France Telecom's ISP 'won't make profit until 2003'

France Telecom has admitted its online operation Wanadoo is unlikely to make a profit for the next three years - only days before its flotation on the Paris stock exchange.

Michel Bon, managing director of France Telecom, told La Tribune the ISP could break even in France in 2003 and in its European operations in 2004 as internet costs were eating into its earnings.

"When you start a service like this, it is normal to having a running loss. It would be astonishing to develop an activity that starts from nothing and now has more than two million subscribers without losing money," Bon said.

However, he claimed the company was hoping to raise E2bn (£1.26bn) from the flotation of ten per cent of the ISP. The money, Bon said, would be put in a fund to finance the purchase of UK mobile phone operator, Orange.

Robin Duke Woolley, senior consultant at Schema, claimed the flotation would raise the funds needed for the company's international expansion plans.

He said: "It needs an international strategy, there is a lot of competition in France and it needs to compete. Its problems go back to the split with Deutsche Telecom over the German operator's attempts to take over Telecom Italia. Since then, they have gone their separate ways and France Telecom has a deep need for an international strategy of its own - it was moving abroad with Deutsche Telecom and the Global One alliance but not any more. Floating part of your internet arm is a proven strategy for international expansion as Deutsche Telecom has shown with T-Online."

However, Woolley said the lack of profit did not mean the company would necessarily receive a lukewarm market response.

"France Telecom is now trying to get value for Wanadoo which puts value on the whole of the France Telecom group. It's not unusual for Wanadoo not to make a profit given its profile - even though T-Online is profitable.

"Wanadoo is only two years old, has a smaller customer base than T-Online and only covers France. But, it has a solid customer base, it's growing quickly, and if T-Online can float successfully despite a depressed market, then so can France Telecom," Woolley added.