Orange SA (ORAN) 2013 Q3 法說會逐字稿

So good morning, everybody. Thank you very much for joining us this morning for our Q3 results release. I'll start with a short presentation. We have tried to shorten the presentation at least from -- for the speaker and to leave more time for your questions and remarks.

I am with my colleagues from the Executive Committee, especially Delphine Ernotte Cunci, in charge of France; Pierre Louette, in charge of -- General Secretary; Benoit Scheen in charge of Europe; Marc Rennard, in charge of AMEA; Thierry Bonhomme in charge of Enterprise; as well as in the room Jean-Marc Vignolles in charge of Spain and Beatrice Mandine in charge of press and communication.

The performance of Q3 I think, I hope is not a surprise for any of you, at least not a bad surprise. I hope for some of you it's a good surprise at least for those who are not, well, sometimes desperate about us, so I hope it's at least a good surprise for you.

If you look at the revenue line and we need to start with, I would say, the worst on the page and clear the revenue line remains a question market for us. And it remains a question mark for a while because we still see a strong re-price pressure in the major geographies. So revenue line is minus 4.3% for the first nine months of the year with a slightly lower decrease in Q3.

But I don't think we should consider this lower decrease is permanent. We think that the figure of the whole year is more or less in line with the first nine months. We'll come back on that.

There is less regulation impact in the third quarter. And if we take out the regulation effect the trend in Q3 is more or less the same than what we had in the full year, because it's minus 2.3% for the first nine months and minus 2.4% for Q3. If you look into a little more details, we'll come back to that later, regulation is still half of the revenue decline year to date. But impact is lower in Q3 especially in France.

Spain and Poland improvement in Q3 compensate the deterioration we have observed in Enterprise and other European countries. In France the decrease is similar to the decrease we had in Q2 while AMEA in spite of a slight decline in Egypt is still posting reasonable growth.

In this difficult context one point which is however very positive for us is that our commercial results are clearly improving especially in the three major countries of the Group. Acceleration of mobile-customer-based growth in Poland, France and Spain plus 515,000 net ads in Q3 for those three countries.

Despite the pressure on revenue EBITDA margin erosion has been limited to 1% of revenue, mainly thanks to the efforts which have been made everywhere in the Group but especially in France on the cost structure. Just to remind you that in the same period last year our revenue erosion -- our EBITDA erosion was minus 1.6 point of revenue.

Group EBITDA reached EUR9.8b, a decrease of 7.4% year over year. The regulation impact is slightly lower than what it was in H1, we'll come back on that. And the cost base has been decreased by EUR617m over the first nine months of the year, already exceeding the objectives we had given at the beginning of the year of EUR600m cost decrease and almost one-third of the reduction came from indirect cost decrease which means that we are working on the structure of the Company including the labor cost.

We have maintained the investment required to preserve our network edge in most of the countries. CapEx were up 2.6% year over year with a sharp increase in very high broadband investment in France and Europe more or less two times more than what we did last year, nearly EUR400m investment in 4G and fiber compared to EUR200m investment done last year in the first nine months of the year. Other investment have been decreased by EUR110m

With EUR6b of operating cash flow generated in the first nine months of the year we are fully in line with the yearend objective of EUR7b reaching 86% of the objective so far.

Let's look now at the commercial performance of this quarter. The third quarter has confirmed a strong commercial performance especially in the mobile markets with an acceleration of mobile contract net adds growth in our main geographies. And for the main geographies we are back to the situation and to the volumes we had before the strong price decrease or the turmoil in the sector we have been facing since 2011.

This confirms the success of our convergent offers, especially in France, Poland and Spain but mainly France, Spain and then Poland as well as the efficiency of our commercial segmentation between SIMO only and subsidies offer between high value, lower value customers.

And one point also very important is that subsidized offers are not dead. THE French market has shown an increase of subsidized net adds in this third quarter. Delphine can comment that later on.

Overall, the contract mobile customer base excluding machine to machine has grow by 7% year over year driven by top European countries but also emerging markets.

In France, excluding machine to machine, we have increased our contract customer base by 300,000 new clients, posting the best quarter of the last three years, so even before the VAT rate change we had early 2011, and sustained by substantial progress in retention as the level of contraction rate went down back to the lowest level since 2010.

As in France, Spain and Poland recording the best quarter since quarter 4 2010 in terms of contract net adds driven by a new portfolio including convergent that contributes to both fixed and mobile KPIs.

The number of broadband convergent customers has grown by more than 70% year on year in France, Spain and Poland plus 52% in France, plus 127% in Spain and multiplied by 30 in Poland.

We saw an increase in demand for very high speed both in mobile and fixed markets. In France the take-up of fiber is confirmed with 273,000 FTTH customers at the end of September. This is materialized by now a base of 6,000 connections per week in September. And we expect to reach nearly 8,000 connections per week by year end being probably on the top list amongst European operators in numbers of new connections per week. Orange attracted almost two-thirds of the new French FTTH customers in Q3 2013.

While in the UK our EE brand continued to post strong performance on mobile broadband with around 500,000 new customers, leading to around 1.2m 4G customers in the UK at the end of September. I just remind you that the progression EE has been doing in the UK is slightly quicker than Verizon in the US in terms of 4G launch.

