Wednesday, June 29, 2005

What's NExT?

France Telecom's investor day webcast is ongoing (slides are here), but here are a few observations (I have to be quick because BT and DT are also having briefings starting in under two hours):

Previous 2005 financial guidance was reiterated today, and longer term guidance is consistent with (though slightly more optimistic than) what I am forecasting, with one exception: the net debt/EBITDA multiple envisaged by FT implies a 2008 net debt figure not markedly different from what we expect at the end of 2005 (the range is wide, I suspect, but both we and the market expect something dramatically lower by 2008). We suspect that this target assumes some acquisitions, as well as higher dividend payouts.

Much of the strategic vision outlined today is familiar from previous FT presentations, namely the focus on integration of services, operations, and brand. There was expansion on this theme today:

  • Development of a single service portal with unified customer service by end 2006 (previously discussed)
  • Orange to become the unified international brand for mobile, broadband and multiservice offerings (new information)
  • New converged services launched in 2005: combined mobile and broadband access packages (H1 2006); enhanced VoIP services (Q4 2005); video telephony and IM client (launching now in France); flat rate call package for calls between customer’s home phone and mobile devices (launching now in France). (All of this was new, but fully expected)
  • New life service offerings: home monitoring, home care, telemedicine-related (this is also new, but largely expected)
  • Continued expansion into adjacent markets, including through MVNOs (this latter fact is new and interesting).

Certainly in terms of rhetoric, FT seems to genuinely grasp the current dynamic of the market. I particularly liked the fact that today's presentation clearly identifies both global internet players and device/hardware makers as threats. We take this for granted, and I strongly suspect that most telcos do internally, but it is refreshing to hear an incumbent telco speaking so frankly in a public forum. I'm also interested in the fact that FT is pointing towards a longer term increase in R&D spending, which is also against the grain, but probably the right move. (In fact, the proportion of R&D spend dedicated to "exploratory" projects will rise from 1% currently to 15%.) Certainly the internally developed videotelephony/IM softphone demonstrated a few minutes ago looked pretty good.

I think we can count on FT to be a prime force in the disruption of core European markets well into the future. I'm certainly interested to see what the MVNO angle is all about, and there was a fairly strong suggestion today that full unbundling in the UK is more appealing following last week's price cuts. I would also expect that these disruption efforts will include acquisitions as well. CFO Michel Combe said point blank that FT is not interested in Cable & Wireless, though I also note that the previous EUR500m acquisition cap has been lifted in the new strategic plan.

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