France Telecom Revenue Growth Accelerates in 1998.

PARIS--(BUSINESS WIRE)--Feb. 15, 1999--France Telecom's consolidated operating revenues were FRF 161.7 billion (24.6 billion euros) in 1998, an increase of 5.2 percent, compared to growth of 2.4(1) percent in 1997.

Accelerated growth in 1998 was driven mainly by sustained development of wireless telephony in France and by the expansion of France Telecom's international business activities. -0-

                    Consolidated Operating Revenues

    (in millions of francs) at Dec. 31,  at Dec. 31,     Change
                               1998         1997       1998/1997
                                        pro forma(1)     (in %)

Fixed-line telephony          93,584       97,162         (3.7)
Mobile Communications         24,528       17,073         43.7
Leased-line and data
  transmission                15,736       13,595         15.7
Equipment sales and rentals    7,718        7,905         (2.4)
Information services           8,176        6,877         18.9
Broadcasting and cable
 television                    8,096        6,966         16.2
Other revenues                 3,840        4,046         (5.1)

Total (in millions of
 francs)                     161,678      153,624          5.2

Total (in millions of
 euros)                       24,648       23,420          5.2

Consolidated operating revenues were FRF 161.7 billion (24.6 billion euros) in 1998, an increase of 5.2 percent, compared to 2.4(1) percent in 1997. Excluding the effect of changes in consolidation and exchange rate fluctuations, growth was 4.2 percent in 1998, compared to 1.3(1) percent in 1997. The acceleration in revenue growth for 1998 is primarily due to particularly sustained development of wireless telephony in France. France Telecom's Itineris GSM cellular service had 5.45 million subscribers at December 31, 1998, an increase of 82 percent, or 2.45 million subscribers compared to the previous period. In addition, France Telecom's international business activities generated FRF 15.0 billion (2.3 billion euros) in revenues in 1998, representing annual growth of 39.3 percent with a constant scope of consolidation.

Total domestic telephone traffic (fixed and wireless) advanced 9.2 percent during the year, significantly higher than the year-earlier figure of 6.6 percent. However, during the fourth quarter, growth in total traffic dipped slightly from the sustained average of 9.5 percent for the first three quarters, totaling 8.5 percent in comparison with the last quarter of 1997. This slight decline reflects greater competition in the long-distance traffic (domestic and international) during the last quarter of 1998. The rise in telephone traffic continues to be driven by very strong growth in calls between mobiles and fixed line telephones and by the buoyant development of the Internet in France.

Consolidated revenues from fixed-line telephony decreased by FRF 3.6 billion (500 million euros) in 1998. The share of fixed-telephony in total consolidated revenues continued its steady decline, totaling 57.9 percent compared to 63.2 percent a year earlier. This trend was due mainly to the full-year impact of significant cuts in rates for domestic long-distance and international calls (in March and October 1997) within the scope of France Telecom's multi-year rate rebalancing policy.

Domestic fixed telephone traffic increased 7.2 percent, after rising 6.4 percent in 1997. Calls to mobiles and to Internet access services posted strong growth, spurred by the introduction of new services in France. Conventional voice telephony continued to advance, stimulated in particular by the success of various specialized subscription plans. The number of customers who have chosen these different plans nearly doubled in just one year to reach 4.6 million at December 31, 1998. Single number services (toll-free, special rate, etc.) for businesses also enjoyed sustained growth as traffic to these numbers doubled in one year. However, the development of competition in the long-distance market (domestic and international) slowed growth to 5.9 percent in domestic fixed-telephony traffic during the fourth quarter, compared with fourth-quarter 1997. This compares with 7.6 percent growth for the first nine months of 1998.

Some 60 licenses have been issued to competitors, as competition has now been established in the French market. The combination of actions by France Telecom and competitors has produced the expected effect of driving overall growth in the France's telecommunications market. Competitors have gained established positions, with a 5.1 percent share of the long-distance market (domestic and international) as of December 1998, compared to just 1.7 percent six months earlier. Competition has clearly fulfilled its dual objective of accelerating the growth rate (with a positive effect for the market) and encouraging a broader offering of services, which is positive for customers.

