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France Telecom 1Q Revenue +1.4%; Keeps M&A Focus

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PARIS (Dow Jones) France Telecom, Wednesday reported improved first quarter revenue and margins, driven by growth in its mobile phone operations across Europe and Africa, and reiterated its hunger for consolidation in Europe.

"From our point of view, there's a favorable context for the group to look at consolidation opportunities" while respecting its dividend and gearing ratio commitments, Chief Financial Officer Gervais Pellissier told a conference call.

Pellissier said France Telecom remained interested in acquiring Nordic operator TeliaSonera, but that negotiations hadn't yet begun.

Revenue for the quarter ended March 31 increased 1.4% to EUR13.03 billion from EUR12.84 billion a year earlier, slightly above an average forecast of EUR13 billion from 15 analysts polled by Dow Jones Newswires.

The increased revenue helped third-quarter earnings before interest, taxes, depreciation and amortization, or Ebitda, grow 2.9% to EUR4.79 billion from EUR4.66 billion, beating the EUR4.73 billion forecast by analysts.

The Ebitda margin widened to 36.8% from 36.3% a year earlier, as France's incumbent operator grew revenue and kept costs under control. The company reduced its headcount by 4,641 on the year to 185,874, Pellissier said.

"Some people expected a small rise in the margin, but not this big," said Dexia analyst Rob Goyens, who has a neutral rating on France Telecom stock.

"I expect it to be well-received in today's market," Goyens said, while adding that the reaction "could be a bit muted" due to ongoing uncertainty over the company's M&A ambitions.

The results kept the company on track for its 2008 targets of cash flow over EUR7.8 billion and a stable Ebitda margin, Pellissier said.

For the first and third quarters, France Telecom doesn't report earnings below the Ebitda line.

The company's shares closed Tuesday down EUR0.19, or 0.9%, to EUR20.34 in an overall weaker market.

Before Wednesday, France Telecom's share price had fallen more than 17% since the start of the year, broadly in line with the DJ Stoxx European telecommunications index, dragged down by concern over the company's appetite for large-scale acquisitions.

The company startled investors and analysts in April when it said it was considering a bid for TeliaSonera. The interest came as M&A has returned to the fore among Europe's incumbent operators - most recently, German giant Deutsche Telekom was linked Sunday with a bid for U.S. operator Sprint Nextel Corp.

-By Jethro Mullen, Dow Jones Newswires; 33 1 4017 1738; jethro.mullen@dowjones.com

(END) Dow Jones Newswires

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