As filed with the Securities and Exchange Commission on May 5, 2010April 13 2012

UNITED STATES SECURITIES
AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

   REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20092011

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

   SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Commission File Number: 1-14712

 

FRANCE TELECOM

(Exact name of Registrant as specified in its charter)


Not applicable

(Translation of Registrant’s name into English)

6 place d’Alleray

75505 Paris Cedex 15

France

French Republic

(Jurisdiction of incorporation or organization)

(Address of principal executive offices)

Contact person: Stéphane Pallez,Nicolas Guérin, tel +331+33 1 44 44 92 44, stephane.pallez@orange-ftgroup.com,21 05, dirjuridique.dfs@orange.com,

6 place d’Alleray75505 Paris Cedex 15, France

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class:

American Depositary Shares, each representing one Ordinary Share, nominal value €4.00 per share

Ordinary Shares, nominal value €4.00 per share*

Name of each exchange on which registered:registered, respectively :

New York Stock Exchange

New York Stock ExchangeExchange*

* Listed, not for trading or quotation purposes, but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered bythe annual report:

Ordinary Shares, nominal value €4.00 per share: 2,648,709,7742,648,885,383 at December 31, 20092011

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes  

  No  

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant  to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes  

  No  

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant  was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

Yes  

  No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).**

Yes  

  No  

** This requirement is not currently applicable to the registrant.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  
See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements
included in this filing:

U.S. GAAP  

International Financial Reporting Standards as issued by the International Accounting Standards Board  

Other  

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant haselected to follow.

Item 17  

   Item 18  

If this is an annual report, indicate by check mark whether the registrant is a shell company  (as defined in Rule 12b-2 of the Exchange Act).

Yes  

  No  





Presentation of information

The consolidated financial statements contained in this annual report of France Telecom on Form 20-F for the year ended December 31, 2009 (“Form 20-F”)2011 have been prepared in accordance with International Financial Reporting Standards (IFRS)(“IFRS”) as issued by the International Accounting Standards Board (IASB)(“IASB”) and with IFRS as adopted by the European Union, as of December 31, 2009.

France Telecom publishes its consolidated financial statements in euros. Solely for the convenience of the reader, this Form 20-F contains translations of certain euro amounts into U.S. dollars. These translations should not be construed as representations that the converted amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rates indicated or at any other rate.

Unless otherwise stated, translations of euros into U.S. dollars have been made at the rate of €0.7518 to $1.00 (or $1.3302 to €1.00), the noon buying rate in New York City for cable transfers in euros as certified for customs purposes by the Federal Reserve Bank of New York (the “Noon Buying Rate”), on April 30, 2010. See Item 3Key Information– 3.AExchange Rate Information for information regarding the U.S. dollar/euro exchange rate since January 1, 2005.2011.

This Form 20-F contains certain financial information presented on a “comparable basis”. The basis for the presentation of this financial information is set out in Item 5Operating and Financial Review and Prospects. The unaudited financial information presented on a comparable basis is not intended to be a substitute for, and should be read in conjunction with, the consolidated financial statements included in Item 18Financial statements, including the Notes thereto.

In this Form 20-F, references to the “EU” are to the European Union, references to the “euro” or “€” are to the euro currency of the EU, references to the “United States” or “U.S.” are to the United States of America and references to “U.S. dollars” or “$” are to United States dollars.

References to the “2011 Registration Document” are references only to those pages and sections attached in Exhibit 15 to this Form 20-F.

As used herein,in this Form 20-F, the terms “Company”“France Telecom-Orange”, “France Telecom”, “Orange”, “France Telecom group” and the “Group”“the Group”, unless the context otherwise requires, refer to France Telecom together with its consolidated subsidiaries, and “France Telecom S.A.” refers, as well as “the Company”, refer only to the parent company, a Frenchsociété anonyme (corporation), without its subsidiaries.

References to “shares”“the Shares” are references to France Telecom’s ordinary shares,Ordinary Shares, nominal value €4.00 per share, and references to “ADSs”“the ADSs” are to France Telecom’s American Depositary Shares each(each representing one share,Ordinary Share), which are evidenced by American Depositary Receipts (“ADRs”)(ADRs).

References to the “2009 Registration Document” are references to the Registration Document of France Telecom for the year ended December 31, 2009, as furnished to the U.S. Securities and Exchange Commission on Form 6-K on May 3, 2010.



