Orange SA (ORAN) 2013 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to France Telecom-Orange's Q1 2013 results conference call. The call will be hosted by Gervais Pellissier, Deputy CEO and CFO, with members of the 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. Please go ahead.

So good morning to everybody. Thank you very much for joining us this morning. So we just wanted to have our usual conference call on Q1 results.

If we just have an introductory remark, so the situation probably I would say it's a little more comfortable than it was a year ago. Maybe not as comfortable as you would like it to be forever, but probably less uncertainties, better mastering of the situation, especially in terms of commercial activity and in terms of development, especially on the French market. But also, and I think this is for us very important, the first proof that we are serious when we speak about cost reduction.

So if we start with slide four, the key financials which have been released this morning. So revenue trend remains difficult, minus 4%. Regulatory issues, mainly termination rate cuts and roaming in Europe represents 60% of the revenue decline, which means that excluding regulatory impact our revenue decline has been limited to 1.8%.

We have observed continued pressure on revenues in France and Poland, while Spain and other countries have posted strong revenue growth, including [Spain]. In spite of this deteriorating revenue trend, we have recorded in Q1 an improved EBITDA margin erosion in the sense that now erosion is limited to 0.8 point of margin, with the margin at 30.4%. EBITDA down by 6.6%. Just to remind that a year ago it was 7% decline and the margin rate erosion was much higher with 1.8 even margin erosion.

CapEx has been kept completely in line with our investment plan, even with an increase of very high broadband in France and the pick-up of 4G investment also on the French territory.

With all those figures we feel really comfortable to confirm the year-end guidance of an operating cash flow above EUR7b. This is what we can confirm today with all what is attached, including dividend policy and debt policy.

Regarding the cost structure, which for us is really one of the achievements of this first quarter, on page five. So first revenues, repricing effect is coming into the mobile customer base in France and Poland, but ARPU evolution is kept under control. Minus 12% ARPU decrease in France for full year 2013 is confirmed.

Enterprise is impacted by contract renegotiations in an adverse macroeconomic environment. The results recently disclosed by some of our peers, especially in the IT service industry, shows that this trend is unfortunately shared across the industry but you might further comment with Vivek Badrinath who is also with us this morning.

The continued pressure on revenues was addressed by the positive impact of our efficiency plan with a stabilization of indirect costs, which is one of the key levers to mitigate pressure on revenues. Margin erosion, as I said, has been limited to 0.8% of revenues compared to 1.6 points decline in first half and second half 2012.

Total OpEx we are down by EUR220m, minus 3% year over year with, for the first time, indirect costs slightly down. This is the first time for the last couple of years, for the last five years, that our indirect costs are down. Commercial and content costs were down by 3.3% and labor cost has been stabilized.

Our commercial agility allowed us to report the best Q1 mobile contract net adds in France for the last three years, with a clear rebound since March. And we are happy with the take-off of 4G in the UK, as announced yesterday, with 318,000 customers, which is in line with EE objectives to be above 1m 4G customers by the end of the year.

On page six, what's happening on the cost structure? And you see that on the curve which is presented on page six. Whereas revenues have been down by EUR441m, we have been able to decrease the cost base by EUR219m in the same period and to stabilize indirect cost with a slight decrease of indirect cost. 7% decrease of direct costs. As regards indirect costs, labor OpEx has been stabilized thanks to a favorable volume effect both in France and across our international footprint. On a year-on-year basis across the Group the number of employees on a full-time equivalent base has been decreased by 2,250 people, including 1,500 decreased in France, partly explained by the success of the senior part-time plans which have been reinforced at the end of the year with an improved scheme.

The pricing effect negatively offset the favorable volume effect for labor cost, but this is explained by the average 2% salary increase in France and 2.7% international.

Our commercial activities, I think this quarter has demonstrated that we continue to take, and in some countries to lead the initiative in terms of marketing, and that we are producing results, especially quite noticeable at the end of the quarter. In Q1 we implemented many commercial initiatives. In France, the launch of our LiveBox Play resulted in a positive effect on churn which has been decreased by 1 point, and on customer mix, with an increase of premium offer penetration by 7 points post LiveBox Play launch. We have more than 3,000 LiveBox Play offers subscribed.

Open and Sosh continued to prove very successful, with more than 1m Sosh customers, nearly 300,000 additional customers, net adds in the quarter. And 3.4m Open customers, 400,000 additional customers.

In Spain, we adapted our convergent offers and we now have 49% of convergent customers versus 20% a year ago. We achieved the best ever DSL net adds with an increase of 40,000 net adds. All these results have been achieved with a reduction in commercial and content cost by EUR70m in spite of an increase of handset sales by EUR25m. This is thanks to an increase in penetration of the SIM-only offer on the French and Spanish market, so the natural dynamics of the market. But we have added to that a proactive and tight management of redemption and acquisition cost on the subsidized base.

With those results we can confirm the main operational ambitions we have presented in front of you two months ago. At Group level we announced the stabilization of indirect costs over the year. We have already achieved a slight decrease in Q1. Mobile data revenue was up by 22% in Q1, in line with the target to grow more than 10% for the full year. In France we have maintained our mobile market share at 37%, in line with our target to be above 35%. And we have doubled the fiber customer base versus Q1 2012. The penetration of our premium offers in broadband gross adds amounted to 38% share since the launch.

In Europe, we now have convergent offers in four countries, Spain, Poland, Slovakia and Belgium. We launch new offers soon in other European geographies.

In Africa and Middle East, Orange Money continues to be effective. We now have more than 6.6m customers, in line with our target to have 8m customers by year end.

