Orange SA (ORAN) 2016 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Orange's third-quarter 2016 results conference call. The call will be hosted by Ramon Fernandez, Deputy CEO and Chief Financial and Strategy, with members of Orange's executive committee for the Q&A session that'll start after the presentation.

Thank you. And let me hand over to Ramon Fernandez.

Good morning. Thank you for joining our Q3 2016 results conference call. As just introduced, I will present the main highlights from our quarterly performance. And then, with my colleagues from the executive committee, we will go through the Q&A session.

So, let's go to slide 4, which presents the main results of the quarter. You can see here that revenue growth accelerated in Q3 at plus 0.8%, thanks to a better trend in France and in Europe, especially in Spain, and the continuous growth of Africa, Middle East and enterprise. Very high broadband at close to plus 6% remains the key driver of growth this quarter.

This positive revenue trend contributed to EBITDA growth with a plus 1.6% growth in Q3, after minus 0.6% in H1, confirming the better trend expected for H2. And fully consistent with our guidance of a restated EBITDA 2016 above 2015 on a comparable basis. CapEx in Q3 stood at EUR1.6 billion, equivalent to a CapEx-to-sales ratio of 15.2%, as we continue our efforts in fiber in France and in Europe.

Let's now turn to our commercial performance. In line with our convergent strategy and following the recent closing of Sun Communications acquisition in Moldova, we are now convergent in all our European countries. This strategy is bearing fruits, with an increase by 11% of our convergent customer base, which is now at 9.8 million.

This is also the result of ongoing investments in very high broadband networks. Our 4G and FTTH customer base showed strong growth of 1.7 and 1.9 times respectively, year on year, supported by the increase in data usage in all our countries. And thanks to the quality of our content offers.

In France, we just launched a new offer with Canal+ available to our fiber customers. While in Spain we secured competitive-content offers in markets driven by football. In Africa and Middle East we now consolidate in our accounts Cellcom Liberia and Tigo in DRC. And we closed the acquisitions of Airtel's subsidiaries in Burkina Faso and in Sierra Leone. These two acquisitions will be consolidated in Q3 in our accounts -- in Q4, sorry, in Q4.

In France, we closed the acquisition of 65% of Groupama Banque. And we will launch the commercialization of the Orange Bank services in H1, 2017.

Turning to slide number 7, let's look our financial results. In Q3 revenue increased by EUR82 million. France posted a better trend with minus 0.6% in Q3 after minus 1.2% in H1, thanks to a very good commercial momentum, despite an environment that remains very competitive. Despite also the decrease of national roaming and some regulatory impacts, such as European roaming and special numbers. We will come back to these points later.

Europe performed well with plus 2.8% year on year. Especially driven by Spain, with a close to 8% growth. Africa and Middle East reported a plus 2.5% growth and enterprise plus 0.7%.

Turning to EBITDA, Q3 was up by 1.6%. And the EBITDA grew by 0.3 points, including EUR13 million received at the end of the Euro 2016 football championship contract. Excluding this effect, underlying EBITDA improved at plus 1.2% year on year. The EUR58 million restated EBITDA growth was mainly driven by revenue growth.

Commercial costs and content costs increased to support growth. While, in the meantime, we continued our efforts on other costs, which decreased by EUR33 million. Fulltime-equivalent employees decreased by 3.4% in Q3. And we continued to improve operational efficiency through the implementation of our Explore 2020 program.

We are on track with our target to deliver EUR3 billion of gross savings between 2015 and 2018 through four levels; digitalization, mutualization, simplification and green efficiency. And we will provide you with more details on all those initiatives and our achievements in full-year 2016.

This performance fully supports our 2016 restated EBITDA guidance. As already announced, H2 will show a better trend than H1, and Q4 will be better than Q3.

Slide number 9 on our investments. CapEx stood at EUR4.7 billion for the first nine months of 2016. A CapEx-to-sales ratio of 15.6% and a year-on-year increase of EUR237 million mostly concentrated in France and in Europe.

In France, the plus EUR227 million growth in CapEx was mainly the result of an acceleration in fiber investment, with a total of 6.3 million connectable homes. And also a significant increase in customer equipment following the launch of a new Livebox in May. 4G population coverage now reaches 84%.

In Europe, the largest CapEx increase occurred in Spain in connection with the integration of Jazztel. Altogether in Spain we now have 9 million connectable homes and 89% population coverage in 4G. In Poland we tripled in one year our fiber footprint to 1.2 million connectable homes with commercial availability now extended to 27 cities.

Investments slightly decreased in Africa, Middle East. And remained focused on extending mobile coverage and launching 4G in new countries, bringing the total number of MEA 4G countries to 10.

Let's now turn to the business review, starting with France, page 11. In France, the third quarter confirmed the improvement in operational trends, with total revenues close to stabilization at minus 0.6%, despite some expected adverse effects. This is the result of our successful strategy focused on very high broadband and convergence.

Convergence remained a strong retention and acquisition tool, supporting our performance both in fixed and in mobile. 79% of new convergent customers were new fixed and/or mobile customers. Also, in line with previous quarters, broadband churn rate for convergent customers was close to 7 points lower than the churn rate for broadband non-convergent customers.

Fixed-broadband revenues showed steady growth at close to 6% in Q3, nearly offsetting the decrease in mobile-services revenues, with fiber acting as a key driver with now 1.3 million customers. Broadband ARPU recorded sequential growth for the second quarter in a row. Year on year it was back to growth for the first time since 2011, up 0.5%. It was supported by our recent price increases, combined with an improvement of our customer mix.

