France Telecom (FTE), the largest telecommunications carrierin Paris, has set a five-year (2011–2015) strategy to bring the company back to profitability. The five-year plan is divided into two phases: the first stretching three years from 2011 to 2013 and the second from 2014 to 2015.
In the first or adoption phase, France Telecom will focus on revenue growth at a three-year CAGR of 0.6%. EBITDA is expected to exceed the 2011 level and stabilize in 2013, through cost savings and improved French business. France Telecom expects cumulative EBITDA of €45 billion in the three-year period.
The company faces tough competition from Bouygues, Telecom Italia spA (TI) and Vodafone Group Plc. (VOD) in its domestic market, which accounts for more than half of its revenue and profit. Competition will intensify further next year, when the fourth mobile operator, Iliad SA's makes its entry into the market.
In order to survive in the challenging market, France Telecom will expand its offerings at the low end of the mobile market and review possible divestitures of assets in which the company has minority stakes. In addition, the expected ramp of the procurement joint venture with Deutsche Telekom would provide France Telecom a cost benefit of €3 billion through 2015. Moreover, France Telecom plans to invest €18.5 billion from 2011–2013 in improving and expanding its networks. This includes €1 billion for the expansion of its fiber optic network in France.
During the second or conquest phase of the plan, the company expects France and Enterprise segments to return to growth with solid improvements in Europe as well as the Africa and the Middle East region. Revenue and EBITDA are expected to grow at CAGRs (2013-2015) of 2.7% and 3.4%, respectively. The company expects capital expenditure of approximately €9.8 billion.
Apart from these targets, the company is mulling to sell its European (Austria, Belgium, Portugal and Switzerland) assets worth more than €1 billion owing to unfavorable regulatory measures, which have adversely affected the company’s revenues. France Telecom might return some of the proceeds to its shareholders in the form of dividends. The company is committed to pay an annual dividend of €1.40 per share in 2011 and 2012.
Finally, France Telecom is also trying to strike deals with companies such as Google Inc. (GOOG) and Apple Inc. (AAPL) to lower the costs of deploying upgraded networks in France.
We are currently maintaining our long-term Neutral rating on the stock with the Zacks # 3 (Hold) Rank.
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