whether or not you want to provide Iliad with a 3G roaming agreement? Thank you.

On cost cutting, so we've been working on all lines of costs except labor costs. When we say we're not working on labor costs, we are not -- it is not what we are doing, that we are doing nothing, but we said, remember when we announced the Conquests 2015 plan, we also said there are commitment vis-a-vis the employees in France, and the commitment is to hire 10,000 people in three years. But there is no commitment, by the way, on the level of plan power, except for 2010.

So we will continue to work on the accounts for the years to come, and we still have the opportunity to reduce the headcount with the retirement -- or expected retirement of about 30%, 35% of our work force in France in the next seven to eight years. So this is still in front of us.

We need to reassess the precise timing and the precise cost impacts of these departures with the new retirement law, which has been approved in France yesterday.

I'll just remind you that in the French, sometime the law will be definitive only in one month or two months after passing through the constitutional court. And then we will get all the details because the law itself is not always precise enough. We need to get the details prepared by the social ministry, how we will apply the law, especially for the (inaudible) public servants.

This being said, we today consider it will probably delay by a few months, maybe maximum one year, the departures that were initially expected. So it may postpone or delay by half a year, one year, depending on the period, some of the departures.

I just remind you also, and maybe for our foreign colleagues, that this law has a lengthy implementation plan. It is not (inaudible) impact, its (inaudible) impact, the three months by three months or six months by six months, depending on the age of the employee.

So we will reassess that. I think it will not change the global picture. It may again have an impact on one year to another, but not more than that.

Second point regarding the senior part time. It may have a slight impact. When I say "slight impact," which (inaudible) quite moderate, which is to make the senior part time plan a little more expensive than initially expected by a few dozen millions, maybe EUR100 million. We don't know yet. We will have to assess that again.

So we have provided last year for EUR569 million for the senior part time plan. We have increased an additional reserve by EUR[70] million by the end of September for additional departures, as indicated last year. We may have to provide for a little more for the same quantity of departures.

We are currently seeing and (inaudible) discussion with the unions whether there is a potential to extend a little the plan to have more people eligible to the plan in the years to come. That's what we are working.

Regarding roaming, our 3G roaming agreement, we don't require anything. The -- we -- today the roaming agreement is the part of the license agreement which has been granted to Iliad. And by the way, everybody I guess remember that when the license was granted, some candidates have declared that they were not candidate because there was no 3G roaming.

So the change of the conditions of the license is not something which is today under consideration and not into our hands. So there is no discussion on 3G roaming.

There are discussions on 2G roaming, and I guess not only by us. I think our competitors are also discussing the 2G roaming with Iliad. And Iliad I think (inaudible) declarations, so yes, they are claiming to get those 3G roaming agreements, but (inaudible) claim more vis-a-vis the regulator and vis-a-vis the competition of authorities, that vis-a-vis the operators.

Thank you. That's very clear.

Frederic Doussard, Oddo Securities.

Two questions if I may. So first question, (inaudible) there is regular deceleration in turnover decline in Q3 after Q2 after Q1. Owing to that, do you think it would be possible to return to sales growth, including regulation, as of 2011, as of next year, even with the new tariff? That's the first question.

Second question, you -- if I understand well, you said that in Q4 you don't expect commercial expenses to increase much more than in Q3. Does that mean that for Q4 you -- so you are considering that EBITDA margin could be -- decline could be limited to maximum 100 basis points just for Q4?

Regarding the revenues, I don't completely understand your analysis because (inaudible) feeling, unless I have not completely understood our figures, but (inaudible) I'm questioning myself. My feeling is that there is a slight improvement in the revenue trends in this last quarter, in this third quarter compared to Q1 and Q2. So I don't say we are yet at a recovery mode, but even including regulation, the figure is better in Q3 than it was in Q1 and Q2. And seeing that Q4 could be more or less comparable to this level.

Yes, so (multiple speakers)

Regard (multiple speakers)

-- the question was on turnover, so you add minus [2.7]% in Q1, minus 1.7% in Q2, pro forma, minus 0.6% in Q3, so can we expect something positive for next year?

For next year, I don't know honestly. I don't know yet. We think that towards the end of the year we should be more or less with Q3 -- Q4, in line with what we had just before, which means that -- and this is the reason for which on our revenue forecast we have been a little more positive in our message on page 28 than we were at the end of July. Slightly more positive. We are still careful, cautious. Why? Because general economy is not that booming everywhere, so we prefer to be careful and maybe to have a good surprise, than to be completely foolish and being disappointing afterwards.