Our value-oriented strategy is working well. We managed to achieve strong fiber net adds, as you will see on the next slide, while limiting the level of promotions and despite a very competitive environment. In Q3 less than one-quarter of our fiber gross adds were made through the EUR19.99 promotion.

As expected, mobile ARPU and mobile-service revenues continued to be penalized by the decrease in European roaming prices, especially during summer months, and the end of the surcharge on special-service numbers. Mobile-service revenues were also impacted by the decrease in national roaming. However, the trend improved at minus 3.8%, versus minus 5.2% in Q2.

Excluding the effects just mentioned, as well as a positive one-off linked to rent sharing, the underlying revenue trend was similar to the trend seen in Q2 at close to minus 1%. This shows the resilience of our model, both in the low- and high-end markets, despite a very competitive environment.

Let's look at the commercial performance, first on mobile, page 12. In mobile we recorded a strong commercial performance with 187,000 net adds, supported by our market-segmentation strategy and the superiority of our network.

While we managed to maintain a price premium, versus our competitors, with no promotion during the quarter, we successfully posted positive net adds both on Orange core brand and on Sosh with, respectively, plus 114,000 on Orange and plus 73,000 net adds on Sosh. More than 60% of our net adds were through the Orange brand in Q3.

In August we increased prices on our premium mobile offers, as we increased data bundles, and we already see a positive effect on our retail-customer mix. Compared to Q3, 2015, the share of high-end customers increased by 1 point. The quarter also showed further improvement in the contract churn rate, now at 12.6%, the lowest level since 2010.

On fixed broadband we now have more than 11 million customers, thanks once again to a record quarter, with 134,000 broadband net adds. The best third quarter since 2009. While we increased prices in May with the launch of the new box, proving our capacity to monetize our investments, especially on fiber. This solid performance was fully supported by our fiber strategy, with 126,000 net adds, of which more than 60% are new Orange customers.

Fiber adoption rate was at 21%. This is 3 points more year on year. Thanks to this strong commercial performance, we also improved our broadband-customer mix, increasing by 2 points the share of high-end customers.

All in all, momentum in France was good in Q3 with good commercial results, a strong broadband performance nearly offsetting the mobile-service revenue decline. Our strategy focused on convergence and very high broadband is paying off.

Let's now turn to Spain, where growth is picking up. In Spain, overall revenue growth improved for the sixth quarter in a row to 7.8%, confirming the solid 6.2% growth achieved last quarter. This came as the result of better trends in mobile and a solid growth in fixed broadband.

Mobile revenue increased by close to 10%, plus 9.8%, driven by the 5.4% year-on-year growth in the contract base. And supported by both service upgrades initiated in Q4 2015, and Q1 2016, and a better value mix. Fixed-broadband revenues increased by 7.8%, driven by a 5.3% growth in subscribers and a 2.6% growth in broadband ARPU, fueled by fiber and TV penetration.

Leveraging our extensive fiber roll-outs, fiber customers multiplied by 2.5 over 12 months, now reaching 1.4 million. We expect to lead the market in Spain in Q3. TV subscribers multiplied by 2.1 over 12 months, supported by the usual back-to-school promotions and the beginning of the football season.

Finally, earlier this month, Orange Spain reached a global agreement with MasMovil on national roaming, site sharing and FTTH. Supporting our ambition to become a clear number two player on the market.

In Poland revenue trend is unchanged versus last semester at minus 3.9%. Mobile-service revenue deteriorated to minus 3.1% compared to 1.7% last quarter because of further progress in the shift towards installment offers. And because of growing popularity of family offers, which increased a SIM-only share in the customer mix. Mobile equipment sales grew strongly due to the transition from subsidies to installments.

This quarter we posted plus 309,000 mobile postpaid net adds, which was the highest growth in many years, leading to plus 13% growth of mobile-contract base. Decrease of PST and legacy revenues kept pressure on fixed revenue, down 8.6% year on year.

In order to improve our position on the fixed market we pushed ahead, first with our convergence strategy, with 42% of our broadband base now on convergent offers. And, second, with our very high broadband strategy with 22% of our base now on VDSL or FTTH.

This quarter the Company posted 44,000 net adds in very high broadband compared to 39,000 a year ago. Out of a total footprint of 1.2 million homes passed end of Q3 we had 57,000 FTTH customers. In Q3 we posted 18,000 net adds on FTTH, of which 76% were new customers.

Let's now turn to Belgium and Luxemburg, where in Q3 consolidated revenues increased by 1.7%, thanks to growing data usage. Mobile-service revenue was almost stable, as ARPU growth compensated the negative effect of EU roaming. Excluding regulation effect, mobile-service revenue grew by 5.2% in Q3, against 3.5% in Q2.

Orange Belgium also pursued its transition process with the successful rebranding and the nationwide launch of its convergent offer. Orange Belgium posted 7,000 net adds of convergent customers reaching 18,000 customers in Q3.

Lastly, in October, Orange Belgium reshaped and simplified its mobile tariff portfolio, with simplification from nine to six tariffs. Such new segmentation, based on more for more strategy, will facilitate up-selling customers to enriched mobile-data brackets.

Let's now turn to the Central European countries, which registered a sixth consecutive quarter of revenue growth, despite a slowdown, mainly because of EU roaming impact and the decrease of revenues in Slovakia and Moldova. The contract base reached 8 million customers, up 4%. Also the 4G base is standing at 2.8 million, with an increase of 400,000 customers over Q3.

We pursued our full convergent strategy in all three countries. In Romania we launched a national convergent offer in September. And in Moldova we just closed the acquisition of Sun Communications.

