Orange S.A.
Q3 2014 Earnings Call Transcript

Published: 25 Oct 2014

[Ramon Fernandez:]

Good morning everyone. Thank you for attending this Conference Call dedicated to Orange Q3 2014 results. I am here this morning with several of ComEx members who will help me answering your questions at the end of my presentation. So let’s start and you will have the slide review with our key figure for the quarter. First Q3 results confirmed the improving trends we have already seen during H1. We have stabilized this quarter again our EBITDA margin rate and this is thanks to the slowdown of our revenue decrease, we have the minus 2.3% for the quarter. But also thanks to the ongoing indirect cost reduction now amounting to €233 million since the beginning of the year. You will remember that our initial guidance was to have minus €250 million we have revised this upwards to more than €300 million for the year and now we are already at €333 million for the first nine months. Our commercial performance remains strong. We have 3.3 million new customers at group level during the quarter with solid results across all geographies, and our CapEx is slightly growing compared to last year. I still would like to remind you that we accelerated our 4G CapEx in France at the end of 2013 meaning that we confirm a stable level of investments for 2014 compared to 2013. So turning to Slide 5. You can see that our commercial performance was once again very solid. And this is the result of our strong investment in very high broadband. If you look at mobile, well in Africa and the Middle East we have a mobile base which grew by 11% year-on-year and we now have 94.3 million customers. In Europe we continue to expand our 4G population coverage. We are over 70% in France, we are over 75% in the UK and we have also good performance Spain, Poland, Belgium and Rumania. The third quarter was a very good quarter in 4G. In France we acquired 0.7 million additional customers and for UK its 1.4 million, in Spain 0.4 million. Now it’s not only in mobile, we have these good performance but turning to FTTH in France we reached 3.3 million homes connectable with fiber. We would target the 3.7 million homes connectable at the end of the year. And we achieved record high quarter in fiber net adds. We have plus 65,000 new customers. In Spain we are at 0.8 million homes connectible, we have 26,000 fiber customers at the end of Q3. Last point on this slide. The move to convergence is very well advanced in France and in Spain at respectively 43% and 77% of the broadband base. And this enables us to significantly reduce our churn rate by respectively three points and more than five points. Turning to Slide 6. You can see that our total revenue of €9.8 billion for Q3 confirms an improving trend with a year-over-year evolution of minus 2.3%. This is to be compared to minus 3.6% for the first half. And this is mainly driven by the good commercial performance of previous semesters and the lower regulatory impact, especially in Spain. Excluding regulation, Q3 sees a decrease by minus 1.4%. So this is of course the best performance we have seen for quite a while. Looking at the main elements driving our revenues. I will look at mobile services, mobile equipment fixed services and also the enterprise segment. If you look at mobile services. Well you can see that revenues decreased by minus 5.1% in Q3 compared to minus 7.3% in H1. This improved trend is mainly led by France benefitting from a better sales mix and also a lower impact of re-pricing and regulation and we can also see this improving trend in other countries such Spain, Belgium and Slovakia. Mobile services revenues are also helped by steady growth in Africa and the Middle East, I will come back later to this part of the world where the performances really very good. We also performed well in mobile equipment sales. And the performance here is also mainly driven by France. We have among others the commercial success of the iPhone 6 which was launched in September in Poland. We are still benefitting from the installment plans which started in Q2 of this year. Good performance also in Spain. Fixed services revenue trend also improved. When you compare to previous quarters with near stability in Q3 at minus 0.4% year-on-year. This is to be compared to minus 2.7% in Q3 at 2013. The performance trend in this quarter was driven by the performance in broadband services plus 2.6%. We have strong growth in Spain over plus 15% and also even it’s only slightly positive but a positive increase in France plus 0.9% thanks to 2.1% increase in the customer base. Lastly if you look at the enterprise segment, you can see that we have here better evolution. We have a performance which is driven notably by strong growth of IT and integration services. So all in all this improved trend in revenues contributed to the stabilization of our EBITDA margin that we can look at on Slide 7. Once again in terms of EBITDA you have the benefits of a slower revenue decrease and of continuous efforts on cost cutting. This quarter our EBITDA margin reached 33.1%, this is stable year-on-year for the third quarter in a row. In value terms, it is a €77 million erosion which is significantly less than the minus €252 million we had seen in Q3 2013. Looking at graphic on the top right hand side. You have some details on the EBITDA evolution in this quarter. I would put your focus maybe on revenues who were down by €226 million which is twice less than a year-ago. We are comparing to minus €428 million, so better performance clearly. And second. When you look at cost reduction, you can see first that indirect costs decreased by €119 million this is minus 2.8% year-on-year. And this has been significantly helped by the 3.1% drop in labor OpEx, driven by 3.7% decrease in the average full time equivalent employees. And for the remaining €54 million of indirect cost savings, it’s good see that all cost natures are decreasing except operational taxes. This good performance in indirect cost savings gave us the flexibility to invest further in targeted commercial initiatives to support our commercial performances and this is I think a very important element also. So direct cost decreased only by €30 million this quarter. But this is a result of this choice to support the commercial performance. And overall total cost production offsets 69% so close to 70% of the revenue decrease of the last nine months which is better than we had seen before. Turning to CapEx investments on Slide 8. You see that for the first nine months of 2014 CapEx amounted to €3.8 million this is up 2.9% year-on-year. And this is an improvement by 0.8% point to 15% of our revenues. This is a clear demonstration that we are keeping up with our efforts in terms of investment despite pressure on revenues. And this helps us to advance our network differentiation versus our competitors, it’s a critical asset for us and we are building on this. Within networks who represent 59% of our CapEx, a growing proportion its 27% was dedicated to the very high broadband fixed and mobile. This figure was only 18% over the first nine months of 2013. So we are really focusing our efforts on investments network very high broadband. So this is the general picture. Now I will turn to our various segments. First of course turning to France. In France we have a revenue trend which is better, it’s started in the first half of the year but it’s continuing in the third quarter. We have a decrease in revenue which is limited to 3.1% after minus 4.2% in Q2 and minus 5% in Q1. It was also minus 5.6% in Q3. So there is clearly progressive trend here in terms of revenues. And this is related both to mobile and fixed revenues. So it’s important to see that it’s a general move. If you look at the mobile services revenues. You have a minus 7.4% this quarter, which reflects a better customer mix which is driven by the largest share of premium offers. Our premium offers represent now a 60% of the contract customer base. We also see a growing appetite for 4G, for which we expect to have around 3.3 million customers before year-end after 2.7 million