Orange Earnings Decline as Phone Revenue Slumps

Orange SA, France’s largest telecommunications company, reported a 7.7 percent decline in third-quarter profit excluding some items as cost cuts weren’t enough to offset falling sales.

Earnings before interest, taxes, depreciation and amortization were 3.37 billion euros ($4.6 billion), the Paris-based company, formerly known as France Telecom, said today. Analysts estimated Ebitda of 3.34 billion euros, according to data compiled by Bloomberg. Sales fell 5.5 percent to 10.2 billion euros, matching the average estimate.

The former French phone monopoly’s stock has rebounded 50 percent since reaching a decade low in early July, partly reflecting Chief Executive Officer Stephane Richard’s efforts to reduce staff expenses. Orange is attempting to thwart discounter Iliad SA with premium packages including an ultra-high-speed mobile Internet connection to win back customers as Europe’s economy shows signs of a revival.

“We’re in the midst of drafting budgets for 2014 and our intention is to try and stabilize Ebitda as fast possible during that year,” Chief Financial Officer Gervais Pellissier said on a conference call. “The question remaining is at what point during the year will we be able to do that?”

Orange fell 1.3 percent to 10.52 euros at 9:06 a.m. in Paris, valuing the company at 27.8 billion euros.

Revenue Pressure

Orange’s average revenue per user, or ARPU, has shrunk by 12 percent in France this year amid stiffer competition. ARPU will fall 10 percent or less in 2014, as faster wireless packages will help boost prices, Pellissier said.

Orange reduced the number of full-time workers 2.1 percent during the first nine months of the year, helping it cut direct costs by 4.2 percent in the third quarter. In France, which accounts for about half of revenue, sales fell 5.6 percent.

In the U.S., carriers are already reaping the rewards from offering faster mobile-phone subscriptions. Verizon Communications Inc., which has agreed to fully take over its wireless venture with Vodafone Group Plc, last week reported quarterly profit that beat analysts’ estimates after customers paid more for mobile-phone subscriptions.

European carriers’ valuation gap with U.S. peers has narrowed in recent months, helped by mergers and acquisitions and interest from international investors such as Carlos Slim, the world’s second-richest man who owns stakes in Royal KPN NV and Telekom Austria AG.

KPN, the largest Dutch carrier, yesterday reported an increase in revenue from its consumer residential unit that offers broadband Internet and television packages.

Dominican Sale

Orange confirmed it will pay a dividend of at least 80 cents a share for this year. Faced with pressure from rating companies, the company in the past year has hoarded cash and emphasized efforts to reduce debt, including selling assets and focusing acquisition prospects on fewer geographies.

The carrier has received multiple indicative offers for its phone unit in the Dominican Republic and expects to reach a firm accord with a buyer by year-end, Pellissier said. Digicel Group Ltd. is among the bidders, people with knowledge of the matter said last month.

The French company is continuing to weigh options for EE, its U.K. joint venture with Deutsche Telekom AG, with an initial public offering of a minority share of the unit in the first half of next year still the main scenario being studied.

“It’s the ambition of both shareholders,” Pellissier said today. “The IPO is still the scenario we’re studying. We think if there is consolidation in Europe, backing the U.K.’s biggest operator makes sense.”

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