Orange SA (ORAN) 2017 Q3 法說會逐字稿

Good morning. Thank you for joining our Q3 2017 results conference call. We'll start with Slide 4, which presents the main results. And at the end of the session, with my colleagues, we'll be ready to answer your questions.

So turning to Slide 4. You can see that in Q3, revenues kept increasing, thanks to growth in almost our entire footprint. We now serve a total of 269 million customers, growth 2.4% year-on-year. The positive commercial momentum since the beginning of the year in the Africa, Middle East compensated the negative effects of the identification process that we had seen in 2016. France also posted an outstanding commercial performance with 320,000 net adds on mobile contract, of which nearly 60% on the high-end offers. And European 4G and FTTH bases grew by 29% and 47%, respectively, year-on-year.

This quarter, revenues increased by EUR 95 million, 0.9%, driven by France, confirming return to growth; accelerating growth in Africa, Middle East; and strong results in Spain and Central Europe. Adjusted EBITDA increased by 2.1% year-on-year, fueled by growing revenues and cost efficiency. More than 2/3 of revenue growth was transformed in adjusted EBITDA, with the telecom adjusted EBITDA margin up by 0.5 point year-on-year. This performance is once again driven by strong momentum in Spain, Central Europe and also Africa, Middle East.

CapEx was up 2.5%, supporting our ongoing investments in very high broadband networks. The CapEx level in Q3 is fully in line with our full year outlook of EUR 7.2 billion.

Let's now turn to the next slide and view results of our convergent strategy. Convergence remains a strong acquisition tool for both initial and follow-on services. We now provide convergent services across our full European footprint with a total base of 10 million B2C convergent contracts, growing at 11.6% year-on-year.

Convergence is also a powerful retentional tool resulting in a much lower churn for both fixed and mobile components. When comparing convergent fixed broadband contracts to all fixed broadband contracts, we see a churn improvement of 4 points in France, 9 points in Spain and 2 points in Poland.

Also in Q3, convergent B2C revenue grew by 9% in France, 12% in Spain, 31% in Poland, demonstrating once again the relevance of our convergence strategy as a key driver of our top line growth.

Let's now take a look to our telecom financial results, starting with revenues. This quarter, revenues increased by EUR 95 million. This is plus 0.9%. France confirmed the return to growth at plus 0.2% against 0.5% in Q2. Spain pursued with a very solid growth at 6.4%. Romania posted again a double-digit growth at 10+4% (sic) [plus 10.4%] and Africa, Middle East continued to improve with plus 3.1% versus 2.7% in Q2, plus 0.7% in Q1.

Turning to the adjusted EBITDA for telecom activities. Q3 growth was at 2.3%. This is plus EUR 82 million despite the impact of the European roaming regulation. Excluding European roaming impact, adjusted EBITDA would have grown by 4.7% in Q3 compared to plus 3.1% in Q2.

Our adjusted EBITDA margin also improved by 0.5 point to 35.4%, thanks to the top line improvement and ongoing efforts on cost efficiency. Excluding the impact of EU roaming regulation, our cost base decreased by EUR 56 million, mainly driven by nonlabor indirect costs decrease, such G&A expenses, minus EUR 36 million; and network and IT, minus EUR 13 million. The average full-time equivalent employees of telecom activities decreased by 2.7% in Q3.

Finally, Slide 8, on our investments. Our telecom investments stood at EUR 4.8 billion for the first 9 months of the year. CapEx to sales ratio of 15.8%, a year-on-year increase of EUR 97 million, mostly concentrated in our Africa, Middle East and Europe segments. In France, we maintained our focus on very high broadband with growing FTTH investment and an acceleration in 4G. In Spain, the CapEx increase was linked to the stopping of our joint fiber deployment with Vodafone. And in Africa, Middle East, the growth in CapEx was mostly due to the rollout of new 4G mobile sites, especially in Morocco, Egypt, Ivory Coast and Senegal.

Last quarter, we launched 4G in Egypt and Mali. Overall, and given the usual seasonality in CapEx, this 9-month level of investment is once again fully consistent with our 2017 outlook at EUR 7.2 billion.

Let's now turn to our business review on Slide 10. Starting with France. Q3 was very positive for the second quarter in a row at 0.2% revenue growth. This performance came from strong growth in broadband and fixed wholesale. There were also several instances of more-for-more bank-book repricing, including from Orange in mobile and in fixed.

Despite the new Roam Like at Home EU regulation, mobile services performed very well. We have minus 1.6% in mobile service revenues. Excluding EU roaming and national roaming, the underlying mobile service revenue trend approached stability at minus 0.3%. This is to be compared to the minus 0.5% in Q2 and the around minus 1% we had in the previous quarters.

Fixed services revenues grew at 1.9% versus 1.1% in Q2. This is the best performance in the last 10 years, and this is thanks to a fixed broadband growth at 4.8%, and the fixed wholesale, very robust growth at 5%, driven by a ramp-up in fiber co-financing and the January 2017 increase in ULL tariff. Convergent B2C revenues grew by 9%.