If we come back to the revenues on the next page, at the top of the graphic you can see on page 5 you see that growth is coming from Spain and emerging markets in Africa and Middle East. In Spain, the strong commercial performance is matched by underlying third-quarter revenue growth of almost 7% before regulation.

Including regulatory impact growth is at 1.2% with a drop in mobile service revenues which is more than offset by mobile equipment sale. So mobile equipment sale has been multiplied by three in Spain this is mainly due to the shift of subsidized business model, much bigger part of SIM only market in Spain whereas handsets are now sold in installment sales. We have also been posting a double-digit growth in fixed services in Spain driven by broadband.

In our emerging markets the driver for revenue growth remains increase in our customer base, which is up by more than 3m year on year. In this region, revenue growth is coming from a wide range of countries with strong performance as for example the Ivory Coast and certain (inaudible) group countries. There is also a positive impact coming from incoming and outgoing international carrier traffic which is growing on an underlying basis and experienced an extra boost in the quarter related to Ramadan.

Moving down the graphic, pricing pressure very often subsequent to regulatory decisions is prevalent across many of our more mature European operations. However, in both France and Poland the quarterly revenue trend has improved compared to the first half of the year.

In both cases this is underpinned by an improvement in fixed services where PSDN revenues have proven more resistant, especially in France. We have increased the access fee if you remember by less than EUR1, by EUR0.90 in June 2013 with quasi no impact on the churn of PSDN accesses.

In France also 12-months mobile ARPU is down by 12% in line with the forecast we have been giving in March and of which one-third is due to the regulatory effects.

The same regulatory effects are also impacting our European country operations, representing more than half of the revenue drop in third quarter. However, we are also facing significant competitive and re-pricing pressure in Slovakia and to an even larger extent in Belgium as you may have seen with the results published by Mobistar last week.

In the enterprise segment an anticipated recovery of activity in the second half of the year has not materialized. This is mainly due to the permanent macroeconomic difficulties of European corporate, especially in France.

Third-quarter revenues were therefore fully impacted by ongoing pricing pressure as contracts are renegotiated or extended. And revenues were also impacted by a lower level of equipment resale and was just impacted our revenue by about 100 basis points in this quarter but is close to neutral in terms of EBITDA.

If you come now to the cost line on page 6, the strict cost control I would say even more all the actions which have been taken within the Chrysalid program to reduce our cost base have contributed to almost 40% of the decrease compared to 30% in H1. Now the indirect cost weight 40% of the cost increase. Our cost base was further reduced by EUR176m in Q3, enabling total savings of EUR617m after nine months, overtaking our full-year target of EUR600m.

Over nine months, direct costs which include termination rates, wholesale costs plus commercial costs and marketing have been decreased by 5.3% mainly thanks to a regulatory impact on interconnection costs without redistributing all the benefit of termination rates to our customers. This is also because we had already extended most of our -- in most of our subscription unlimited SMS for instance in France. Commercial costs have accounted for 15% of the direct cost increase with a significant contribution from France and a lower contribution from Spain.

As an illustration, three lines of cost have particularly contributed to the decrease of indirect cost of EUR68m in Q3 and EUR197m over nine months. Labor cost which represent nearly 50% of our indirect cost were reduced by EUR76m thanks to the headcount decrease but also to the credit d'impot pour la competitivite et l'emploi, which is a French tax relief created last year to help companies with strong labor charges and to reduce the cost of labor in France.

General expense, 8% of our, indirect costs have been decrease by nearly 5% and 10% in Q3. Advertising and promotion which was at 5% of our indirect costs have been decreased by 10% in Q3 mainly in France, Poland and Spain.

It is also worth mentioning the credit stabilization of IT and network costs 16% of our indirect expense with contract renegotiation and improved productivity compensating for energy price increase mainly in AMEA but also compensating for the need, to cover the need we have to change our processes and to improve our IT in most of our geographies.

With a short look on the headcount evolution on page 7 just to give you the figures, the decrease has reached 4,700 people since the beginning of 2012 out of which 2,700 in France which is linked with the natural attrition but also the success of our senior part-time plan which is accelerating the natural attrition of the company.

In Poland the decrease of 1,800 people is in line with the voluntary redundancy plan signed at the end of 2012 in which 1,300 employees have already signed out of a yearly target of 1,700.

Only Spain and emerging markets have seen their headcount grow, Spain with 108 new jobs following the internationalization of call center activities. In emerging countries to support the business development and at a slower pace than revenue growth plus 1.8% job increase of manpower whereas revenues have increased by 3.4% year to date. All in all this decrease enabled us to already reduce labor cost while we initially only expected to stabilize them in 2013 and to decrease in 2014.

As regards the EBITDA of Group on page 8, the good performance on cost has helped to limit the erosion of EBITDA to 7% year on year, and this decline has mainly come from the pressure on revenue partly offset by the decrease on cost.

Indeed, lower revenues play a very strong role especially the regulatory part. But the cost line is really improving; direct cost went down 4% year on year. Interco cost I mentioned, interconnection costs have continued to decrease.

In France impact of termination rate reduction was limited as we sharply decreased rate in July 2012. And we should have -- this last decrease was July this year.

We still have however termination rate cuts in Spain, Poland and other Eastern European countries that will continue also in 2014 [at a rate] for having at the end of probably 2015 within the European Union more or less the same level of termination rate which is between EUR0.5 and EUR0.8 per minute.

