Orange SA (ORAN) 2012 Q1 法說會逐字稿

[Audio starts in progress] and welcome to France Telecom Orange Q1 2012 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 let me hand over to Gervais Pellissier.

Thank you, so good afternoon and thank you for joining us at this conference call for our first-quarter results. As usual I will comment the key points of these quarterly results using the set of slides you have in front of you. And I try to give as much time as possible to the Q&A session with my colleagues from France Telecom Orange [Ex Com].

To start with we maybe just would like to start with page five and comment some of the key events for this quarter. First, I think our main -- let's say, main comment is to say that we think that this quarter shows our resilience, I would say, in spite of a difficult macroeconomic situation in most of the geographies where we are present, especially in Europe; in spite of a transforming French market and probably more transforming than expected; and in spite of the pressure we have with the financial crisis, including on the consumption, in some of the geographies.

Sustained Mobile and Fixed Broadband acquisition in France and Delphine will answer to your question on that. But let's be clear our commercial activity is very comparable to what we did a year ago in terms of acquisitions, both on the Broadband and also, moreover, on the Mobile business, with a high level of Mobile gross adds and with a continued growth of the Data revenue, whereas, we maintain our Broadband net share of conquests around 20%.

We also have some good contribution from elsewhere in the Group; still an out-performance both in terms of commercial but also financial performance in Spain with maintaining the differential against our competitors. And also this is what it is the good news for 2012; return to growth for the emerging markets as a whole, including Ivory Coast and Egypt, with a growth of plus 6.3% in the quarter.

The end result of these contributions is that at Group level we have posted an underlying revenue more or less flat compared to a year ago and very similar to what we did in fourth-quarter 2011.

EBITDA margin eroded by minus 1.7 points, mainly impacted by the drop in revenues, but helped by the initial impact of our roaming hedge in France. We continue with our investment to pave future growth despite the weak macroeconomic environment, with the launch of H+ HSPA for general consumer on the French market, 4G trial, FTTH, but also ongoing 3G deployment outside of France.

And let me remind you of the strength of our balance sheet. The FT Orange Group has a solid liquidity position, even increased at the end of March, and enough active credit profile in our key objectives going forward to maintain this soundness.

On page six our key financials just to sum up what we said. Revenue growth is almost flat, at EUR10.9b. This includes EUR195m of regulatory effect. These are the pricing decrease decided by the regulators at national and European level. And compared again to 2011, especially to the last quarter, we have more or less as the same revenue growth. We were at minus 0.2% in Q4 2011.

Restated EBITDA, you see the detail of the restatement on page 24. And I just would like to mention one point, is that it does not include -- we have not included into our costs the litigation with the European Commission on the unemployment compensation that would be requested by Brussels. This is still under trial and we have been arguing against their decision. So this is not accounted for into our costs up to now.

If it were to be accounted for, it would represent an additional cost of about EUR10m a month starting mid January this year. So restated EBITDA reached EUR3.4b, it is down by 7% and the margin rate is down by 1.7 points.

CapEx, at 10% of revenue, is in line with our anticipation for the full year. And the operating cash flow as a result, at EUR2.3b, is clearly consistent with our full-year guidance, close to EUR8b, which I confirm today.

Regarding liquidity, as I mentioned, we have now more than EUR9b cash available covering more than 2012 and 2013 redemption. And our total liquidity position is at nearly EUR17b, whereas, we are now above nine years of maturity in average for our debt.

Revenues by main segments on page seven. Again, you see that international footprint, especially the rest of the world, out of which EUR63m growth coming from Africa, plus the growth of revenues in Spain offset the decline in France and in Poland, which means then on the general public business -- on general consumer business we are offsetting the decline by a compensation of France and Poland by compensation in the other geographies.

This slide also illustrates the change in revenue contribution from the different group segments. Now 28% of the revenues come from Spain and international segments, whereas, France is now below 50%.

On page eight the situation on EBITDA. Pressure on EBITDA is coming from the pressure on revenues, whereas, even if we adapt our cost -- and Pierre Louette will be with me to comment, if you have questions, our plans like [this Iliad] and also the first results of the JV we have with Deutsche Tel for purchasing -- [buying].

But I would say in spite of our work on our cost structure, revenue are eroding at the time being quicker than what we can do on the cost structure, which explains the situation as we have it today. And beyond the revenue impact the 7% drop in EBITDA is impacted by the variation in the cost structure.

On the positive side commercial and content costs are flat, just a slight increase of EUR6b, which is very small. And they are even decreasing in France. And this is an important indication of our ongoing control on these costs and of the opportunistic management between acquisition and retention. You know that amongst the big operators there is a today a state, [let's say, a] a trend to revise down the level of subsidies, especially for acquisition.

Interconnection costs are also down a little less than what we could have obtained just by the decrease of termination rates, because we are using part of what we get to give more in the package of our customers. However, this is a positive impact. And on the other hand we have some pressure on the labor cost in this quarter. In this pressure, which is an increase of EUR86b compared to what we had in first-quarter 2011, there is about EUR30m that, in fact, will be reversed in the next quarters.

This is linked with the timing of holidays taken by the French employees, is the accounting for holidays in the French labor cost system. People have taken more because there were different bank holiday profile in France between 2011 and 2012. The rest, EUR56m, is an increase which is linked with the commitment in terms of hirings on the French market, the rest being represented with what we have in terms of salary negotiations, which I would like to underline it.

On the French market we have been able to reach a collective agreement with the unions under which we will have salary increase slightly below inflation on the French market. On the French markets I guess everybody is aware of what has happened. I just would like to remind you what we said already on February 22 in terms of reactiveness to the -- in terms of reactivity, sorry, to the arrival of a fourth entrant.

I think we have been the first to adapt our SIM-only, Web-only offer with new prices for Sosh, a new package for Sosh announced on January 12, whereas, Iliad had launched their own operations on January 10. Secondly, we have been working on the rest of the offer on the high-end segment with the open quadruple-play offer. But also on the rest of the high-end segment Origami offers the subsidized offers for which we have been designing a specific package to retain the customers during this, I would say, rather agitated period.