now, so very rapid expansion. We also see a healthier trend of our mobile ARPU since 86% of the contract base is now on 01st April 2013 offer. And lastly there is an increased penetration of convergent offers reflecting -- or reflected in the continues decrease of our churn rate. So all these elements concur to have a positive impact on what’s happening in mobile services revenues. If you look at fixed services, well here you have a decrease of only 0.6% compared to minus 2.6% in Q3 2013. Broadband revenues are slightly up by 0.9%, thanks to a 2.1% year-on-year increase in the customer base. Which offsets the price effect of the growing penetration of convergent offers, which represent now 43% of the broadband base. So convergence is now 43% of our broadband base. Wholesale revenues increased mostly due to unbundling accesses expansion but also to fiber infrastructure rollout. And last point on fixed services. The PSTN revenues decrease is limited if I may say so to €100 million this quarter. This is the lowest figure we have seen since 2007, if you exclude the impact of the 2013 subscription price increase. And other indication is that number of PSTN lines lost was the lowest for many years. Turning to KPIs for France at Slide 11 and first turning to mobile KPIs, you can see that we are clearly leading the 4G race. We have more than 6600 sites activated. And this contributes of course to the dynamism of our contract customer base which grew by 220,000 in Q3. We have robust sales. And the churn which is back to its 2010 level. And this leads us to the figure I quoted already of 2.7 million 4G customers end of September and the thing that we expect to reach 3.3 million at year-end. I also recall that since 2013 our premium offers includes the opportunity to get the second SIM card for use in another device like a tablet. And that excluding this effect of the second SIM card we have contract net-adds 59% higher than during the first nine months of 2013. So a very strong performance. This is reflected in larger volumes of customers acquired and bit of mix of net-adds. We have 64% of sales on premium offers. So I said that we have a base with premium offers which is now 60% of the contract customer base in terms of net-adds at 64%. These good results can also be seen on the fixed activities this is Slide number 12, where we can see that convergence and fiber confirmed their role is key value drivers. Fiber proves very effective I must say as retention but also as an acquisition tool. The continuous growth of fiber was visible this quarter with a new record of 65,000 FTTH net-adds, reaching 481,000 customers. And this contributed to an estimated broadband share of conquest around 30% for the quarter. So 30% share of conquest on broadband is quite a good result. And it’s also good to see on this slide that 57% of fiber growth was fueled by the acquisition of new customers, so more than half while the rest came from migration from our DSL base. Fiber is also supporting growing convergence. 44% of the fiber is now convergent and this is very significant it’s a growth of 13 points compared to Q3 2013. And the adoption rate of convergence is higher and growing faster in our FTTH base than for the average broadband base. Our fixed convergent offers and -- I am talking about Open, Open Pro and Sosh plus Livebox now accounts 4.4 million customers and represents 43% of our broadband base. It was only 33% last year and as you know convergence brings as substantial benefits in terms of retention but also it supports our acquisition engine. I will here give a figure which you can see on the slide which is that 48% of our new open customers are either a new fixed or a new mobile customer and 21% of these open customers are even completely new to Orange. Turning to Spain. As announced at the end of Q2 the trend of an overall revenue is improving at minus 6.1% in Q3, it was 8.6% in Q2. And here also improvement was visible both in mobile and in fixed. Maybe I will not go into too much details and we will turn back to precise figures. If you have questions, we have all the information on the slide but you can see that in mobile services you have an erosion which is of 11.8% it was more than 18% in Q2 and on fixed services revenues you have an improvement of more than 12% year-on-year in Q3 which is much more rapid than in Q2 where it was 7.7%. And convergence is Spain has reached 77% of our base. Which is quite strong. This of course leads to a solid commercial growth in Q3. We have 192,000 contract net-adds better than in Q2. And we also have 64,000 fixed broadband net-adds once again better than in Q2. In Poland. Slide 14. You have also an interesting progress in turning around operations here with solid commercial activity in mobile and fixed. And also an improving revenue trend. So as in Spain I would say you have good commercial performance with the growth in mobile customers plus 3% even 3.1% in Q3. 130,000 net-adds this quarter. Fixed broadband customer eroded slightly at 0.5% -- minus 0.5% quarter-on-quarter. But the evolution in Poland on the fixed broadband is interesting for instance you may have seen that the Polish Regulator authorized in early October. They pass out the regulation of a fixed broadband market and this will grant us some pricing flexibility to effectively compete in this market. So all in all we have revenue erosion here in Poland limited to minus 3.6% it was minus 5.4% in Q2. Turning to the rest of the world, which is mixing as you know rest of the Europe and Africa and the Middle East and we will change this in the future. We will communicate in 2015 on Africa Middle East as a separate segment. I think it will be better in terms of communication. But we still of course have information and in Africa and for Middle East we have very good performance with the mobile customer base increasing by 11% year-on-year. We have 6% revenue growth. And Orange Money, for instance is now counting 12 million customers generating volume of transactions of €4 billion for 2014 which is twice more than last year. So maybe we will come back to this region later on, but very strong performance here in Africa Middle East. In the other European countries, well here we have revenues still going down by 8% but it’s better than in H1 where we had the minus 10%. And trends are improving especially in Belgium, Slovakia and Moldova. On the enterprise segment Slide 16. We have revenue trend which is also improving it’s still negative but less negative than at the beginning of the year a minus 1.7% in Q3 versus minus 2.7% in the first half of the year and minus 5.3% for the full year 2013. And this is driven by the good performance of IT services. Voice is still decreasing but at the reduced pace. Data services continue to growing volumes. And we have really good positive results in IT services. We have a revenue growth of 7.5% especially thanks to new services like security, cloud, video conferencing. So this is also very encouraging. One word on EE before closing with our guidance for 2014. EE has a very good performance and if you exclude the impacts of regulation its revenue was stable year-on-year supported by continued postpaid growth. The value mix further improved in Q3. We have here in the UK net increase of 119,000 postpaid mobile customers. And EE is now the largest 4G European operator. We have a total customer base of 5.6 million customers in 4G. So very good performance also of EE. I will finish with Slide 19, which is dedicated to our 2014 guidance which is as you see unchanged on all its elements, so very clear. I would only add one thing compared to what you have here on the slide, which is that concerning the net debt to EBITDA ratio. The target is maintained with have no impact from the 3 billion hybrid bond issuance we did in September because we have put the proceeds under ESCROW for the voluntary tender offer process which is to be launched in Spain for the acquisition of Jazztel. So this is fully neutralized. Okay, I think I will stop here. Thank you for your attention. And with my colleagues we are ready to answer to your questions.