We have observed a slowdown in commercial and content cost decrease everywhere, especially in the major countries. And as I already mentioned indirect costs have continued to decrease.

At the end maybe just a few words on the CapEx, over on page 9, over the last nine months the Group has spent EUR3.75b in CapEx which represents an increase of nearly 3% year over year plus 5% in France. As in previous quarters we have considered as a priority to keep a sustained level of investment in very high broadband to preserve our network differentiation. Consequently, CapEx for 4G and FTTH VDSL have amounted to EUR400m over the first nine months of 2013 which is two times what we spent a year ago.

Also I would like to point out that compared with previous year's seasonality CapEx this year will be more front-end loaded as several programs are over or in the process of being completed. For example, the investments that were part of the MOU with the Polish regulatory in Poland have now been completed.

In France, we have accelerated the 4G rollout compared to the initial plans with 500 cities covered at the end of September or 32% of the French population. I just also remind you that we also want this coverage of 32% to be on big areas and not like the [leopard] scheme which is also that we are not just targeting the population coverage as an objective. What we are targeting this is the quality of experience for customers rather than just the statistical number in terms of population coverage. And we intend to cover more than 40% of the population by yearend.

In Spain, we are leading 4G rollouts and should cover 24% of the population by yearend. In AMEA region 4G is already launched in two countries and Senegal and Botswana should follow soon.

As regards FTTH we now have more than 273,000 customers in France and we are aiming for more than 350,000 customers by yearend. We still have, as I mentioned, we are far above 50% share of conquests in fiber. In Spain as agreed with Vodafone we should reach 800,000 homes connectable by the end of Q1 2014.

In conclusion, I would just repeat what we said at the end of Q2 by confirming our 2013 guidance. In terms of operating cash flow I mentioned that we already reached 86% of the objective at the end of September, and this without sacrificing investment, investment will continue to grow to reach nearly 14% of revenues at yearend.

And excluding tax litigation we have kept our guidance in terms of net debt to EBITDA to be around 2.2 at the end of 2013 which means including the EUR2m of tax payments at 2.4 at the end of 2013. And we also intend to be closer again to 2 by the end of 2014.

We have already announced the dividend for 2013. This was a decision of the Board of July 2013, with an interim payment planned of 30%, planned on December 11.

And as regards our portfolio you know that we continue to focus on existing footprint. We have already announced that we are within the process to dispose our asset in Dominican Republic. There are no other news on the M&A front as of today.

Thank you for your attention. Now with my colleagues we are ready to answer your questions.

(Operator Instructions). If we do not have time to take your question then please contact our investor relations team after the call. Jerry Dellis, Jefferies.

Yes, good morning. Thank you for taking my questions. Two questions please, firstly what percentage of your Origami base is now on the new plans that you launched last April?

And then my second question is that your outlook is clearly for 2.2 times leverage by the end of this year excluding the tax dispute, and to be closer to 2 times by the end of 2014. Are you able to tell us what sort of dividend whether that -- sorry whether the 2 times is consistent with paying a stable dividend in the 2014 year? Thank you.

Maybe, Delphine, on the Origami base?

Yes. On our mobile base at the end of September 80% of the base is on offers post-free launch first figure. And second figure we estimate that by the end of this year 70% of our base will be on 2013 tariff plan.

Regarding the net debt to EBIDA ratio first I confirm the dividend. Today we have -- I think there is not only -- there is no change in the dividend policy, our dividend policy that was changed last year is valid for several years. I have been discussing that with some of you in one on one's but clearly the -- when we chose to go down to EUR0.80 so to keep a stable dividend for at least a couple of years.

Regarding the leverage, so we will be at 2.4 including the tax payment at the end of 2013. The guidance remains the same including this impact which means that for us the guidance to be -- to come back nearer from 2 at the end of 2014 is now to come back nearer from 2.2.

We increase more or less the guided figure by 0.2. This is the way you should understand what we are saying today. We decided not to change the guidance formerly this year. We probably adjust this guidance whilst publishing the full year result and announcing the 2014 guidance next March. Is that an answer to your question?

That's clear. Thank you very much.

Stephane Beyazian, Raymond James.

Yes, good morning, thank you. Two questions if I may regarding France -- one on France and one on Spain. Regarding France we are seeing some acceleration in fiber but penetration might still be a little low, penetration of fiber versus some of your peer group. So what is your penetration you have reached in the older building now and that could be used for you as a target eventually in terms of building penetration for fiber.

And we've seen some decision by some of your competitors for instance KPN to accept to slowdown fiber and accelerate vectoring or pair bonding technologies. Is there any room in your plan for such a strategy?

My second question is regarding Spain. Can you elaborate a little more on how many customers have picked up I think that's the Kangaroo plan which has the quadruple player -- quadruple play plan. Thank you.

So, Delphine on France and maybe Jean-Marc on Spain.

So it's true to say that the penetration in fiber the number of customers compared to the number of lines built is not high enough, it's 10% in average. Of course in older buildings it's rather 15% or 20%. But still we believe and we can do much better. For instance, we have a trial in one specific city in France which is called Palisson and we can really observe that if we can speed up on both building fiber in the building and in the street we can improve very much our penetration, our building penetration. So we think we need to go further and to speed up fiber to be more efficient.

And I just want to point out that for fiber we have 6,000 activations per week. And it's better than Telefonica in Spain which does 4,000 activations per week. So we are not so slow.