As a result we got 210,000 customers in Sosh, which is more than 180,000 acquisitions in this period, and 1.7m Open customers, which is an increase of 66% compared to what we did a year ago.

Regarding the Wholesale, this is also a very important item and I think if you refer to the press release and to some of the comments made we said it is a strong hedge. It is a strong hedge. It is not a full hedge. Let's be clear. I think in the medium term we could consider that we will cover about 50% of what we lose thanks to the national roaming agreements with the new entrant in France.

But a few news. First, the contract has proven to be attractive for both parties and it has been working even if there is quality of services issues, but which are not linked with the contract itself. The contract is covering Voice, Data roaming, with a security cap in usage, which means that Orange protects and guarantees. It will protect its direct customers compared to what could -- versus the risk -- or against the risk of failure with this roaming agreement.

And third, which is very important for us, is that when we announced this contract last year, in March, we said that we would be expecting about EUR1b revenue over the next six years. In fact, after taking into account the real situation of Iliad on the market, after discussing with Iliad, we consider today that we will reach EUR1b revenue on the first three years of the contract.

What are the commercial results for the French Mobile market in this first quarter? Again, I think -- and this slide page 10 is very important, because I think we have to look at this situation in two angles.

On one angle, which is the total number of net loss, it looks impressive. We have lost 615,000 customers in this first quarter, out of which two-thirds in the last half of -- the second half of the quarter, which would mean that, in fact, the Iliad phenomena has accelerated and that churn has increased over time since the launch.

We think that it is not completely right in terms of commercial dynamics. This is right in terms of accounting for the figures, in terms of taking into account the customer request for change, but it is also an increase in the congestion that appeared when Iliad launched their offer on the JV. We have a JV managing the IT system to change operators, keeping the same number, so managing the portability in France. And this JV has been congested.

It was not designed to support such a big number of requests every day. And there has been a need between the different parties, which are all the operators, to invest more into the IT system of the JV. And we have been able to recover and to take into account this backlog of requests only early March.

This is why if you look at the right-hand part of the chart you see more or less through the indicator we are giving here, which is on the bi-weekly basis, the portability requests -- the evolution of portability requests. You see that, in fact, after a strong peak at the beginning in January and then very active period end of January for the whole month of February, we are coming back in the last fortnight of March to -I would say, to normal, but to the level we had before the arrival of the fourth license.

And for us it is more or less an indication of what would be the dynamics of the market for the next months. We think that we will have a higher churn and higher move than we had before. That with four operators, by definition, you have more move on the markets than when you have only three operators. When you look at the statistics generally the countries with more operators have higher churn. But we think that we are coming back to normal levels now.

This is why, even if we consider that it is not the good news to have lost 615,000 customers, we need to put that into perspective and in our view we should lose less than that in the next quarter.

I will not comment too much the CapEx, just to say that CapEx have increased slightly and that the priorities is clearly FTTH, 4G and renewal, as well as 3G deployment.

A few comments on the business performance by geographies, and to start on the page 13 with France, back again, coming to the figures -- financial figures, so revenues under pressure, including Mobile revenue. One point where we are not happy with, but the fact is that for the first quarter the Mobile revenue in France is decreasing. Which means that the increase we can expect from ARPU from more customers is no longer sufficient to offset the regulatory pressure, because the revenue is decreasing by minus 1.1 point -- minus 1.1%, whereas, regulatory impact is nearly five points. You see that hadn't we have this regulatory impact we would have still been growing by nearly 4%.

Our value protection strategy in marketing and our roaming deal with Iliad, which extracts further value from our network, are fully efficient and allowed us in this quarter to maintain the Service revenue growth excluding regulation plus 0.5%, which is better that what we had in the last quarter of the year.

On the Fixed side, PSTN revenue drop is stabilizing while the decrease of the numbers offline is slowing down. In parallel, we see an improvement in the Broadband revenue, which is growing by 6% in this quarter, thanks to the confirmed success of the quadruple-play offer, Open.

Regarding the home KPIs for France on page 14, we have reached nearly 19% DSL net adds. And in terms of market share, which is just slightly below what we did in first-quarter 2011, this was at 22%. It's always a weak quarter for us; we have more commercial dynamic in third and fourth quarter of the year. It has been true for the last decade, where our commercial dynamics is much stronger on Broadband the summer and fall of the year.

Broadband ARPU continued to grow, linked with the end of the re-price effects of the net offer that occurred in first-half 2010 and in April 2011. And, finally, regarding the trend in PSTN we lose much less line than a year ago, about 100,000 lines less than what we lost in first-quarter 2011.

As regards Mobile KPIs for France, we have lost 1.5 points of market share. And of Retail market share this corresponds to the 615,000 customers lost, out of which about 1% is on the contract base, 0.2% is a further loss on prepaid. And 0.3% is the fact that the arrival of Iliad has re-created a market that had mostly disappeared in France, which is a double-SIM market, which means that there is now a bigger market with low revenues, probably, but a bigger market in a number of cities.

We have quickly reacted with our segmented offers; Sosh, as I said, 210,000 customers, Open 1.7m customers. And once again we had a high level of sales with subsidy handset and 51% of the contract acquisitions are done with the Data Smartphone, which means that [it is] helped to continue to grow the Data revenue. We see that Data-only revenue grows by more than 12% on this quarter.

Spain, I commented already the total figures. Just to mention maybe the commercial performance. I think that Orange Spain remains clearly number one in Mobile number portability with 110,000 additional net adds. And in spite of some moves done by other players, including a handset subsidy policy, we think that we can take -- continue to take advantage of the new competitive environment and maintain our positive gap against competitors in terms of performance whatever the macroeconomic situation will be and whatever the final revenue figure will be.

