February 21, 2019
By Mathieu Rosemain and Gwénaëlle Barzic
PARIS (Reuters) – Orange, France’s number one telecoms operator, struck a cautious tone for 2019 due to a protracted price war in its home country and few chances that a merger between its rivals might improve market conditions.
Orange expected core operating profit to grow at a slower pace in 2019 than 2018, despite a good performance in its home country and in its second-biggest market, which is Spain.
That guidance may further fuel scepticism shown by investors over the past few months about Europe’s telecoms sector, which has underperformed compared to major benchmark indices.
“Today’s competitive environment has intensified and shows no sign of waning, so it inevitably has an impact on our capacity to generate growth,” Chief Financial Officer Ramon Fernandez said in a call with reporters, referring to France.
Orange and its French rivals Iliad, Bouygues Telecom and Altice Europe’s SFR are engaged in a commercial race to win customers for their fixed and mobile businesses, while also having to spend at the same time billions of euros on upgrading their networks.
Iliad was first to trigger the price war in 2012 when it offered its low-cost mobile services, with direct consequences on its competitors’ margins. But heavy discounts are now also seen in the broadband business.
The prospect of further spending needed to buy radio frequencies for the deployment of the fifth-generation of mobile technology, or 5G, is also weighing on investors’ sentiment towards telecoms stocks.
Several attempts to cut the number of French telecom operators from four to three, with expected positive impact on prices, have failed, and Fernandez is not expecting such a deal to happen any time soon.
“It would be a big surprise if it happened right now,” he said.
In that context, Orange managed anyhow to post a better-than-expected quarterly operating profit, mainly driven by higher revenues in France and Spain and cost cuts.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) rose by 1.4 percent on a comparable basis to 3.33 billion euros ($3.77 billion) for the period, above market expectations for growth of 0.6 percent.
Orange’s boss, Stephane Richard, said he will present a new strategic plan this year, dubbed “Vision 2025”.
(Reporting by Mathieu Rosemain and Gwenaelle Barzic; Editing by GV De Clercq/Sudip Kar-Gupta)