We downgrade our recommendation for France Telecom (FTE: 23.35 +0.19 +0.82%) to Underperform based on the operator’s lackluster operating results and lack of visibility for operational improvements in the near-term. The company remains significantly challenged by the weak economic conditions across its key European markets, which continue to weigh on the top-line.
Revenue in the last quarter was hurt by adverse exchange rate swings, intense competition and unfavorable regulatory measures. France Telecom’s wireline voice business is shrinking at a greater pace than its major European peers as recession-hit customers discontinue landline phone use.
Moreover, the company has suspended all restructuring actions due to significant pressure from workers unions. Moving forward, revenue is expected to remain under pressure due to the prevailing economic, competitive and regulatory factors.
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