On the Enterprise segment, even if the overall revenue has been disappointing, Cloud revenues were up by 28% in Q1 and emerging markets grew by 11% on the same period.

A few indications now by geography. To start with France on slide 10. In France, as expected, the top line continued to decrease, excluding regulation, in spite of a positive contribution from wholesale as well as from the roaming agreement. Regulation continued to weigh on revenues, accounting for EUR150m out of the EUR330m revenue decline. The impact mainly comes from termination rate cuts reaching now a bottom level in France. Just to remind that the -- we are now at the last cut at EUR0.008, and that's where we no longer have cuts afterwards.

Excluding regulation, mobile tariff revenues declined by nearly 3%, in line with our expectations, while the roaming element partly offset the decrease in retail revenue, but not to the same proportion than what we had last year because we already had some roaming revenue in first quarter 2012.

12-month rolling ARPU was down by 10.7%, which is more or less 5.5% decrease excluding regulation. And this is in line with our full-year estimate to have a decline around 12% of the French mobile ARPU. As expected, pressure on those revenues got stronger quarter after quarter, affecting the spreading of repriced customers.

The trend in fixed service revenues is similar to Q4 2012 at minus 4.3%. But what's more interesting is that PSTN line loss continued to slow down during the quarter, minus 16% year over year. Broadband revenues were flat. But we think that thanks to the introduction of LiveBox Play and of the take-up of fiber we should be able to show an increase of broadband revenue in the next quarter.

Let me also mention two significant upswings since March on mobile contract net adds, which is the positive figure for March as well as in fixed broadband share of [conquest], which is significantly higher in March than what it was in February and January.

A few elements for updating you on the French regulatory environment. On mobile we think that we got a clear Competition Authority statement on the roaming agreement, which includes a provision on network sharing, on consolidation, on the way 4G roaming should be organized, and -- but also even more, and very important for us, the confirmation of the roaming agreement we have with Iliad which has not been put into question by the Competition Authority. So for us all this brings a rather more positive and, let's say, stable regulatory environment to operate on the mobile business for the next couple of years.

Second decision was the refarming of 1800 megahertz, starting on October 1 especially for Bouygues. Then the termination rate cuts which I said will terminate in July 2013, the last increase. But at the same time we'll have in July the end of asymmetry for the [four contracts].

On the fixed and broadband business, we have been authorized to increase PSTN access fee by EUR0.90 from June 4. On very high broadband the current government plans will, in our view, probably be rather favorable for investors, especially for the biggest investor who is France Telecom-Orange.

On unbundling prices, for the first time, and I would say following the recommendations of the European Commission, especially the European Commissioner Mrs. Kroes, ULL price has been increased as from May 1, 2013 by EUR0.10.

We have kept in this period our investment capacity, as I mentioned. It's on page 12. And we have spent EUR1.1b, well, nearly EUR1.2b in CapEx, which is nearly 7% increase compared to what we did a year ago and 9% increase in France. Because we already consider that on a very high speed as of broadband or mobile, to prepare it's essential to keep a competitive edge against competition, as it is demonstrated for fiber in France today or for 4G in the UK.

In France, we accelerated our 4G network rollout. We had 50 municipalities covered in April and which represent 15 suburban areas, big suburban areas. And we intend to cover more than 30% of the population by the end of the year. Our intention is to make our customers aware that we have the best network, including the best backhaul and the best possible speed with a strong speed differential against competition on 4G.

We have also accelerated the rollout of fiber. We have more than 200,000 customers. And we are aiming to nearly double that by the year end. And today our conquest share remains clearly above 50% on fiber.

In Spain, page 13, Spain, in spite of a difficult environment, in spite of increased competition, has been able to continue to post revenue growth, plus 0.8% in total, plus 3.3% excluding regulation. And even a positive mobile revenue growth, excluding revenue, by 0.8%.

Profitability balance was again positive. And we are the only one among the big guys to be positive, with nearly 10% contract customer base growth compared to March 2012. And this growth has been also fueled by an interesting data ARPU, 32% data ARPU increase between 2012 and 2013. However, we should notice that the same dynamics start on the Spanish market with an increased penetration of SIM-only and low-end offers which is probably a difference compared to what we had a year ago.

Regarding fixed revenues, they have increased by 16%. Double-digit growth in broadband customer base with the highest DSL quarterly net adds of 40,000 customers since 2011. And convergent customers now represent 49% of the fixed broadband base. Convergent customers, these are customers who are using the two of those. That doesn't mean that they have a bundle yet but different compared to the France situation where we have 20%, now a little more, about 22%, 23% of the French customers who have an open contract, so bundled, but there are even more who use the two offers from Orange.

Fixed broadband 12-month rolling ARPU increased by 2%. And in terms of commercial initiatives, Orange Spain has launched early April Canguro offers which will be a very competitive offer against other convergent offers on the market, especially the ones of the incumbents.

In Poland, during the first quarter Orange Poland defended its leadership position. And I guess you have followed the release of our Polish colleagues yesterday. We are clearly in a much better situation. We have recovered and reconquested our positions on the B2B market, which was a fragile point. And we have now a positive mobile portability against Plus and T-Mobile for more or less the same situation like in Spain. We are not good enough to face the new entrants in terms of portability. But we are clearly better than the traditional competitors.

Quadruple-play offer reached 72,000 offers, which means that now convergent offers is the standard within Continental Europe. Maybe not the case in the UK, also by the nature of the different players who are not convergent, per se but within Continental Europe we see now that convergence is the standard for a huge part of the market.

