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France Telecom has pledged to increase investments in its fixed-line phone and mobile networks as the telecoms group prepares for tougher competition in its home market.
Stephane Richard, France Telecom’s chief executive, on Tuesday insisted the investments would give the group a competitive advantage over rivals, as he tried to soothe investor concerns by holding out the prospect of asset sales.
France Telecom’s shares closed up fractionally at €15.90 after Mr Richard unveiled a five-year strategic plan. But some analysts said the group’s financial targets might be difficult to achieve, adding it could face earnings downgrades.
France Telecom is France’s leading fixed-line phone and mobile operator by customer number, but its domestic business has come under sustained pressure from competitors that have taken advantage of regulatory changes.
The number of mobile network operators in France will increase from three to four next year with the expected launch of services by Iliad, the French telecoms company that has provided France Telecom with low-price competition in the fixed-line phone and broadband market.
Stronger competition is also likely from Vivendi, the French media and telecoms group that in April announced a deal to secure full ownership of SFR, France’s second-largest mobile operator.
France Telecom is seeking to differentiate itself from its domestic rivals partly by having sophisticated networks that can cope with rising consumer demand for bandwidth-hungry smartphones and tablet computers.
The group’s capital spending is due to amount to €18.5bn ($26.6bn) between 2011 and 2013, with investments peaking next year, when France Telecom accelerates the construction of high speed fixed-line broadband networks based on fibre optic cables.
France Telecom expects to generate €45bn of earnings before interest, tax, depreciation and amortisation between 2011 and 2013.
Dimitri Kallianiotis, analyst at Citigroup, said France Telecom’s guidance implied it would generate €15bn of ebitda in 2011, which was below his estimate of €15.2bn.
He added the lower than expected earnings were mainly explained by the need for France Telecom to spend more on subsidising mobile phones ahead of the launch of services by Iliad.
France Telecom confirmed plans for a dividend of €1.40 per share in 2011 and 2012.
Mr Richard also said France Telecom could sell assets and return some of the proceeds to shareholders. Although he declined to identify which assets could be disposed of, France Telecom is considering the case for selling its Swiss mobile business, as well as minority stakes in Austrian and Portuguese telecoms companies.