In Africa and Middle East, revenue grew by 2.5% in Q3, including the newly-acquired assets in Liberia and DRC. Excluding these two operations, revenue grew by 3.1%, after 2.3% in Q2. The mobile-customer base is back to growth as the customer-identification process is nearly completed.

Egypt, Ivory Coast, Guinea and Mali were the largest contributors to revenue growth. We moved forward with our cluster approach as we recently launched attractive international voice offers. For instance, from Senegal towards Mali and Guinea Bissau, or from Jordan to Egypt, to increase international traffic consumption and better compete with OTT services.

We now operate 11 of these corridors, and we will open soon new ones, including dedicated offers between France and some of these countries. The new business drivers also support growth. Mobile data is up 34% in revenue. Orange Money plus 48%, with 20 million customers. And B2B revenues up 12%.

Lastly, Orange Egypt recently signed a 4G-license agreement for two times 10 megahertz of spectrum. This would enable Orange to offer its more than 33 million Egyptian customers an excellent quality of 4G services.

Turning to enterprise, revenues grew for the third quarter in a row, with plus 0.7% year on year. Supported by a better trend in voice services, stabilization of data services and still a good performance of IT services. Voice revenues improved, not only thanks to the improving trend of legacy revenues, but also thanks to the strong growth of voice over IP services and re-pricing.

Data services stabilized, thanks to good value management in France, and solid international performance. And IT integration services grew by 4.1% driven by security services and Cloud, plus 8% and plus 16% respectively, supported by the integration of two new acquisitions, Log'in and Lexsi.

So, with these solid results, we can confirm all the elements of our 2016 guidance announced in February. We reiterate our guidance of a restated EBITDA above 2015 on a comparable basis. We will also maintain our net debt to restated EBITDA ratio around 2 in the medium term.

Regarding the dividend for 2016, we confirm our proposal to maintain a level of EUR0.60, being the EUR0.20 interim dividend on December 7. Regarding our portfolio-management policy, we will keep our selective approach, focused on our existing footprint and on value creation.

Thank you very much for your attention. We are now, with my colleagues, ready to answer your questions.

(Operator Instructions). Stephane Beyazian, Raymond James.

Thank you. Three questions if I may.

To start with, on costs, can you update us on where you stand in terms of the cost-efficiencies plan? And what are the possible steps, going forward? And how this could help in 2017 the EBITDA growth?

And one question on media. Can you come back on the CanalSat offer? Is it a directly profitable product? Or is it something that you need to subsidize in a context of growing competition for telecoms and media offers?

And finally one third, sorry, question on Spain. You've signed a rather large agreement for fiber coverage with MasMovil, which was a surprise to me. So, is it regulatory driven? Or what are the pros and cons that you've assumed in making this decision? Thank you.

Okay. So, I think we -- the third question can be taken by Laurent Paillassot, CEO of Spain, who is also in line with us. And it will be the third question. Fabienne will take the question on Canal.

On costs we have I think demonstrated over the past years that we were able and willing to work on our cost base. And this is what we are going to do so. The best proof of this, of course, is what happens on the EBITDA.

And you see that we have a mix, which is now driven by some elements of costs, which are going to be growing, for instance, when we look at content. This is supporting growth in revenues. And this is going to be an element which is different from what we had seen in the past. But this is positive for growth and it has a positive impact on EBITDA.

So, we are going to continue the efforts on all the elements of costs. Of course, in terms of people we will continue our sustained efforts, which you know are being supported by the fact that a number of our people are retiring due to the retirement age, and so we are continuing these efforts.

We have all the efficiency cost programs, under what was called before Chrysalid, and now Explore 2020. And, as I said in my presentation, we had four key drivers around simplification, mutualization, et cetera. And what we propose to do is to give you a very detailed presentation on these programs in the full-year of 2016. I think it's more interesting than to go piece by piece on the quarterly results. So, this is what we had been planning.

And in 2016, when you will look at the overall picture in terms of costs, of course, you will have to take into account that we had a number of exceptional costs which had been weighing on the EBITDA in, essentially, the first half. I'm thinking of the rebranding in Egypt and Belgium, of the football European Championship, of the sale -- the operation for employee shares et cetera.

But this is -- we are absolutely sticking to what we had said in the -- in our Essentials2020 plan; basically that we would reduce the ratio of indirect costs to sales by 2 points between 2015 and 2018. And this is fully confirmed. And you had the declination of this in terms of HR, in terms of what would happen also in France. This is also confirmed.

So, there is really -- nothing is changed compared to what we had said in the past quarters. And the Company is sticking to its efforts to work on its cost base quarter after quarter.

Fabienne, on Canal?

Good morning. The aim of the agreement with Canal is to offer to fiber customer the best content in line with our content strategy. We aim to sustain our fiber strategy and increase the number of fiber customers.

It's a win-win agreement for Canal and for us. For the rentability, it's a wholesale offer. Sorry. It's a wholesale offer based on variable cost. So, the new offer, priced at EUR5 half the months, the 12-month promotion period, will have a positive impact on our EBITDA.

Thank you very much, Fabienne. Laurent are you with us?

Yes. Hi to all of you. Just on the MasMovil agreement, as you know, it is fourfold. We will have a national roaming agreement, which obviously is additional revenues for us. We have a sharing, a tower-sharing agreement, which is basically helping us on the cost efficiency of our mobile network.

Regarding fiber, there are two elements. The first one is bitstream-like offer, which is basically offering what the incumbent would have offered to anyone; similar access to neighbor offer in Spain. And we know that it is limiting the capacity to compete there because the price of such offers are quite expensive.