Fixed-line losses have slowed down from the 209,000 line loss in Q1 2012, down to 100,000 line loss in Q1 2013. And Q1 revenues are down by EUR61m, out of which more than half linked with regulation. Orange has also launched several initiatives to optimize its future performance, especially in terms of cost savings, with voluntary departure plan of 1,700 people for Orange Poland, which has been already chosen by 1,300 employees who have chosen the voluntary departure plan at end of March.

For other geographies, so rest of the world, which is Africa/Middle East and other European countries, we have growth more or less coming from most of the geographies. In Europe a strong impact of regulation but a slight growth except regulation -- excluding regulation, 2.6%, [when I say] are not so bad, but a strong regulatory impact is more or less 4.6 points of revenues which are linked with regulatory [discipline].

In Africa/Middle East, growth of -- it's a growth of 3.5%, which is unfortunately slowed down by Egypt, even if Egypt reports a 1.5% revenue growth in the very difficult political and economic environment.

Enterprise division, revenues down by 5.3%, which is, let's say, not a good figure, mainly coming from IT services where, in terms of differential compared to a year ago, legacy is decreasing with maybe some additional price pressure because of the macroeconomic element, and IT services are really linked with the economic cycles as usual. And this is what we are facing right now.

Page 18 to close this presentation, just to say that we have continued with new commercial initiatives, new Origami tariff in France launched early April, but also 4G part, with a EUR10 premium for 4G to start in January 2014. So why do we just price 4G at its real price? The price we see should be the real value, starting January. It's mainly because we are opening the service to attract customers; it's for them to take the service this year. This year is a year of adoption, a year of test because of insufficient coverage. We are opening the service on the French market with, I think, 13% coverage -- with a 10% coverage, sorry, now. We should be at 30% coverage at the end of December. And we think that only -- this is only with 30% coverage that you can really deliver a real perceived service differential for customers and that it justifies some additional pricing. This is the way we see it.

But we thought that it was very important also to have a kind of forward pricing strategy where we tell to people what is the pricing strategy for the future and what they will pay next year when 4G will be implemented. And this is very important for us.

In Spain, we have also revamped our convergent offers with the launch of Canguro. And we have a target to reach 50% of the broadband customer base with this offer. We have also refreshed Amena.com offers. And we have also taken into account SIMO, it has been the purchase from KPN, as another low-end brand dedicated to some specific market segment.

In Poland, we launched yesterday a new low-cost brand, NJU, to snap up a share of the growing low-cost market. And in Romania we launched our cloud services for consumers.

In terms of investment, we keep accelerating on very high broadband investment in France and Spain. We have simplified, and I think it's a very important message, our organization around innovation with now one CTO for Group, covering all the value-added chain, from R&D up to product definition, but also network management. In parallel, to improve our efficiency, we have signed a towerco agreement with IHS in Ivory Coast and Cameroon. And we'll continue to investigate further opportunities on other geographies to increase our balance sheet commitment in terms of network investment when it's feasible.

On page 19, I will not comment further. Just to say that it's exactly the page that was presented to you last February, so we didn't change any comment on the page. So the same guidance in terms of yearly guidance for cash flow and dividend, but I would say more medium-term guidance for M&A and debt commitment.

Maybe just regarding an additional comment. We have all probably got the news of the recent downgrade by Standard & Poor's from A- to BBB+. But what's important for us that now we have a stable outlook. And this means that Standard and Poor's have been convinced by our arguments, by our ability to decrease cost and by our ability to continue to maintain a strong liquidity. We have been able to raise, just a few weeks ago, EUR750m on a 6.5 years maturity at 1.875%, which is the lowest rate ever achieved by the Company and just lower than one of our big peers with a better rating for the country than us, or even by our own state debt.

I'm now with my colleagues, Delphine Ernotte, Vivek Badrinath, Benoit Scheen, Jean-Marc Vignolles for Spain to answer to your questions.

(Operator Instructions). We will take our first question from Nick Delfas from Morgan Stanley. Please go ahead.

Yes. Thanks very much. Really a question about France and the Iliad roaming contracts. Is the use of FT's network affecting quality at all for your own customers in any areas?

And as a second question, is Iliad now carrying enough traffic in some areas that you could maybe move towards switching off the roaming agreement in those areas as envisaged in the Competition Authority document? Thanks.

So on the quality of the network, the Iliad agreement has no impact on the quality of the network. And the proof is the test campaign the asset is running each year. And last year, end of 2012, we are the first mobile network with a very huge difference compared to our competitors. For instance, at Orange you can download twice, two times faster than the second competitor. So no impact on the quality of our network. So we are the first mobile network in France, definitely the first.

On the second point, you should rather ask Iliad, in fact. It's not a question for us, I guess.

Okay. Thanks very much indeed.

We will take our next question from Jakob Bluestone from Credit Suisse. Please go ahead.

Hi. Good morning. I've got two questions, please. Firstly, looking at the cost cutting, the EUR219m reduction in your OpEx, could you talk about if there was any impact from some of the recent government measures in that OpEx reduction? So perhaps if you could quantify the impact from the CICE, credit d'impot?

Secondly on your broadband subscribers in France, you had a fairly low market share this quarter. I guess some of that is seasonality. But it still looks a little low given that -- given your new box. Could you maybe talk a little bit about what you're expecting for broadband net adds going forward? Thank you.

Regarding credit d'impot competitivite et l'emploi, CICE, nothing has been taken in this first quarter. And we'll be very careful in the way to account for it. But if we had to account for it on a full-year basis, it would be a EUR75m positive impact in 2013 and about EUR100m in 2014. But also for you to know, as we mentioned underlying the negative impact last year, we will underline this positive impact when it will be taken into account.

