France Telecom Betting on LTE to Reverse Revenue Trends

France Telecom says it is banking on long term evolution to reverse its revenue fortunes, particularly in its crucial home market. 

France Telecom reported a nine percent drop in its first-quarter adjusted earnings before interest, tax, depreciation and amortization, to 3.12 billion euros ($4.06 billion).

Revenue was down 5.9 percent from a year earlier at EUR10.28 billion, largely due to a 6.2 percent decline in revenue at the company's French mobile unit, which has slashed prices to keep up with Iliad SA's upstart competitor Free Mobile.

However, the company plans to boost prices for most customers who want to use the new 4G network.

Operating cash flow fell 12.9 percent to 1.98 billion euros ($2.58 billion), showing the impact of price competition from low-cost rival Iliad.

France Telecom also forecasts average revenue per user in the French mobile market will fall 12 percent to 13 percent in 2013.

Keep in mind that what France Telecom hopes will happen is that users will pay perhaps five euros a month up to 10 euros a month more than they presently do, to use the LTE network. Sure, LTE will be faster. But France Telecom is banking on higher tariffs to produce the incremental revenue lift.

The expectation is not misplaced. U.S. service providers have managed to raise prices, sometimes indirectly, for use of the 4G networks.

Still, it is probably worth noting that the oft-heard argument that LTE will enable the creation of new applications and services is not what is driving LTE revenue in most markets. Instead, new higher-priced tariffs represent the difference in revenue.

That isn’t to say new apps could not, or will not, develop in the future. They probably will. But, for the moment, the big revenue upside from 4G is relatively indirect (the latest devices run on 4G and therefore require a 4G plan) in some cases, and direct (higher prices) in other cases.

The issue is whether the "new revenue" is generated mostly by new retail policies, totally new apps, higher data consumption and therefore bigger data plans, or some combination of all of those possible trends.

Also, though it will be hard to quantify, users will simply shift from use of 3G to 4G, so LTE revenue cannibalizes 3G.

Many executives say the "new revenue" will come in large part from an end to "all you can eat" data plans that are instituted with 4G. In that case, the "new revenue" does not come from "compelling new apps" but only from changes in charging policies. That is helpful for a mobile ISP, but perhaps not the same thing as LTE actually enabling creation of brand new apps.