France Telecom hunkers down in mobile price war

France Telecom is making its dividend payout policy more conservative and putting off a promised share buyback, adopting a more prudent stance in the face of brutal competition in its home market from a new mobile player.

Chief Financial Officer Gervais Pellissier said on Wednesday that the company was under intense pressure in France with a mobile price war underway, and that it saw Europe's economic outlook as darker today than a year ago.

"In this context, the solidity of our balance sheet now seems to us a priority," he said on a call with reporters after annual results on Wednesday.

As a result, Pellissier said France Telecom will not buy back shares in 2012 as it had promised investors it would do after selling its Swiss unit to a private equity fund for $1.5 billion in December.

It will also revise the way it will pay out dividends to set them as a function of cash flow generation, a more conservative approach it said was needed given what it called "the uncertain macro-economic and competitive environment."

"The total amount allocated to dividends for fiscal years 2012 and 2013 should be within the range of 40 per cent to 45 per cent of operating cash flow in order to preserve, in all conditions, the group's financial strength and maintain a net debt/Ebitda of about 2 in the medium-term," it wrote in a statement.

France Telecom saw its revenues and operating profits deteriorate in 2011 hit by regulatory measures, new taxes, and political unrest that affected its Egypt and Ivory Coast units.

Competition also heated up in its home market where France Telecom and its competitors Vivendi and Bouygues Telecom prepared for the arrival of a new mobile player Iliad.

Revenue fell 1.6 per cent on a comparable basis to €45.27bn, largely in line with the consensus forecast, according to Thomson Reuters I/B/E/S.

Restated earnings before interest, tax, depreciation, and amortisation (Ebitda) fell 4.8 per cent to 15.08bn, while margins fell to 33.3 per cent from 34.4 per cent a year earlier.

Given tougher competition ahead after the arrival of Iliad's ultra low-cost mobile offers in mid-January, the group effectively scaled back its prior target for operating free cash flow in 2012. It now aims for it to be at 8bn for the year instead of €9bn given in its strategic plan announced last May.

The group confirmed that it would pay a dividend of €1.40 per share in 2011.