Home Broadband revenue has increased by nearly 9%, driven by a 17% increase in the Fixed Broadband revenue itself, which now represents two-thirds of the revenue base, and 12% increase of the DSL customer base.

In Poland a revenue evolution is mainly supported by the Mobile performance, whereas, Fixed remains under pressure. This is structural on the Polish market where Mobile remains attractive. Quality of the [declines] in terms of PSTN and coverage are not as good as it could be in some other countries.

And we have a revenue decrease of 5.4% on the Fixed Line revenue, whereas, Mobile revenues are flat, plus 0.3% growth, and with an underlying growth before regulation of 2.5%.

Regarding other geographies, I commented already the performance of Africa and Middle East, our emerging market footprint, where revenue is growing by 6.3%, with 3.5% growth in Egypt, again nearly 17% growth in Ivory Coast, but also a good performance in other geographies, where we are more or less starting the business or where we are more on a ramp-up phase, like Uganda and [Niger].

In Europe first-quarter revenue trend was at minus 1.5%, plus 0.4% excluding regulation and with, I would say, a contrast situation; recovery of -- really signs of recovery in Romania; some pressure from competition in Slovakia; and change of the business model in Belgium with the introduction of subsidized offer, which is something just starting in Belgium for the last eight to nine months, and where we have really to ourselves work a lot to help our colleagues from Mobistar to adapt to this new market environment.

So just a comment on Egypt itself. Revenues returned to growth thanks to a clear strategy based on acquisition of high-value customers. By the way, you remember that we appointed a new CEO in November 2011. And Mobinil has adopted an accelerated base of innovative products and services, also linked with the fact that we have now a clear shareholding situation I hope that will be finalized by the end of this quarter with the agreement to purchase in advance up to 95% of Mobinil, as it has been recently announced.

For the Enterprise division revenue is under a little more pressure than last year, with two main causes. One is the cyclical effect of Service revenues -- of IT Service revenues, which are more under pressure this year because of the macroeconomic environment than they were early 2011, but also because our legacy products are decreasing close to 14%, as we are phasing out some of our legacy Data products. And when we replace a legacy offer by an IPVPN or new technology revenues are divided by three, by four, or by five on more or less the same sales.

I would like also to mention here that our Cloud computing initiative has made good progress, with the French State approving and joining Orange and Telus in the setting up of a JV, codename Andromede, to provide Cloud computing services on the French market and we are very happy with that.

And last, but not least, you also see so very recently, it was on the Tuesday, the results released by Everything Everywhere. And just to mention that on the very challenging market our colleagues from Everything Everywhere have been able to continue to progress, especially in terms of Service revenue, but also in terms of customer base and postpaid customer base.

All these results, plus the projection we are trying to do on the rest of the year, have helped us to confirm, as it is reflected on page 22, our guidance for the year. So we confirm the two main financial guidance; medium-term net debt to EBITDA ratio of 2. I just remind you, and we said that on February 22, that we will be above 2 at the end of '12.

And, more important, the confirmation of our operating cash flow guidance close to EUR8b for the year. Whereas, we think that we have demonstrated a strong capability of reaction on the French market we -- on the commercial side with the new offers we have been launching, but also on the revenue and P&L side with very good management of the roaming contracts. We have been helped by the return to positive growth of the emerging markets as a whole. And we have been maintaining, as I said, our solid financial structure.

To close this first introduction, just to say that the Board will propose the resolution of the dividend at EUR1.4 on the General Shareholder Meeting of June 5. And if the General Shareholder Meeting approves then the dividend will be paid -- the rest of the dividend will be paid on June 13.

We are now available for your questions.

Thank you. (Operator Instructions). We can now take our first question, which comes from Nicolas Cote-Colisson of HSBC.

Thank you. I've got two questions on France, please. Your comment about portability being back to normal now, does it mean that you do not need to re-price further, or do you think the price policy is still [unsustainable]?

And I've got another question on France. Why do you think DSL attrition has slowed in Q1? And should we assume that is to continue?

And, last, is there any other reason [that] you have taken shares for the sharp decrease in (inaudible) customers, or I am missing something else? Thanks.

So on the portability, Delphine Ernotte speaking, we said it's back to what it was before free entry, which means it's at the level of the Q4, which is slightly higher than what we could expect in such a quarter.

So now we are going to see how the market is going to evolve and, as we've done since the beginning and since free entry, adapt to all the movements. From now we are very pleased with what we've done on Sosh, of course, but also on Open. And so we are going to go on this way and keep controlling our base movement to control our re-price effect.

On the FTC, in fact, last year we've managed to slow down as well. Last year it was mainly due to a focus of sales forces on that subject. But this year we've also revamped our offers -- optimal offers as well as re-brand our Fixed Line. It was called France Telecom Fixed Line. It's now Orange Fixed Line. And so thanks to these new offers we've tried to move along and keep reducing the FTC decline, so we are going to go on this way this year.

And on [the] MVNOs?

We cannot comment, Nicolas, the MVNOs. We -- even if we have more than 50% of the MVNO market we cannot comment the MVNO. It is not to us to comment figures of others. I am sorry.

What we can just say is that in our own revenue figures we have seen some impact. And I would say on the total year there will be a significant impact of revenue decline coming from MVNO. Maybe not as big as what some people is thinking, but we cannot comment more than that.

(Inaudible) 3m or 3.06m MVNO customers that you report.

I don't think we -- we're reporting market share, but this includes the market share -- or the network market share includes the roaming agreement, so you cannot exactly calculate like that.

We can now take our next question which comes from Frederic Boulan of Nomura. Please go ahead.

Hi, good afternoon, a couple of questions from my side. First of all, on the Mobile side you say you've lost around EUR200m full margin Service revenue in Q1, ex Iliad roaming. What actions are you undertaking to address your cost structure to a level -- lower revenue level?

Secondly, you mentioned an industry trend to reduce acquisition costs as something you are implementing in France. Why is it not something you're expending to other markets, including in Spain?