In France, the commercial performance was exceptionally strong this quarter, both in the fixed and mobile, despite very competitive markets with almost permanent promotions. In fixed, we posted 108,000 broadband net adds, of which 145,000 in fiber, the same record level as of the fourth quarter of 2016. 59% of those FTTH net adds were new customers to Orange. This is to be compared to 45% in Q2. Mobile contract net adds reached 320,000. This is the best quarterly performance since 2008, with close to 60% on premium offers. We had a positive portability balance against each of our competitor. This is the first time since the entry of the fourth mobile player in France.

Convergence supported our performance, both in fixed and mobile. We are currently focusing our efforts on increasing the number of mobile lines per convergent household, targeting all market segments, including at the entry level. We have attractive offers for youngsters and teenagers. And for the first time, more than 80% of new convergent customers were new fixed and/or mobile customers, [the real] interesting figure. The convergent broadband churn rate was 4 points lower than the overall broadband churn rate. It's even 9 points lower than the nonconvergent churn rate.

In Spain, overall revenue grew by 6.4% in Q3, with fixed broadband and mobile services with the same growth rate as in Q2. This performance was driven by mobile revenue growing at 7.5%, fueled by 4.7% growth in the contract base and 5% growth in the mobile quarterly ARPU; the fixed broadband revenue increase by 8.3%, thanks to the increase in FTTH subscribers and in the TV base, also by an increase in the broadband quarterly ARPU of 4.5%.

In Spain, convergent revenues grew 12% to EUR 544 million, driven by a 3.5% growth in the number of convergence offers and 7% growth in the convergent ARPCO to EUR 58.7 per month.

Total revenue growth was impacted by a review and optimization of international wholesale traffic. We have a greater focus on margin. Without this effect, total revenue growth in Spain would have been in line with previous quarters.

Turning to the commercial performance in Spain, Slide 13. On Spain, it's following a value-driven strategy centered on convergence by growing and migrating its base to 4G and FTTH, also by offering its customers an enriched connectivity with best available content. We posted solid fiber net adds with 137,000 against 141,000 last quarter, reaching a total number of 2.1 million customers on fiber. This is almost 50% year-on-year growth, with a fiber penetration of 50% of our broadband base. This is plus 15 points year-on-year.

The third quarter was also strong in pay TV net adds. The TV base increased by 30% to 593,000, thanks to the start of the new football season. And with regards to convergence, Orange continued to be the most dynamic operator in Spain, having the highest penetration of B2C convergence in its fixed broadband base now at 83%. This is very impressive, and it's also a 9 points less churn than all fixed broadband contracts. So all in all, in Spain, in a more competitive landscape, Orange Spain remains focused on value and is more than confident to deliver a full year adjusted EBITDA growth at least in line with H1 2017.

In Poland, the fixed broadband customer base increased by 10%, with another strong net additions level in Q3 at plus 54,000 and fixed broadband revenue growth at 6.6%. This is the result of, firstly, our convergence strategy, with Orange LOVE offer launched in Q1 representing 47% of our B2C broadband customer base at the end of our Q3, a 15 points increase year-on-year. And secondly, our investments in very high broadband covering now 2.2 million FTTH connectable homes, an 80 -- plus 83% year-on-year increase.

Net additions in mobile contract continued to be strong at plus 89,000, reflecting a more balanced approach between volumes and value, with a simplification of our offer portfolio and the more-for-more approach. This strategy of value is delivering results. And consequently, Orange Polska announced this morning an upward revision to its 2017 adjusted EBITDA guidance.

In Belgium and Luxembourg, the third quarter was also marked by a strong commercial dynamic. In Belgium, we have plus 15,000 postpaid net adds in combination with a strong postpaid ARPU growth of 2.7%, which proves the relevance of the company's value strategy in accommodating the market shift to higher data usage. Despite continued promotional activities of the convergent players, we recorded a plus 16,000 Orange LOVE net adds, reaching 75,000 B2C convergent customer base. And as a result, the total turnover stood at EUR 316 million in Q3. This is an increase of 1.7%, with growth in both mobile and fixed service revenues, despite also in Belgium, as in all our European countries, the European roaming impact.

Let's turn to the Central European countries, where revenues confirmed their previous strong growth in Q3 at plus 6.9%. It was 7.1% in Q2. Growth here was driven by a second quarter of double-digit growth in Romania, plus 10.4%, thanks to mobile postpaid customer base growing at plus 2.1% and also data usage increasing linked to 4G. And Moldova posted a 5% revenue growth, plus 14% mobile postpaid customer base growth.

Romania, Slovakia and Moldova just joined the convergent family with the launch of Orange LOVE offers, and so LOVE is now everywhere in Europe, which is very good news.