20092011 form 20-F /FRANCE TELECOM 12




Cautionary statement regarding forward-looking statements

This Annual Report on Form 20-F contains forward-looking statements (within- within the meaning of Section 27A of the U.S. Securities Act of 1933 (“the Securities Act”) or Section 21E of the U.S. Securities Exchange Act of 1934)1934 (“the Exchange Act”) - about France Telecom, including, without limitation, certain statements made in Item 4.BBusiness overview as well as in Item 5Operating and Financial Review and Prospects, as well as in Item 4.BBusiness overview. Forward-looking statements can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “is expected to”, “will”, “should”, “seeks”“could”, “anticipates”“expect”, “outlook”“estimate”, “target”“believe”, “anticipate”, “propose”, “continue”, “foresee”, “benefit”, “carry out”, “meet”, “strategy”, “objective”, “aim”, “development”, “intention”, “ambition”, “risk”, “potential”, “implementation”, “roll-out” or “commitment” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by the forward-looking nature of discussions of strategy, plans or intentions.

Although France Telecom believes these stat ementsstatements are based on reasonable assumptions, these forward-looking statements are subject to numerous risks and uncertainties, including matters not yet known to us or not currently considered material by us, and there can be no assurance that anticipated events will occur or that the objectives set out will actually be achieved.

Important factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements include, among others:

fluctuations in general economic activity levels as well as the level of activity in each of the markets in which France Telecom operates;

the effectiveness of the strategy reflected in the “Conquests 2015” strategic plan as well as of the other strategic, operational, and financial initiatives of France Telecom and the level of Group investment necessary to pursue this strategy and to adapt its networks;

France Telecom’s ability to face intense competition within its sector and to adapt to the ongoing transformation of the telecommunications industry, in particular in France with the arrival on the market of a fourth mobile operator;

fiscal and regulatory constraints, in particular in setting wholesale rates;

results of current litigation, in particular the litigation with the European Commission regarding changes to the system for financing the retirement pensions for civil servants working at France Telecom;

risks and uncertainties specifically related to international operations;

risks related to the impairment of assets;

exchange rate fluctuations;

conditions for accessing the capital markets (in particular risks related to liquidity and credit ratings) and counterparty risks.

Forward-looking statements speak only as of the date they are made. Other than as required by law, France Telecom does not undertake any obligation to update them in light of new information or future developments.

Important factors that could cause actual results to differ materially from the results anticipated in the forward-looking statements include, among others:

intense competition in the telecommunications industry;

France Telecom’s ability to find growth opportunities in new markets and activities;

further deterioration of the general economic and business conditions in the markets served by France Telecom and its affiliates, or the failure of such conditions to improve;

overall trends in the economy in general and in France Telecom’s markets;

the effectiveness of the integrated operator strategy including the success and market acceptance of the Orange brand and other strategic, operating and financial initiatives;

France Telecom’s ability to adapt to the ongoing transformation of the telecommunications industry, in particular to technological developments and new customer expectations;

France Telecom’s ability to respond to the challenges resulting from its crisis with its employees while continuing its cost reduction plans;

legal and regulatory developments and constraints, and the outcome of legal proceedings related to regulation and competition;

the success of France Telecom’s domestic and international investments, joint ventures and strategic relationships;

The most significant risks related to information and communication technology systems generally;

exchange rate fluctuations;

interest rate fluctuations, France Telecom’s ability to access to the capital markets and the conditions of capital markets in general;

other risks and uncertainties discussedare described in Item 3Key Information –3.DRisk factors of this document.Factors.



20092011 form 20-F /FRANCE TELECOM 23



Table of contents


PART I

56

ITEM 1

Identity of directors, senior management and advisers

56

ITEM 2

Offer statistics and expected timetable

56

ITEM 3    Key information

Key information

56

3.A

Selected financial data

56

3.B

Capitalization and indebtedness

8

3.C

Reasons for the offer and use of proceeds

8

3.D

Risk factors

8

ITEM 4

Information on France Telecom

9

4.A

History and development of the Company

9

4.B

Business overview

9

4.C

Organizational structure

9

4.D

Property, plant and equipment

9

ITEM 4A4    Information on France Telecom

10Unresolved staff comments

4.A      History and development of France telecom

10

4.B      Business overview

10

4.C      Organizational structure

10

4.D      Property, plant and equipment

10

ITEM 54A  Unresolved staff comments

11

ITEM 5    Operating and financial review and prospects

1011

5.A      Operating results

Operating results

1011

5.B

Liquidity and capital resources

12

5.C      Research and development, patents and licenses, etc.