And, lastly, on your mid-term CapEx plans you announced about EUR15b committed CapEx to 2015 in -- for the domestic business. You have now dropped some (inaudible) that commitment. Do you plan also to adjust down (inaudible) to (inaudible) lower market opportunity? Thanks a lot.

Excuse me, but your last question has not been understood because there were other noise on the line. Could you repeat, please?

Okay, sorry for that. So my question was on your former CapEx guidance of EUR15b cumulative CapEx to 2015 in France, you have [rubbed] your EBITDA commitment -- you are absolutely with that commitment for this period. Do you also plan to adjust down the long-term tactical intensity to reflect this lower level of EBITDA?

I think the first point, the EUR200m revenue loss, it is not EUR200m Mobile revenue. We have not said that. If you look at the figures it's EUR200m for the Group as a whole, out of which there is some Fixed Line revenue decline. So it is not exactly. That is why I don't understand completely the question. Is it EUR200m for the Group as a whole? And in Mobile in France it is 1.1% revenue decrease, which is, in fact -- excuse me, below that, so --

To clarify, my point is on the Service revenue. So it's minus 4.7%, but you also include in that the Iliad roaming. So I'm trying to exclude Iliad roaming, because that's something which is temporary.

[We don't] communicate on the figures of Iliad roaming. You will not be able to exclude it.

Okay, but just conceptually you do have a lower level of (multiple speakers).

Unless you wait for Iliad to publish it, okay?

Okay.

But we'll not publish this figure. We are not authorized to do it. It's up to Iliad to decide whether they will publish it or not.

Again, my question is not on that. My question is on adjusting the cost structure for the revenue decline.

Delphine will try to try to help you in that way. Okay, try to be clever. Okay.

On the cost structure we have two main actions; the first one is, of course, the acquisition and retention cost. And, as Gervais previously mentioned, we've tried to -- we strictly monitor our second SSC's cost. We did it last year in H2 and still doing it, even if, of course, the market is agitated in Q1. It's a very important point.

The second action is what we do on operation -- operational savings. We've been working on quality of service since last year and, this, of course, has an impact, for instance, of -- on the number of calls we have on our hotline. So it has a direct impact on our cost structure. It's an example within the whole (inaudible) actions that Pierre Louette may comment further.

CapEx, just to say that we'll continue the investment in FTTH. By the way, FTTH has nothing to do with the situation of the fourth license. It is on the Fixed business. We think, however, even on the contrary, that the situation of FTTH in France is rather better than it was, because our competitors will probably invest less in fiber, which gives more room of maneuver to us.

And if you compare our situation to the situation of our colleagues in Germany, we have to take the advantage that cable is weak for the time being and not to wait that somebody helps one day the recovery of Numericable. So I think it's better for us to invest now. As we said, we'll not do more than what we said. In fact, we'll do the 2b we have committed on. So I think this will continue along the plan that was said.

It proves to be quite effective because we have already recovered some market share in the dense areas, especially Paris, in terms of Broadband, thanks to fiber. And the second point is that, thanks to, I would say, the good negotiations led by Pierre Louette and his team we have been able to reach commercial agreements with our competitors on 40% of the French population.

So more than one-third of the French population which are the (inaudible) areas where we will re-sell our fiber line at the price which is nearly two times the cost of -- the current cost of unbundling on copper. And this is a commercial price which has been agreed with all parties. And we have to go [to that].

Thank you. And maybe the last point on subsidies in Spain.

Hello, good afternoon, this is Benoit Scheen. With regards to the subsidies in Spain we know that Telefonica has decided to stop the subsidies at least since early March, that some of our competitors also could follow in the month of April. So far we have decided not to change our policy in the Spanish market, so we keep our current subsidy level. We try of course to reduce our unitary acquisition costs, like we do in most of the countries, but there is no change in policy so far in Spain.

Okay, thank you.

Our next question comes from Stephane Beyazian of Raymond James. Please go ahead.

Yes, thank you. Three questions, if I may. The first one is regarding EBITDA. It's not guidance, but you indicated some EUR800m of EBITDA decline for this year. I was just wondering whether this indication is still a good one for the year.

I guess my bottom line is that we are seeing some 7% decline in the first quarter, which might be a bit faster pace than perhaps this indication, which would suggest some 5% reduction for the full year. Or are you actually expecting some better trends, I don't know, perhaps linked to subscriber acquisition costs in France being lower going forward?

My second question is regarding the Iliad contract, which you upgraded. I guess there might be (inaudible) behind, like more customers, more usage per customer or slower network rollout. Could you just give a bit more color on this [treatment] and whether there is one which has been, let's say, a surprise to you versus your initial expectation?

And the third one is just a small point, I am sorry for that. A bit technical, but regarding the churn you mention that you -- sorry, you disclose in your spreadsheet the 29% churn in the first quarter. But on the slide at page 10 the number of churners is 2.3m, which on my numbers would suggest a churn which is higher than, perhaps, 33%. So is that just my calculation being wrong, or something we should be aware regarding your churn definition? Thank you.

Regarding EBITDA evolution, we will revisit our figures. What we can say today is that clearly there is probably a little more pressure than what we could have in mind, which means that the pace we have in first quarter is probably to be sustained afterwards. Because to come back on the evolution of the Mobile revenue in France, let's be clear, most of the impact of re-price will come after the -- will come after first quarter. There is very little re-price impact on first quarter.

People who are in committed contracts are not immediately re-priced, which means that we will have more re-price effect in the next three quarters and probably, as we said already, in 2013. So this means that we will probably have a continuous EBITDA pressure in the next three quarters.

However, however, we think that this pressure is manageable and this is why we have confirmed our EBITDA minus CapEx objective as it is. Will there be by a little more flexibility on the CapEx line? This is still something to be revisited.

Even if we consider, I've mentioned it for fiber, but it's true also for 4G, that there are key priorities for CapEx that we need to continue to pursue if we want to get some churns, to reverse some declining trend, especially on the ability to monetize Data.