In Africa, Middle East, revenue growth accelerated to 3.1% in Q3 after 2.7% in Q2. This is driven by an improving trend of the Sonatel group compared to Q2 with a very strong growth in Mali and Guinea; also good performance of new operations, especially Burkina Faso at plus 28%; a second quarter of high single-digit growth in Morocco; and also an encouraging recovery of Egypt, which has been growing up by 1.4% in Q3 following a decrease of 1.1% in Q2. The main business drivers of this improving performance in Africa, Middle East are, as in the previous quarters, mobile and data growing by 38%, and Orange Money, who's posting still impressive 60% revenue growth, with now close to 11 million active customers.

So we can see now that the customer identification process is behind us, thanks to a strong commercial dynamic since the beginning of the year. We have now compensated the negative effect of this process on the mobile customer base, and we now have more than 126 million customers in Q3. We also have been continuing our investments in the rollout of the 4G network, launching recently Mali and Egypt.

Turning to Enterprise. As expected, the Q3 revenue trend was better than the previous 2 quarters, thanks to a very good commercial performance in mobile with plus 32,000 mobile net adds in Q3 and some new contracts. Voice and data trends are in line with the previous quarter, still under pressure of the legacy to IP shift. In line with our strategy to focus on IT and integration services, security and cloud continued to deliver strong results with, respectively, plus 17% and 37% of revenue growth.

And I would also like to signal that following this strategy and in order to accelerate our growth in data, we have signed during the night an acquisition of close to 64% of the capital of Business & Decision, an international group of consulting and system integration. This acquisition of Business & Decision and its expertise in business intelligence and data science will significantly strengthen the activities of Orange Business Services in the governance and data analysis in France and internationally.

So I will now close with the Slide #20 on our guidance, where you will not be surprised that with these very solid results, we fully confirm our full year guidance of group adjusted EBITDA above 2016 on a comparable basis. We will also maintain our net debt to adjusted telecom EBITDA ratio around 2 in the medium term.

Regarding the dividend for fiscal year 2017, you know that we will propose in 2018, at the general assembly, a dividend payment of EUR 0.65, and we will pay a EUR 0.25 interim dividend on December 7. And regarding our portfolio management policy, we confirm our selective approach, focused on our existing footprint.

We will take your question now. But of course, I guess, I don't need to remind you that we will have an Investor Day in London on December 7 at 8:30 London Time at the Pullman Hotel, and it will be an occasion for us to talk about growth, to talk about operational excellence and value creation at Orange.

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

(Operator Instructions) First question comes from Nicolas Cote-Colisson of HSBC.

I've got 2 questions. The first one on CapEx. I was wondering if you could indicate when peak is to be reached, with maybe some granularity on it per country or region. And my second question is on France. I was wondering if you think you can now apply more pricing power beyond the selective price increases you've had in mobile back in July. And I was wondering if pricing power could also apply to fixed broadband in France.

Okay, so this is Ramon. I will take the first question on CapEx, and then Fabienne will take the question on France. So once again, we'll come back in much more details in December when we will meet in London. But what I can just repeat is that, as we have said continuously over the past weeks, maybe months, in 2017, we will be at EUR 7.2 billion. Second, we said that we would reach the peak at group level in 2018. So as a matter of consequence, 2019 would be the start of the decrease. We have also, as indicated previously, engaged during the summer periods on a lean CapEx program. It's an approach which is meant essentially to deliver the best impact with every euro we are investing. And so the whole group is focusing on this exercise. We'll be more explicit on this on the 7th of December. But this exercise is mobilizing many people with a lot of enthusiasm and creativity in the group. So this is where we can -- this is where I can draw a picture now. In terms of granularity, I think it's a bit early to go into such a level of details. But I think you have a big picture, and we are very clear on the big picture.

Fabienne Dulac speaking. So to answer to your question, we are carefully monitoring the market because we know that the French market is sometime unusual. What we can see currently is we have 2 movement, very turbulent and aggressive market on the mobile still, especially on the low-end market. And in the meantime, we observed price increased by all competitors, as you can see this summer, especially, and focused on broadband. So we notice a [trend for the] value from mobile to fixed line. It's maybe a new start for a new positive trend. I hope so. We noticed, too, all the promotions seems to be less attractive. So we are very carefully, but we are in, I think, a positive trend.

The next question comes from Jakob Bluestone of Crédit Suisse.

I've got 2 questions as well. Firstly, maybe just following up on Nicolas' question on CapEx, could you maybe just comment if you're comfortable with the current consensus CapEx for 2018 of about EUR 7.3 billion and 2019 of about EUR 7.1 billion? I'm not sure if you're going to be quite that specific. And then just secondly, I think you said during your presentation that you did take mobile subs from all the different operators. You've also had strong fixed line adds. Can you possibly comment on, is it the same thing that you're taking subs sort of evenly the across the board? Or is it sort of more skewed towards one?