[Operator:]

Thank you. (Operator Instructions) We will now take our first question from Stephane Schlatter of Societe Generale. Please go ahead.

[Stephane Schlatter:]

Thank you very much. Good morning everyone. I have three questions please. First one, indirect cost savings will be much higher than the full-year guidance so can we expect the EBITDA margin not to be stable, but to be slightly up in Q4? Question number two regarding France. The French parliament voted a reduction in social charging paid by companies for salaries up to 1.6 times the minimum wage and the removal of the [indiscernible]. So could you please give us expected impact for Orange in 2015 and in 2016? And finally, regarding rest of the world could you please give us some colors about press articles indicating an IPO of African assets is under review? Thank you very much.

[Ramon Fernandez:]

So in terms of the better performance we have in terms of indirect cost savings and the possible impact on EBITDA margin, first I would like to recall that traditionally the EBITDA margin is lower in the fourth quarter of the year. It’s constant feature because of Christmas sales and so all in all I would say that the EBITDA margin will and be in line with what we have set in our guidance, which is basically that in terms of margin rates we will have stabilization, so this is confirmed. And in terms of absolute numbers, we confirm what we say which is between 12 and 12.5. So what is good to see is that cost savings are very much on track what we have said and even better as we saw when we commented the first half of the year results. Up to now we have a total of €660 million of cost reduction all in all, so we are very much confident with the EBITDA ‘14 consensus that we have seen. There is reading issue there. In terms of the African and Middle East operations and I would take second question last, in terms of Africa and Middle East maybe to could clarify some information that we have seen in the press or in our places. First we recall that our footprint in this region includes around 20 countries accounting for roughly 10% of the group revenues with an average growth above the 5%, I said it was 6% in the third quarter. So it’s really important than it’s really an engine for group for Orange. So you know that we say that we are pan-European and pan-African group and we care very much about this, this is the core for our strategy. What we are doing is that in order to increase the visibility of growth potential and also to be able to benefit from all opportunities in the region. We have started to work on the evolution of the holding structure of our entities in Africa and in the Middle East. You probably know that for the time being our entities in the region are held in a number of different entities, different structures and we want to put everybody on single hat. It will much more visible and probably it will help everybody to have a better view of value which is in these activities. So there will be a single holding structure. And as I said, we will also accompany this with an evolution in our communication. We will have a segment dedicated to African and Middle East, and not mixing in a kind of big rest of the world segment as some smaller Europe countries and all the African and Middle East countries. So this is what we are doing now putting all our assets to give a render single dedicated holding. This is very consistent with our pan-African strategy and in fact the technical work is well advanced and I think we should be able to implement this in 2015. Now this does not prejudge of future steps and what we will do with this holding of course we can imagine to build on partnerships, we can imagine possible IPO on the part of the capital at the later stage, but this is not the point now. The point now is to have the structure and to be able to work on this basis to keep growing and improving our performance in this region of the world. Now the second question was, is something which is being worked on now we will not be able to today to provide specific information for 2015 because as you said it has just been passed in the French parliament and so he specific modalities of implementation of this new law need to be specified. So we will turn back to if we have specific figures as soon as they are specified.