Maybe a last comment on this is that we said we would have on the French market a strong pressure on ARPU. Stephane Richard even commented minus 10% ARPU decrease in 2012. My feeling today with my colleagues is that we should be slightly better than that.

Regarding the churn?

Regarding the churn, in fact, in the KPIs it's rolling churn -- annual rolling churn versus the quarter basis in the slides.

Okay, thank you.

Our next question comes from Dimitri Kallianiotis of Citi. Please go ahead.

Hello, thank you for taking the question. My first question is regarding the way you account for Open. Open is doing very well and we're seeing that through the -- on the slide -- the slide where you show the revenues coming from Broadband and equipment, which is going up a lot. I was just wondering how do you split the revenues for Open between Fixed and Mobile, just to get a view on how much impact you get on Service revenues?

My second question was on labor cost. As you mentioned during the call, the cost - the labor cost was particularly high in Q1 because of some one-offs. I just wanted to know if you could share your view on, for the full year, if we should expect labor costs to be up a lot or sort of flat trend?

And the last question is on your new offer regarding HSPA+ in France and 4G. I just wanted to get your feel in terms of appetite for that, especially as you are pricing at a nice premium, [generous] premium. I just wonder if you could share the market reaction so far. Thank you.

Just maybe before we answer those questions, Pierre, I've not answered to the question on the roaming agreement. There was a question raised just before on the roaming agreement.

Yes, just a few words on this agreement. You were asking if Iliad had more users or more intensive usage. This is not really for us to answer, actually, so probably Iliad will come up with answers when they announce their own results.

The whole -- the only hints that I can give you probably is that, obviously, Iliad shooted quite low in terms of pricing, so they acquired, rapidly, users, everybody knows that, and those users seem to be spending quite a lot of time on the phone. So the intensity of the usage has brought us to re-evaluating the revenues we're going to be generating from that contract.

And I just wanted to add that this contract has always been thought of as a shock absorber for the arrival of Iliad and it completely plays that role.

Yes, hello, Dimitri, Gervais speaking. Just to answer your question on the way we're accounting the revenue for Open, so we've chosen, historically speaking, just to put 100% of the re-price on the Mobile side. We put also the full revenue coming from the customer on the Mobile too. So you have 100% of the invoice on the Mobile side and the re-price on top of that.

On your question on 4G and H+, we've just launched the H+ offer. It was in beginning of April, so it's too soon to give some information on how it works. Nevertheless, what I want to say about that is that nowadays we have the best networks and we want to continue to have an edge on the network. On HSDPA, what we call H+, we have the best coverage, with more than 50% of the population covered and we're going to increase this coverage. So we think it's a clear advantage for premium offers as well as an option for more common contracts. And, besides, it's key for us to try to test how we can monetize Data. We're doing it on H+ because we also want to do it on 4G.

Our next question comes from Jacob Bluestone of Credit Suisse. Please go ahead.

Hi, there, thank you for taking my question. Three questions, please. Firstly, can you talk a bit about how you expect the Fixed Broadband market to develop? Is the reduction that we saw in the quarter in your Broadband market share just a result of seasonality, or is there some sort of impact from Free Mobile's launch on demand for Fixed Broadband as well?

Secondly, you mentioned that some of your customer figures improved through Q1. For example, the contract gross adds were down almost 20% in the first half of the quarter and up almost 30% in the second half of the quarter. Can you talk a little bit about how your Mobile business has developed since the end of the quarter? So are you continuing to see further stabilization in Q2?

And then, finally, when will the EUR30m of labor cost that you mentioned in your presentation be reversed? Is that evenly through the year, or is that in Q2?

On the Broadband market, as Gervais mentioned, there's a seasonal effect. Because in Q1 and Q2 gross adds are much lower than in Q3 and Q4 and as we have the biggest base, of course, customer terminations are comparatively higher. So we need to compare our net add market share to the one of last year.

And compared to the one of last year it's a little bit lower, but it's quite similar. So we are very happy with that. Because in the meantime Free has launched very specific offers for their Internet customers. It's like [quadruple-play offers like] in some way. So we think that within the classical operators we are doing very well on the Broadband market in Q1. And this is mainly thanks to Open, which is a very big success and contributes to more than 30% of Broadband gross adds.

Regarding the labor cost, the EUR30m will be reversed progressively as far as people are taking their holidays, which means mainly Q2, Q3.

In terms of the performance of the Mobile business at the end of the quarter, are you continuing to see an improvement?

Yes, we continue to see improvement. What we've disclosed, in fact, is the difference between the first half of the quarter in terms of gross add versus last year. It's minus 20%, to say it roughly, in the first half and plus 30% in the second half. And, as we said previously, the market is at the same level as it was before the entrance of Free, I mean in terms of portability trend. So it's still at a quite low level compared to what it was at the beginning of January.

Thank you.

Our next question comes from Vincent Maulay of Oddo Securities. Please go ahead.

Yes, hello, two quick questions on Open and the prepaid in France. On Open, these figures for new net adds in the Fixed in France are clearly a strong weapon, but how many new customers in Mobile is to Open and of which are [multi-SIM]?

And on the prepaid in France, it's a higher than expected loss. Do you intend to counter attack in this segment notably through MVNO acquisition, or do you consider it's not a strategic segment?

New customers -- completely new customers, or new for Mobile, or new for Internet. Within the 1.7m Open customers we think we have 200,000 multi-SIM -- around 200,000 multi-SIM, to answer precisely your question.

And you also had a question about prepaid. What we can observe nowadays is a move between our prepaid base toward our contract base thanks to low-end offers, Free of course, but also our low-end offers. And our ability to convert prepaid customers to postpaid customers was multiplied by four in this quarter. So it's a base movement.

Okay. Just a quick follow up. And you confirm that the 200,000 multi-SIM are roughly 100% on Q1 with a very low in Q4?

I think it was 100 in Q4 and 200 in Q1.

Okay.