Regarding Kangaroo so I can confirm that the uptake has been very good and even better than we expected. From the data that can be communicated that Kangaroo accounts for 75% of our ADSL sales, and clearly has been a booster of our ADSL sales growth. And in terms of mobile one-third of our mobile and gross adds come through Kangaroo.

Thank you. Delphine, any comments on vectoring and pair bonding?

We are launching in October a VDSL offer, but still we think that fiber is really definitely the right thing to do because it's a bandwidth which is guaranteed compared to VDSL or ADSL. And we also expect fiber to be much cheaper in terms of network maintenance. So we have a VDSL offer.

We will of course see any new proposition on copper, but we definitely think fiber will replace copper. And of course in France you know that we cannot experiment whatever we want. For VDSL we had to ask our regulator to do an experiment with all the operators, and it's the same of course for vectoring.

Thank you.

Andrew Lee, Goldman Sachs.

Good morning, everyone. Just a question on the indirect cost cutting that you've delivered. It's very strong, and I am just going to ask on -- over and above the accelerated leavers can you give a bit more color on where else these efficiencies are coming from? And is the indirect cost cutting opportunity for 2014 mainly based on reduced labor costs or do you still see it having the same kind of proportion of indirect cost reduction as you're seeing in 2013?

And then secondly, I just wondered on your view on the sustainability of the lower declines in the French fixed business scene this quarter, given the improvement was driven by PSTN price rises. Are you seeing an increase in competitive intensity there? Thank you.

Delphine will answer maybe on the question on PSTN and Pierre will answer on the question on cost.

So, regarding indirect costs, as you know, we have split them in several natures of labor costs, general expenses, advertising promotion but I just really wanted to insist on the future sources I would say of cost cutting possibilities which are linked to network costs, IT costs. Network costs are really decreasing now; they are providing us a large proportion of the future indirect cost cuts that we can hopefully witness in the coming years. Also we are going to be working very hard on real estate and energy cost, which are other areas in which we can still improve.

So I think we are facing with a relative level of trust the coming years. As you've seen we've already gone above this year the original targets which I think speaks in favor of our credibility in cost cutting now.

Just regarding the labor part within the cost, just to say this year as I said we were not counting on a real impact of labor within the indirect cost decrease. When we did our plans at the beginning of the year we considered that the decrease of manpower would be more or less offset by inflation or salary increase in the different geographies.

We have a slight surplus this year which will be possible while that's probably around EUR20m for the full year. So EUR20m is, I would say, not completely meaningful today. We expect however that labor should -- labor costs should have a bigger impact in cost decrease next year probably maybe between 20%, 30% of the total indirect cost decrease.

And the total workforce has been decreasing this year by as said until end of September 4,700 people. And why do we have better figures than what we initially planned. This is because the senior part-time plan has had a more immediate impact than one had initially thought. So we could on an, I would say, an amplification of this move next year.

On PSDN we don't see any big competition in PSTN. And we are completely on track on our objective on PSTN, slowing down the line losses by 12% compared to 2012. And we can see also the revenues decrease slowing down on PSTN. But since the fight, the real fight is on ADSL we continue to monitor the switch from PSTN to ADSL for our own PSTN customers of course.

Thank you. Can I just follow up on Gervais comments? Would you expect your indirect cost reductions to accelerate into 2014 given the labor cuts that are likely to accelerate? Thank you.

A little premature to fully answer to the question. We are not yet there to give all the details. We are currently working on that. What I can say is that what we expect that in terms of cost move we expect at least the same type of cost decrease next year than what we had been having this year. This is what we expect in terms of direct cost move.

Now, the way it will be compounded for between external costs, subcontracting labor this is still -- that's still something under discussion. The two lines on which we still have some uncertainty this is inter -- the way interconnect will behave but also the way commercial costs will behave. We are still working with the different countries.

And by the way Delphine and Jean-Marc or Benoit for other European countries can comment, the split between SIM-only subsidized is still something we are working on for next year. We see as Delphine and myself mentioned some, let's say, rebound of subsidized offer in the third quarter, so which means that we are spending maybe slightly more commercial cost.

We are also revisiting the subsidized offer between I would say installments and fully subsidized offers. So all this is really the evolution of our business model in the three major geographies which is under scrutiny today and why it's a little difficult to give you a forecast so quickly.

This is why we prefer to comment indirect, the indirect cost line and on the indirect cost I say it should be the same order of magnitude than this year with probably a different composition probably a little more labor and maybe less external costs.

Is that clear?

Thank you very much.

Nicolas Cote-Colisson, HSBC.

Thank you. I was wondering, what was the percentage of broadband net adds with the Livebox Play? And also if you had any indication on what could be the market share of net adds in broadband that you intend to achieve in Q4?

And I've got a follow-up question on your earlier comments, I mean from July, when you said that you are concentrating on possible consolidation and disposals. So what's going to happen to [debt] on that?

And also, if I may, if you could share your views on the upcoming new legislative package put forward by the European Commission that will be discussed at the European Council this week. Thank you.

Delphine, on the broadband?

So on broadband, the mix between premium offers with the Livebox Play and all the offer, in our target in December is 40%. And I can say that by the end of September we are on track at 42% exactly. So -- and we expect the last quarter to be around 30% in net adds in -- net adds market share.

