Thursday, October 28, 2004

More Q3 data points from France

It's that time of year again, when we dial in to the France Telecom conference call and listen to Stan Getz on hold once again while hurrying to finish lunch. Ah, the glamor...

Today's Q3 results contained more information of interest to those tracking the issues we look at in this blog:

Call volumes in the consumer segment have deteriorated over the first three quarters, and registered a 10.3% YoY decline in Q3. What makes this so interesting is that FT lost fewer fixed channels (54k) this quarter than in the previous one (and 80k fewer than in Q3 2003), local market share stabilized, and long distance market share increased this quarter, yet volume declines accelerated in almost every category. We think the Orange data shows that this is being driven primarily by mobile substitution, but we also suspected (and management explicitly confirmed today) that some degree of VoIP impact is coming into view at the margin.

FT has so far sold 426k unlimited calling packages, which it claims increases ARPU for those users by EUR2 – 3 per month pre-VAT. While this is a positive defense strategy, we calculate that the decline in revenue per fixed channel accelerated to 5%YoY in the quarter, and penetration of such packages must ramp up significantly to gain gearing against the underlying traffic decline, in our view. Management today revealed that FT had 30,000 VoIP subs in France, and had sold or rented 40,000 Liveboxes in the market. (Across its four core European markets over 100,000 Liveboxes have been sold to date since the product launched in mid-July). This is FT taking a leaf from enfant terrible Free, which today reported another 140k subscribers gained in Q3, taking it to 908k, or nearly 20% of the entire French DSL market.

Wanadoo succeeded in getting its share of DSL net additions back above the 40% mark this quarter, and at 47% overall market share, is within management’s target range of 45 – 50%. However, as we recently saw, unbundled lines grew by 43.6% sequentially in Q3, and fully unbundled lines by 290%, which has to call the sustainability of the pricing and market share situation into question longer term. Stripping out the unbundled lines from France Telecom's stats for the whole market seems to show wholesale lines flat-to-down slightly, as market growth is largely absorbed by the unbundlers. Management stated today that they believe that unbundled lines will grow by nearly 50% in Q4, to 1.5m lines (we have been looking for 1.35m previously), and account for 25% of the total market by year end. That means that unbundled DSL lines will have gone from basically 0% market share to a quarter of the market in five quarters. Is France really "Old Europe"?

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