Okay. So I think we have heard loud and clear your questions about CapEx. I hope you are also interested in the results that this CapEx are delivering. Just look at the Q3 results, for instance, just for 1 minute, and you will see that the adjusted EBITDA in our telecom activities is growing more rapidly than our CapEx. And so our operational cash flow is growing. I hope it's something that you are considering. Now once again, we are absolutely mobilized in a very strict discipline on our CapEx programs. Once again, the lean CapEx program is meant to ensure this discipline. And so we will see -- I don't want to comment, honestly, your consensus for 2018, 2019, or 20 -- I don't know what. We will do this in December. We will provide some guidelines for the future. But just also take a minute, please, to check what is behind these CapEx efforts. The performance of the group is supported and driven by a strategic choice we have made to invest in fiber, in very high broadband. This is going to be for the future a very strong differentiating factor for the group, when you compare us to our peers. Some of them will have to catch up in the future. This effort will be behind us. And this is why we are capturing market share, increasing revenues, increasing margins. So I don't want to escape your question on CapEx. We all have this question on the top of our mind. But let's not forget that we're not just pouring CapEx for the pleasure of investment. It's also because this is driving the performance of the group, and we are creating value with these investments.

On the second question, our back-to-school strategy focused around 2 main objectives: to better address the first-time mobile owner and accelerate convergent penetration. And in the same way, the proliferation of the mobile line in household has been successful. And for the first time, you're right, we noticed a net positive portability result, so we successfully win back more customer from each competitor than we lost. So it's a very good point.

The next question comes from the line of Stephane Beyazian of Raymond James.

I just would like to follow up on the commercial performance in France, again, quite strong in mobile and fixed. Can you just elaborate whether you think that the third quarter performance reflected perhaps more of the positive impact from the changes in pricing some of your competitors have done? Or was there any -- or it was more related to the back-to-school strategy and specific marketing actions that you've done in the third quarter? Because you mentioned the convergent strategy as well, but I guess it's been there already for a long time. So I was just wondering on the commercial performance and whether you think that can continue. And my second question is also regarding Spain. There, can you elaborate just a little bit more on the competition in the fixed broadband market? Because you were quite strongly positioned with 2 good brands, and we can see in the broadband market that the third quarter was a little more difficult. So does that reflect anything specific? I think you've changed a little bit your marketing strategy at Jazztel. Or was it just the market overall and somewhat your competitors more aggressive?

So we recorded, yes, a strong commercial dynamic, and I explained that with different reason. First of all, I think the result of the strategy we defend since long time, the strategy of the quality, quality of the network. To be connected now is really mandatory for customers, and I think that we helped to change and to drive an evolution of customer consumption in that choice, first of all. The second, we launched an attractive offer, yes, targeting household and families, and it was successful. Third point, our competitors applied a retrofit tariff increase on their customer base, and that generated a favorable win back. So it's another point. But overall, for me, this is a validation of the strategy we have on the fiber, on the convergence and, overall, the quality of the network of the customer experience.

Thank you, Fabienne. We'll now turn to Laurent Paillassot, the CEO of Spain, who is online with us.

You have mentioned on the competition, it's true that Q3 has been quite strong in the back-to-school with all the promotions. Basically, as Ramon mentioned, we remain focused on value creation on very high broadband. If you look at our results, net adds in FTTH, we maintained leadership in Q3 with 140,000 FTTH. On the ARPU, we are growing the ARPU on both on fixed broadband and on convergence, 5% and 7%. Revenues are still strong growth, 8.3% on fixed broadband, 12% on convergence. And overall, our EBITDA trend -- growth trend continue to improve. So the Jazztel rebranding and Jazztel new portfolio of offers has been launched only Monday, so it has no impact on Q3. But it's true that we were preparing this launch. So again, our focus is value creation and EBITDA growth.

Any specific action from one competitor that you would highlight in the third quarter that had some impact in the market?

Well, overall, we see MassMobile delivering well and we see Vodafone overreacting. That's our view of the market.

Our next question comes from Frederic Boulan of Bank of America Merrill Lynch.

Sorry to come back on the CapEx point. First of all, if you could clarify the framework of negotiations with the government on increased mobile coverage, what would you be willing to do from a coverage perspective? And how would that translate into financials? I hear there's a compromise around spectrum renewal taxes versus more CapEx. Secondly, I'm going to try again on the previous questions, but if I listen to your official communication, my question is very simple. For 2019, should we expect CapEx to be above or in line where we are in 2017? And then, if I may, a quick question more broadly on content. If you could help us frame a little bit the Canal+ agreement in terms of investment. The press was talking about EUR 150 million to EUR 200 million earlier this year. Can you clarify a little bit how -- what's the structure of this agreement with Canal and the revenue expectations around it?