Regarding commercial expense, two things, we said we should spend in proportion less -- when I say less -- we spend more in Q4 2010 that was spent in Q4 2009, but we've spent already a lot in Q4 2009. There were huge subsidies on some handsets, so we think that the [increase] compared to a year ago should be lower than the increase we had in Q3. So this is what we said.

And I think on EBITDA we are clear, because if we said that we should limit the Group as a whole, the erosion of EBITDA for the full year at less than 100 basis points, which means that there is little margin to do much more than that in Q4, a little more. We are also careful on this line to say that maybe Q4 could be a 100 basis point decline, as it was -- or a little more than a 100 basis point decline, like it was in Q3.

And your comment is also true for 2011?

I don't make any comments on the EBITDA for 2011.

Okay, thank you.

Jerry Dellis, Jefferies.

Hello there. A couple of questions. First, in French mobile, the gap between your outgoing voice yields and mobile termination rate seems to have grown from about EUR0.09 two years ago to about EUR0.12 now. Just wanted your thoughts on that, how you see that as being potentially sustainable or otherwise over the medium term.

The second point is that again within the French mobile piece it looks as though voice MoU's are sort of continuing to edge down, but the growth has been particularly strong on the SMS side. I just wonder whether that is the sort of trend we might continue to see going forwards.

And then finally if I may just in Spanish mobile, it looks as though service revenues are tracking around sort of minus 3%, a fairly stable trend. Given the sort of investment that you've put into smartphones recently, could we expect that trend to perhaps improve from Q4? Thanks.

On the first question, in fact what we sell to customers is bundles. And in the bundle if you have both of course some voice but also data, so our target is to sell bundle at a certain price. So it's not a question of price, the minutes or it is rather what you get for a certain amount of euro. And besides, I don't think -- we have -- we are in a -- in markets which work with subsidies for the devices. So it has not the same impact in such markets.

I think we have -- we are not sure we have completely understood your second question.

Yes. It's just that if I look at the French mobile KPIs and where the improvement in revenue growth is coming from this quarter relative to last quarter, it looks as though non-SMS data growth continuing to grow at about 20% but voice MoU's seem to be falling a little bit, but SMS is particularly strong. Now, given that you're up-selling customers through Origami and segmenting in a smart way, would we not expect perhaps at some point to see voice traffic turn the corner? Or is there some reason why we shouldn't expect that?

Sorry. It will take a little time to answer to your question, but (multiple speakers) now can answer.

So (inaudible) selling bundles, and in it you have voice, SMS, data, and whatever the customer wants to use within (technical difficulty) bundle. Well, the -- we're working on the revenue [impact] on our customers. So it's true that the voice traffic is slightly increasing (inaudible). The SMS traffic is increased, is strongly increasing, as well as the data traffic is strongly increasing.

In our revenue, in our revenue per customer you can see inside that our voice revenue are decreasing, whereas our SMS revenue is increasing by 13%, and our data revenue is increasing by 17%.

So I'm not sure we completely answered your question, but I think the -- what we tried to explain is that we are analyzing the way people are using their bundle, and it's more a way to understand how they consume.

But for us the main priority is to keep spending by customer increasing, whatever they spend. The second point one should not forget is that both SMS and voice are still generating interconnection costs.

And by the way, today we are at a level of SMS usage off net which, to a certain extent, is attractive for the customer to use SMS, but they are within the bundle, and it does not generate real additional margin to us, whereas the growth of data, it is generating additional margin as part of what we have today in the equation.

And so the fact that there is a transfer of usage of the customers between voice, SMS and data to a certain extent for us, it's quite positive. We have transferred to data the future and to prepare that, but we think that there is still some elasticity on SMS, that on voice, we don't know. I think it's a question of usage.

I know that compared to some other European countries, there is less voice usage. But there is much less SMS usage in most of the other European countries (inaudible) the French are writing more than what they speak, contrary to maybe what the -- all the Anglo-Saxon thinks.

Okay, thank you. And just on Spain?

So to come to Spain, on Spain the revenue before regulation is improving itself and is positive. So we still have the weight of termination rate cuts, which is, let's say, creating a burden on the -- or putting a burden on the revenue evolution. We think that (technical difficulty) continue to improve, however (inaudible) I don't have in mind what is the impact on regulation on the last quarter, so I cannot tell you whether it will turn positive or not, but I think the trend should continue to improve on the mobile revenues in Spain in general, as it has improved in the past.

Thank you very much.

Frederic Boulan, Morgan Stanley.

Two quick questions please. First of all, if we could come back on the mobile markets, you're starting to launch a new offering, which are a bit more attractive for consumers. How do you see ARPU developing going forward? Do you expect to see some dilution, or customers will just get better value for money and therefore will churn less?