[Operator:]

Thank you. We will now take our next question from Frederic Boulan of Bank of America Merrill Lynch. Please go ahead.

[Frederic Boulan:]

Hi there. Good morning. Frederic Boulan, Bank of America, Merrill Lynch. Three questions if I may. Firstly, more of a private -- personal question. As a recent new joiner in the organization, if you can share with us your first insights and impressions on what needs to be changed or improved in the medium term and the main challenges you think Orange faces. Secondly, probably more questions for Delphine if she's around, but where are you on the migration of the base to post-April ‘13 Origami repricing and if we can expect ARPU next year to be stable as 4G gains traction or if repricing will remain a bigger force? And lastly, we are getting into budgeting season for next year. Can you share with us whether the Group expect because of flattish revenues you are starting to deliver and stable margins to translate into also stable growing EBITDA next year, if I could just tell, and if you could mitigate the lower contribution from the Iliad roaming revenues with other areas of growth? Thank you very much

[Ramon Fernandez:]

So Delphine is with us and will take the second question. So the first question of course I hesitate because it could take us full day to exchange on first impressions because of course it has been fascinating to be in job since early September after spending most of July in the group looking at the issues talking with my colleagues. I think it’s great to arrive in the group at a time when we see that the situation is clearly improving. I think it is striking to see that despite very strong competitive pressure the commercial performance is really excellent in third quarter ended. It’s true first in France which is of course for us absolutely critical but it’s also true in other counties where in Europe we faced many challenges but the situation is improving. And in Africa and the Middle East we have also a very good situation. I think the Jazztel move is also very important for us because it demonstrates that we have capacity to move and the strategic impacts of this operation I think is very important and I think is also very well understood. It was clear when we toured with Stephane Richard and the team in many road shows to explain the deal. I think it’s very well understood, and I think it’s a testimony that Orange maybe a big company but it’s also able to move fast and to reach out and grab opportunities when we are there. But still being cautious of course on what we do. So many issues we could discuss. But all in all I would say it’s fascinating and great impressions, fantastic company, excellent commercial performance and so looking ahead, it’s very encouraging. So there was a question on the EBITDA evolution et cetera. So this we will turn back for 2015. For now what we are confirming is clearly the guidance for 2014. And we are very comfortable once again with what the consensus is seeing. So this is the topic of the day. In terms of looking ahead, well it’s an issue that we will discuss at the later stage, but of course we will maintain our efforts both in terms of having better revenues and of being on track on the cost reduction. But it’s not only cost reduction it’s also working under co-business, building on the quality of our network which I think makes a difference. And I think it would be more and more understood that having for instance on 4G the best network brings new customers and fiber is also a very important element we are far ahead form our competitors. So I would now give the floor to Delphine.

[Delphine Ernotte Cunci:]

So I answer the question on the ARPU for 2015, first of all it’s true to say that we see a real slowing down in the ARPU decrease this year, thanks for many things. First of all, good conversional performance and a better mix within the ARPU as expected. And also the fact that the major part of our base is reprise with first 2013 offers, 86% of our base is already reprised. So we see a real decrease in -- real slowing down in the decrease of the operating revenue on the mobile part. But on the other hand, we are still pushing hard on conversion offers often of course because it’s really core in us strategy. It has a huge impact on share first of all. And of course then reprise concerning often and so we expect the reprise to slowdown, but to have a better ARPU decrease than this year but seen an ARPU decrease next year. And beside we don’t know our competitors are going to do, so of course tariffs are very-very low in France, but I can speak for our competitors.

[Operator:]

We will not take now our next question from Andrew Lee of Goldman Sachs. Please go ahead.

[Andrew Lee:]

Yes, good morning everyone. Just a couple of questions. Firstly, on French fixed, was the promotional activity or pricing promotions greater or lower in French broadband this quarter versus last quarter? I just wondered if you could add a bit of color on what's driving your strongest net add-share performance in two years over and above the fiber that you mentioned. And then secondly on convergence in the UK, is EE launching a TV service enough to compete in any increasingly convergent market or do you think you need to own fixed assets too? What more can you do here and can you comment on press speculation about more of an IPO of EE? Thank you.

[Ramon Fernandez:]

So maybe in order to have variation invoices for you, we will start with Gervais on the UK and then turn to Delphine on the fix French market, Gervais?