And the second element is a co-investment strategy which we have always maintained. We have agreements with Vodafone which is basically for us -- the idea is to extend as fast and as much as we can the footprint of the Orange fiber and the agreement with MasMovil is in this strategy. We are basically trying to compete with Telefonica network and having others to co-invest with us is interesting in terms of the P&L impact and the CapEx required.

And the impact in terms of volumes will totally depend on the capacity of MasMovil to invest and that's the name of the game. They had to invest and deploy their own fiber for us to also co-invest. So it is very -- I think very positive for the overall market because everyone has to go into investments.

MasMovil will have to invest on its 4G and its mobile network since they have to provide coverage as well as they will have to invest on fiber. And each time they invest we will co-invest and we'll reduce our costs. So it's very positive for I think the whole dynamic of the market.

Thank you very much.

Dimitri Kallianiotis, Redburn.

Good morning, thank you. My first question is just regarding coming back a bit on the CanalSat offer. I just wanted to ask you a little bit your view on the need now to really own or publish more content?

We saw the Time Warner AT&T deal just announced. Do you feel you need to invest more in content rather than just rely on wholesale deals a bit like with Canal?

Then my -- another question regarding next year. I just wanted to know if you could help us quantify the impact of the new roaming regulation in the EU, what sort of impact you expect at the Group level on revenues and EBITDA?

And my last question is regarding fiber in France. Obviously you reported another very strong performance. I'm wondering if you could tell us how many of these new fiber customers come on the low end then, offer at EUR20 per month rather than on the higher bundles? Thank you.

So maybe a few elements and maybe my colleagues will also come back to it. On the third question on fiber, I think I gave the answer in my presentation.

It's less than one-quarter of total gross net adds -- sorry, gross adds in fiber which come to the EUR20 price, the EUR19.99. So less than one-quarter in the third quarter. This is the answer. So it's nothing like what I think some of our competitors imagine, and of course nothing comparable with what they do.

On the second question which is on the impact of the European roaming, the impact in 2017 is expected to be around EUR150 million, around; maybe slightly more, maybe EUR150 million, EUR170 million. It's difficult to have a final figure because some elements have to be clarified on the exact terms of the regulation, especially in order to have the adequate limits in terms of making sure the fair use is going to be respected. So there are some details that you need to have but it's of this order of magnitude, EUR150 million, EUR170 million maximum.

Your first question on Canal, and is anything changing in the world following what we are seeing in the US or anywhere else. First, I would like to recall that in fact we do invest quite a lot and spend quite a lot at Group level on content. This year we will spend around EUR550 million, and this is quite significant.

You know that our strategy is not only to distribute but also to aggregate and in some cases to produce when we think there is space and necessity to do so. It was the case for instance in Spain where football rights were a key driver to be very powerful in terms of TV penetration. And it is working very well; we now have close to 460,000 TV clients in Spain and without the football rights I guess this would have been more difficult.

When you look at what's happening in the US, probably it's as much diversification than vertical integration that we are seeing as a motive for the AT&T move. And we will need to see how the competition authorities look at this.

So all cases are different. We are in the position in the Group and in France to offer a very broad area of services and content to our clients. This is the key. The Canal+ recent deal is one example but we also have secured the beIN contract renewal. And you know we have Orange Studio, you know we have OCS, you know that we have agreements with HBO with Game of Thrones et cetera, you know all this.

And so this is a strategy which puts us in a good position where we don't overspend if overspending is not helpful. And we're going to stick to this, still watching of course what's happening in the world. Pierre, you would like to add something?

Yes, just a short mention. You mentioned the Time Warner situation. It is really a very American-based situation. First of all there's a different approach with regard to the valuation of data and all of those deals that you see -- and you probably have noticed a month ago the Yahoo deal -- all of those deals are based on how you're going to be able to value profile data by crossing those approaches.

And the law on privacy is different. The valuation in the US on data is different. If you look at other companies like [Penantier] and others, it all goes around how you monetize the profiles, which is not completely prevailing in Europe today.

So it really is a different approach and again, as Ramon mentioned, the regulatory approaches will be very important in that deal. You know that Comcast tried to buy Time Warner and couldn't succeed. So there's going to be about a year of examination before you will see if anything goes through.

So it's sort of a middle term prospect. And we still completely stick, as has been described, to our strategy which is aggregators, distributors of good content. This is what we do and has proven really efficient until now so we don't feel that we have to change anything.

Thank you.

Giovanni Montalti, UBS.

Thank you, good morning. Sorry, going back to the roaming point, when you say EUR150 million for next year, what's -- this is for revenues or also for EBITDA and also what kind of assumption are you factoring in in terms of cap for the wholesale roaming tariff? Thank you.

So we -- the cap on wholesale is still under discussion and in terms of EUR150 million, EUR170 million figure, this is in fact revenues which translates essentially into EBITDA. So you can assume that it's roughly the same.

Of course once again it's complicated to have a figure which is final final, because you have for instance some elasticity of traffic to tariffs which can be seen in some -- at least some countries. So we will -- but this figure I think will be -- we should not be far from this final figure. And then we will have more details with the finalization of regulation in the next months. But I think with this figure you have I think a good view on what will happen.

Sorry, if I may, just a quick follow-up. There's some debate in the market about the risk of potential margin squeeze for the Nordic operators or in any case the operators that are -- let's say have a negative balance of roamers. Because of the cancellation of the retail roaming fee they would still end up paying some wholesale fees obviously to the host.

So there's some debate among investors about the risk on margins for these operators. And obviously I think this is something that is currently discussed by the European Council to decide the final point of the wholesale cap. I don't know if you can share some thoughts, some comments with us on this point.