I leave Delphine on broadband.

Yes. On broadband market, it's true to say that the first quarter is always a very difficult quarter for us in terms of market share because market is usually quite low in the first quarter. So as long as we are the biggest competitor on broadband, it has quite an impact on the market share. But nevertheless, we launched the new box beginning of February. And we've seen a very strong impact on the churn, minus 1 point just after the launch of the LiveBox Play. And we have a real switch within the first quarter. March is quite a good month and we expect it to go on with our conquest market -- March conquest market share. It was a good month compared to January and February. And besides, in this quarter the market was very, very, very weak. So the number of new customers was really, really very low.

And second point, of course, one of our goals is to regain market share thanks to fiber. And we can already observe that our new fiber customers are increasing in line with our target to double our fiber customers in very dense areas where we know our market share is weaker than in other areas.

Thank you.

We will take our next question from Dimitri Kallianiotis from Citi. Please go ahead.

Good morning. Thank you for taking the question. My first question was to see if you were still confident about stabilizing EBITDA in France next year, in particular in terms you're still losing market share. And with respect to 4G, if you think you will still have a network advantage. Clearly you've got the best network now. Since we will be able to launch on 1800 megahertz, do you think that will put you at a disadvantage or you still think you will be able to have the best 4G network.

My second question was on cost cutting. Clearly there's a lot of focus there. I just wanted to ask you if you see any opportunities to increase the cost cutting and where are the main opportunities to cut cost.

And my last question is on mobile. Clearly the two-years offer from Free is being very successful we saw for Bouygues at EUR4. And how do you intend on really competing hard in the lower end of the market, so for the very low-end postpaid but also for prepaid. Thank you.

Maybe just before handing the floor to Delphine on the market dynamics in France and what we do. Just regarding EBITDA, we have never said we would stabilize France EBITDA. We have said we would stabilize Group operating cash flow, which is more or less stabilizing Group EBITDA because we have said we would not decrease investment. So this is the message. And we still -- we think that there is still some pressure on EBITDA in France in the course of next year. Now the question is that when next year will we be able to stabilize that? First half? Second half or fourth quarter? That's still a question. And we are very early today to answer precisely to that.

We see some of the dynamics and I think we have today a little more capacity than we have next year to plan what should happen. We see some of the positives. Especially one point we already mention is that we expect next year to stabilize the fixed line revenue in France, which means that then we will stabilize the EBITDA for the fixed line business, which is the first element. Then there are still a few uncertainties on rate of adoption of 4G, with how strong we'll be. The ARPU uplift linked with 4G is still an unknown question. We don't know yet.

What will be also the reprice? Again, if Iliad introduce a subsidized offer, what will be the behavior of customers? And we are also depending, and this is the point of uncertainty not only for us but for everybody, on what should be the innovation on terminals. You know that the market dynamics will also depend whether new iPhone is very innovative, whether new Samsung is very innovative, whether there are new tablets that can, especially on 4G, further develop the usage more than if there is very little innovation on the handset front.

On the quality of the 4G network, I just want to say that there are three main assets to have the best network. The first one is the spectrum. And considering we have the largest bandwidth of spectrum, both on 2.6 and 800, I'm convinced that we have the ability to have the best speed on 4G.

The second thing of course is the coverage, the number of antennae, and we are accelerating the coverage of 4G. I think we'll be up to more than 30% coverage at the end of the year considering that Bouygues is going to have quite a good coverage in October. So we know that, of course, and we are competing on the coverage and I'm convinced that we're going to be successful.

And besides a very key element of the network, we do not seek very often of this element, but it's key, is the backhaul, because if you don't have a very high-speed backhaul, you can include all the antennae you want, you'll never have the network. And considering the backhaul, we have a very good one which is mainly fiber backhaul. So we are -- we have the ability to speed up in terms of coverage and to guarantee the best speed for our customers. So I think we are on the road to have the really best-class network, 4G network in France.

And last, you know we are also deploying H+. H+ is three times faster than 3G. And our coverage is now up to 65% of the population. So there's a real combining H+ plus 4G, there's a real competitive edge with the Orange network.

On the mobile and the low end, you mentioned EUR2 and EUR4.90 and EUR3.99 from Bouygues. We reacted yesterday by launching a Sosh offer, two hours, SMS unlimited at EUR4.50 to be able to compete on this low-end market, which is price-driven. So we know we need to have a good price point to be competitive. But nevertheless, we didn't want to be down to EUR2 because we don't want to be -- we want to be competitive but not aggressive on this low-end market.

Thank you very much.

I'll just comment on your -- on cost cutting. So we had already said that we should decrease our cost circa by EUR600m for Group, out of which more than EUR500m for France, both direct and indirect. We think that the -- [some damage] is coming both from on direct cost reduction of [SAC FSE], reduction of interconnection, so these are the two elements which is the link -- which is the natural link of the industry -- direction of industry amplifies our own effort, let's say. For EUR1 of savings generated naturally by the move to SIM-only and by the decrease of commercial rate costs, we had probably EUR0.50 by our own efforts, more or less. This is what we do.

But then on indirect cost, we see the growing impact in the course of the year of manpower decrease, it's definitely thanks to the senior part-time plan, plus all the Chrysalid actions on reducing cost of network, cost of call centers, cost of distribution. So this is -- all this which is amplifying. And I think we should be above the figures we have been giving at the beginning of the year, but also to face the pressure on revenues that we see still going on at least for this year and maybe the beginning of next year.

Thank you.

We will take our next question from Antoine Pradayrol from Exane. Please go ahead.