12

5.D      Trend information

12

5.E      Off-balance sheet arrangements

12

5.F      Tabular disclosure of contractual obligations

12

5.G      Safe harbor

12

ITEM 6    Directors, senior management and employees

13

6.A      Directors and senior management

13

6.B      Compensation

13

6.C      Board practices

13

6.D      Employees

13

6.E      Share ownership

14

5.C

ResearchITEM 7    Major shareholders and development, patents and licenses, etc.related party transactions

14

5.D7.A      Major shareholders

14Trend

7.B      Related party transactions

14

7.c      Interests of experts and counsels

14

ITEM 8    Financial information

15

5.E8.A      Consolidated statements and other financial information

Off-balance sheet arrangements

15

5.F8.B      Significant changes

Tabular disclosure of contractual obligations

15

ITEM 6

Directors, senior management9    The offer and employeeslisting

16

6.A

Directors9.A      Offer and senior managementlisting details

16

6.B9.B      Plan of distribution

Compensation

1617

6.C9.C      Markets

Board practices

1617

6.D9.D      Selling shareholders

Employees

1617

6.E9.E      Dilution

17Share ownership



2011 form 20-F /FRANCE TELECOM4



9.F      Expenses of the issue

17

ITEM 7

Major shareholders and related party transactions

17

7.A

Major shareholders

17

7.B

Related party transactions

17

ITEM 8

Financial10  Additional information

18

8.A10.A      Share capital

Consolidated statements and other financial information

18

8.B10.B      Memorandum of association and bylaws

Significant changes

18

ITEM 910.C    Material contracts

The offer and listing

18

ITEM 1010.D    Exchange controls

Additional information

20

10.A

Share capital

20

10.B

Memorandum of association and bylaws

20

10.C

Material contracts

20

10.D

Exchange controls

2018

10.E    Taxation

Taxation

2119

10.F

Dividends and paying agents

24

10.G    Statement by experts

24

10.H    Documents on display

24

10.I    Subsidiary information

24

ITEM 11  Quantitative and qualitative disclosures about market risk

24

ITEM 12  Description of securities other than equity securities

25

10.G12.A    Debt Securities

Statement by experts

25

10.H12.B    Warrants and Rights

Documents on display

25

10.I12.C    Other Securities

Subsidiary information

25

ITEM 1112.D    American Depositary Shares

Quantitative and qualitative disclosures about market risk

26



2009 form 20-F /FRANCE TELECOM – 3



ITEM 12

Description of securities other than equity securities

2625

12.APART II

Debt Securities

26

12.B

Warrants and Rights

26

12.C

Other Securities

26

12.D

American Depositary Shares

27

PART II

28

ITEM 13

Defaults, dividend arrearages and delinquencies

2827

ITEM 14

Material modifications to the rights of security holders and use of proceeds

2827

ITEM 15

Controls and procedures

2827

15.A

Disclosure controls and procedures

2827

15.B

Management’s annual report on internal control over financial reporting

27

15.C    Report of independent registered public accounting firms

28

15.d    Changes in internal control over financial reporting

29

15.CITEM 16  [reserved]

29Report

ITEM 16A  Audit committee financial expert

29

ITEM 16B  Code of independent registered public accounting firmsethics

29

ITEM 16C  Principal accountant fees and services

29

ITEM 16D  Exemptions from listing standards for audit committees

30

ITEM 16

[reserved]

31

ITEM 16A

Audit committee financial expert

31

ITEM 16B

Code of ethics

31

ITEM 16C

Principal accountant fees and services

31

ITEM 16D

Exemptions from listing standards for audit committees

31

ITEM 16E

Purchase of equity securities by the issuer and affiliated purchasers

30

ITEM 16F  Change in Registrant’s Certifying Accountant

30

ITEM 16G  Corporate governance

31

ITEM 16F16H  Mine Safety Disclosure

31Change in Registrant’s Certifying Accountant

PART III

32

ITEM 16G17  Financial statements

Corporate governance

32

PART III

34

ITEM 17

Financial statements

34

ITEM 18  Financial statements

Financial statements

34

Report of independent registered public accounting firms

3432

ITEM 19

List of exhibits

3533

Signature

3634




20092011 form 20-F /FRANCE TELECOM 45



Back to Contentstable of contents


PART I

ITEM 1    Identity of directors, senior management and advisers

Not applicable.