And on a very different topic, if you can comment about -- I know this is a very recurring question, but if you can share some comments with us about the outlook for stabilization of the competitive dynamics in France and potential consolidation. Thank you.

Gervais Pellissier speaking. Just some additional points. Orange is in a particular situation, especially with the weight of France, which means that in terms of traffic received and traffic sent we are more or less neutral. Which means that if there is a change of wholesale price for Group, that's relatively neutral for Group as a whole.

I don't say it will be neutral for all the operations of the Group. Because one of the big issues with this wholesale price change is that it's another burden for the countries that are south, for south operators, at the profit of the north operators. This is more or less what will happen. But for Orange it's neutral.

Now the debate for the European Commission is again whether they will favor Nordic countries or whether they will support south countries. And you have to keep that in mind.

Okay, so I think we will come back to this, but once again I think you have a broad view on this, and this has -- there is no relevant additional impact on what you have on our financial targets for the following quarters and years.

On your second question on the French market and the perspective of seeing or not consolidation, I think everybody has a view on this. Probably at some point in time it will come back but we are implementing our strategy, whatever the environment would be.

So we know what we have to do. We are very much focused on customer experience, getting the best service to our clients, investing in order to have the best network, convergence, which is more and more important in France. And we will also in 2017 come back to you with some additional KPIs which will help you probably also to better understand this.

When you see the difference of churn, for instance, between convergent customers and non-convergent customers, the difference is extremely significant. And it's going to be more and more the key of success.

So we are investing on fiber, continuing to invest on the 4G network, focusing very much on the quality of the service we give to our clients and the best customer experience we want to deliver is really a huge focus. And if so the market is the four market players, we will be the best player on these four market players. If at some point it becomes a three-market player because conditions are right, it would be probably better for everybody.

But once again we are not the one who is the most in need to see this happening. So let's not speculate on what could happen; let's focus on the performance of what we are doing.

Competition is tough. It is clear competition is tough, but I think that when you look at the performance both on fixed and mobile in France this year, I think we can pay tribute to all our people on the ground because when you see that more than 60% of our net adds on mobile are on premium services, when you look at the Grand Public offers, retail offers, it's quite -- it's very impressive. And all this without any promotion.

So yes it's tough, but the Orange machine in France is really delivering very good results.

But it looks like it's improving a bit. Looking at your results, it looks like competition intensity is going a bit down. Would you agree with that or not?

Okay, Fabienne Dulac speaking. You're right, the French mobile market and at the same time the French ADSL market are very competitive and turbulent since the middle of 2015.

We expect the same level of competition in the next months and the answer we have in France for Orange is the convergence. It's the tool of acquisition, of retention and of upsell. So it's a strategy we will pursue during the future because I think this is only one way and the best way we have with the strategy we have on the premium and the fiber. But we don't expect change and we are ready for that.

Thank you very much. Thank you.

Nawar Cristini, JPMorgan.

Thank you very much. I have two questions please. So firstly on the domestic fixed business, broadband KPIs were robust, both from the net adds and ARPU standpoint.

So I wanted to ask, how should we think about the growth trajectory going forward for broadband service revenues? Is the mid-single-digit growth that you are seeing this year so far, is a good proxy going from here?

And secondly on the dividend, the balance sheet is strong, EBITDA is growing and the payout ratio is low. So it looks like you've got all the ingredients for a dividend increase. Could you elaborate on this and perhaps walk us through the thinking process to set the dividend going forward? Thank you very much.

So the fixed service revenue you saw is back to growth, driven by the trend and the good performance of broadband revenue, plus 5.8% in this Q4 -- Q3 sorry. It's a very good performance and we are very proud of it and very confident in the future.

Because this result is thanks to the growing of the customer base and the improvement of the ARPU trend. The ARPU is supported by the result and the commercial dynamic, by the improvement of the customer mix and it's not volatile activity, it's very strong. And another way it's supported by the price increase of Q2.

So we are confident in the future to pursue this trend because it's not, as mobile, very volatile and Orange is really strong in this activity since a long time.

On the dividend, I think we said very clearly in 2015 when we launched our Essentials2020 plan that the current level of dividend was absolutely secured, EUR0.60 would be the minimum paid over the years of the plan. And that, depending on the performance of the Group, we could be in a position to increase the dividend, that we did not exclude doing so.

So this is still absolutely true and I think what we need to do is to consider this question about the dividend, looking at EBITDA growth. I think we need to check that EBITDA is going to regularly grow quarter after quarter, and this is what we are -- this is what we have in view.

We are absolutely in line with the objectives we had for 2016 with a very clear increase of EBITDA compared to 2015. And so we are confident that we are very well on track with what we had in mind two years ago.

So this is a question we will have to look at with the full year results. We will come back to it in early 2017. And I give you a rendezvous at this time.

Okay, thank you very much.

Frederic Boulan, Bank of America.

Hi, good morning. If I could come back on the prior questions on the AT&T Time Warner read for Europe. Do you see specifically vertical content integration as an issue for regulators on this side of the world?

Second point on the CapEx side, if you could share with us where you see CapEx evolving in the coming years and when specifically we should start to see a decline considering your EUR20 million FTTH plan by 2022?

And lastly on the cost cutting, so I understand you will give us more detail in early 2017. But is it fair to say that considering this plan was going on between 2015 and 2018, we are -- we still have about two years in the program? Where are we in terms of execution on the EUR3 billion gross cost cutting plan?

When we look at the net numbers right now, the OpEx base is still up a bit year on year so can you help us understand what you've done so far in terms of execution on this plan? Thank you very much.