On the consolidation and disposals, I've just -- I'm sorry, Dominican -- Dominican Republic is on the list. We have no new, I would say, big object in terms of size on the list today.

As regards consolidation, there is no move undertaken today. But we are really observing the market. And I think we have been commenting several times that the EU decision on O2 and E-Plus in Germany will be a structuring decision for further consolidations elsewhere.

And I think we have been commenting that there are a few countries where consolidation could be of some interest for us, and especially Spain, in which we had, and I think it's public knowledge, we had been candidate to buy Yoigo last year. Yoigo had been finally sold. And Poland, where probably later on we've seen probably more in the second half of 2014 there could be some consolidation moves. So we start with two countries in which we might look at in-market consolidations, easier affordable to us.

Regarding the EU package, Pierre?

So you know there is a European Council today which in -- tomorrow, actually, which aims at examining the European Commission proposal or package to create unique telecom markets in Europe. Of course, we totally share this general target. We've been describing a situation of fragmentation, excessive fragmentation for years. As you know, above 120 operators are active in Europe with a population which is lower, the United States have only four, and not speaking of China.

So as everybody knows, this fragmentation puts a heavy weight on our revenues and margins, and also on our level of investments. We've been able to grow our level of investment because we really insist on building our future. But it is still lower than what it is in the United States today.

So we agree on the general target, but we do disagree on the method that the Commission has chosen. First of all, because the text proposed by the Commissioner, Neelie Kroes, has I think a wrong way of addressing the priorities. They -- the text starts by attacking the revenues coming from roaming in international calls. Actually, roaming is a consequence of fragmentation, not a cause of fragmentation. So I think it's a wrong way to address this issue. And also it will put more pressure on our situation, which is not actually the original aim and purpose of the package.

Also the package doesn't really address the main -- the most, I would say, crucial stakes today. Most or a lot of the value created by digital is taken by the over-the-top players, and those players do have a different perspective on taxation and regulation because they're not regulated, actually, and not so heavily taxed in Europe. So they're not the ones deploying the networks today. They're the ones using the networks. So the Commission, instead of really giving help to the European players, actually would add a new regulation layer on this, and also is giving a lot of credit to those over-the-top players instead of helping us.

So as you understand, overall we feel this is not exactly going the right direction. Some of the more favorable items we fear will not be retained at the parliament level. The unification of spectrum allocation will not probably be pushed by the governments. So I think -- I don't know what's going to be left of that package, but we fear would be not so good.

Okay. Thank you very much.

Frederic Boulan, Nomura.

Hi, good morning. Couple of follow-ups. Firstly, if we look at the French business next year, so Q3 you disposed of about EUR300m year-on-year decline in revenues. The idea I think last year was to stabilize fixed line further around 2014 while the mobile, again we should have hopefully a slightly more stable outlook. So what's your overall expectation? Do you think it's possible to stabilize revenue somewhere between EUR500m to EUR1b decline?

And secondly, just want to understand the cost implication a bit further. You're saying, I think if I understand well, that indirect cost will continue to go down at the same pace. Q3 at the Group level, indirect costs were down EUR68m, so less than EUR300m at the Group level. Next year we'll have much less interconnection decline in France. So what do you have in mind in terms of incremental elements to offset that?

And third question on leverage. I was just running through your revised 2.2 level for 2014. I mean, even if I'm assuming a stable EBITDA for the Group next year, lowering the debt by 0.2 notch implies about EUR2.5b lower debt, which appears quite optimistic organically, after dividend payments. So can you share with us what kind of assumptions you have around M&A and inorganic moves in that target? Thank you very much.

Regarding the revenue, and the revenue for France in 2014, I don't think we've been speaking on the revenue stabilization as a whole. We said that within -- especially on the -- during the road shows we said [to this one] that we will still face a strong revenue, a relatively strong revenue pressure on mobile, with ARPU pressure. This was said.

Now how big the ARPU pressure? Probably lower than this year. Of this we are sure, because I think we'll have at the end of the year I think two-thirds of the base which will be with the 2013 prices, so which means that the reprice to be expected is less. There is a second area of uncertainty but which for me is a positive uncertainty. This is what will be the impact, positive impact, of 4G in the ARPU uplift? We are still working on that. We have been waiting, and we are still waiting on the price launched by our competitors. That's part of the question mark on how far can we go and how much can we expect in terms of ARPU uplift with 4G.

But for me it's more a positive uncertainty versus what we have in hand today that could help. But we don't expect any stabilization of the mobile revenue next year, especially because also the roaming agreement with Iliad will not produce more revenues next year, okay?

Regarding fixed, this is true that we said that we would expect the stabilization in the course of 2014. Now when that will be, that's still difficult. To be honest with you, we have been slightly disappointed by the level of the market for broadband in France. The level of the market, we have better figures in terms of share of conquest, but we have better figures, not because we are better but because the market is lower. We are not better than what we expected, but we are -- the market is lower than expected.

So growth of broadband in France is probably around 2.5% or something like that, which is probably 1 point below our expectations. And this might, I would say, delay the capacity to stabilize the broadband revenue.

However, to have said that, that's part of the debate we have been having before, we are trying to accelerate fiber deployment. Because one of the ways to recover and to increase on fixed is to accelerate fiber deployment with -- if we reach 8,000 connections a week we'd be amongst the quickest in Europe for fiber to the home. Again, I just remind you that this is 100% fiber to the home. There is no VDSL or vectoring in those 8,000 connections a week.