[Gervais Gilles Pellissier:]

So, EE is already convergent. Everybody matching members and that in 2009 just at the time of the merger between Orange and T-Mobile. We transformed our unbundling business -- we had a DSL business -- into long term agreement with BT. We have outsourced our fixed network to BT so we benefit from the wholesale agreement with BT where we can resell the VDSL offer of BT, and this agreement allows us to continue to progress in selling fixed broadband in better way. If I take the figures of all the mobile operators, we are the only one to have -- I would say, sensible results in terms if fixed brand activity for consumers. Some other have for B2B like Vodafone after they brought Cable & Wireless, but if I take the consumer market, we are playing into that market today. Second point BT up to now has not started convergent business of consumers. They have prepared the field for that with the MVNO agreement they have signed with us, but they first decide to tackle the B2B market and then maybe later on the consumer market. What important is you gave that and there your question is very valid -- is that convergence is also with content and TV. And this is by the way to really move BT to enter into content distribution and sometime content rights ownership. And the move of EE is to as a mobile operator to show that the future consumption of TV is also on mobile and I think when you are a leader in mobile this is part of your strategy to demonstrate that your network, your products, your services on mobile are key also to distribute content of the future. So EE positioning the different pieces to be convergent operator without today having -- taking the next step which is to do more by looking at potential combination with fixed players, I think this is second step, second battle that we probably will queue in our view in 2015. We will see what happen in terms of potential combination between the fixed operators and the mobile operators. Keeping in mind that as of today, nobody is convergent in terms of owing two assets into the same company. Maybe to add one thing EE ownership because this was the second part of your question and there has been many, many speculation about this. For us for the time being which means the short run the best option is clearly for value creation to keep our current ownership structure. So nothing to expect to in very short-term. Of course longer term is another topic. And here we have said this constantly there is nothing new all options should remain open. So this is what I just would like to add on this question. And now I am turning to Delphine.

[Delphine Ernotte Cunci:]

So on a fixed market our commercial performance is mainly driven by Open, both on ADSL and fiber and especially in very dense areas. Its fiber that drives our net adds. Besides we also really very efficient on the churn which is reducing as well on the fixed market. So it’s true to say that we are making some permissions but very differently from the past because we have now the tools to target specific areas we can make some promotion in some types of shops for instance but not all across the country. So we have now the agility to of course use promotion especially to compete with Bouygues with its €19 triple-play offers but not so many promotion not all the time and in very specific and targeted areas.

[Andrew Lee:]

Thanks very much. Thanks very much. Can I just ask a follow up, just on Gervais' comment on looking at potential combinations of fixed operators from 2015 onwards? Can you just add some color on that? What do you mean? JVs, Potential acquisitions, how should we read that?

[Gervais Gilles Pellissier:]

Today, to tell you the truth nobody has been coming to us from the fixed players to say I am looking for combination, neither the big incumbents, nor the big cable operators, nor smaller guys. So I don’t think it’s on their agenda today. My feeling is that the agenda today is more how to ensure that they have stake of the content rights. I think that you [indiscernible] how the battle is. For me the battle today is still who will own what in terms of content right. So second point and you have seen that with what’s happened to response value. I think for the mobile players this is how to restructure the distribution. But because there are few steps to undertaken before coming to the next step. So this is what we think it’s something which is easier but not tough to get. So a little difficult to answer to your question today.

[Andrew Lee:]

Okay, thanks very much.

[Operator:]

We will now take our next question from Vincent Maulay with Oddo. Please go ahead.

[Vincent Maulay:]

Hi. Good morning. Two questions on France. The first one is a quick follow-up on the fixed side and the service revenue trend. So when I listen to your answer on the past question it seems like despite some discount offer to some customers for typically the fiber at €19.99 per month, it seems that you are still comfortable on the fact that the service revenue trend will be consistent with the nine months or typically roughly minus 0.7%? The second question on the iPhone 6 halo effect on Orange. So typically are you able to streamline some commercial cost to capitalize on your quality networks or actually when I listen to your guidance you will dedicate still a chunky budget to the commercial cost in Q4?

[Ramon Fernandez:]

I would turn to Delphine.

[Delphine Cunci:]

So on the fixed trends for end of year we are still on a good trend on a decreasing trend around minus 3.4% on the overall revenue for France, after minus 3.1% in Q3. On the iPhone 6 yes we see iPhone 6 as a big success and beside we have a lot of iPhone customers in our base because at the launch of the first iPhone we had the exclusivity. So it’s very key for us to be efficient on iPhone 6 because it’s key to retain our heavy data users customers. So we because of our good EBITDA control in France we have the opportunity to dedicate a little bit more commercial cost for the end of the year to continue on a very, very good commercial trend on the mobile part and especially on the iPhone 6 business.

[Vincent Maulay:]

Okay, thanks.

[Operator:]

We will now take our next question from Nicolas Cote-Colisson of HSBC. Please go ahead.

[Nicolas Cote-Colisson:]

Hello. Thank you. I was wondering how many of the 3.2 million homes passed by fiber are already wholesaled. And also could you share with us progress on co-investment, and in particular if you can feel any impact from the SFR-Numericable merger introducing some slowdown in the co-investment process? Thank you.