Okay, Pierre Louette. So maybe starting with the last point on the cost cutting. Ramon described it previously. We will disclose full numbers for the full year, so we're not completely ready yet to describe this.

What I can tell you from the operational execution of our Explore 2020 plan is that all the workshops and the streams are delivering well now. There are always adverse factors that you need to fight against, and those have happened this trimester to some extent, but we will deliver the overall figure.

You may remember we over-delivered quite heavily on the last program, the presented one, and I think we can expect the same kind of performance this time. Even if the adverse winds are different, even if there are sometimes elements that you have to fight against that were not completely anticipated. But we have a good plan, solid streams, and we will give you the figures when they're ready for the full year.

So going on the previous point which is the Time Warner issue, again from a regulatory point of view, nothing comparable to that has been examined in Europe until now. We haven't seen that kind of deal going forward.

The elements of comparison would be the following. In the United States, as you remember, the Comcast Time Warner deal did not go through because it was a horizontal consolidation to some extent, putting together people who were producers of content and already people delivering television services as Comcast, as a cable operator.

In the situation with AT&T it's different, it's a telecommunication provider, so they're not falling under the same titles of the FCC regulation and the FCC regulation in the United States. So it's a bit of a different animal.

So they are going to look into those elements. As you may remember also, competition laws in the United States or in Europe do not completely -- have not completely upgraded their software, if I may say. Which means that it's still not so easy for them to add profiles, eyeballs, data. They know exactly how to add turnover revenues and market shares but not complete those elements.

So they're going to have a new examination to go forward with and that's also the reason why it's going to take some time. But again this one is looking more as a vertical integration.

You remember also that AT&T just acquired DirecTV recently which is another element which will also fall into the examination. Because it's a lot now, AT&T, DirecTV, plus Time Warner. We're talking about a big time full vertical integration. So it's going to take some time.

In Europe, just to end the answer, we haven't had the opportunities to look into those elements. Maybe one of the things that we have witnessed was the survey of our own distribution networks when we were considering distributing exclusively for our subscribers exclusive rights we had acquired in football, and that's some time ago. The competition authority prohibited us from doing this but then we won an appeal. So even from that point of view I can't tell you exactly what will happen.

So it's a brave new world and again for me it's really, really data driven, profile driven, and it's really about this supposed cornucopia of data. And we're going to look very closely to the way the Americans handle it.

Okay, merci Pierre. So once again on costs, as Pierre said, we'll come back on the cost-efficiency program in 2016, but you should not be worried. We are close to 45% of implementation of the targets on the EUR3 billion gross efforts at the end of H1.

So there is really -- once again, fully on track with what we had said and the revenue increase and the EBITDA increase that you have on your table should be the best proof that the global balance is the right one.

On CapEx, the consensus expects that we would have a 2016-2018 CapEx close to EUR21 billion. With CapEx in these three years, 2016 to 2018, close to or around 17% of sales. And this is what we have in mind. So we are very much comfortable with these estimates.

They are a little higher than the outlook we had been providing 18 months ago with Essentials2020. But this is linked to the inclusion of Morocco and Jazztel in Spain in our footprint. Where the investment effort is significant.

So there is footprint extension here. There is also an acceleration of our network investment. Of course it's the fiber story in France, in Spain, also now starting in Poland. And what is key is of course that these investments translate into commercial success. And I must say is also very much encouraged by the recent EU policy shift towards supporting very high broadband and fiber investment.

So this is what we had been discussing in the previous quarter. Around 17% of sales up to 2018, then it should go down from 2019. And we will be, for these peak years, slightly below or around EUR7 billion per year. So peak in 2018, then going down towards closer to 15%-something of CapEx to sales after a peak at 17% in the three years including 2016.

Thank you. And maybe a last one, if I may, on Spain. Can you share with us whether you think you're actually winning share from the others or you're just benefiting from a more favorable pricing environment? Thank you.

Laurent?

Can you please repeat the question? We didn't hear it correctly here.

Yes, the question is on Spain whether you think you are gaining share from (inaudible) or whether you think the performance is primarily driven by pricing?

Well the performance is driven by both pricing and customer base. We are -- in terms of net adds, we've been performing in terms of customer base better than most of the players.

In fact if we look at the recent figures from CNMC which compare the performance of Telefonica and other players on the market, we are number one, both in fixed broadband and in fiber. So we have a strong dynamic in net adds and we also have it in mobile. So that's one driver.

The second element is as the fiber is being rolled out in Spain, we have needs for higher packages of convergence with more abundance in data. So we do have service upgrades which are being done regularly in the market. For instance, we've just done one in October in Jazztel. So we do think that the dynamic will remain. So we have both volumes and ARPU which are going in the right direction.

Thank you very much.

Vincent Maulay, Oddo.

Yes, morning. Two questions, the first one on fiber regulation in France. We still have some [bad buzz] on ARCEP prompting Orange to ease access to fiber in some specific cases, even if without any change of further paradigm. So could you elaborate on what could concretely change in the quarters coming?

And the second question on France mobile pricing. What kind of feedback do you have on the churn, ARPU increase, the month after the price increase and without any promotions for three months in a row?

Okay, Pierre Louette speaking. On the fiber regulations, the perspective is the following. There is a review which is ongoing now in France in three different markets, market 3A, 3B, 3C. So the ARCEP is basically reviewing a lot of the fixed markets. This started a couple of months ago and there are consultations all of the players contribute.

This consultation phase should probably end at the end of November, at last mid-December. And then ARCEP will send a perspective on the change of regulation or not change of regulation to the competition authorities. And all of this should be published next June. So this is the agenda overall.

