France Telecom Aims to Lighten Itself

The European debt crisis seems to be having multiple and ripple effects on industry majors.

Take the case of France Telecom (NYSE: FTE  ) . The company, which holds fourth place in Europe's telecom industry by way of revenues, is selling off its Orange Switzerland subsidiary for a deal reported to be around $2.1 billion. The buyer is London buyout firm Apax Partners.

This should be a good move for France Telecom for two reasons. One, European operations have tended to be slow in recent times and so the company needs to shed some undesired weight. In fact, France Telecom is planning to make an exit from its Belgian and Austrian operations as well.

From a macro standpoint, Europe is not a very lucrative market to operate in right now, given that mobile penetration there has reached a saturation point, regulations are tight, and new customers are hard to find in cash-strapped countries. Moreover, the company now wants to consolidate itself in growing markets such as Africa and the Middle East, which together posted strong 6.1% third-quarter revenue growth, as compared to a 2.8% fall in revenue in France, its core market.

The other goal of the sale is to boost investor confidence, which France Telecom is trying to ensure by promising to return almost half the amount raised to shareholders through a process of stock buybacks. With shares down around 24% over the past year, this move should go down well with nervous investors.

Apart from the attempt to protect dividends, France Telecom also badly needs the other half of the cash, as it faces upcoming technology upgrade costs, coupled with spectrum requirements. In fact, the company is bidding to grab a portion of 4G mobile services spectrum in a French government auction.

France Telecom is not the only telecom company in a tight spot. Others such as Telefonica SA are faring no better, as the latter cut down on its dividends for the first time in 10 years. Compare this to Vodafone and Frontier Communications, which continue to pay big yields to investors.

France Telecom is doing all it can to find a way out of the European morass while keeping its investors happy. To stay updated on the latest developments about France Telecom, just add it to your watchlist. It's free.

Fool contributor Subhadeep Ghose does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of Telefonica. Motley Fool newsletter services have recommended buying shares of France Telecom and Vodafone Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1755502, ~/Articles/ArticleHandler.aspx, 10/21/2014 4:41:33 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement