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France Telecom , the third-largest wireless operator in Europe, expects Average Revenue per User (ARPU) to decrease in the range of 12-13% in fiscal 2013, mainly attributable to stiff competition that exists in the French telecom market.

France Telecom has reported its financial results for full fiscal 2012, where revenue fell 2.7% year over year to €43.52 billion ($55.96 billion). ARPU for the reported fiscal dropped 10% as compared with last year. Rollout of attractive 3G plans by Paris-based broadband service provider, Iliad SA, has resulted in such lackluster performance from FTE.

Iliad SA made its debut in the beginning of 2012 with service plans costing as low as $2.6 per month. So, to counter such threats and retain subscribers, FTE slashed its service rates, resulting in declining revenues. In response to that, Iliad further reduced its service rates, thus triggering more subscriber loss for FTE.

Moreover, the French market is dominated by big players like Telecom Italia (TI - Snapshot Report) and Vodafone Group PLC. (VOD - Analyst Report), which constitute more than half of the market revenue and profit. This has resulted in France Telecom’s reducing market share and lower margins and profit.

Like its European peers, France Telecom also contends with increasing regulatory pressure which has been affecting the company’s revenues. Reduction in mobile termination rates (fees operators charge each other to connect calls) in key markets such as UK and Spain, remains one of the key reasons for the declining revenue across these markets.

In order to drive growth in the domestic segment, France Telecom is shedding its underperforming European assets due to the weak economic conditions and unfavorable regulatory measures that continue to hamper its top line. The company sold its Swiss mobile subsidiary, Orange Communication, to the London buyout firm, Apax Partners in February 2012. The company divested its stakes in the Orange Austria unit to the Hong Kong-based Hutchison Whampoa Ltd, for cash proceedings of €70 million.

Currently, France Telecom carries a Zacks Rank #3 (Hold). Constitute

Other Stocks to Consider

Related stock in the telecom sector is Telefonica , which carries a Zacks Rank #3 (Hold).

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