Thank you for taking my questions. So three questions, please. The first one, to come back on fixed broadband net additions which were quite low in the first quarter despite the slight acceleration in fiber and despite the launch of the new box. Do you plan to launch new offers or to cut prices or to do something to accelerate? Or is it just a natural acceleration that you expect in the coming quarters without any changes to your offers? That's the first question.

The second question on mobile in France,, if I exclude Sosh customers, you still lost 380,000 contract customers, if I'm not mistaken, in Q1. So do you think that this can improve in the coming quarters and even maybe stabilize or not at all, so excluding Sosh?

And third, if I look at Spain, the margin in Spain and the impact of the Canguro offer, do you think that you can -- despite Canguro, do you think you can still increase your EBITDA margin in Spain in 2013?

Jean-Marc, if you can answer the question on Spain if you're online.

Sorry? I didn't hear the question, sorry.

The question is can you keep your objective to improve EBITDA in Spain in spite or after the launch of Canguro offer?

Yes. I think we are quite confident on that and we can deliver EBITDA improvement because we need to understand that although the Canguro package or the convergent packages are putting pressure on top line, they go along also with increase of SIM-only offers in the mobile environment. And by the way, the mobile proposition in Canguro is SIM-only. And so the growth of those SIM-only offers, but also the development of low-cost offers in the mobile environment by [Camina] and Simyo with lower commercial and customer-facing costs should enable us to maintain the trend of our EBITDA improvement.

Okay. Thanks.

So on the fixed broadband, I just want to remind that we have a very -- switch within the first quarter with a very good March. So we think the launch of the LiveBox Play has a real impact on our ability to regain market share, the first point.

The second point is we do not intend to reprice the fixed broadband and we intend to keep our price point. Our main ability to regain market share is of course our new LiveBox Play, but also Open, which is very, very performing, with very, very good trend on Open. So we expect it to continue in the year.

And besides we're also working on our mix within our offers and the LiveBox Play enables us to regain premium offers and to improve our mix between low-end offers on the broadband market and premium offers. We have gained 7 points in this mix in two months and we expect it to be up to 15 points in the coming months.

On the mobile market we expect that the low-end market continues to grow. Our percentage of premium offers in this quarter is 47%, but I just want to mention that yes, we've lost contracts in this quarter, but it's the best quarter in three years. Even if, of course, last year was quite unusual, but in 2011 we lost 145 contracts and this year only 86 contracts. And when I speak of contracts it's of course without the M2M, so it's real -- well not real, but common contrast.

So I think it's not a big reducing of our base and, besides, like for broadband March was a very good month in terms of mobile because we had a positive net add in March, on the mobile also.

Okay, thank you, so we should not think of Sosh versus non-Sosh, we should think about the total contract system as dedicated is what you're saying?

Yes.

Okay.

Yes, Antoine, because I think it's a move you will see everywhere in all countries where you have low-end, the SIM-only will be now a part of the market. Maybe the slight difference in our comments made with others is that we see, however, that a EUR2 offer is solo, but I'm not sure that at the end of the game it gives you a real value market share. That's one of the issues why we have decided to cap our offers at EUR5, is that EUR5 there could be some additional uplift with incoming calls, etc. which remain -- leave a decent -- I would say decent low-end ARPU, but that's one of the issues in this industry.

Within the contract net gross adds we have 43% of premium offers, so that's the actual figure and, besides, we expect 4G to help us to regain efficiency on the premium market. That's why we didn't launch 4G on Sosh, for instance.

Okay, thank you very much.

We will take our next question from Jonathan Dann from Barclays. Please go ahead.

Hi there, it's a couple of not related questions. The first on -- could you just give us some color on what's happening to the contract ARPU in each quarter? And I guess take -- if I'm right, you're basically adding 27% of net adds or gross adds are Sosh, but Sosh is about 10% of the base, so if you can put that -- how many more euros of contract ARPU pressure do you think there is?

And then, if Jean-Marc could perhaps update us on the -- I guess on the latest on Spanish fiber rollout?

And then, finally, you mentioned having a strong mobile backhaul network, could you just quantify that? What percentage of mobile base stations has fiber backhaul?

On the French mobile, considering that of course low-end market is going to grow, considering that we -- the reprice of our base and we expect and we are monitoring, in fact, the average ARPU of our new customers we think we are in line with our guidance at minus 12% ARPU on the French mobile.

Jean-Marc, for Spain, can you update people what we do on fiber?

Well, first we can say that we have started commercializing our fiber offer in Madrid and within the framework of the first rollout of growth to 40,000 households and this is within the framework of the rollout which we announced in June last year. And then, of course, you have at the moment certain regulatory pressure related to the agreement we reached with Vodafone in March, to jointly roll out in 50 main cities with a target to reach (inaudible) 600,000 households by the end of the year.

And where we are negotiating an agreement with the incumbent on the conditions and to access vertical cabling, which has led us to announce the slow progress of negotiations to the regulator. And the agreement, as you know, between ourselves and Vodafone followed a failure to reach a common agreement with Telefonica and (inaudible) on the shared rollout due to conditions put in this agreement, in particular the obligation to symmetric rollout in order to access the vertical cabling. So I would say that operationally we have started and commercially we have the cooperation framework to roll out with Vodafone and definitely we are in a place where we are trying to obtain from the regulator the clearing up of the last remaining issues we have.

Yes, on the backhaul for the French mobile network, we have the fiber in more than 90% in very dense areas and I think all over France it's more than 80%.

Thank you very much.

We will take our next question from Frederic Boulan from Nomura. Please go ahead.