Sorry, sorry, I give you wrong number. It's 40 -- 400 -- roughly 400 in Q1 and it was 150 in Q4.

Okay, thanks.

Our next question comes from Will Milner of --

Sorry, there was a question on MVNO. Could you repeat it, because it was -- I'm not sure we have fully understood it? Hello?

Hello.

Vincent, could you repeat your question on MVNO subject, please, Vincent?

Yes. Just to -- do you intend to counter attack in the segment of the prepaid, notably, thanks to MVNO acquisition?

No, I don't think so, because on the French market MVNOs for now more than one year, especially the big MVNOs, have mainly come also to contract and their prepaid base is not that much bigger than the one from postpaid. Maybe, Pierre, if you want to --?

Yes, on the MVNOs we can say that we have a strong resistance of our customer base on MVNOs. We still are the providers of the main MVNOs in this country. And we recently announced that Virgin had signed again with us. So two of our MVNOs now are in a double-sourcing attitude, but they source much more with us than with our competitor, SFN. So we tend to prove that we can keep those clients and we confirm the revenue estimates from last year for this year, so it's pretty good news on the MVNO side.

Thanks.

We can now take our next question from Will Milner of Arete Research. Please go ahead.

Thanks very much. On Spain, I just wonder if -- you mentioned your decision not to scrap subsidies. I just wonder if you can talk a bit about the reaction you've seen in the market to Telefonica's decision to try and eliminate subsidies. I think you've probably had a couple of months to monitor this and I just wonder what you've seen in terms of churn levels in the market and a general reaction in the market to that decision.

And then the second question is on Broadband ARPU in France. Obviously, there's a pretty good Broadband ARPU trend this quarter. I wonder if you just, related to that, can talk about how much telephony usage on the Fixed Line increases when customers switch to the higher-price Livebox Star offers which have unlimited calls to mobile. Thanks.

Maybe if Jean-Marc is online, Jean-Marc Vignolles, CEO of Spain, Jean-Marc, if you can answer on the subsidy policy?

Yes. Regarding the subsidy policy it's still early days to comment, because Telefonica took the decision on March 1 to quit subsidies on acquisition and (inaudible) only in April. The approach being justified from a perspective mostly from the needs of our competitors to reduce stock and focus on their existing customer base, in view of the implementation of the 24-hour portability next June.

We have maintained a stable policy and a controlled subsidy based on customer value. What can be implemented at [this stage] is that we've seen so far rather continuity in the trend on one hand. Of course, we maintain, as you've seen in Q1, our leadership in net add portability. And obviously the decrease of the level of subsidies on the market has enabled us also to maintain a reasonable policy in terms of acquisition and retention cost.

On your question on the ARPU on Livebox Star and the comparison to Lifebox Zen, for instance, in fact, it's not mainly on Voice. It's mainly on content. The difference of ARPU is mainly on content.

And you have a second question of our -- on our PSTN losses and how we can switch from PSTN to DSL and monitor our PSTN base to DSL. What I can say is that we are able to switch an average of 50% of our PSTN base to DSL.

Thanks. I'm not sure I did have that question. But the actual question was on how much telephony usage increases when you give it to customers in an unlimited form on the Livebox Star?

I cannot -- I understand your question, but I cannot answer it very precisely, so we'll (multiple speakers) --

Okay, we'll follow up.

-- question and answer later.

Thank you.

Just on that I think there is probably more usage, but it's on the IP network so not so easy to track and maybe not so useful to be tracked to a certain extent. Once you have been giving Voice over IP to a customer whether we prefer he takes the uplift service with us than with Skype, so we see what [they] prefer. What we continue to measure is that, thanks to introduction of Voice over IP by all the ISPs in the French market, Skype for, let's say, national telephony remains relatively weak on the French market.

Okay, thank you.

Our next question comes from Nick Lyall of UBS. Please go ahead.

Afternoon, it's Nick from UBS. Could I ask on the Service revenues, please, what was the incremental contribution year on year from these Open Broadband revenues, please, that you double count?

And also was there a benefit from having an extra day in the quarter? And maybe you could tell us if there's any benefit too from the possibly easier comp last year as part of the VAT issues?

And secondly, on commercial costs, it's a really good performance on commercial costs in Q1, but again Q1 last year was impacted by VAT. So should we expect commercial costs to rise from Q2 onwards, or can you keep them at this level, please?

For your first question, just to be clear, as we said that we put the Broadband part on the revenue side it's not included in the Service revenue. As you can see on the French slide, you could see that the Broadband part is part of the total revenue but not included in the Service revenue.

Regarding commercial costs for the Group, we expect that it will continue to be, let's say, strictly managed and continue or even decline quarter over quarter on a year-on-year basis -- quarter to quarter on the year-on- year basis. And that even if there was VAT, there was VAT, but there was also strong acquisition movement in this quarter in France in terms of activity. When we look at the portability request we should have lower commercial activity in Q2 compared to Q1. That's the point.

Where there might be a difference in terms of commercial cost it will depend probably in the second half of the year on the date of launch of iPhone 5, whether iPhone 5 is on Q3 or on Q4. Then you could have a shift between one quarter and the other compared to what we had with iPhone 4S. That's probably the main difference that you could perceive. Okay?

And on the extra day as well, is there any benefit at all within the Service revenues from the extra day's trading?

Yes, you're right. Strictly speaking it's on the prepaid also -- on the prepaid side and on fixed side extra [double] you could have, I would say, some extra benefit. Just to be honest with you, we didn't calculate it very strictly or very precisely.

Not a problem. Thanks very much.

Our next question comes from Jerry Dellis of Jefferies. Please go ahead.

Yes, good afternoon. Thanks for taking the question. The first question really on costs. I wondered whether you could clarify for us, please, what are the major projects related to non-labor expenses which are currently going on and when we could expect to see some benefit from those during the course of 2012? In February I think you said that a large majority of the savings are going to be on the OpEx side, rather than on CapEx, and I wondered if that's still the case,

And then on the home France side I just wondered about the sustainability of the better revenue trend that you reported this morning, in particular, the better Broadband ARPU and line-loss numbers.