So no stabilization of the revenues in total, because of mobile, ARPU decline, which should be lower than the ARPU decline in 2013, and probably within the course of the year we will be approximating revenue stabilization for fixed.

Regarding the indirect expense. The indirect expense, I have been commenting them, should be the same pace. Regarding the direct expense, and I guess your question is more on the direct expense, I have said that it will depend on the business model. And by the way the revenue level and the ARPU level is also linked with that, more subsidized, more ARPU, less subsidized, less ARPU, and less direct cost.

But at the end, what is the real impact on EBITDA, this is what we are calculating. We think that for the low end part of the subsidized bundles, there is very little impact on EBITDA, if we move from subsidized subscription to SIM-only plus installment sales. We think that the space within subsidy is more for the high-end subscription where there is for sure much more EBITDA if you are able to sell a bundle with a handset, with value-added services. So this is what we are working on today. So this is why it's a little difficult today to tell you what is the volume of direct cost decrease expected next year.

Regarding your last question on debt, you have answered by yourself by making your calculation. There is no room for M&A within the margin of maneuver if you want to decrease the debt and to with a stable -- and even if you reach a stable EBITDA, if we need to slightly reduce the debt, which means that there is no room for M&A, the only room for M&A is reshuffle of the portfolio by reusing some of the cash we might get by selling some assets. And I knew that there is in terms of sales Dominican Republic on the table, and there might be the IPO of EE next year. That could be another source of cash.

Okay, thank you very much.

Stephane Schlatter, Societe Generale.

Thank you, good morning, everyone. Could you please give us the expected impact of the 5% tax rate increase to 10.7% in full year 2014, please? And will this increase be offset by the consideration of the /consolidation of the impot forfaitaire annuelle and the C3S, please?

Question number two, and this is about Spain. Could you please update us about talks between Orange Spain and Telefonica about access to fiber infrastructures, especially on wholesale prices?

And finally of course on France, B&YOU cut its basic prices -- sorry, B&YOU cut its basic price to EUR2.99. So do you intend to cut the basic price of Sosh, which amounts to date to EUR9.4 -- sorry, EUR4.9, please?

Regarding the increase of income tax, I think it's EUR28m, which is, I would say, not good news, but much better than the initial projects of the government where with the tax on EBITDA we would have paid more than what we get in terms of credit d'impot competitivite emploi. So this would have completely offset the positive impact of the tax relief on employment.

Regarding Spain, Jean-Marc?

Regarding Spain, as you know, we signed early July an agreement with Telefonica regarding access to verticals which has solved all existing issues regarding processors and operational activities. And which has enabled to launch the massive rollout jointly with Vodafone, which Gervais commented.

So the main remaining issue is price. As you know, Cmt decided on temporary and cautionary way on a level of price, wholesale price for this vertical access, which we still consider as discriminatory since first, it's 15% higher than the one agreed between Telefonica and Jazztel, and then twice the cost we experienced in our own rollout. So here we are expecting the final decision by Cmt or now the CNMC regarding those prices.

And last but not least, of course there is a process ongoing following market analysis to determine the price for bitstream access which you know so far is limited to 30 megabytes, but which following the agreement between Telefonica and Yoigo, enabling Yoigo to access or resell the existing FTTH by Telefonica at 100 megawatts, we consider should be revised shortly.

And France? We are very happy with our mobile net adds in Q3 and still in October. And that is thanks to our very good performance on premium offers, Origami and Open, which represents more than 60% of our consumer gross adds in Q3. So there's no need for us to cut prices today. And besides, B&YOU cut their prices only a few days ago, so it's too soon to see any impact on our Sosh space. So no intention to cut Sosh prices.

Dimitri Kallianiotis, Citi.

Good morning, thank you. My first question is regarding CapEx. Some of your peers like Vodafone have been talking about significant increase in CapEx to really differentiate on network quality. And others like KPN are actually talking down a bit CapEx, think there's no need to push too hard fiber. So I wanted to just to -- if you could share a bit your view on CapEx going forward. Not especially for next year but for the coming year, if you feel now is a good time to increase CapEx, especially in France where Bouygues has the lead for the time being on 4G and cable may get a bit more financial flexibility.

Now regarding next year, your guidance is still to stabilize or grow your operating free cash flow. I just wanted to come back a bit to your comments on the -- that you mention regarding the question mark on revenues. And just to see what would make you confident that you can achieve that guidance, if it's driven by mostly revenues stabilizing or declining a lot less? Or if you think you can really accelerate significantly the cost-cutting, or I guess a combination of both? Thank you.

Regarding the CapEx, I would differentiate France from other countries because even if with the mention you have made, we have not seen a strong uptake of CapEx of our competitors, especially on the fixed network including cable, by the way. And I'm not sure that this is just because you IPO, that the world or this would mean that individual investors are stupid compared to private equity. If just the fact to go to an IPO increase the CapEx, I'm sorry to say that, I guess. But I'm not sure this is exactly what will happen.

What we see is that in terms of fiber we are doing the maximum we can do today without -- before breaching a kind of non-written rule in terms of market share. I just mentioned that we are at 68% of net share of conquest on fiber, which is probably the upper limit we can have without creating regulatory questions, additional regulatory concerns.

