France Telecom says worst may be over

European telecoms groups will gather this week at an annual conference in Barcelona to nurse their wounds following one of the toughest years on record for the industry.

Speaking ahead of the Mobile World Congress, Stéphane Richard, chief executive of France Telecom, believes the worst could be over, even if the combination of economic woes, intense competition and mounting investment costs are unlikely to mean any immediate recovery.

“The destruction of value has been absolutely incredible for shareholders and the companies,” he says. “Most European telcos are in the same situation. A certain level of debt, a share price slaughtered by the markets, and a constant and increasing pressure on revenues and margins driven by regulation and competition.”

The past few years have been gruelling for an industry where dividend cuts and emergency fundraising have become common, underpinning a fall from grace among investors. An index comprising the incumbent telecom stocks is close to its lowest level since 1996.

But, Mr Richard says, there was a “climax of regulatory forces” in 2012 that appears to be over, with a better understanding with Brussels about the need to finance future investments. Savage cost cutting – a fifth of French staff will be trimmed by 2020 – and next generation networks will create the basis for recovery, he says. He adds that there have been discussions about network sharing in France between SFR, Bouyges and Free as part of efforts to reduce costs.

He says there were talks with Brussels about creating a more level playing field both internationally and with technology groups that use the networks owned by the telecoms groups.

Mr Richard led industry discussions with Joaquín Almunia, the EU’s competition commissioner, about the creation of “a single telecoms market, single space in Europe with one regulator and one competition authority” – which he says would mean that operators would be measured on pan-European scale.

He points out that the cash position of a single international rival such as América Móvil was more than the combined cash of all European telecom incumbent operators, underlining their weakness on the global stage.

“Either we are a real continent compared to the US or China or we are not,” he says, although admits there is no consensus among the European states for the proposal.

France Telecom has also spoken to Brussels about the regulation of technology groups, including on matters such as taxation, the control over personal data and potential competition issues given app stores controlled by Google and Apple. However, he says the company was also working closely with groups such as Google on “certain projects” that could mean mutual business benefit. “There is no overall rule that Google pays for our pipes. We have on some specific projects the possibility to have some financial contribution from Google.”

He says that the group will not sell EE, the UK operator, which is being stalked by private equity groups. “There are a number of people in the world looking at EE as an interesting asset. If we decided to sell EE – which is not the case – we would probably find strategic buyers,” he says, naming investors that he always meets in Barcelona such as AT&T and Sunil Mittal.

An IPO could still happen, however. “If we can help the development of EE and optimise the leverage of the asset then we can look at financial options like the IPO. There are no obstacles but this has not been decided yet. The intention is to keep the controlling stake.”