France Telecom: New VoIP, Broadband Offerings Boost Market Share

France Telecom (FTE) is introducing new products such as VOIP and broadband services which is clearly paying off. This year's earnings estimates have risen 25 cents to $2.88 per share over the past 90 days. Next year's most accurate estimate shows 9.5% upside potential over the current estimate.

France Telecom is one of the world's largest telecommunications carriers. Across all of its businesses, FTE provides service to 121 million customers in 52 countries. The six operating segments of the company are: Fixed-Line, Distribution, Networks, Large Customers, and Carriers (43% of revenues); Orange S.A. (38%); Wanadoo S.A. (5%); Equant (4%); TP Group (8%); and Other Customers International (2%).

In addition to standard fixed-line services, France Telecom also provides value-added services, such as voice mail, call waiting, callback, call-forwarding, three-way conferencing, and caller identification services. Fixed-Line Voice and Data Services outside France include the operations of Equant, a leading provider of global communications services for multinational businesses, and TP S.A., a Polish telecom operator.

France Telecom's aggressive strategy of marketing for domestic fixed-line business is paying off. Since June 2006, France Telecom has launched several new products, such as unlimited voice plans and Voice over Internet Protocol (VoIP) broadband double play offers, while significantly lowering its broadband prices. These marketing efforts are leading to a rebound in the company's market share on broadband net adds after a string of performances beginning in the fourth quarter of 2006.

FTE's decision to buy out the minority shareholders of its Orange subsidiary is a positive move. France Telecom recently increased its stake in Orange from 86% to over 98%, and its stake is expected to reach 100% in the near future. Orange has been generating solid growth in France and elsewhere (mainly in the United Kingdom). This unit has become the key growth driver for FTE.

Recently, France Telecom SA's Jordan Telecom unit bought a 51% stake in Lightspeed Communications, which offers Internet services in Bahrain, for an undisclosed price to expand its business in the Middle East. Lightspeed provides Web services in Bahrain including voice over Internet Protocol and video on demand. France Telecom is bolstering its business in emerging markets to make up for a slowdown in its domestic fixed-line voice business.

The stock is trading at discounted valuations. FTE has a PEG ratio of 1.0, which is well below the industry average.