Etrali, a trading solution from Orange Business service
) has been acquired by The Gores Group - a U.S. based global
private equity firm. The trading solution will now be a new
business entity with Etrali Trading Solutions as its brand name.
The financial details of the deal remain undisclosed.
We see this divestiture as a strategic move by France Telecom to
right size its European business, especially in the
struggling market of its home turf. This will in turn draw
significant financial synergies that would negate the revenue and
EBITDA headwinds of the company to some extent.
France Telecom continues to register average revenue per user
(ARPU) erosion in its wireless services. The company expects ARPU
to decrease in the range of 12-13% in fiscal 2013, mainly due to
stiff competition in the French telecom market. We believe the
rollout of attractive 3G plans by Paris-based broadband service
provider, Iliad SA, has resulted in continued revenue erosion for
Iliad SA made its debut in the beginning of 2012 with service
plans costing as low as $2.6 per month. So, to counter such
threats and retain subscribers, FTE slashed its service rates,
and ended up with declining revenues.
In response to that, Iliad further reduced its service rates,
thus triggering subscriber loss for France Telecom. Further,
France Telecom is facing tough competition from Bouygues, SFR,
Telecom Italia and
) in its domestic operations, which account for more than half of
its revenues and profits. This has resulted in France Telecom
losing its market share and recording lower margins and
However, at present, Orange Business Services is one of the
profitable business units for France Telecom. It has more than
100,000 customers all over the world. Orange Business service is
expected to deliver more than 10% growth per year through 2016.
We believe that growing market demand for business service
products will allow France Telecom to offset its declining
wireless business and capitalize on the opportunities in the
cloud-based security market.
France Telecom, which operates with
Telecom Italia S.p.A
) currently carries a Zacks Rank #4 (Sell).
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