[Ramon Fernandez:]

So regarding rollout of fiber and the passed homes, I don’t think we are disclosing yet the number of wholesale that you want homes which has been addressed by others, and in many cases we are in the process exclusivity of the commercialization because we have passed and connected so many more homes than our competitors. In other case, we are starting the commercialization of others. As you know we have now 3.3 million connectable homes which is 42% increase on year-over-year basis and the transformation rate is growing since we have left the centers of cities. We have of course have witness the better commercial success. And when we deploy fiber network, we witnessed also a €3 increase in the revenue for users, so it’s a good reason for us to continue. But then take -- moving onto the other side of your question, it is the -- let’s say the unknown factor for the future, is Numericable going to completely follow SFRs investment commitments in FTTH and this is something that’s pretty much discussed today I think Numericable and the competition authorities in France, and even the government probably because everybody expects them to be true I would to the commitment made by the Company they are acquiring it’s -- the jury out, it’s not clearly yet. Everybody sees reason why they would probably rather want to transform passed cable homes into clients, but also there are some reasons for which they would probably have to take certain commitments regarding FTTH. This is what we can as if today I think.

[Nicolas Cote-Colisson:]

And if I may, would it change the pace at which you are rolling out fiber? Let's say if SFR-Numericable decides to pull out of some of its co-investment scheme, would you still keep the same kind of target you have in mind?

[Ramon Fernandez:]

I think first of all we need to be really see what they commit to then also you need to bear in mind that when there is wholesale FTTH network, and the revenues we get higher than the revenues we get from normal -- I would say traditional copper unbundling. So we are going to be looking very carefully also into the commitments made by Free, who still is dedicated to investing in FTTH and even we in future might want to take away a lot of the moneys they were giving to SFR and invest in our networks, so those factors are also -- have to be into consideration but overall I am afraid we cannot really as of today what’s going to happen in the next six month.

[Operator:]

We will now take our next question from Dimitri Kallianiotis of Redburn. Please go ahead.

[Dimitri Kallianiotis:]

Hello. Thank you for taking my questions. Just actually going back to the point on wholesale revenues, you've given some useful more details on the growth, which remains very strong in Q3 at plus 8%. I just want to ask you what are your expectations going forward. And I know a lot of it also depends, as you say, on SFR and the other -- and your competitors, but should we expect this growth to continue to be as strong basically? My second question was regarding the enterprise division, which reported only a decline of minus 1.7% which clearly was much better than what we have seen before. And again I just want to ask you what was driving this improvement and if we should expect that improvement to continue. Thank you.

[Gervais Gilles Pellissier:]

Okay thanks for question on the wholesale revenues. So in Q3, the revenues are once again up by 7.5%, so its €70 million above last year’s performance for the period. And first of all we continue seeing an increase in the number of unbundled lines if you want. Unbundling still is a very active thing in France today. And recently Bouygues has asked for more NRAs to be unbundled, so it’s a continuous activity and the tariff is good. And also we might -- as I previous mentioned, we might see in the coming weeks and I cannot really be most specific on that, but more I would say business brought to us by Bouygues because I think basically you all know that they really want to take away as much as they can from SFR without really being able to say today because there are certain commercial processes ongoing. So that’s one thing. We have seen also a positive price impact coming from the increase of the unbundling tariff earlier this year in February. So that has brought other revenues. So overall those are elements to which we can add next year probably the revenues coming from the RIPs which are the investments if you want to commercialization that we make with local connectivity in France’s city, townships and this is going to grow also. So there is a nice future for wholesale revenues in this country.

[Ramon Fernandez:]

This is Ramon again, it was Gervais so of course everybody recognize him. On the enterprise question. What is driving this improvement in revenue trend and well can we be a bit more specific maybe, so its type all you have seen in Slide 16 events that the improvement we have at minus 1.7% in Q3 versus minus 2.7% in H1 and minus more than 5% in for the full year 2013. Is very much driven by the good performance of IT services. Maybe I can give a bit more flavor on this. Since the end of 2013 but also lower price pressure and the favorable comparable basis after a weak Q3 2013. So it is clear that this improvement is also partly due to the fact the basis that we are looking at in Q3 2013 was favorable. If you look at the various elements you can see that voice continued to decrease but at a reduced space. And this to stable traffic in legacy. And also to the positive trend of voice on IP revenues and this is true, both in France in international operations. In data services looking at the slide you can see that we had continued growth in volumes in Q3. And we also see here lower price pressure in IP VPN and lower broadcasting losses. So this is also contributing to this evolution. And lastly going back to IT services. IT services is the 27% of a total enterprise segment. So it’s very significant and clearly their performance is very good because you have revenue growth of 7.5% which is accelerating it was 5% in H1 and it was negative in H2 2013. And this is very much supported. I think I said it’s by new services like security, cloud, video conferencing. And here the figures are more than 10% close to 20%. So in these three elements security, cloud, video it’s a very rapid you have extremely rapid growth which is contributing to this evolution. But once again let’s not forget that the basis in 2013 is helping us.

[Dimitri Kallianiotis:]

Thank you.

[Operator:]

We will now take our next question from Nawar Cristini from Nomura. Please go ahead.

[Nawar Cristini:]

Morning. Nawar Cristini at Nomura. Thank you very much for taking my questions. I have a couple of them. So firstly on Iliad roaming revenues, could you give us an indication of the trends there? In particular, are you seeing those revenues starting to come down and also any indications on the expectations for next year will be helpful? Secondly, could you update us on your thoughts on consolidation in France? And are you still confident that the market will consolidate over time and what role are you playing are you planning to play there? And lastly, just coming back to the cost savings, to the indirect cost savings, is the €100 million run rate per quarter that we have seen so far is a reflection of what we should expect you to deliver going forward? Thank you very much.

[Ramon Fernandez:]

So maybe on Iliad I will turn to Pierre. But maybe first I can say something and Delphine will also comment on this, on cost savings and in consolidation. I think on consolidation, in France we are still of the view that it would be benefit for all if we had some consolidation in France. But we are not one suffering the most from the absence of consolidation. So we will be still very attentive to possible initiatives from various sectors. But we have very good performance that we are commenting today. So we are not going to lead on this. We will be looking at evolutions. Maybe we can turn to Iliad question before turning to the third question.

[Pierre Louette:]

So regarding the roaming revenues from Iliad, we are looking at a stability this year compare to last year, it’s going to be really in the same areas as it was last year. And 2015 should be a year in which we gradually see the beginning of a decrease in the revenues originating from the roaming agreement, which is I think which all we do expect actually and maybe it’s not going to be as fast as we expected actually also because Iliad tends to still have a great use of our network which is maybe a bit over the proportion of the population that they are supposed to be theatrically cover with their own network. So we still witness that kind of phenomenon for reasons that are questionable, but still bring more revenues to us than we might have expected in the past. That’s I think what we can on next year.

[Ramon Fernandez:]

In terms cost savings, I think your expectation that there is roughly let’s say roughly around 100 per quarter in terms of indirect cost savings is roughly correct. Then there can be some differences quarter to quarter, but the dynamic in 2014 is around this figure. And we are going of course to maintain our efforts in this direction, so this is for indirect cost savings once again total of 333 at a stage of course the fourth quarter will also contribute to this effort. Now you have also to bear in mind that in terms of direct costs as I said in the presentation, we are also supporting our very good commercial performance by some support. We are not increasing the level of support per device for instance, but because we have more volumes, because we have a bit of mix and because we have opportunities to see, well we will support this by some support.

[Operator:]

We will now take our next question from Giovanni Montalti of UBS. Please go ahead.

[Giovanni Montalti:]

Good morning. Thank you. Just a quick question. Should consolidation materialize, would you be open to consider going forward and [negotiating] agreement with Iliad? And also a quick follow-up on the previous question. Is €100m cost savings for indirect costs a good reference point also for 2015? Thank you.

[Ramon Fernandez:]

So 2015, I will refrain from commenting the future efforts obviously we will maintain our efforts in terms of indirect cost reduction, but it is very premature to quote any kind of figure. For next year, we will have many occasions to do this. On consolidation, really I have nothing much to adds to what I said. I think it is known that Orange is ready to discuss with all stakeholders. The door has always been open to discuss. We have heard this morning the head of Iliad making some comments on this, so we shall see once again we are not on the demanding side. We still believe that consideration would be good for the French market, but we will wait and see who is interested in moving forward and then we will be ready to discuss with whoever is interested.

[Operator:]

We will now take our next from Sam Dillon of RBC. Please go ahead.

[Sam Dillon:]

Yes, good morning guys. It's Sam Dillon here from RBC. A quick question on multi-SIMs in France. Your additions on the contract side in the quarter around 32,000 which albeit being healthy, is a little bit lower than the recent run rate. Will you do anything in particular to try and accelerate the number of multi-SIMs you are selling and incentivize customers to take that? And a question on French mobile ARPU, if I may. If in the event that pricing doesn't materially move in France over the next year or two, and with the Iliad roaming revenues coming off, where do you expect currently mobile ARPU in France to bottom? Thank you.

[Delphine Cunci:]

On multi-SIMs yes, we wanted to disclose a different between pure contracts and multi-SIM to be very clear that we are very effective and then efficient on pure commercial efficiency on contract. But yes it’s true to say that we are going to accelerate on multi-SIM because we are really focusing on households. And as we see that the number of connected devices are increasing in the household. We need to be able to propose to our customers’ multi-equipment like Open for instance and multi-SIM for tablets that are growing. On ARPU it is difficult to be more precise than what I said previously on the ARPU trend for next year. I am quite confident in the fact that we are going to deprive the ARPU at a lower pace. But I cannot be more precise.

[Sam Dillon:]

No problem. Thank you very much guys.

[Operator:]

We will now take our next question from Jerry Dellis of Jefferies. Please go ahead.

[Jerry Dellis:]

Yes, good morning everybody. Thank you for taking my questions. Three questions please. Firstly, I would be interested into what extent your stronger commercial performance this quarter was a function of perhaps the rather weak situation of SFR currently. Then secondly, thinking about the fourth quarter trends, I think in the fourth quarter last year there was quite a strong lift in commercial and content costs, which was presumably associated with the launch of 4G in France in October of last year. So given perhaps that slightly easier comp for commercial and content costs going into the fourth quarter this year, is it your intention to push even harder commercially, which would result in obviously a rather stable margin, or perhaps is there some flexibility to ease back a little bit and deliver a better margin performance in the fourth quarter? And then the final question please is you mentioned I think that Bouygues has been asking for more unbundling capacity. I'd just be interested in how much capacity they have been asking for. Thank you.

