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France Telecom Suffers Sharp 2006 Profit Drop

France Telecom posted a sharp drop in 2006 profits on Tuesday, hit by restructuring and falling prices in top markets, but fuelled speculation it was saving up for acquisitions by keeping its dividend stable.

The operator, which trades mainly under the Orange brand, the name of its original mobile business, reported a net profit of 4.139 billion euros ($5.44 billion) for the 12 months to Dec. 31, down from 5.709 billion in 2005.

The outcome included restructuring costs of 567 million euros and an impairment charge of 2.8 billion euros, mostly related to a drop in the value of its struggling U.K. mobile business.

France Telecom saw its full-year operating profit fall to 6.988 billion euros from 10.498 billion euros in 2005.

France's leading telecoms group and Poland's largest mobile operator maintained its dividend at 1.2 euros a share for the current year.

"This signals that they (France Telecom) are hoping to make an acquisition or at least keep their options open," one London-based analyst said.

France Telecom, which also operates in Great Britain, the Netherlands, North Africa and the Middle East, said it was looking for acquisitions in emerging markets, including Asia.

"Engines of growth are to be found outside Europe," France Telecom Finance Director Gervais Pellissier told journalists on a conference call.

French Footprint

Pellissier said the group's Dutch business had not been put up for sale as some analysts had speculated.

"However, in the Netherlands as in other countries, we are looking at development opportunities and partnerships, that applies to France Telecom's entire footprint," Pellissier said.

France Telecom shares were little moved on the news, trading down 0.46% at 19.62 euros, slightly underperforming a flat DJ Stoxx telecoms sector index.

Overall, analysts said France Telecom's results, part of which were published on Feb.1, lacked sparkle.

Pellissier declined to give a sales forecast for 2007.

"We are not giving sales guidance... The only element we are giving is that we should see very moderate growth, which means at best the same level as in 2006...On the basis of trading today, we cannot assume a strong return to growth," he said.

In July, France Telecom scrapped its 2% underlying sales growth target for 2006, as price competition, regulatory pressure and Internet telephony rose much more than foreseen.

On a comparable basis, revenues in 2006 rose 1.2% to 51.702 billion euros.

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