France Telecom Feels The Heat From Free, Keeps 2012 Outlook

By Geraldine Amiel and Sam Schechner

Of DOW JONES NEWSWIRES

PARIS -(Dow Jones)- France Telecom SA (FTE.FR) Thursday confirmed its financial guidance for 2012, despite intensifying competition on the French mobile-phone market following the launch of low-cost services by rival Iliad SA (ILD.FR), as it reported a 8.1% drop in first-quarter earnings.

The owner of the Orange brand reiterated it expects operating cash flow of close to EUR8 billion in 2012, compared with the EUR9.3 billion reported a year ago.

In the first quarter, the company posted a drop in earnings before interest, tax, depreciation and amortization to EUR3.43 billion, from EUR3.73 billion a year earlier, roughly matching the average expectations of analysts polled by Dow Jones Newswires. Revenue fell 2.8% to EUR10.92 billion from EUR11.23 billion, against market expectations of EUR10.8 billion.

The performance was dented by the launch in January of Iliad's mobile service Free, which offers a monthly plan for EUR2 per month, 80% less than a France Telecom bargain plan. Free has attracted several million customers, forcing the three other French operators, Bouygues SA's (EN.FR) Bouygues Telecom, Vivendi's (VIV.FR) SFR and Orange to cut their prices.

Still, Chairman and Chief Executive of France Telecom Stephane Richard said the roaming agreement signed with the new operator helped offset the decline in consumer revenues for the quarter.

Shares in France Telecom have fallen nearly 20% over the past six months, as investors worry about Free and European price regulation on revenues and as the weak economic environment in Europe restrains customer spending. They closed Wednesday at EUR10.24.