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FranceTelecom , which operates under the Orange brand, has recently unveiled a smartphone application called Libon, which will allow its users to make free national and international calls within France Telecom’s network. This latest application from Orange will put it in direct competition with other similar services like Skype, WhatsApp and Viber.

Libon keeps record of all the recent conversations, messages, calls and voicemails of its users. The application will be available as an iphone application and will also be available for other smartphones running on Google Inc.’s Android software from the first quarter of 2013.

Libon allows its users to communicate free of cost, thus enabling them to utilize less of their paid services. This could turn out to be a threat for the operators whose bottom line could get hit if Libon gets mass acceptance. However, some premium features like visual voicemail, voicemail transcripts and email copies of voicemails are chargeable. 

Over the past few years, the telecom operators have suffered a lot due to the proliferation of free calling and texting services. The Spanish giant Telefonica S.A. had already launched a similar application called TU ME in May while BOBSLED was initiated by Deutsche Telecom AG.  Armed with the huge popularity of Apple Inc.’s (AAPL - Analyst Report) iphone and other Android-based devices, applications like Libon will only gain in popularity in the future.

Various operators across the telecom industry has been developing a technology called Rich Communication service (RCS), which necessarily updates mobile calls by providing instant messaging, live video sharing and file transfers across multiple devices. France Telecom is preparing to launch its own RCS services in June 2013, which will help the company to compete better with this free calling and texting applications. 

France Telecom recently reported its third-quarter 2012 results where revenue slipped 3.5% year over year to $13.9%. We believe the French giant needs to bring in RCS as quickly as possible in order to stop the customers from sifting to these free calling applications like Libon and thus halt the revenue slide.   

We currently maintain a long-term Neutral recommendation on RadioShack. However, it holds a Zacks #4 Rank, implying a short-term Sell rating.

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