On this topic, we feel actually that things are pretty much moving in the good direction. What we understand now is that ARCEP's knowledge of the market and perception of the market is that there are so many ways actually for people who really want to invest to be able to invest, and there are so many ways for people who want to access to be able to access.

This has been outlaid and described to them I think in a very complete way and it speaks for Bouygues and for Iliad also. Bouygues can access some of our distribution system in fiber if they want; they have a contract with us. They can also access cable, and actually SFR is proposing them to give an access to cable.

Iliad is now -- and Fabienne could easily confirm that -- Iliad is investing very heavily now in fiber. Iliad is co-investing with us as much as they can.

Actually we feel that the sooner we roll out a fiber network, they will co-fund. Co-funding is one of the key principles in the fiber deployment in France. And actually it's going to be adopted on the European level, if you've seen the European package recently. Just as in Spain and France, co-funding will prevail.

So this has been I think a demonstration which has started convincing ARCEP. So we don't feel very much that with this European package thing that if there is a fiber rollout, if there is a possibility of co-funding, there will be no ex-ante regulation, asymmetrical regulation on fiber.

This has been published by the European authorities. So how could ARCEP possibly go in that direction? It seems impossible, and this makes us feel, I guess, more comfortable now. We will never be 100% comfortable because the future is long and so we don't know everything about the future, but we feel much more comfortable than we did actually a couple of months ago.

Yes, and obviously this is extremely critical because we all know that we invest in a regulatory environment on fiber which is clear, which is the context which has been set for all players, and everybody understands this clearly. And the European position recently has been also a helpful reminder to all that those who do invest should earn their living with their investments. And this is why we do invest and we will continue to invest. Fabienne, on mobile?

Yes. As you can see this morning, our 3Q result on the mobile demonstrates the attractivity of our offers, even if we raised the price. You remember this August, we gave more data but more price at the same time.

There are two impacts; volume and value, and two positive effects. A positive effect on the mix because, as Ramon said, 60% of net adds are made on high end. So the mix of our customer base grows in the high end offers. And we have a positive effect on convergence in the same way.

So it's very important for us because you know the convergence is the key success for the mobile tomorrow too. There's no impact on the churn. We have the lower churn rate from 2010. So all the figures are very well oriented.

Thank you.

Yes, I think really when you look at all the figures -- this is what Fabienne was saying -- it's striking to see that in this, such a competitive environment, the fact we were able to have such a big number of net adds and with such a mix, with premium offers and also Sosh is --

With no promotion.

-- with no promotion, with absolutely no promotion, this is quite outstanding in fact. Don't forget also what we were talking about looking at convergence. For instance, the fact that we have 7 points of churn decrease in fixed broadband, thanks to convergence, also has a positive impact on mobile.

So it's both on mobile and on fixed. And more importantly, when you have a broader picture looking at the progressive impact of convergence on the French market, if you are interested in the future, I think this is really a critical element.

Jerry Dellis, Jefferies.

Good morning. Thank you for taking my questions. The first question is on French mobile please.

Was the decline in national roaming income less in the third quarter than in the second quarter? You've previously given us mobile service revenue trends excluding national roaming so I wondered whether we would be able to get that again please.

Second question, in mobile, you only saw six weeks of benefit from the new list price increases that you implemented in the middle of August. So as those come through with a full quarter effect in the fourth quarter, should that, all else equal, strengthen the mobile service revenue trend?

And then finally in Spain, related to fiber, would it be possible please to give us an indication of the mix between high speed and low speed within your fiber net adds? And also, are all your fiber connections on your own network? Are there any that use the wholesale neighbor connections in a way that you might count as fiber?

On the Iliad roaming, I think we have given a number of informations already. I don't know how much new information you would like to get but the consensus sees year revenues in 2016 going down by EUR150 million to EUR160 million. And this assumption from consensus seems accurate. So I think you know enough probably looking at the quarters you have seen already.

Maybe Fabienne will want to come back on what can happen on mobile in Q4. But I think we are in Q3, we have seen September with, as you said, the six weeks of the new prices. So I don't know if we want to talk now much more about the next quarter. Maybe you need to be a bit more patient but Fabienne will --

The next quarter is very important because you have the Christmas period with a very big activity, a very important activity. But I don't guess change so, as I said, we will have a lot of promotion and we are ready in this way.

I just want to remind, excluding the adverse factors, the [MSR] decrease is very limited, as we explained just before, close to minus 1% year on year. And we are -- we will be in the same trend in Q4.

As I said, we raised the price. We have a very good trend on the high end offers, mobile; we have the convergence to sustain. So we are very confident. We have very solid fundamentals; the leadership in the mobile, the capacity to have an excellent commercial performance. I am confident and there is nothing to say.

Merci Fabienne. Laurent, sur l'Espagne.

Yes, so in terms of technology we only have FTTH so it's very high broadband. I think the question was related to the neighbor versus own fiber. If we look at the 1.4 million customers, we have over 82% which are own fiber; the rest is indirect offer. And we use the neighbor offer in the regions and mainly on the regions where we intend to roll out and extend our footprint in terms of fiber. So that's really -- so we mainly own fiber network.

Thank you. Could I just follow up my question on the high speed versus low speed? I probably wasn't very clear. But you market offers of 50 megabits per second and 300 megabits per second and I think it was previously 30 and 300. So I'm just interested in whether the split is fairly even between those two or how the retail split is distributed please?

We have roughly I would say 30% higher speed premium, as we speak, but we do see -- as the extension of the speed is going up, we do see additional demand from the higher value package. And there's a general trend on the market for higher throughputs and higher content as well. So that's a general trend which is very positive in the value creation.