And last year I think at this time you were able to give us a target for Broadband market share through the full year and I wonder if you're in a position to do that now. Thank you.

Yes, thank you for that question. So regarding the cost-cuttings and savings programs that we have launched, I remind you that they bear the name Chrysalid all around the Group. So this name covers -- it's like an umbrella brand or umbrella name, if you want, for several programs which have been launched in Africa, Middle East or Europe and have different names.

So overall you may remember that this program has an ambition of EUR2.5b until 2015 and we are completely in line with the figures which have been considered for each year of that five-year period. So last year the savings of EUR470m have been achieved. This year it's a figure which is a bit under that amount, actually, and it's going to grow up again in 2013.

In order to give you some details on the programs which are covered by Chrysalid, most of them, as you mentioned, are related to OpEx. The idea is really to transform the way we operate in order to have less OpEx. So, for instance, we have launched several customer relationship management programs in several of our geographies which allow us to have less calls. And when you have less calls you can avoid having OpEx spendings at the end of the day. So this is what happens in some of our European countries, for instance.

We've also started saving on real estate. It was in the area of EUR40m last year. G&A are being cut in several countries also. And we are operating in new ways in the network area, doing much more rent-sharing than previously. The rent-sharing has started, as well as rent renewal actually in Spain. It has started also in Poland and for the first three months of this year we started witnessing the first savings which are completely related to a new way to operate our networks in Poland.

So all of those programs which are transformational programs, efficiency programs, cost-cutting and cost-avoidance programs are producing their effects.

On the home question about Broadband ARPU, it has continued to grow because, in fact, we -- the re-price effect of the net offers that occurred last year is now completely done. And we have a favorable mix effect between Livebox Star and Livebox Zen, between our high-end offer and our low-end offer, and also an increase in our content usage and, therefore, ARPU.

Thank you. And do you think that the trends that we observed in Q1 are likely to, therefore, be sustained through the rest of the year?

Yes, we think the ARPU is sustainable.

Okay. Thank you.

Our next question comes from Hannes Wittig of JP Morgan. Please go ahead.

Yes, good afternoon, I have two questions. The first one relates to the civil servant litigation issue. You've put -- or you said in your release that you were going to put some money into escrow. So should we take that as indication that this impact will be accounted for in the coming quarters, or is this subject to uncertainty? And what would that uncertainty depend on at this point in time?

And the second question is, quite simply, at the full-year stage you guided for a EUR350m regulatory impact on EBITDA for the full year. Now based on what you've done in the first quarter, or you're reporting in the first quarter that seems maybe a number that you would want to correct downwards. So what is there that we should be expecting later in the year? I guess it's roaming, but maybe you could comment on that question and whether you're still committed to the EUR350m guidance at the end of last year. Thank you.

So, regarding the escrow account and the civil servants pension litigation, what you have to understand is that this decision from the European authorities has not been yet notified to the Company. It has been notified and made public to the French government, which has decided to go for appeal against the decision. We have not been officially notified since the decision. It has not been published by the European Union official journal, if you want, so we are not officially informed yet.

So we have decided in order to take all measures which are required -- since that decision, if it really was entering into force, would take its effect starting January 17 of this year, we have decided to put certain amounts of money, in the area of EUR10m per month, on an escrow fund, which is, for us, the best way to organize ourselves for a future in which we hope that our appeal and the French government's appeal also will have a success.

And we will be able to recoup the funds put on the escrow fund without having completely lost that money. So we are starting to put that money on that escrow fund, but it has not been taken into consideration yet in our accounts since the decision is not official.

Just again to add an additional comment, in terms of accounting rules, since there is no notification and no final decision, it has not to be accounted for. However, we want to be careful and this is why we inform the market; this is what we do. The second point is that the solution which has been explained by Pierre is the best way to get the money back one day in case of, which is our strong hope.

On the regulatory impact we confirm the EUR350m. Now the split between roaming and national MPR is a little complex, because you have a lot of amounts by country, but we confirm the total figure.

Thank you very much.

Delphine will answer the question on usage that was asked (multiple speakers).

Yes. As far as minutes on usage on VoIP for Broadband, so between the high-end and low-end offers it's plus 20% mainly towards Mobile. So it's not a big usage effect.

Our next question comes from Andrew Lee of Goldman Sachs. Please go ahead.

Yes, thank you. Good afternoon, everyone. A question on French Mobile and some clarity and a bit more color on ARPU trends, then one on Fixed and then one, if possible, on costs.

At French Mobile your ARPU was down 5% this quarter and you're saying that the for the full year it should be slightly better than a 10% decline, but that the price impact will be felt more powerfully through the rest of the year. Should we see the full impact on ARPU trends in the second quarter, or not until the second half? And should we think of a 10% or an around 10% ARPU decline as the highest run rate for ARPU decline in quarters through the year?

Then, just on Fixed, just a follow up to some of the earlier questions. We've heard a lot about Iliad's halo effect on its Fixed Broadband business from its Mobile launch. I wondered if you could talk specifically about how this is impacting your Fixed business.

And then thirdly, on costs, even if we strip out bank holiday costs you don't seem to have been able to manage underlying costs down in the first quarter this year, like you were able to in the second half last year. Do you think you can improve this through the rest of the year? Thank you.

So on the French Mobile we maintain our estimation on minus 10% for the ARPU full year.

On the Fixed business it's true to say that we expect Free to be very efficient in the Fixed Broadband market in Q1, thanks to their quadruple play-like offers. But still I wanted to point out that we are very resilient and, among the classical operators, I think we are going to disclose very good figures in terms of net add market share. Because compared to last year we are at a similar level even if Free was very active in this period of time. And what we can see on the Fixed market is that it's exactly the contrary of the Mobile market; on our side few termination, but rather low gross-add activity.

