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France Télécom Revenue Hit by Recession, Regulation

France Télécom's revenue for the first half fell 0.5 percent year on year, even though customer numbers grew by 6.6 percent, it reported Thursday.

Consolidated net income for the half-year fell to €2.8 billion (US$3.9 billion as of June 30, the last day of the period reported), down from €3 billion a year earlier, on revenue of €25.5 billion, down from €26.3 billion a year earlier.

One factor driving down revenue is regulation, especially of mobile phone services, from which France Télécom derived over 40 percent of its revenue in the first half. Over the last year the European Union has forced mobile phone operators to cut the roaming charges for calls made while travelling abroad. Regulators in France, Poland and Spain are cutting the amount operators can charge for delivering calls to mobile phones on their networks, in some cases by up to 30 percent. Without the effect of regulation, first-half revenue would have grown by 1 percent, the company said, predicting that the effect of regulation on revenue will double in the second half.

France Télécom is doing better than other sectors of the economy, as the company's revenue has not fallen as quickly as the GDP of the countries in which it operates, Chairman and CEO Didier Lombard said during a conference call with journalists. GDP, or gross domestic product, is a measure of a country's economic performance. Average GDP for the first half across France, the U.K., Spain, Poland and the other countries where France Télécom operates fell 2.9 percent compared to last year, the company said, and for the second half of this year is expected to fall 2.6 percent.

With the continuing decline in GDP, the company expects its revenue to drop slightly in the second half, even before the effects of more stringent regulation.

Regulation wasn't the only thing keeping roaming revenue down, said Lombard: people are travelling less, for business and pleasure, and consumers are keeping a closer eye on mobile phone expenditure outside their included minutes.

One bright spot for the company is Apple's iPhone. Demand for the iPhone is so high that Apple can't keep up, and if only Apple would deliver more phones, "I could sell 20 percent to 30 percent more than I'm selling now," said CFO Gervais Pellissier during the conference call.

France Télécom, through its mobile phone network Orange, initially had exclusive rights to sell the iPhone in France, but its rivals SFR and Bouygues Telecom sued for and won the right to sell iPhones too.

Now, said Pellissier, "We are selling a few less than when we were the only one to sell them, but we are selling more than our traditional market share." Orange has so far sold 1.1 million iPhones, he said.

France Télécom now has 186 million customers, it said. Among them are 126 million mobile phone customers, up from 114 million a year ago, 47 million of whom have a monthly contract (up from 43 million) and 22 million of whom use 3G broadband phones (up from 13 million). Growth in fixed-line broadband services has been slower, increasing to 13 million from 12 million a year earlier.

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