So this is Ramon. I'll then turn to Pierre and to Fabienne. Pierre will talk about the general discussion with the public authorities in France on the very high broadband investment and Fabienne on -- maybe on Canal. And maybe I'll say just one word on content. But on CapEx for 2019, as we said during the half year communication, we will have a peak in 2018, which seems to imply that it would be slightly higher than 2017. Otherwise, the peak will be in 2017. So we will be slightly higher in 2018, and once again, this should be the peak. So we will give you more info in -- on the 7th of December. But we want to be sure you will come to London on the 7th of December so we want to keep something to give you on this date, and you will have to be patient until then. But once again, I know I am repeating myself, but I think you have a figure for 2017. We gave it a few months ago. We are sticking to this figure. We will be slightly above, slightly, in 2018. Please take a few minutes just to look what these investments are delivering. I know you are, but just in case. And we'll explain into more details how this is creating value. We'll come back to the fiber program, et cetera. So just take some time to do this, and we will give you more info in December. And look at the EBITDA perspective. Look at the operational cash flow. Look at all these figures. Just take this extra second to watch that. If you neutralize the impact of European roaming, EBITDA -- the adjusted EBITDA is growing by 4.7% on the third quarter. Just look at this one, for instance. This is real life, and this is supported by these investments. Once again, with a lot of discipline, but this is what is supporting the performance of the group. And it's -- I understand all your questions on CapEx, but let's look at the broader picture of what is supporting the performance of the group. I don't know how to say it differently. We'll say it with some extra ratios and figures in December. So -- well, let's turn to Pierre for the first question on mobile, but I think Pierre will give you a broader answer.

Yes. If I heard your question well, it was about fixed -- both fixed and mobile and the general discussion that is ongoing with the government and also with the regulator. So overall, maybe to start with, the issue of FTTH in France has become like a totem. And if you live in Germany, you will not hear about that. You will hear about cable and VDSL. In the U.K., I think you have less than 200,000 FTTH plugs. So it's a pretty special issue here, and a lot of people have opinions, expressions, desires. What I can tell you is that Fabienne's teams in France, what they do is an industrial process in which we roll out and we continuously roll out more and we reallocate in order to reach the targets that we have announced. And we will reach those targets. It will not be for the pleasure of the government because that's not our intention in life. It will be because we want to produce a network that we'll be exploiting in the next 30 years and that will give us the capacity to continuously be the #1 in this market, as in many other markets. So regarding the overall package discussion, this issue has become, again, something -- a bit of a public discussion. We have 2 things. On the fixed side, FTTH is really the architecture of every network in the future, so we continuously produce more and more plugs. A couple of years ago, you remember, we were producing about 1 million connectables per year. We have reached -- we have overpassed actually -- we'll go beyond 2 million this year and in the area of 2.5 million next year. And it is not because we invest more and more on FTTH. It's because we have an industrial process. We have teams on the ground. We have subcontractors that we have reorganized completely and who produce and continuously produce more. By the way, the government has understood one thing, which is that they need to facilitate our deployments and make the administrative authorizations quicker, and that this also increases the industrial process. And the only one actually in France doing this is Orange. SFR is lagging behind in many ways. They have stopped for several years doing anything. And they tried to start again now, but they're lagging behind. We have produced on the fixed side, and Fabienne, I'm sure, will elaborate on this, what we wanted, and we are completely in line with our targets. Going on the mobile side of the package, again, it's a deal in which we want to trade-off between the authorizations for the usage of spectrum and coverage of the country. And again, I think everybody understands now, and even the regulator does understand, to some extent, that if the main goal is to have a better, increased mobile coverage and no more what we call white zones or areas in which we won't get a good coverage, you need not to take more money away from the operators on the spectrum side and let them roll out the networks. So Orange does. We are well beyond the targets that were originally given to us by our licenses, sometimes 6 or 7 years ahead of the targets that have been assigned several years ago. And we are beyond 90% on the 4G coverage. Every percent beyond 90% is, of course, more difficult to reach than the previous ones. But this is going on also, opening new sites. And to some extent, to a limited extent, I think we are ready to mutualize equipments with our competitors in a very small part of the country. And again, on this side, Orange has been declared the best mobile network for the seventh year in a row this year, and I think we are pretty safe that it will continue in the future. So that goes to the package that is discussed with the government.

On the third question, agreement with Canal+, so our partnership with Canal+ sustain our content strategy to remain a smart distributor and to support fiber acquisition. I just want to recall, there is 2 part in this partnership. The renewal of existing Canal+ distribution, we have until by 2020. And the second part, it's an exclusivity -- a new model of Canal+ Essentiel direct distribution with an exclusivity offer, [like] EUR 15 for our customers. Hand in hand, this new partnership won't have a dilutive impact on our EBITDA, and it will help us to pursue the strategy we have to conquer more fiber customers with very -- exclusivity offers that are very attractive, and the [staff] is very well oriented.

Our next question comes from Dimitri Kallianiotis of Redburn.

Just 2 questions, please. The first one is just regarding regulation in general. I mean we saw the ULL rates in France -- the proposal from the -- from ARCEP for the rates to go down, and there is a bit more noise in the EU that the regulatory framework may be a little bit less favorable to incumbents running on fiber. So I just wanted to ask you more sort of broad questions about regulation and fiber in particular, if you are concerned that some of that regulation may become a little bit tougher for you. And my second question is just on content. So coming back to Frederic's question, the first one regarding your relationship with Canal. Is it true that you would be willing to guarantee some minimum amount of money to Canal if they were to bid for the league next year? And also, regarding next year, would you be prepared next year to basically show SFR sports to your customers once they start broadcasting the Champions League?

