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Telecom group Orange strikes cautious tone French price war lingers

PARIS (Reuters) – Orange, France’s number one telecom operator, struck a cautious tone for 2019 due to a long-term price of the war in her country of origin, and little chance that a merger between the rivals would improve the market conditions.

FILE PHOTO the logo of French telecom operator Orange is seen on the façade of the Vélodrome stadium in Marseille, France, September 30, 2016. REUTERS/Jean-Paul Pelissier/File Photo

Orange expects core operating profit to grow at a slower pace in 2019 than 2018, despite a good performance in their own country, and in the second largest market of Spain.

That guidance can be more fuel skepticism shown by investors in recent months about Europe’s telecom sector, which underperformed compared to the important benchmark indices.

“Today’s competitive environment has intensified and shows no signs of waning, so it will inevitably have an impact on our ability to generate growth,” Chief Financial Officer Ramon Fernandez said in an interview with reporters, referring to France.

Orange and the French rivals Iliad, Bouygues Telecom and Altice Europe ‘s SFR are active in a commercial race to win customers for their fixed and mobile businesses, while also getting to spend at the same time billions of euros on upgrading their networks.

HIGH DISCOUNTS

Ilias was the first to lead to the price war, in 2012 with the offer of low cost mobile services, with direct consequences on the competitors ‘ margins. But the high discounts are now also seen in the broadband business.

The prospect of further expenditure necessary to buy radio frequencies for the implementation of the fifth generation of mobile technology, or 5G, is also weighing on the investors sentiment in the direction of telecom shares.

Several attempts to the number of French telecom operators from four to three, with an expected positive effect on the prices have failed, and Fernandez not expected such a deal to happen any time soon.

“It would be a big surprise if it happened now,” he said.

In that context, Orange managed anyway to post a better-than-expected quarterly operating profit, mainly driven by higher revenue in France and Spain and share the cost.

Adjusted earnings before interest, tax, depreciation and amortisation (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 be a new strategic plan this year, called “Vision 2025”.

Reporting by Mathieu Rosemain and Gwenaelle Barzic; Editing by GV De Clercq/Sudip Kar-Gupta

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