And secondly, if you can comment on Q3. You had a very strong quarter, and those net adds in domestic mobile as well on the contract segment. Is this sustainable or driven by one-off intakes related to the Open launch in August? Thank you very much.

So on the mobile market, our new Origami portfolio is still a very segmented approach. So it is true we are in some way very attractive, but on some specific segments, especially on young people, I mean digital trials. People who are more interested in data and SMS than voice. That is true. But still we have also a wide range of offers, 15 (inaudible). And so we're trying to keep up with our ARPU growth for the Q4.

So the second question is about the net adds on the mobile market. So of course we're going to sustain our net adds. We have quite a good marketing plan to do so. First of all, our new Origami portfolio, as well as our quadruple play offer, Open offer, which is very efficient to convince new customers to join Orange, because more than half of Open customers are newcomers for Orange.

So with the Open, our new Origami offer and the amount of commercial expense we're going to put in the machine, we of course trying to keep up with the net adds while we're still managing the value and the margin.

(technical difficulty) both the net additions and the ARPU trend to be sustained in the coming future. It's quite an achievement (inaudible)

Of course it's one of our issue to be sustainable of course. I will say also that we are working on our contract mix of our base, and it's still improving. We are also quite efficient on the high [end] contract. So we are managing both on ability to (inaudible) new customers and value on the other side.

Okay. Thank you very much.

Maybe as a general comment which applies to most of our geographies (inaudible) major markets, when I was commenting the segmentations were animals, that they are -- it is also to have a sustainable strategy in the medium term in -- with three characteristics.

One is that we never try to be the cheapest on the market since we are not trying to attract customers by a strong price decrease just as a kind of immediate effect where we expect people running to our shops because that is a big discount they can get going to the Orange shops. I think that's the first point. So see that.

And if I take some of the offers we have announced, I don't say we are the most expensive on the market, but we are very rarely the cheapest.

Our positioning is always to try to drive prices down when you need that to be effective, but also to enrich the offer by bringing more services, as unlimited services -- unlimited usage for -- or more usage for SMS, more data, more voice.

For instance, if you remember what we announced on the triple play in France, we gave one hour fixed to mobile voice in order to enrich the offer by remaining slightly more expensive than others.

So that is also the positioning we are trying to get, for two reasons. One, to avoid immediate price war from competitors. We don't think a price war is the end of the game in this market. And also by managing the subsidies. By managing the subsidies you maintain your tariff or you protect your tariffs, and you get some advantage to the customers.

The last point is that when you are too strong into price decrease, you create a risk of re-price, of churn on your customer base, and then you don't manage the value.

So again, we cannot say it will last forever, but the way we are designing our marketing and pricing approach is not to be -- to have exceptional achievements but to have sustainable performance and to be able to react when competitors react to have still some margin of maneuver afterwards and not to have let's say shot all the bullets of the gun just in one shot.

Thank you.

Hugh McCaffrey, Goldman Sachs.

Good afternoon. I have two questions please. Firstly, just what impacted the iPhone 4 (inaudible) in the quarter? And could you give us any color on the number of iPhone 4's you sold in France?

And secondly, and just in terms of the domestic broadband markets, what kind of churn rate are you experiencing on your domestic broadband base? And are all of those (inaudible) when it comes to retention, are all the new customers getting the updated tariff offers on your triple play?

So we've sold three hundred -- three hundred -- sorry -- and thirty-three thousand iPhones 4 in the third quarter -- iPhones -- sorry -- out of which 287 (technical difficulty) iPhone 4.

On the domestic broadband, of course like on the mobile market, as we have the largest customer base, the churn is also one of the main targets for us. We are quite confident on our retention policy because first of all our pricing policy, which was the main route for churn in the first part of the year, is now in the market. We have an enriched offer which is in the market, and besides our new quadruple play offer, Open, is a key element to be more efficient on retention for our customers.

That's very clear, but can you -- what is the churn rate? Is it 13% to 14% churn? Or is it lower than that?

It is at 14%. Less than 14%.

Less than 14? Thank you.

Emmet Kelly, Merrill Lynch.

Good afternoon everyone. Just coming back to your Orange France business, the improvement in service revenues there is obviously very encouraging. Can you just give me an idea of what is driving that. Is that an increase in smartphone penetration? Or do you think that maybe you've taken some market share off the other players during the quarter?