So regarding regulation, let's start with the European regulation. You remember that 2 years ago, a proposal was published by the commission of a digital single-market package. And this proposal has been going to discussion in front of the parliament now, and we are coming to the stage in which there is the famous trialogue in which commission, parliament and the governments, through the council, discuss the proposal. If you remember, while we had accepted and we had actually welcomed the initial package proposal, we know that, in front of the parliament, some new proposals, propositions have been made by MPs, which could make the package a bit less interesting. But it's not the end of the game. And I think we can tell with a certain level of confidence that the commission wants to see its original proposal, proposition go through. There are 3 main points. One is the harmonization of spectrum allocation. It's interesting to note that recently France and Sweden and several other countries have given their agreement to this proposal, the harmonization of the spectrum. It's very important for the commission. It's pretty important for us, too, because when you're an operator operating in 6 different European countries, you want to know more or less what's going to happen in the coming years and you want to be informed in order to prepare the allocation of your funds. So this is maybe going to happen. Then there is one other essential point, which is addressed by the Article 74 of the package proposition, which goes to the fiber regulation. And in a nutshell, it says that if you produce FTTH and if you're open to co-funding, then there is no asymmetrical regulation. It's a symmetrical regulation that is applied. And I think this will be really defended by the commission because you have, with Mr. Juncker, a commission that is much more in favor of industry than it was in the past. They even have gone as far as describing an industrial strategy, which was something unknown of in Europe previously. So I think this is something we can pretty much rely on and hope for them to defend their initial proposition. That is for the European side. And on the French side, as you know, the idea of asymmetrical regulation has been put aside by the ARCEP in its proposals, both on the retail and on the business enterprise market. And this is something that is pretty clear today. The text is not published yet, but it's under discussion in front of Europe. And I see no reason why it would change now. So again, we have avoided what would have been obviously a bad news for an incumbent, and this is not going to happen today. Again, going back to a previous answer, the government and the regulator want to foster investment. And you're not going to hamper the main investor's efforts by changing the regulation whilst he's deploying, more than anyone else and with more success than anyone else in terms of revenues, the networks that are expected by the country.

On your second question, so we don't used to disclose the deal we have with our partnership. I just can't say that Orange is willing to enter into a reasonable reselling agreement, provided marketing and price conditions are correct. On the second part of your question, I think it's a little bit early to answer. You know Orange represents 50% of the market. The broadband customer base represents 50% of the market, so I think it will be important for all players to have Orange with them to distribute [content]. What kind of content ? So we will see and we will work on this.

Our next question comes from Nicolas Didio of Berenberg.

Two questions from my side. The first is regarding the statements by head of ARCEP yesterday at the Senate regarding rebalancing the efforts in terms of rollout in co-investment areas. It looks pretty clear in his statement that he wants other than you to do more. So can you give us kind of your position on this? And second is about M&A in Africa. There was some press speculation that you could be looking at some assets that Millicom is willing to sell, broader than just these 3 countries. Do you have ambitions to expand in Africa?

So regarding Sébastien Soriano's statements yesterday, he was invited or summoned by the Senate to give his opinion and ARCEP's opinion on today's state of deployments. You have to bear in mind that this happens, as I think I mentioned previously, in a context in which everyone is really, really interested in FTTH deployments and everyone is pretty focused on those topics. And so I think this is important to stress because it is at this very time that he makes that kind of statement. So he said, if I look at things today, there is maybe a difficulty for the operators to reach the target. If you look at the text actually of what he has said and what has been published by ARCEP, you can see that most of the, let's say, doubts are -- as you mentioned actually, are relying on SFR and on the 2 other operators, because we have 4 main operators in France, as you remember, who are not short of deployments, they just have not deployed anything. So what is happening is that the regulator says, of course, Orange is doing a lot, doing most of what is done. Sometimes, the same regulator will also say Orange is doing too much, so we have to watch the statements as a continuous sequence. And then he says SFR has stopped, has really, really not done anything for a while and is starting again. But of course, they're lagging behind because they've stopped literally for several years. Bouygues has, I think, deployed less than 50,000 plugs or maybe even less in France in FTTH, so they haven't done anything in a very consistent way. That has to be underlined. And Iliad is a very strong co-funder, which is interesting for us in terms of revenues also, but not a super deployer. So this is really the core of what he says. And in front of the Senate, which represents the communities and territories in France actually, it's, of course, topical to come up with those statements and say, "I understand you guys. You must be worried. In certain areas of the country, you don't see FTTH." Yes, because some operators are really lagging behind and not up to the expectations. Again, going to Orange's position, we are completely in line with what we had announced, our 12 million goal of connectables at the end of 2018. We are in line with that. The industrial process, the teams are in place, and there is no reason to doubt. And especially, I think what the regulator doesn't see, but we can understand that, maybe he sees a fixed picture and this is -- what happens is an industrial process in which we do more and more actually because of reallocation and because of even the stronger performance in the rollout processes.