Hi, good morning. So a couple of questions please on French mobile and one question on cost control. So firstly on mobile, if you could come back on the drivers of the net addition deterioration, you had positive contracts in Q4, which I think is probably the right quarter to look at. What was driving this, because we had price cuts from SFR in late January but you reacted very promptly with your promotions in early Feb? I find it surprising you compare Q1 with Q1 last year, which was when Iliad entered the market, so I think everybody hoped that Q1 this year would definitely be better. So do you consider the SFR cuts and the follow-up cuts from Bouygues and yourself to be as significant step changes from the pricing in the market as what we saw from the entry of Iliad earlier in 2012?

Secondly, on the phasing in the year, so you have a new range of offers, can you comment on the expectations, on the adoption of those new offers, the impact it will have on ARPU and if we should expect service revenues to deteriorate going forward after a reasonably stable Q1?

And lastly, on cost control, so the improvement in margins over Q4 when I look at the numbers seems to be driven by better control in IT and networks and SG&A. If you could give us a bit more color on what you're doing here and if this trend is similar across the businesses, in particular if you're seeing a similar trend in the French business. Thank you very much.

So on the mobile market it's true that considering the 2012 figures where Orange regained contracts and market share, SFR, even if there were a lot of solutions, didn't. So they reacted, in fact, in January considering that to be able to regain some market share. So it had an impact on our net adds. That's why we revamped our Origami offers in June -- in April, in order to be competitive on these premium offers. But there's also a very big impact of the EUR2 from Free, launched in December with a lot of commercials beginning end of December, and which had a very strong impact in January. In fact, January was rather like January last year, but of course we reacted better and, in fact, on the base was much, much lower than it was last year.

Okay, the question on the phasing.

On phasing that -- in fact, in our budget of course, we include our base reprice, we included also a possible new move from our competitors, so that's why we can confirm that we are in line with our guidance, minus 12% end of 2013.

It could be (inaudible) to see the condition with the cost. I think with the uncertainties we have been living with for the last three years, we have now a central scenario and we have some [sessions] of central scenarios in mind when preparing the budget. We have a central scenario and this is why I think we have been able, also last year, to stick to our operating cash flow commitment, in spite of a much stronger impact of Iliad on the market share and on the ARPU than what we could have initially anticipated at the very beginning of the year, or even before Iliad launched.

So don't -- which means that on the cost structure we have also, keeping in mind some additional efforts, especially because we don't want to sacrifice the investment, we think that especially investment in fiber and 4G, or H+ in countries where we need to invest -- to continue to invest in H+. I don't say we will do nothing on other investment lines, maybe traditional 2G we'll see whether we can decrease some services, some DSL in some countries and some areas, we might probably slow down some obviously investment, but we really want to keep the focus on investment because we see this will be the way to differentiate.

It is true on fiber today; I think we will show that, at the end of the year, more or less half of the net share of conquests we are regaining is coming from fiber. Okay, that's the additional reconquest from the 15% or the 16% we are today to the figures we want to be, will come from -- about half of that will come from fiber, probably, that's very important, and on 4G we really consider looking at what's happening in the UK, but also looking what's happening in Switzerland or in the US, especially with Verizon. We think that it's a tool for reconquest.

The second point, but I think you know that better than us, is that we think that with the new tariffs, which have been launched by our competitors, they have more or less used a huge part of their weapon. We don't see that much margin of flexibility without impacting their existing customer base even more, and today everybody has a customer base, including Iliad. I think this is the big difference. The EUR2 offer for Iliad has been very attractive, but not very attractive for their EUR19.9 offer, I'm not sure they will show beautiful figures on this part of the business and I think everybody's in the business and behaving as businessmen, but I think nobody wants to have just customers paying EUR2 a month, so even if you get a 50% market share with EUR2, I don't think you'll make a living with it.

Okay and I don't know if you -- I know you don't disclose EBITDA numbers per country, but is it fair to say that some of the good results we're seeing, in terms of IT and SG&A, are driven by efforts in France or there are some contrasting reality there?

We know quite well that France is now contributing a lot.

Okay, all right, thank you.

We will take our next question from Nick Lyall from UBS. Please go ahead.

Yes, morning, it's Nick from UBS, I have a couple of questions please. Could you give us the percentage of the base that you've repriced so far, so at the end of Q1 please?

And then secondly, you mentioned some scenarios there about your various guidance in France, but what do you assume from the impact of Iliad moving into the subsidized market, because the one operator who doesn't have any legacy issues, potentially, is Iliad and they've got 80% of the market still to address. So that would sound like a huge potential difference in scenarios. Could you tell us which one you take in your central case?

And the final thing was this morning, just on the wires on Bloomberg, it was mentioned you were looking at an ARPU decline of minus 12% to minus 13%, it's not much of a difference but it sounded like a bit of a slip. Could you just say if that was the right number and any reasons behind that if it has changed? Thank you.

Two comments, one on the Iliad situation, when you say no legacy issue I'm not so sure, because two issues I think, and again this is our view of the situation. Why would people enter into a subsidized market? Probably to take some share of the subsidized market but also to find a way to get some loyalty of the customer base in the future, especially with the arrival of 4G, where I think Iliad might have difficulty to be first on the departure line. Maybe they will be very good afterwards, but I don't see they would be first on the departure line as it is today.

And secondly, because they have a huge 2G handset base, they need to move up, they want to make some ARPU with their customers, because if the customers are just stick with 2G handsets, they will never consume better, never. And this is, I think, the new, let's say, Holy Grail for everybody including Iliad. Again I don't say that they don't want to take the market share on the subsidized base as it exists, but my feeling is that if they move to subsidies this is also to enhance their own existing customer base. At least this is my view from outside, I don't discuss that with them and I just give you my analysis like you would give your own analysis on this. So I'm not too worried.