And coming at a pace of installation of 8,000 connections, if we are able to do that, which we hope at the end of the year, it should be again one of the quickest deployment for FTTH, I don't say for VDSL or vectoring, but for FTTH within European countries, for big European countries. So that's one point.

Regarding 4G, we don't communicate our plans. And I will not communicate them today. But I can tell you that we will do all what we can to be [a part] and even before Bouygues as quickly as possible, okay? But I will not tell you when and what are our plans, okay?

The second point on the 4G, and by the way, this will be a transition to what Vodafone have said. We think that some of our mobile-only competitors have strong weaknesses in their backhaul and in their collect network. And this is what they will have to invest in. If you look at the -- what Vodafone has been doing for the last 12 months, the purchase of Cable & Wireless is mainly dedicated to that, even if at the same time they get some customer franchise in B2B. This was not the main asset they were buying.

If you look also at what some of you analysts are reporting on the synergies on Kabel Deutschland, this is also a huge part of the expected improvement for Vodafone, this is a backbone of Kabel Deutschland and not just the business, the B2C business coming from Kabel customers. So I think probably Vodafone has to do something.

And my last point, on the figure given by Vodafone, I think by saying I need 20% CapEx, it's a way to keep cash and not to -- and to try to reduce the pressure of shareholders for more share buyback. And I would probably do the same if I had got the strong check they got from Verizon.

So that doesn't mean that we are not working on maybe increasing our CapEx next year. We might increase our CapEx next year. We have been increasing them slightly this year. We continue to do that, but it's a country-by-country decision. It's not a novel strategy because the competitive landscape is very different from one country to the other.

Regarding the stabilization of our EBITDA. This is clearly the task on which the Executive Committee is spending time for the 2014 budget preparation. We know we still have pressure on revenues. And even if we expect some potential good news on revenues with 4G, we know that 2014 will still be a year of transition which still requires coming from the price pressure of the past, the move to SIM-only. But at the same time, some good news. This is why we will accelerate cost-cutting.

Now, to which extent are we able to do that? That's still the question-mark. Clearly we have the ambition to stabilize EBITDA in the course of 2014. Now, how will that be done? I cannot tell you yet, and I will comment that in March.

Thank you, very clear.

Will Milner, Arete Research.

Thanks a lot. I just want to actually build on the last question a little bit more. I think talking about 4G deployment in France, I think Vodafone's accelerated investments very much focused on the 800 megahertz band, and it certainly seems that certainly to date Bouygues has been focused more on the 2.6 megahertz. And that feels as though that's been where you've been trying to match Bouygues. I just wonder if you can talk to the merits you see in accelerating deployment of LT in the 800 band, and particularly using this as a competitive lever against Iliad, who doesn't obviously have this capability? So I'd like to get your thoughts on that.

And the second question really is just -- it seems that obviously a large part of the free cash flow now is coming from the Iliad wholesale agreement, maybe EUR500m, EUR600m of free cash flow annually. And I just want to get your thoughts on how you plan to replace that over time, over the next two or three years, or certainly by 2018? And also just focus on when you expect the greater savings from headcount reduction to come, as I believe there's a faster pace of headcount reduction the second half of the decade. Thanks.

So on the 4G deployment, in fact the combination of the two bands, 2.6 and 800 is the best combination in terms of bandwidth compared to the 1.8 of Bouygues. So we are deploying both frequencies in the core cities and of course outside in the suburban areas. So we began with a 2.6 for the best bandwidth, but nowadays we are accelerating on the second band, the 800, in order to increase our indoor penetration and to complete the cities penetration. So we are very confident in the fact that we have the best frequencies to have the best customer experience in 4G.

Regarding the evolution of our revenues, I have said already in the past that regarding the roaming agreements, the roaming agreement, first is valid, and will bring revenues at least until 2016, okay? And probably some part of 2017 because I just remind you that Iliad has no 2G, will never have 2G, and there will still be whatever happens on 3G as some revenues with that.

What we have said in the past is that we'll probably move, and by the way, our two competitors Bouygues and SFR have done that, to in France 4e, a structure with network sharing as it is in other -- developing in other European countries. Whether that be with Iliad, whether that be a group of three operators, whether that be the four operators, are still a huge debate on that. That's probably the year 2014 will be full of news and events on that. And maybe Pierre will comment the state of the art and what we think on the Bouygues SFR agreement as of today.

And that will probably replace in the EBITDA and in the CapEx the cash or part of the cash coming from the roaming and this is the way we seize the evolution of the situation.

So second point is that we expect clearly from 2015 and after that revenues from the retail business will grow again. That's part of our expectations.

Pierre, maybe on the network sharing, where it is today with what you think -- what we think on the SFR Bouygues agreement?

Well, I have to say that we have a limited knowledge of the actually apparently very short agreement of signing its memorandum of understanding which is I think a one-pager. So we don't know it; I haven't read it personally, so -- it's being elaborated upon now. This is really under the scrutiny of the ARCEP, and even more it's really heavily scrutinized by the competition authority here. So they're not there yet. This is what we can say. Is this going to be a mutualization I think above 50%, like they wanted, above 63% like the ARCEP and [ADSE] have said? This is really unclear now.