[Delphine Cunci:]

On the SFR question. On one hand there is been really, really aggressive promotion on Q3. We see then less aggressive in October and maybe in November because of closing is not long now. And definitely it’s a good opportunity for us to regain more customers because of course it’s difficult for them and also because they have definitely a poor network and it’s now all over in the press and the quality of network is the key element for customers when choosing an operator. That’s why also because we an opportunity on SFR customers that we want to dedicate more commercial cost on this Q4. I don’t think its going -- nevertheless we are not going to spend so much money on Q4 compared to last year. It’s really controlled. We have a strict control on commercial cost deciding every week weather we are going to push or not on specific devices for instance. So even if we see an opportunity with more commercial cost to gain more customers and of course the better revenue next year. We are still really controlling commercial cost compared to last year.

[Operator:]

We will now take our next question from Louis Citroen from Arete Research. Please go ahead.

[Louis Citroen:]

Good morning. Thanks for taking my question. I have a question on fiber rollout and more specifically what are your thoughts regarding fiber-to-the-building or fiber to the door of the apartment, and using copper G.Fast as a way to potentially accelerate FTTH availability in France. Are there any plans and, if so, when might we hear about it? And maybe a second question on the UFC Que Choisir study which was released two days ago, if you could comment on that and maybe more specifically on the results regarding the Iliad customers on the Orange network. Thank you very much.

[Ramon Fernandez:]

Okay. So first question regarding the new techniques I would say of bringing high connectivity to the homes in many ways. We are exploring all of those possibilities. We have an experience which is already working now in Poland which is RFoG its technique which gives access to fiber and cable in an easier way than it was conceived previously. We are going to be using the coax circuit. We are going to be looking also into FTTDP as we know away to take electricity actually from the homes without destroying too much of the homes equipment’s. So it’s an easier way to give access to high bandwidth to people. So all of those things are going on now, but above all, and it a question that you haven’t raised but above all what’s going to be really important for us, is to see what kind of retail and wholesale prices Cable will offer to customers in France to customer in B2C and B2B fashion also, so that’s probably even more important to us. I would add to that the fact that we have been able to obtain a commitment of the builders of new building to complete embark pre-equipment for fiber into new buildings, which is actually extremely important in order to facilitate the access to the FTTH network in the future? Second question, I really wanted to address there actually and I am happy that one of you raises it and there was a study polished couple of days ago by UFC Que Choisir, which used to one of the strong promoters of Free in the past I would say. Apparently, they have also come up with the realization that Free network was very-very much behind everybody I would say, in France with the exception of SFR, which we have said previously is in a quite difficult situation too. We were bit surprised, I would say I am used to certain extent by the declarations made by Xavier Niel who tries to separate his network, our network in ways that they not acceptable. What we need to stress here there are completely respect the commitments made within the roaming agreement. And we deliver to Free exactly what Free buys. Orange doesn’t put in place any discrimination mechanisms when it comes roaming agreement, but we give to Free data capacity they want and they subscribe and they buy. So we are not opposed to evolutions of the roaming agreement to a certain extent. We are not oppose to those evolutions when they are linked to the evolution of the usage that people have of data what we are not going to enter in is the use of our contract as a capacity contract. It has never been meant like that. It’s even written like for me in the first page of the contract. It is not a capacity agreement. They are supposed to build their own network, to roll out their networks and to have a network that efficiently is able to provide a service to their customers. They are not supposed to forever live in our networks, so again I think we see that as a statement which tries to cover up for certain short comings when it comes to their one production and network. And we see that as a sign of [necessity] on Xavier Niel's behalf. He will very probably the theoretical 75% coverage next year, but that’s very theoretical as UFC has seen and as the customer know. There is a big step from theory to a good service. When it comes to Orange, we are number one in all sectors and that’s our traditional and favorite position.

[Operator:]

We will not take our last question from Russell Waller of New Street Research. Please go ahead.

[Russell Waller:]

Yes, thank you. It was just a follow up on the wholesale revenues. Just wondering, if I look in 2012, for example, when wholesale revenues were negative, but there were much larger numbers of unbundled net-adds than there are today and yet wholesale revenues are materially positive, and I was just trying to reconcile those two; there is obviously something else going on. And then going forward I have thought about wholesale revenues declining as the unbundlers move to their own -- sorry, the customers to their own fiber networks. And I was wondering, you said that you saw the outlook of wholesale revenues as positive in France and again I was trying to just reconcile those two thoughts. Thank you.

[Ramon Fernandez:]

Just a quick one on the evolution year after year, overall we see a trend as increase of wholesale revenues division in France and this year I think we are going to beat our records in terms of wholesale revenues. There was maybe a period of time in which where the number of unbundling activities on copper were starting slow to slowdown. What we see today is that there is a still lot of activity when it comes to unbundling because everybody has realized with the example of we separate some much on the market that you need to fund part of the mobile wars with fixed activities. And I think Bouygues comes back to that and even Free Iliad comes back to that, so there is unbundling there is going on. So that sustains I think the revenues from the fixed part of wholesale. And on the mobile part as we have said previously, there is no decrease in the revenues coming from Iliad. So those two elements combined bring evidence for the sustained growth of our wholesale revenues overall. Okay, well, I think we have no more questions. Thank you. Thank you very much for attending this call and if you have any further questions of course, you can put them through and we will get you a better answer we can. Thank you very much and have a good day.