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Summit News

France Tel chases emerging-market buys

PARIS (Reuters) - France Telecom FTE.PA is hunting for growth in emerging markets, with deals soon to be announced in Africa and the Middle East, as concerns mount that Europe's financial crisis could hurt consumers and slow the recovery.

Chief Financial Officer Gervais Pellissier said he favored medium-sized acquisitions in emerging markets to reduce risks to the group.

“I can’t tell you the names of the countries we are working on,” he told Reuters Insider TV at the Reuters Global Technology Summit in Paris on Thursday. “There will be a few more acquisitions on the African, Middle East footprint in the next couple of months.”

Pellissier added that if Indian telecom operator Bharti wanted to sell some of the Africa assets it recently bought from Middle-Eastern operator Zain ZAIN.KW, then France Telecom would look at them.

“We might be interested,” he said, adding that no talks had begun and that he didn’t know what Bharti’s timetable might be.

Asked which assets he would be interested in, he said: “Clearly the markets where we are not present or consolidating in markets where we are.”

Like many of its rivals, including Vivendi VIV.PA in Brazil and Vodafone VOD.L in India, France Telecom sees emerging markets as an important engine for growth as its home markets in Europe struggle with flat revenue and intense price competition.

Even as some in the technology sector such as chip and gadget makers benefit from the nascent economic recovery, Europe’s telecom operators have not yet felt the rebound.

France Telecom, Deutsche Telekom DTEGn.DE and Telefonica TEF.MC did not see revenue come back in the first quarter and are not predicting much growth this year.

Pellissier said the ongoing euro-zone crisis and questions over European states’ indebtedness now risked further delaying the economic recovery for telecom operators, even as he said he saw little immediate effect on France Telecom.

“We have very little exposure in Greece. As for our debt situation, the way we finance the company, I don’t see any risk in the short term. We have been able to raise money in very good conditions since the start of the year.”

Asked if he was worried about the European consumer, he said: “In the medium-term, yes, if I take all the markets we are in, if you increase taxes, increase the cost of retirement, this is money that consumers will not spend elsewhere, so I do not see how we can have no impact at all.”

SWISS STORY

On the M&A front in Europe, Pellissier said France Telecom was still looking for a solution to salvage its proposal to merge its Swiss operations with rival Sunrise to take on the historically dominant Swisscom SCMN.VX.

Swiss competition regulators recently blocked the proposal, arguing that it would be bad for consumers.

"I don't think we are at the end of the story in Switzerland. I think we might succeed," said Pellissier. "We can re-work the deal with (Sunrise owner) TDC TDC.CO or maybe with another partner, maybe a more Swiss partner."

Pellissier said the situation in Switzerland as well as the push into emerging markets showed how the telecom business was intimately linked to politics and local governments and underscored the need to have “a more local presence.”

As a result, France Telecom has often made partnerships or started with contract work for local companies to gain a toehold in emerging markets that can pay off later.

“In Ethiopia we are doing a managed services contract to modernize the local fixed telephone system. It gives us about $28 million in revenues a year, and they get to know us,” he said. “We are trying to build relationships at an earlier stage so they know us when the day comes for privatizations.”

Editing by James Regan

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