Thank you.

Simon Weeden, Citigroup.

Thank you for taking the questions. Just one, and I just want to drill in again if I may try to on French mobile. And that is to say, you've said in the IR advice email that underlying, the rate of decline is probably around 1% this quarter and last quarter, so no change, and that takes out European roaming, it takes out the special services numbers impact and a rent sharing impact.

But in the (technical difficulty) you also say that the quarter saw a benefit from an improvement in the trends for mobile services from operators -- or to operators rather, particularly MVNOs with network sharing.

So I wondered if the implication of that is that on an underlying basis mobile service revenues were roughly the same growth rate this quarter as last but actually the picture for wholesale was rather better and so the picture for retail might be slightly worse? Can you elaborate a little bit on that?

I think -- and Fabienne made the point -- the minus 3.8% we have on mobile service revenues which compared to the minus 5.2% we had in Q2, is the result of the impact of European roaming prices, the end of a surcharge of special service numbers.

There is also a positive one-off, I think we have explained this, which is linked to rent sharing. And this, by the way, has absolutely no impact on EBITDA. And then you have an underlying revenue trend which is similar to the one we had in Q2, close to minus 1%.

So the underlying is roughly the same -- slightly better in fact, slightly better in Q3 than in Q2. And then you have a number of one-offs in many directions which contribute to this final figure of minus 3.8%.

So I think here is the best picture we can give. We cannot go into go going into any extra detail because this could take us all day. But the essential part is that we have a kind of let's say clean minus 1% underlying revenue trend on mobile services in this quarter, a bit better than in the previous one, and very close to what we should see in the fourth quarter.

So I think you have quite a clear picture of what we can see and expect in the following months on mobile service revenues. And once again, I know and I understand that all of you are fascinated with what's happened on the mobile market. And you're right, it's very important and there is a lot of work being done there, and once again the strategy we are delivering is paying off.

But don't forget also, if I may, to look in France the broad picture which is including the impact of a broadband strategy which is including the impact of the progressive penetration of convergence on the French market. And you will see that all our engines are working in the right direction.

Okay, so it says here that particularly MVNOs and network sharing are doing a little bit better. Is that -- it must be a fair comment, it's come out of your results so is it -- is that specific to Iliad or is that a general change in channel use? Why would we see the MVNOs and network sharing component improve like that versus last quarter?

I think maybe we should have a one-to-one meeting at some point, but I think you have enough information up to now.

Okay, thank you.

Jakob Bluestone, Credit Suisse.

Hi, good morning. I've got a question on French mobile. Can you talk a little bit about how you intend to protect your 4G network superiority? If we look at the statistics from ANFR, I think Bouygues now has more 4G sites than you do and SFR isn't far behind and rolling out very rapidly.

Obviously there's more to 4G network advantage than just the number of sites, but can you comment a little bit about how you can ensure that you have a superior network going forward? And also whether you perhaps need to step up your 4G deployment a little bit, which I guess fits into the earlier comments on CapEx? Thank you.

Okay, I think your question is rely on the announce of Bouygues Telecom. So first of all, I would like to precise the advance in number of sites announced is just [punctual] and linked to rent sharing between Bouygues and SFR.

Orange remains large leader in 4G and 3G and in coverage. We are currently around 48% of population covered by 4G in France and we intend to keep this leadership.

The question is not only a question of mechanical calculation of number of sites, it's more complicated. And we have a real advantage in the existing infrastructure we have in France. We have the best spectrum market share, especially on low frequency. We have a rollout approach very relevant. We want to be where customers are to have the best network. And for the last, we all the time adjust and optimize the implementation of our network.

So I understand your question but it's not a question for Orange. We have the ability to remain leader on 4G; we have the experience; we have the people ready to be. So there's no risk on this superiority.

Thank you.

Guy Peddy, Macquarie.

Yes, good morning all. Just a quick question. You mentioned about the fact that your convergent churn is 7 points lower. Was that a Q3 number or was it a 12-month rolling number? And can you give us a feel of where you think convergence churn actually is in absolute terms?

And following on from that, do you take the fact that this churn is so much better as a very positive leading indicator for the ability to put through more price increases in 2017? Thank you.

So the figure, the delta of 7 points is not a quarterly punctual figure. It's a figure which reflects the progressive shift of the base. And so we will be able to track this.

But it's not -- we're not giving you this figure now because it would be nice in Q3, better than the previous number. It's something which is now seen over a number of quarters. So it's of course extremely encouraging.

Convergence is making progress, and once again, we will -- you have some figures in the elements that we delivered now. We will continue to monitor this. It is, by the way, an element which is more and more relevant in all our European geographies, with Spain of course leading the race in terms of convergence rate, but it's something that is a key driver for us in all our European countries. In fact, we are the number one European operator in terms of convergence and we are going to build on this.

And obviously, in terms of pricing power, in terms of capacity to monetize our services, it is going to be a very good help for us. So it has been seen in the spring. You have seen that we were able to improve, to increase our prices with the new box, and the price increase was quite significant because it was up to plus EUR10 when you took the high-end and fiber market, otherwise it would be -- the fiber increase in itself is EUR5 and then if you take the more expensive contract you would get plus EUR10.

And we are going to be continuing our work to be in the position to monetize the quality of our services, both on fixed and mobile. And the quality of the network once again is absolutely key.

Thank you everybody. I guess we will have to end this call now but we will have a number of occasions to continue these discussions. Thank you very much.

Ladies and gentlemen, this concludes the conference call. You may now disconnect.