Thank you. And just on the -- your ARPU comment, I thought earlier in this call Gervais had mentioned that he felt the decline could be less than 10% in ARPU this year.

Yes, Andrew, you're right. You're perfectly right. But we prefer just to be able that -- on the position just to see what happens on two to three weeks. So of course, as we said, the ARPU for Q1 has dropped around -- by around minus 5% and also, as we said, that we -- it was our previous estimation, so we prefer just to maintain around minus 10% for full year.

Thank you. And just on the costs -- on your underlying costs through the year, should we be expecting those to decline through the rest of the year?

Yes, we should have a better trend for Group as a whole because of the reversal I have been mentioning, which means that we expect clearly the full-year impact to be below the -- or less than the minus 4% we had in the first quarter. However, because of the commitment on the hirings on the French market on one hand, and also of some growth of manpower in some fast-growing geographies, I mentioned the 6% revenue increase in EMEA, this means that you need a little more people to execute it. We will not be below, I would say, a 3% increase. It will be between 3% and 4% increase.

Second point, in terms of total cost we are also continuing, especially in France, to replace sub-contracting by internal resources. This year we have decided to dedicate most of the hirings we are continuing to do, which is the plans committed with the unions -- will be dedicated and you will see, probably, and it has already started, some decrease of sub-contracting.

Thank you very much.

Our next question comes from Jonathan Dann of Barclays. Please go ahead.

Hi, there, three very quick questions. Do you have plans to roll out LTE on your 1,800Mhz and 800Mhz Spectrum across Europe?

Secondly, has -- does Iliad need to formally agree to a change in their contract, or is it -- or are we still within the original contract terms?

And then, finally, just a point of clarity. When you say you've got the 19% share of net adds, do you completely exclude what's happening in the fiber market? Or if I included fiber do you have slightly higher share of net adds, of the DSL plus the fiber market?

Okay, first question with regard to LTE across Europe, yes, we do have plans to roll out LTE by 2015 in all our European countries and that will depend on the situation with the countries. Because we have Spectrum in some countries that we don't have in the other, so we will see what is the best solution for us. But the overall intent is, indeed, to deploy LTE in all the countries by 2015.

Your second question, regarding the Iliad contract, we are living in a contract which has already been modified by amendments, so we have added amendments a couple of weeks ago to the initial contract and we'll probably be adding new amendments in the future also. So we are living under the rule of the initial contract, which is amended according to the life of the contract and the life of the business.

On the question about our net adds market share, it's in DSL. Fiber -- if you want the figure of fiber, it's more than 100,000 customers.

So if I were to calc -- if I were to take the 60,000 net adds, divide it by 19%, I get 317 for the market, are the fiber adds outside of that in the same way that cable adds are outside of that figure?

Fiber is on top of our net adds market share on DSL market.

We can now take our next question from Giovanni Montalti of Credit Agricole. Please go ahead.

Hello, hi. Thank you for taking the question, just a quick follow up. You were giving us the indication for the ARPU decline you expect in 2012. Are you in the position to give us any comments about the evolution you expect in 2013 for your ARPU? Do you expect a stabilization or any kind of decline?

And if you also -- as I understand if you are going to give us an update on 2013 in H2? Thank you.

We have said that we will not comment 2013 today. We said already on February 22 that we'll try to give a better, more precise picture of 2013 in the course of summer, probably, with our first-half release. It's a little premature.

Just keep in mind, especially on the French market, that our competitors are moving too. People will change some of their tariffs. There was a question on re-price, asking whether re-price was finished. For sure, re-price is probably not finished. That doesn't mean that we have -- so (inaudible) by everybody, but regarding the subsidized offers there are probably still moves to expect from everybody on the market, maybe from Iliad themselves. We don't know whether they will launch subsidized offers or not in a few weeks or months.

So I think we are really working on that. Sorry not to be more precise. We try to manage the things as much as we can. We try to give a picture for the end of the year and to master it. But I think it's better to convene again mid year and to look together at the perspective for second half and -- more precise for second half and, for sure, with a little more comment on 2013.

Thank you.

So I think if --

We now take our next question from Allan Nichols of Morningstar, our final question for today.

Thank you for taking my question, just a couple of things. Does the re-brand in Egypt have any effect on the amount that you may have to pay to Orascom for buying out their stake in Mobinil?

And, secondly, do you see any risk to your French business if Francois Hollande is elected President? Thank you.

Re-branding in Egypt has not been decided yet, so it has no impact in terms of value. However, in the agreements we have been signing with Mr. Sawiris by accelerating the takeover we have freed this issue, which means that we could -- we have now -- they're running into our hands. It's now under our hands and our control. We will see that. You know that the political situation in Egypt is complex and maybe Marc can comment the situation we have today in Egypt.

Currently in Egypt the management issue are totally in our hands. So the business is again not booming, but stabilized, even if the economy of this country is not yet fully recovering the previous situation. So we are very careful. And regarding the brand issue we have not yet decided to proceed as Mobinil is a very famous brand in this country, but we will study it between now and the beginning of next year.

Regarding the French elections I think we have no specific comment as a Company. The only point we can mention on the elections themselves is that it has been a good occasion to speak with the politicians and to explain the situation of telecoms, the situation of our Company. And I think it's always a very good occasion to exchange and at least maybe to be a little bit more listened to than in normal periods. That's probably one of the positive points as an industry, and that's good.

Regarding the outputs I think the view of the Company is, rather, that the margin of maneuver for any new government in terms of economic choices will be rather limited at least for big corporates like us. The again point we can mention is that the fourth license has been also -- been taken as an occasion for our political people in France to see some of the impact of regulatory decisions on this industry, and we think it's rather positive.

Thank you.

Thank you very much for listening to us this afternoon. We hope to now meet you with Patrice and his team in the next weeks. My colleagues of the Executive Committee and myself and my colleagues from the financial communications are at your disposal also to answer your questions. Thank you. Bye bye.

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