France Telecom's Stephane Richard May Direct Deals Cash to Southeast Asia

France Telecom SA may direct some of its up to 7 billion euro ($9.45 billion) war chest for emerging- markets expansion to Southeast Asia as the company’s historic turf in Africa becomes more crowded.

Europe’s third-largest phone company may look to expand in Vietnam, Cambodia or Laos, Chief Executive Officer Stephane Richard said today on the sidelines of the Morgan Stanley Technology, Media & Telecoms Conference in Barcelona.

“We said emerging markets, with a focus on Africa and the Middle East,” he said. “But we don’t exclude, naturally, that there could be a good opportunity in a region that makes sense for us we could look at.” The company could weigh deals in “Southeast Asia, which means the formerly French colonies -- Vietnam, Cambodia, Laos,” he said.

France Telecom is increasingly confronting international rivals in Africa and the Middle East, including South Africa’s MTN Group Ltd., U.K.-based Vodafone Group Plc, France’s Vivendi SA and Indian operator Bharti Airtel Ltd., all looking to offset slow-growing home markets. Southeast Asia hasn’t seen a similar push by foreign operators, with the exception of Russian operator VimpelCom Ltd.’s operations in Cambodia and Vietnam.

Separately, Richard today told investors in Barcelona that the company may consider a share buyback or other form of cash return to investors if it can’t find productive targets for increased investment.

Doubling Revenue

While the Paris-based company doesn’t have specific plans to expand in Southeast Asia, the region has “strong economic growth, and a penetration rate that is still pretty weak, so of course these are interesting countries,” Richard added. In Vietnam, France Telecom is working with the state telecom operator to install new phone lines in Ho Chi Minh province.

Emerging markets last year accounted for about 3.3 billion euros of sales at France Telecom, or about 7 percent of the total of 46 billion euros. The company is looking to double that revenue in the next five years. It has operations in Africa, including in Senegal, Cameroon, and Niger. Expansion in the Americas and large Asian countries isn’t on the table, he said.

Meanwhile, a decision by the French government, which holds 27% of France Telecom, to sell part of its stake “could be an opportunity to work also on a share buyback,” although it’s not clear when or if such a sale would occur, he said.

Home Market

France Telecom had free cash flow of 8.3 billion euros at the end of last year. The company also has projected cash flow of 8 billion euros for this year and next.

Revenue from its home market slipped below 50 percent of the total for the first time last year at the one-time state- owned monopoly, sliding to about 45 percent. France Telecom’s domestic sales fell 2 percent in the first half of the year to about 11.6 billion euros.

At home, France Telecom will face an aggressive new competitor when discount broadband provider Iliad SA enters the mobile market as the fourth French operator. Iliad’s billionaire owner Xavier Niel has pledged to force mobile prices down in France, where operators charge subscription rates higher than the European average, according to the Organisation for Economic Co-operation and Development.

To contact the reporter on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net.