And the second point, we have always said that when you enter a subsidy you enter into a no-longer lean business approach, you are obliged to get a handset catalogue, you are obliged to get some logistics, unless you just give a discount to customers if they do something, but then it's not really subsidy. And it's quite costly on the P&L and on the cash situation where it needs to be managed with care. If I just take the speech of Telefonica on subsidy I would be very (inaudible) that Iliad goes massively to subsidy, massively, it might do it but I don't think it can be massive.

That's one part. Regarding the ARPU you are, sorry to say that, you are a little too much precise, this is because you work maybe for a Swiss company, but between 12% and 13%, if you are able to project that I hire you tomorrow, okay.

I'll take you up on that. Just to be clear, Gervais, that's -- it's not the guidance is slipping on ARPUs, minus 12% to minus 13% is not --?

No, honestly we are -- when we said minus 12% we were between, let's say, minus 11% and minus 13% and it is true, but to be very honest with you it is true that the pressure on price, especially introduced by SFR at the beginning of the year, is even more, let's say, downwards scenario has pushed us to the more downward scenario for revenues than the upward part. That's very clear, I think everybody understands that, and if I tell you the contrary you would not believe me.

Okay, understood.

On the percentage of the base repriced, we were at 50% at the end of 2012 and we are around 60% nowadays, but what I want to highlight is the fact that we are monitoring our repriced base, considering the very competitive market and the move of SFR. So we are repositioning what we call our fragile customers, so we intend to increase quite a lot this percentage of our base repriced.

That's great, thank you.

We will take our next question from Stephane Beyazian from Raymond James. Please go ahead.

Yes, thank you, three quick questions if I may. Just to come back on what you said about Spain. If you were to be cleared or to have a regulatory in your favor regarding fiber in Spain, would that change your current agreement that you've signed with Vodafone then and potentially walk away from this agreement? Or, whatever happens, you intend to be building with Vodafone the number of homes that you've announced?

Second question, if I may, just to come back on subsidies, is it possible just to give us a sense of what happened recently regarding the level of subsidies? Just trying to think of what potentially could be happening going forward and whether there is some flexibility in stepping up the level of subsidies in the French market.

And my third question is regarding Dailymotion, there's been a couple of comments in the press about that, could you just come back on what's the stages of the options there and what's the contribution of this business and it's margin currently? Thank you very much.

I will answer first on the Dailymotion and then leave Delphine to answer on the French subsidies and Jean-Marc on the fiber situation in Spain. So regarding Dailymotion, you remember that we took initially a minority of it, it was early last year of 49% and I would say then with a willingness of other shareholders who will exit probably earlier than initially anticipated, we have taken 100% of the Company because we think it's an interesting Company.

We have said, however, that when we look at the Dailymotion situation and its today competitiveness against other players, especially YouTube with the number one, that Dailymotion would need probably US-based partners and probably within the industry rather than just investors providing money. Because we think that today's ecosystem of the internet landscape is to be in big alliances with other players than being able to multiply the audience than just being an isolated video player.

This is what we have been starting with, to look at potential partners, and it's true that amongst the names which have been mentioned Yahoo is probably one of the potential partners, so we are currently discussing with those potential partners, but we are not yet to a conclusion. Just to mention that last year I think Dailymotion made about EUR45m of revenues and had a positive EBITDA contribution -- was EBITDA positive, so a very slight contribution.

So let's be clear, 100% of Dailymotion in our figures doesn't represent in the aggregated KPIs of the Group very much, but we think that it's a good opportunity and it's a very interesting French-based business.

Regarding fiber, Jean-Marc.

So the answer to your question is no, the outcome of the regulatory action we have undertaken has no direct impact on the project that has been signed with Vodafone; the project with Vodafone is in line with our announcement that it makes sense to share the fiber rollout efforts with other players on the market in order to maximize commercial return and also savings. What we are asking through regulation is simply the application of what is -- has already been stated by CMT, which is access to the vertical cabling without any restriction of equivalent resources or help.

Meaning that we are asking for pricing conditions and technical conditions, the sharing of (inaudible) from household or building owners to access to the partners of the vertical cabling that has already been done by Telefonica or to allow access to our own vertical cabling. So, at the end of the day, the pace of the rollout and of the project will depend as it should be on obviously commercial success and market conditions, but definitely the project is not under condition of the outcome of the regulatory actions we are undertaking.

On the subsidies there are two effects, the volume effect and the price effect. The volume effect is due to the number of subsidized gross adds within our gross adds contract results, in Q1 it's 60% of our contract gross adds that are subsidized compared with 73% last year. And the second one is the unitary effect; the unitary subsidies are down by 14% this year. Besides, we are really focusing on high-value customers and always balancing in the middle range offers between more subsidies or lower offer, because we are -- our guidance is in terms of EBITDA not revenue, so sometimes we prefer to propose a lower offer to some customers because it's better in terms of EBITDA. So we are really managing the value impact of our (inaudible) rather than purely the revenue.

Thank you.

We will take our next question from Andrew Lee from Goldman Sachs. Please go ahead.

Yes, good morning, thanks for taking my questions. I think most have been answered, actually, but just one follow-up question on the handset subsidies in France. I wonder if you can give us a sense to the incremental proportion of the French market that you think offering handset subsidies would open up to Iliad? Thank you very much.

I have the answer for Orange but not for the French market.

That would be great.

