February 21, 2019 / 7:58 AM / in 2 months

France's Orange strikes cautious tone as French price war lingers

PARIS (Reuters) - Orange, France’s number one telecoms operator, struck a cautious tone for 2019 due to a protracted price war in its home country and few chances of a merger between its rivals that could improve market conditions.

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

The tough competitive landscape prompted Chief Executive Stephane Richard to say he did not have enough visibility on operations to guarantee a dividend above a floor price of 70 euro cents per share in 2020, depressing shares in the company.

“We don’t say that we will not grow the dividend,” Richard said on a call with analysts. “We say that today we want to have a better visibility on what we can achieve on 2019 ... to make the final decision.”

Orange shares were down 1.6 percent at 0931 GMT.

The group said it expected core operating profit to grow at a slower pace in 2019 than 2018, despite good performances in its home country and second-biggest market Spain.

That guidance may further fuel scepticism shown by investors over the past few months about Europe’s telecoms sector, which has underperformed compared with major benchmark indexes.

“Today’s competitive environment has intensified and shows no sign of waning, so it inevitably has an impact on our capacity to generate growth,” Chief Financial Officer Ramon Fernandez said on a call with reporters, referring to France.

Orange and domestic rivals Iliad, Bouygues Telecom and Altice Europe’s SFR are in a race to win customers for their fixed and mobile businesses, while also having to spend billions of euros on upgrading their networks.

HEAVY DISCOUNTS

Iliad triggered the price war in 2012 when it offered its low-cost mobile services, with direct consequences on its competitors’ margins. But heavy discounts are now also seen in the broadband business.

The prospect of further spending to buy radio frequencies for the deployment of the fifth-generation of mobile technology is also weighing on telecoms stocks.

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

“It would be a big surprise if it happened right now,” he said. Bouygues’s CEO echoed that sentiment on Thursday in a news conference following publication of group results. “We’re not having any talks with anyone,” Martin Bouygues told reporters, referring to his telecom business.

However Orange posted a higher-than-expected quarterly operating profit, mainly driven by increased revenues in France and Spain and cost cuts.

Adjusted core earnings (EBITDA) rose by 1.4 percent on a comparable basis to 3.33 billion euros ($3.8 billion), above market expectations for growth of 0.6 percent.

Richard said he would present a new strategic plan dubbed Vision 2025 later this year.

Reporting by Mathieu Rosemain and Gwenaelle Barzic; Additional reporting by Gilles Guillaume; Editing by Sudip Kar-Gupta and David Holmes

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