Network spending weighs on Orange as sales and revenues dip

Orange saw a dip in sales and earnings during the first quarter while network spending by the French mobile operator outstripped cost-cutting measures.

The Paris-based group, the country's largest mobile operator by subscribers, said revenues during the first three months of the year were €9.67bn - 0.9 per cent lower on a comparable basis than a year earlier - although broadly in line with consensus forecasts.

It said restated earnings before interest, taxes, depreciation and amortisation (ebitda) were €2.92bn during the quarter, 1.9 per cent lower than the same period a year earlier. Analysts had expected restated ebitda of €2.94bn. Orange said it expected to meet its full-year targets of ebitda of between €11.9bn and €12.1bn.

The figures come as the group is stepping up spending on networks as part of a five-year strategy to compete on quality of service. The group, formerly known as France Telecom, said last month it planned to spend €15bn in the next three years to improve fibre and mobile networks to head off competition.

Orange said the investment would push overall capital expenditure to more than 16 per cent of revenues in 2016 and 2017, suggesting there was more work to be done in the battle for customers.

On Tuesday, as it published quarterly results, Orange said capex had risen 3 per cent during the quarter on a comparable basis with a year before, to €1.19bn - or 12.3 per cent of revenues.

The decision to increase spending mirrors moves elsewhere in Europe, where incumbent telecoms groups are seeking to exploit their control of a national network by shifting to next-generation technologies. They hope this will give them an edge over competitors.

Shares were trading at €15.35 early on Tuesday, 1.7 per cent down on the previous day's close. Orange shares have risen more than 40 per cent during the past 12 months as investors sense that the worst of a bitter price war in France may be over.

Orange said revenues from France, which accounts for close to half of group sales, were €4.72bn during the first three months of 2015, 1.8 per cent lower on a comparable basis than a year earlier.

That was the same fall as during the last quarter of 2014 and considerably better than the 4.1 per cent drop reported during the third quarter of last year.

Overall, the group said it had 188.2m mobile subscribers to the end of March, 11m more than a year before. In France, the group had 22.4m mobile subscribers, a 6.6 per cent increase over the same period a year earlier.

It said it had added 164,000 mobile contracts in France during the quarter, roughly double the number it added during the same quarter a year earlier.

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