France Telecom SA risks a cut to its debt rating if it doesn’t do more to trim costs and save cash in the coming year, according to a Moody’s Investors Service report today.
Pressure from competition, the sluggish economy and regulators will intensify and weigh on the former French monopoly’s ability to preserve its financial performance, wrote Carlos Winzer, senior vice president and telecommunications analyst. Moody’s rates Paris-based France Telecom’s debt A3, the fourth-lowest investment grade.
“We do not expect competitive pressures to ease,” Winzer wrote. “On the contrary, we think continued macroeconomic weakness and the resultant contraction of consumer spending will result in even more intense competition in 2013.”
Wireless-service prices in France are falling faster since newcomer Iliad SA began offering mobile subscriptions from 2 euros ($2.62) per month in January 2012. The French Telecoms Federation has said it expects the decline to continue and have an impact on carriers’ sales and profit. Prices dropped by 8 percent on average over the past 5 1/2 years, with the steepest decline during 2012, the Federation said.
Half of France Telecom’s revenue last year came from its home market. France made up 56 percent of the group’s earnings before interest, taxes, depreciation and amortization. Despite efforts to diversify into faster-growing regions like Africa, global sales fell 3.9 percent last year to 43.5 billion euros and group Ebitda, excluding non-recurring events, fell 8.6 percent to 13.8 billion euros.