Revenues from mobile communications services jumped 55.5 percent on a year-to-year basis, excluding the effect of changes in consolidation and exchange rate fluctuations, to FRF 24.5 billion (3.7 billion euros). Its contribution to total revenues rose sharply, reaching 15.2 percent, versus 11.1 percent in 1997. This increase was largely due to Itineris GSM cellular service, which saw a sharp acceleration in growth, especially during the second half of the year. Itineris added nearly 2.45 million new subscribers in 1998, compared to 1.7 million in 1997. The service counted 5.45 million subscribers at year-end 1998, giving it 49.5 percent of the digital wireless market in France, versus 53.3 percent a year earlier. Itineris generated 1998 revenues of FRF 17.1 billion (2.6 billion euros), representing annual growth of 58.4 percent.

Revenues from leased lines and data transmission products were FRF 15.7 billion (2.4 billion euros), a 14.5 percent increasem excluding the effect of changes in consolidation and exchange rate fluctuations. The sustained increase in the number of high- and medium-speed digital leased lines was further amplified in 1998. The annual growth rate in the number of these types of leased lines reached 50 percent in 1998, compared to 42 percent in 1997. Growth in data transmission services also accelerated in 1998, led by the development of business services and Internet use. There was a fourfold increase in traffic volume for Internet applications in 1998. The Internet now accounts for nearly 70 percent of data transmission, compared to approximately 50 percent a year earlier.

Revenues from information services experienced strong annual growth of 18.9 percent, corresponding in large part to the consolidation as of July 1, 1998 of the business activities of the Oda group, which sells advertising space in France Telecom directories. Excluding the impact of Oda, which accounted for FRF 1.0 billion (149 million euros) in revenues, revenues from information services grew 4.7 percent.

Revenues from Teletel videotex and Audiotel audiotext services remained stable, while France Telecom's Wanadoo Internet service increased a more than four and one half times in the number of subscribers over the 12-month period. At December 31, 1998, Wanadoo had 495,000 subscribers (compared with 106,000 a year earlier). This enabled Wanadoo to double its share of the market from 17 percent at the end of 1997 to 36 percent at the end of 1998. This performance consolidates France Telecom position as the leading "Net Company" in France.

The growth in revenue from broadcasting and cable television services reached 16.2 percent, primarily due to the consolidation of new businesses, notably the Dutch cable operator Casema BV (included in the scope of consolidation since January 1, 1998). Excluding the effect of changes in consolidation and exchange rate fluctuations, revenues from this business increased 5.2 percent on the strength of growth in broadcasting services and cable TV activities by France Telecom Cable.

Consolidated revenues from international business activities amounted to FRF 15.0 billion (2.3 billion euros) at December 31, 1998, an increase of 39.3 percent, excluding the effect of changes in consolidation and exchange rate fluctuations. International activities now account for 9.3 percent of France Telecom's consolidated revenues, compared with 7 percent in 1997.

Mobile communications services outside of France continued to experience rapid growth, as revenues from these activities doubled in one year (excluding the impact of revenues from distribution companies and service providers, which were divested in 1998). France Telecom's international wireless services counted 1.6 million subscribers at December 31, 1998, a year-to-year increase of 130 percent.

Fixed-telephony activities outside of France also experienced sharp growth. This increase came from France Telecom's CI Telcom subsidiary in Cote d'Ivoire, acquired in 1997, and from the consolidation of businesses acquired in 1998: Sonatel (Senegal), consolidated as of July 1, 1998, and CTE (El Salvador), consolidated as of September 1, 1998.

Broadcasting and cable television activities outside of France comprises the Dutch cable operator Casema BV, acquired in December 1997 and consolidated for the full year in 1998. Casema BV had nearly 1.1 million subscribers at the end of December 1998, of which 13,400 already use cable to access a recently launched cable Internet service.

(1) As of January 1,1998, France Telecom changed the method of

accounting for revenues for calls from fixed-line telephones

to wireless telephone and paging services provided by

competing operators. Revenues from these calls are now shown

net of amounts paid to such operators to carry the traffic

on their networks. Data for the previous years has been

restated on a pro forma basis to facilitate comparison.