And then just my second question is just coming back to the fixed line business in France. It seems like your underlying -- so your organic -- growth is maybe under a bit more pressure in Q3, so it's down by about 3.5% compared with down 2.5% in Q2, so it looks like your subscription revenues and your calling revenues are maybe under a bit more pressure than they were before. Can you just give us a bit of flavor of what you're expecting for that business in Q4, whether we might see an improvement in those trends? Thank you.

So yes, it's true that is one of the main driver of the market is the increasing number of smartphones sold. For instance, the smartphones represent less than 15% of our base, and we now sell around 15 -- sorry -- 50% of devices which [are] smartphones.

The second point is the usage, the data usage, which is increasing and which goes on with the increase of the smartphones. But what is important also for us is to uplift our base and to increase our contract mix. What we are doing is up to -- it is more than [70]%, and it was quite less in Q2, so we are increasing our contract mix, which enables us to drive more value out of our commercial acts.

In the question about your (technical difficulty) in this side you have the (inaudible) retail our fixed lines our PSTN-only lines are going on, our PSTN and ADSL lines are going on, and our naked ADSL lines are increasing. So you can see that the decrease of the PSTN-only base is exactly the same level as it used to be between Q2 and Q1. So it's under control. That we are deliberately increasing our number of naked ADSL customers, because it is key for us to control our churn and to have better retention of our customers.

Thank you very much.

Noel Culhane, MF Global.

Could you please give a little bit more detail on the breakdown of the quad play and whether you're seeing ARPU dilutive or accretive effects from customers moving onto it? Thank you.

Quadruple play offer, we've launched it on mid-August, and it is too soon to have a clear view on the ARPU effects.

Just an additional comment on the quad play -- first of all, it's only eight weeks of sales, and essentially we don't know yet where the churners are coming from. We know there are churners. We said there are about 50% migration, our base percent churners from others. We don't know yet where they are coming from, so it's a little difficult to answer (inaudible).

The second point is that I guess that you noticed this offer is under scrutiny of the competition authority. I think we will not deliver many informations on it before having cleared the process with the competition authorities.

Thank you.

Justin Funnell, Credit Suisse.

Just a follow-up I guess on two other questions. The -- as I understand -- maybe I miss-heard it this morning, but about 900,000 customers migrated to Open in Q3. Is that correct? And if so, is that the run rate going forward, or should we in fact expect that to accelerate as a quarterly trend? And therefore in turn, what is the impact on your revenue per line? It looks like revenue per line on broadband fell about EUR0.50 in Q3. Again, is that the trend we should expect? Or does that worsen because of this faster line migration over the next few quarters?

Secondly on CapEx in mobile, can you (inaudible) a little bit more what you're planning to do to improve capacity? Is this just a kind of Q4 investment because you've got some money left over, or part of a program that may move into next year as well?

And then finally your [SACK], your increasing commercial costs of about EUR190 million year on year in Q3, slide 13. Can you break that down at all, the delta in Q3, the extra EUR190 million, how much of that was coming from an increase in mobile commercial costs versus fixed, if you do sort of make that breakout in that way?

On the Open customers, so yes, for the Q3 we have [Conquest] 99,000 customers, and it's true (inaudible) we had a reprice effect on Q3. To be more precise, out of our nine -- more than 9 million customers, 2 million customers are -- could be concerned by a reprice effect. In Q3 half of them have been repriced, automatically for the major part of them. So we think we have left 1 million customers who could ask for a reprice but won't necessarily ask for it, but we think the reprice effect for the Q4 would be, maximum, EUR10 million.

Okay, thanks.

Regarding the CapEx, we will increase the coverage in Poland, for instance. This is part of the plan for Q4. And we will probably accelerate some of the (inaudible) in Spain (inaudible) of the programs.

As we regards to France, plans are underway. We said in the past and we continue to say that we are planning more or less one year ahead in terms of data traffic or data capacity need, and we stick to our plans, keeping in mind that data traffic is more or less doubling or tripling every year. So this is part of the plan.

Regarding the commercial expense, most of the spending is related to mobile activities. There is still a little spending for fixed activity in commercial expense, and in this EUR190 million increase there is about probably a EUR20 million to EUR30 million increase of content costs. The rest seem to be the increase of commercial expense from (inaudible)

Thanks very much.

Mainly for volume, by the way. This is a -- there is -- just in France there's been an increase of 225,000 commercial [acts] in Q3 2009, compared to Q3 2010.

So thank you very much for your questions. We'll close now this call. And maybe for those who did not completely listen when I said it in answer to one question, we would like to convene you to our next announcement, which will be the full-year results presentation on February 24, 2011, in Paris, and we will add a second day for those who are interested in too listening to us presenting our main strategic directions, especially with some underlying figures, besides the main strategy directions.

Thank you very much.