France Télécom 2012 Challenges Will Not be Unusual

France Télécom (operating as "Orange") experienced a drop in its net profit for 2011 and said competitive and financial pressures are likely to intensify. That is not likely to be confined to France Télécom alone, as European Union telecom service providers face continued pressure on revenue due to mandated European Community cuts on roaming fees. 


In its historic home market, Orange faces a fourth new mobile operator, Free, competing using aggressively discounted prices. As of Feb. 15, 2012, France Télécom had lost 201,000 subscribers, or about 0.7 percent of its total customer base in France.


The sovereign debt crisis in Europe also is part of company thinking, as France Télécom now believes it should be hanging on to more of its internally-generated cash, given the higher levels of uncertainty. 


To be sure, there are broader signs of trouble in many markets, and the additional pressure is not new. 

But company officials also said financial pressure would be coming in other ways, noting more regulatory restrictions and higher taxes as well. 


The owner of Orange brand also said it targets an operational cash flow of close to €8 billion ($10.59 billion) in 2012. France Télécom challenges 

France Télécom also cut its dividend and backed off from a promise to buy back shares, as part of the plan to strengthen cash reserves.a

The 2012 payout will be in a range of 1.21 euros to 1.35 euros a share, Chief Financial Officer Gervais Pellissier said, scrapping a previous projection for 1.40 euros. Operating cash flow will be about 8 billion euros ($10.6 billion) this year, declining from 9.3 billion euros in 2011.

Following Telefonica SA and Telekom Austria AG, France Télécom  is the latest phone company to back away from dividend forecasts. 

Deutsche Telekom and Telefonica are likely to announce dividend cuts of their own. 

So far, that dividend cut trend has not spread to U.S. tier-one providers. But Frontier Communications recently lowered its dividend.