On your question on M&A in Africa and press reports that we would be looking at Millicom assets, I can say there is nothing supporting these comments. We have had in the past discussions with Millicom, which has been concluded by the acquisition of their asset in DRC. So we have bought Tigo and integrated it with our own asset in DRC. But this is done and this was last year, so there is no other discussion. So this is ill-founded. And what I can add is that when we look at the assets we did buy in 2016, the other free assets in Burkina Faso, Liberia and Sierra Leone, we are very happy with the performance of these assets. I talked about Burkina Faso, which has been growing by 28% this third quarter, but we also have good results with the other assets. And they all have been rebranded in Orange, the latest at Sierra Leone. But this is it. We are not working on any footprint extension currently.

If I could just add one question on recent press articles on the dividend. I mean the extra tax you paid on dividends recently, the government has to reimburse. Can you give us an order of magnitude of what was the extra cash tax that Orange paid and what can we expect in terms of windfall and maybe a new tax to compensate what they will reimburse? A bit of clarification on this would be appreciated.

Well, I can give you an answer on the past. But on the future, it's very difficult because, obviously, nobody knows this will be in the future budget, if the government decides to do something to adjust for -- following the decision of the constitutional court. So we don't know. What I know is that what is due to us following this decision of justice is around EUR 300 million, if you take also into account the late interests which are due with the corresponding amounts, which started to run in 2012. So the figure for Orange is around EUR 300 million.

Our next question comes from Alexandre Roncier of Exane.

I was just wondering if you could go back to a previous comment on the redistribution of medium density zone. I was wondering, if at some point the government and the regulator is proposing a new framework, under which condition would Orange be agreeing to redistribution? And would you be willing, as they mentioned also, to be imposed legal constraint on deployment targets?

So on this one, again, there is a principle which is constitutional actually in France, which is the liberty and the freedom of commerce. Every government has to go with that principle. It's a bit stronger than any government, and we have a great variety of governments in France. So this is the first step. Second thing is what is under scrutiny today between Orange and SFR is a commercial contract, private law, between 2 private operators. And so I see no possibility for a regulator, even as full of energy and enthusiasm as the one we have, to look at this contract and say, "I will -- being an architect of the networks, I will reallocate the distribution of production between the 2 players." This is not happening. And actually, as you know, there is a legal discussion between SFR and us on this contract, but it is in front of the commercial judge. And they have not gone to the regulator to say -- as they could have had in other instances, to say, "We want to change that contract." So really, this is pretty clear in terms of -- in legal terms. Again, another thing that I want to add is that we are taking now commitments. It's under the Article L. 3313 of the recent law, you will hear of that again, articles that say we take commitments and we accept that those commitments be judged actually by the law and by the ARCEP, and because we are so actually certain that we can produce what we have announced we were going to produce and the one lagging behind is not us. If you go back to this contract, it's been signed between 2 private companies willing to sign. They have decided to produce a certain amount of connectable plugs, and we have done our job and they haven't. And now you have 1 of the 2 players, the one who has been failing actually in the production of what he was supposed to do, who says, "I haven't even done what I was supposed to do, but I want to do more." And this is difficult to follow really in terms of reasoning, and I think a lot of the people on the ground know it. And even yesterday, when Sébastien Soriano made the statements he made, he made them in front of the Senate in which there are people who are really the witnesses of the shortcomings of SFR and not the witnesses of the shortcomings of Orange because we don't have those shortcomings. So again, in terms of balance of power, it's not in our de-favor. It's really pretty much in our favor.

Our next question comes from Jerry Dellis of Jefferies.

Two questions, please. Post the second quarter results, Bouygues management talked about a stabilization in the mobile market, which was allowing it to start to introduce price increases in the premium segment, and they also talked about contamination of the premium brand offers by the no-frills coming towards an end. I just wondered whether that is a reality that Orange also recognizes in the French mobile market today. And then a second question just in terms of cost reduction. You delivered EUR 56 million of cost reduction this quarter. I just wanted to confirm that, that came from sort of indirect elements and whether you could clarify for us the types of projects that lie in front of you and the potential scale of cost reduction in the domestic business on the projects that you currently have ready for implementation.

So on the French mobile market, Q3 is really exceptional for Orange. I want to recall it's an historic record in 10 years we reached. And I want to highlight 2 points. 2/3 of our net adds were [iPhone] -- realized on iPhone market -- or sorry, on iPhone offers. So it's very important for us because maybe stabilization, but we see a real good improvement of our mobile iPhone customers mix. And this is a very good point. I think I answered your question, yes.

Maybe on the --

You want to complete?

