France Telecom Profit Falls Following Tough Competition

France Telecom, the country's largest phone company, said sales fell and profits dipped as new players in the markets for discount wireless muscled-in on its market share.

FT reported a 2.7 percent decline in revenue for the three months ending in March and an 8.1 percent decline in first- quarter profit after losing 615,000 net clients in its home market, many of them to upstart rival Illiad SA.

Pre-tax earnings fell to €3.43bn from €3.73bn a year earlier. However, while revenue slipped to €10.9bn, this beat a 12 Bloomberg analyst-strong average estimate of €10.8bn.

Operating under the Free brand, Iliad, became France's fourth mobile-phone operator in January this year and has subsequently prompted a tougher competitive environment for France Telecom and Vivendi's SFR, as the two incumbent telecom operators lost customers and has had to implement price cuts. France Telecom's market share declined 1.5 percent during the first quarter this year.

"In a particularly turbulent French market due to the arrival of the fourth mobile operator, the response from Orange was rapid, pragmatic and effective," Stéphane Richard, Chairman and CEO at France Telecom-Orange. "The roaming agreement signed with the new operator helped offset the decline in consumer revenues for the quarter."

France Telecom said the national roaming contract signed with Iliad's Free mobile partially offset the decline in revenues in the consumer mobile market in the first quarter of 2012 as contract revenues were estimated to be worth €1bn over 6 years.

"The implementation of the contract since Free launched its mobile offers in January 2012 leads the Group to expect substantially higher revenues which should exceed a €1bn in 3 years," said a group statement.

However, France Telecom reiterated the significant growth in emerging markets, with a 6.8 percent increase in Africa and the Middle East, with recovery in Côte d'Ivoire and Egypt and 4.5 percent growth in Spain, led by mobile and fixed broadband services, which has helped the group to confirm its 2012 target.

"I would like to highlight the good performance of our international activities, particularly in Spain, and in emerging markets," said Richard. "At the same time, Orange is pursuing its strategy of differentiating itself through the quality of its network by accelerating the deployment of 4G, which will be launched in Marseille in June 2012, as well as fibre. These successes, alongside the rigorous management policy that we set out in 2011, enable us today to confirm our operating cash flow target for 2012 despite the continued pressure on our revenues and margins."

France Telecom stocks declined by nearly 2 percent, falling to €13.40 as of 0810 GMT and is still 16 percent less than it was at the beginning of the year.