Bloomberg News

France Telecom CEO Says Frugal Buyers Threaten IPhone Sales

April 04, 2013

France Telecom SA (FTE) Chief Executive Officer Stephane Richard, head of one of Europe’s largest wireless carriers, said the increasing frugality of customers is threatening sales of pricey phones such as Apple Inc. (AAPL:US)’s iPhone.

“We are in a period of changing consumer behavior,” Richard said this week during an interview at Bloomberg’s headquarters in New York. There are fewer shoppers in search of the latest and greatest gadget, and more of them are seeking lower prices on wireless service, he said.

The shift has been especially severe in Europe, where more customers are keeping the same phone when they switch carriers. Amid a slumping economy and mounting competition, France Telecom has seen prices drop 25 percent over the past three years, squeezing profit margins and its stock price. Its cheapest plan now provides unlimited calls and texting and 3 gigabytes of data for about 20 euros ($26) a month -- about half the price of T- Mobile USA Inc.’s $50 plan, which is touted as a U.S. bargain.

The persistent belt-tightening in France and elsewhere in Europe has decreased the number of consumers who buy the latest phones at top prices, Richard said. Without a carrier subsidy, the iPhone typically sells for about $600, making it too pricey for many shoppers, he said.

‘More Difficult’

The change may be felt when Apple introduces its latest iPhone this year, Richard said. The product’s annual refresh has traditionally drawn long lines and a frenzy of anticipation since it first debuted in 2007.

“There are fewer early adopters, and probably with the next release of the iPhone this will be evident,” Richard said. “Selling a phone for $600 is getting more and more difficult.”

Natalie Harrison, a spokeswoman for Cupertino, California- based Apple, declined to comment.

France Telecom is making its own changes as the carrier tries to pull out of a funk. The Paris-based company is renaming itself Orange to capitalize on the well-known brand it acquired in 2000. It’s also looking to Africa and the Middle East for growth.

In February, the one-time French phone monopoly offered a dim outlook for 2013. It said operating cash flow will be about 7 billion euros this year, down from 8 billion euros in 2012.

EE Mandates

France Telecom is considering an initial public offering of a minority stake in its EE wireless venture in the U.K. with Deutsche Telekom AG (DTE) at the end of this year or early 2014, Chief Financial Officer Gervais Pellissier has said.

While an IPO is the preferred option, no final decision has been made, leaving the parent companies open to a bid for a stake, people familiar with the matter said, declining to be identified because the discussions are confidential.

France Telecom hired Morgan Stanley and Bank of America Merrill Lynch to advise on options for its stake in EE, the people said.

Tom Wright, a France Telecom spokesman, and Deutsche Telekom’s Andreas Fuchs declined to comment on the mandates.

Shares of France Telecom rose 0.7 percent to 7.72 euros at the close in Paris trading. The stock has lost about 28 percent of its value over the past year.

In France, the company cut its mobile-service plan prices 10 percent last year and expects an additional decline this year of between 10 percent and 12 percent, Richard said. Most of the price pressure is coming from Iliad SA (ILD), a low-cost carrier that sells service under the Free brand, he said.

To bring its prices down and keep subscribers from defecting to Iliad, France Telecom started a low-cost brand called Sosh in 2011. With Sosh, customers bring their own phone and get more limited customer support. Sosh’s standard package is more than 40 percent cheaper than the comparable subscription under the Orange brand.

“Customers are more focused on price,” Richard said. “Except for a few hundred thousand people who will buy the latest iPhone -- except for that category of people -- the majority of the market will be difficult.”

To contact the reporters on this story: Scott Moritz in New York at smoritz6@bloomberg.net; Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editor responsible for this story: Nick Turner at nturner7@bloomberg.net


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