So it's 60% for gross adds and I guess it's -- I don't know that, I don't know, you should ask our competitors about their own percentage.

Okay, thank you.

Sorry to not agree, we are also thinking on how it could be. It is not that we don't want to answer but nobody knows how -- and again maybe probably Iliad themselves they might not have completely decided how they will launch their offer, and depending on that it might attack one segment or the other segment. As I mentioned before, we don't know in what they want to do, what will be an enhancement of their existing customer base, so how to move up their customer, which is what they have been very -- they have been doing quite well on the broadband base, don't forget that with the Freebox revolution and so on. It's mainly first to enhance and to increase the spending of their own customer base, how to move their 2G base and what side they want to attack from others. You know that's probably unique on that and depending on how they will introduce that, it might be different.

There's also a question around 4G. By the end of this year half of our mobile rent will be 4G, so when is going to be the reaction of Iliad considering that new equipment will be 4G focused.

That's fine, thank you.

We will take our next question from Nicolas Cote-Colisson from HSBC. Please go ahead.

Morning, just to follow-up on your comment on in-market consolidation, I just wonder what's your take on the European Commission, who are currently regarding the single market?

I also have a couple of questions regarding the French market, if you can share with us an indication of churn levels for the Sosh offers and also if you can share some indications of revenue trends for the enterprise market? Thank you.

Regarding consolidation, no we don't expect very soon any potential improvement of the conditions for in-country or in-market consolidation. I think the statement of the Competition Authority in France is very clear, they want to continue to see four players and I think within the Yoigo case we should not underestimate in value the cost of this in the pricing put by ourselves, and maybe by Vodafone, on the value of Yoigo. How I see (inaudible) price the risk that by getting rid of one player, even if we are getting rid of one player the Regulator and Competition Authority try to keep most of the conditions to give or to allocate spectrum to a new entrant, so to recreate a new player. I think that's part of the game, so we don't see a very short-term improvement on that.

Regarding the single market, we think that it's a favorable speech, we think it's a good industrial speech, we think that some of the measures might be effective, now how will that play really in the industrial dynamics it's still a little early to comment on that.

On the Sosh question, we do not disclose the Sosh churn, but what I can say to you is that the overall contract churn is improving in Q1.

Thanks and on the enterprise market?

Yes, on the enterprise market the first quarter has been -- yes, Vivek Badrinath speaking, hello, Nicolas.

Hi.

The enterprise market has been challenging in the first quarter, sluggish in essentially two areas in the European geography. One of them is the network not on footprint, as you can see on the slide our IPVPN customer base keeps increasing, so we've held the footprint; however, we've had a handful of sharp price revisions against contract renewals. So we have contracts that tend to have stable revenues over a long period and then, when you do the renewal, in particular for two customers who had very significant cost cutting requirements, we exchanged in a way a renewal on a longer period against a price reduction going forward. So that's been the main impact for the challenging numbers in the first quarter on the core business.

You will find overall that -- and you'll find the same read across from our network equipment vendors and our competitors, Europe has been a disappointing region for all of them in this quarter overall.

On the services side we're facing a pretty sluggish signing environment, contracts take longer to get signed, fewer opportunities in the beginning of this year, it's been a slow start in the IT-based services area after, let's say, a reasonably strong fourth quarter last year in this domain.

So what we're doing going forward, first of all we focused on our growth areas that we mentioned and there the numbers are holding reasonably well. If you look at cloud revenues they're at 28% with a mid-market penetration of our cloud offerings that is quite resilient as of now. Our cloud offerings are meeting good success and we launched yesterday new unified comms as a service offering at a global level. So this helps us to tap into broader geographies than just Europe and our emerging market numbers are at plus 7%, which means that our ability to generate revenue outside the European macroeconomic context is a favorable trend for our overall revenue lines.

And then at a more, let's say, transactional and tactical level, we've activated all the tubes of a recovery plan on the quarter one numbers, both in terms of commercial drive upselling activities on the existing customer base. That, as I said, is holding well, so we're holding the customers and we're pushing for upsell both commercially with the commercial team and also with the new product. So we -- and at the same time, as you saw, the renewal cycles and the winning cycles of the contract have been longer in this first quarter, we've put a lot of pressure to close the contract faster, we've got some new logos in the very final or it's just signed or posted post-quarter, but in the time saved as of now, which generate good value either on services or on emerging as well. So they're pretty sturdy and in line with our strategy.

Okay, thank you then.

We will take our last question from Vincent Maulay from Oddo. Please go ahead.

Hi, good morning, two quick questions, the first question on the net adds in mobile in France and could you give us more color on the dynamics within Q1, what has driven the equivalent in March versus January and what could be extrapolated in Q2?

The second question on LiveBox Play, when the new box could positively impact the net adds or being more conquest tool instead of migration tool for France. And maybe a quick update on your guidance of at least EUR6 ARPU increase on this new box?

So, yes, we have positive net adds both in mobile and in broadband in March thanks, I guess, to our ability to monitor our base and reduce our churn both on mobile and broadband. It has a real strong impact on broadband, minus 1 point of churn in just one month, so it's very efficient. And I agree, I think it's going to be also a very strong weapon on acquisition, but I think it was difficult in Q1 because the market was very, very weak, weaker than expected, so it's going -- I expect it to be a more efficient weapon for acquisition in the coming months.

Oh, yes, sorry, the guidance, yes, is maintained, yes, EUR6 ARPU primarily with LiveBox Play.

Okay, thank you.

So thank you very much for having been with us this morning. We'll probably see most of you in the next days or weeks to have additional discussions. Thank you, have a good day.

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