No, no, I was going to turn to the other question. But I think what we also said, which is that when you look at this outstanding commercial performance in the third quarter in France, you have seen that we have 59% of this performance which is on the premium part of the market. So we have been able both to have some price increases during the summer, including on the bank book, which was very, very new for us, this EUR 2 for an extra 4 gigs. And I think we have already said that we were happy to see there was no churn on this 1.5 million customer base. So all this is going in the right direction. And we also have said that when you take away in the third quarter the impact of roaming, both European and domestic, the mobile service revenues is only going down by 0.3%, which is a massive improvement when you compare this to the, let's say, around minus 1% we had in the 2016 quarters and the first -- the very beginning of 2017. So this price environment, despite still having some promotions, is going in the right direction. And the benefit for us is that the quality of the network is also driving many customers to the high-end contracts, which is, once again, the testimony of the relevance of the strategy, which is just continue to invest on the quality network because the customer experience would be better and people are ready to pay more in order to get the best service. And this is a track we will be following. In terms of costs, the EUR 56 million figure we have on the slide, once again, is when you take away the impact of the European roaming. We are not supposed to talk in so many details about the direct, indirect costs because of [equal] market regulations, so we have to talk about it in a different way. And we will come back to it in December. But I think you know that as we have said in 2015, and this is very much the story we have now, the direct costs are more on the growing part, especially because the content part is generating additional costs. But of course, this comes with better revenues and margins. And on the indirect part, we -- as I said, we have been benefiting from lower G&A expenses. The indirect part of our cost is going down. Network costs are going down, IT, also, costs. And so all this is going in a direction that we explained into more details in the previous quarter when we had a dedicated slide on France. And I don't know if Fabienne wants to come back to it, but we explained the positive impact on the digitalization and the number of initiatives, which are clearly impacting the cost base in France. And in France, when you look at the cost base, it is one of, in fact, the most important contributors to this decrease in the cost base. And in the first quarter, when you have a full year, we had a more general picture on the cost efficiency program of our group, Explore2020. We'd also come back to this in December. But -- so we are continuing to work on all these issues that we talked about in more details in the previous quarters. And of course, HR is also contributing to this. In France, full-time employees went down by 4% in the third quarter. At group level, it's minus 2.7% in terms of people. So once again, on every line, we are working in order to make sure that we are going to deliver the best results.

Maybe just one word, but it's not for this quarter. But as Ramon said, this will all be presented into greater details at the Investor Day. But overall, I can tell you that the savings and transformation plan called Explore2020 is already beyond its targets, and we will see at the end of the year that it's well beyond the targets. And France is a super contributor. But also, we need to stress that countries like Spain and Poland and the rest of Europe are very heavily contributing and actively transforming themselves. So this is an ongoing process which is already delivering above targets.

And now we will now take our last question from Louis Citroen of Arete Research.

Just -- I just want to come back to the comments you made on FTTH and co-investments and the fact that you are ahead and other operators had lagged on investments. Do you expect to see meaningful co-investment inflows in the future from the others, maybe due to catch-up?

Maybe I can start. It was difficult to hear actually the middle of your question, but do we expect to see increasing co-investments? Well, Iliad is regularly co-investing. I mean, almost everywhere they can co-invest, they do co-invest. So are they going to buy more and more tranches? Probably. This is very likely the case. SFR will also probably buy a bit more than in the past, and Bouygues seems to be interested even if sometimes they discuss the prices. So overall -- and you can see the reflection of this also in our wholesale revenues because part of those co-investments are reflected in the wholesale and bulk. And you can see, yes, that it is growing, and it is also a sign that the, let's say, French model and Spanish model, to some extent, is working and is delivering. And it's also the reason why we want to defend the commission's proposal in the digital single-market package. Because, yes, co-investment works. And for us, it shows again that it's part of our future wholesale strategy. If you produce the network, if you own the network, you will receive co-fundings from your competitors, and it will be good for your position overall.

Okay. So I guess there's no more questions. So I think this last point was also important because, as Pierre said, I mean, cofinancing, which is increasing and fueling wholesale revenues, is also good for us because you know that the group is working on 3 legs, which is B2C, B2B and wholesale. And as a network operator, all these wholesale revenues are also good revenues fueling the performance of the group. So this is good and also contributing to confirm that regulatory environment is quite open to welcoming anybody who wants invest, and it's only a question of will, maybe from time to time, capacity, I don't know. But the rules of the game allow everybody to invest when they want to invest, and this is what we are doing.

Maybe just to conclude -- and thanks for participating to this call. I just would like to emphasize once again that there is a very strong commitment in Orange to value creation. When you look at the EBITDA performance and the group performance of the company, I think you have here a nice indicator that this is real, delivering results. Once again, if you take away the roaming -- European roaming impact, the adjusted EBITDA at group level is growing close to 5% this third quarter. So this is a very strong signal of what I'm just saying. And we will have a chance to elaborate much more on these issues in December in London, so we look very much forward to meeting you there. And I think we have all the team -- with Stéphane Richard and all the team, we are very confident that we will be able to convince you that we are really on a very good track. So thank you.

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