Regarding the other players, one clear thing is that Free Iliad still has a relatively under-developed network as of today, and a limited access to 4G, as Gervais said. This is very clear for them, clear for us too. And if we come to mutualization at one point or another, it will be more a co-funding of our network than mutualization with a non-developed network. So these are the premises of anything in the future, but the future is not clear with that regard.

Regarding the headcount reduction until the end of the decade, the natural move was that we would have 10,000 departures between now and 2016, about 20,000 departures between 2017 and 2020. With the senior part-time plan we will equalize, so first part of this period with the second part, more or less 15,000 departures until 2016, about 15,000 departures until 2020.

Okay, thank you.

Any -- ?

Giovanni Montalti, UBS.

Hello, good morning. You were saying before that the decision of the European Commission about the deal in Germany may provide ground for further market consolidation. Do you think these may be relevant also for the French market? Or the opposition of the French authority may not help? Thank you.

I think Pierre will comment that. But we don't think this will change the opinion of the French regulator so far. But coming to the previous question on what will happen after the roaming agreement, that's also a big, interesting question. What would be the configuration of the French market beyond 2016? Will we still have three operators on the market or not? If we ask the authorities today they will say yes. But if you ask the question in one year, two years, three years from now, maybe the answer will be different.

Pierre, (multiple speakers)

Quite simply, things are moving now in Europe. Everybody is looking at consolidation plays, intra-market or across-market. And everybody is going to be expecting the Almunia, I would say, stance and decision on Germany. This will be an orientation for the other regulators, even though it wouldn't be a clear directive or something that would need to be necessarily followed in every domestic market.

So this will be a first step. And then if you look at consolidation plays in France, I think we're not the weakest player. And everybody knows who the weakest is. So this is all we can say today.

Thank you.

Jonathan Dann, Barclays.

I had two questions. The first question was could you just explain the underlying ex-regulatory French mobile revenues are down 8%. It appears to have worsened. Could you comment on what's happening if you exclude the impact of Iliad?

And then separately you mentioned regulating OCT. Generally speaking, what would you want the European regulators to actually do to them?

Okay, yes. So I'll take the second question first, the one regarding OTT regulation. I think to make myself clearer, the first thing we want is a world in which there are not two kinds of players, the ones who are regulated, the ones -- heavily regulated like we are, and the ones who are not, competing for the same consumers or competing exactly in the same area. So we want this asymmetry to be ended. It can be ended because you regulate the OTTs or it can be ended because you would unregulated the traditional players we are. So this is the direction we're trying to push the Commissioner into.

Also there's another asymmetry that we're insisting very heavily upon. It's the fiscal and taxation asymmetry. You're looking at a world in which you have on the one hand people who are very engraved within their domestic realities, they have networks, people on the ground. And on the other hand, companies which are not completely enscripted within a terrestrial, I would say, reality. And not paying taxes for most of them in regard, in proportion to the benefits they reap from the European markets.

This is something I've seen, I think we've seen some progress made on. The clearer conscience is now established that this situation cannot go on. And for instance, just to conclude, a very recent evolution in Ireland was I think interesting for us. Ireland has decided apparently to end a bit of the fiscal haven given to Apple. And this is something I think which is a sign that Europe is finally moving into that direction. So that's for the OTT telcos difference, differentiation end.

And regarding the French revenues?

Yes, on -- the (inaudible) revenue drop is slightly better than the ARPU drop because of two things -- incoming revenues and of course growth of the base.

Thank you very much.

Antoine Pradayrol, Exane BNP Paribas.

Yes, good morning, everyone. Most of my questions have been answered, but I still have two small questions on -- first on Spain. I think you said that handset sales were tripled year on year. Can -- is -- so that's something like EUR120m incremental revenues in Q3 compared to Q3 last year. Should we expect this kind of trend, this incremental EUR120m to continue for the next three quarters? Or is it going to fade away progressively? How should we model that?

Then the second one is on enterprise, which was certainly worse than expected in the quarter. Should we expect enterprise revenues to continue dropping in Q4? And what do you expect for 2014 as well?

Jean-Marc on Spain.

So regarding the Spanish market, the reality that obviously we have moved rather dramatically from a subsidized model to a SIM-only model where you have separate sales of the tariff on the one hand and the handset on the other, which obviously explains the increase of the handset revenues you commented. As obviously in the quarter figures, we recognize the total amount to be paid for the handset upfront plus financing on by the customer. So this obviously accounts for the increase of the handset sales. And it should definitely go on in the next three quarters.

Okay.

On enterprise?

On enterprise, I confirm what was said by Gervais. We have been facing mainly in France and Europe some kind of increase of the legacy decrease of our revenues during Q1, Q2 and Q3. And at the same time, less investment within our customers into their digital transformation.

As a result of that, we are -- we have seen a slight decrease of global revenue. And we expect the year-on-year to be stabilized on Q4 around the 6%, 7%, which was mentioned by Gervais during the presentation.

By the way, we have recorded very good results in terms of new acquisition in Asia Pacific, which is a growing area. Good result as well in Africa and Middle East and very good renewals even if they are with rebates in France, both in the government and institution domain and within the industry.

This is Thierry Bonhomme. He did not introduce himself. So Thierry is our new head of the enterprise division within the Group.

So thank you very much for attending this conference this morning. And we hope to see you very soon and to -- and we expect to read very positive comments from you after this presentation this morning. Thank you. Have a good day.