ITEM 2    Offer statistics and expected timetable

Not applicable.

ITEM 3    Key information

3.A      SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial and other operating data of France Telecom. The selected financial data set forth below should be read in conjunction with the consolidated financial statements and Item 5Operating and Financial Review and Prospects appearing elsewhere in this Form 20-F. France Telecom’s consolidated financial statements were prepared in accordance with IFRS as published by the IASB for the years ended December 31, 2005, 2006, 2007, 2008, 2009, 2010 and 2009.2011.

The selected financial information presented below relating toas of and for the yearstwelve month periods ended December 31, 2005, 2006, 2007, 2008, 2009, 2010 and 2009,2011 is extracted or derived from the consolidated financial statements. The periods ended December 31, 2009, 2010 and 2011 are derived from audited consolidated financial statements included in the 2011 Registration Document and the periods ended December 31, 2007 and 2008 are derived from audited by Ernst & Young Audit and Deloitte & Associés.consolidated financial statements which are not included herein.

CONSOLIDATED INCOME STATEMENT

 

in euros

(million, except per share data)

 

2011

2010

2009

2008

2007

Revenues

 

45,277

45,503

44,845

46,712

46,568

Operating income/(loss)

 

7,948

7,562

7,650

9,754

10,540

Finance costs, net

 

(2,033)

(2,000)

(2,206)

(2,884)

(2,647)

Consolidated net income after tax of continuing operations

 

3,828

3,807

3,202

4,014

6,648

Consolidated net income after tax of discontinued operations

 

-

1,070

200

404

171

Net income attributable to owners of the parent

 

3,895

4,880

3,018

4,073

6,300

Net earnings per shares

      

Net income of continuing operations attributable to owners of France Telecom S.A.

      

Net earnings per share - basic

 

1.47(1)

1.44(3)

1.06(3)

1.41(3)

2.36

  

2011

2010

2009

2008

2007

Net earnings per share - diluted

 

1.46(2)

1.43(3)

1.06(3)

1.39(3)

2.30

Net income attributable to owners of France Telecom S.A.

      

Net earnings per share - basic

 

1.47(1)

1.84(3)

1.14(3)

1.56(3)

2.42

Net earnings per share - diluted

 

1.46(2)

1.82(3)

1.14(3)

1.54(3)

2.36


CONSOLIDATED INCOME STATEMENT

(millions of euros, except share data)

2009
$(2)

2009

2008

2007

2006

2005

Revenues

61,115

45,944

47,669

46,568

51,702

48,082

Operating income/(loss)

10,454

7,859

9,945

10,540

6,988

10,498

Finance costs, net

(3,058)

(2,299)

(2,957)

(2,647)

(3,251)

(3,367)

Consolidated net income after tax of continuing operations

4,343

3,265

4,089

6,648

1,557

5,712

Consolidated net income after tax of discontinued operations

266

200

403

171

3,211

648

Net income attributable to owners of the parent

3,987

2,997

4,069

6,300

4,139

5,709

Net earnings per shares

      

Net income of continuing operations attributable to owners of France Telecom S.A.

      

Net earnings per share - basic

1.41

1.06(1) (5)

1.40(1)

2.36(1)

0.40

2.07

Net earnings per share - diluted

1.41

1.06(1) (6)

1.39(1)

2.30(1)

0.39

2.00

Net income attributable to owners of France Telecom S.A.

      

Net earnings per share - basic

1.50

1.13(1) (5)

1.56(1)

2.42(1)

1.59

2.28

Net earnings per share - diluted

1.50

1.13(1) (6)

1.54(1)

2.36(1)

1.57

2.20




20092011 form 20-F /FRANCE TELECOM 56



Back to Contentstable of contents


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(millions of euros)

2009
$(2)

2009

2008

2007

2006

2005

Intangible assets, net(3)

51,278

38,549

44,752

47,465

49,675

52,591

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

in euros

(million)

2011

2010

2009

2008

2007

Intangible assets, net(4)

38,683

40,335

37,750

43,923

47,465

Property, plant and equipment, net

32,352

24,321

26,534

27,849

28,222

28,570

23,634

24,756

23,547

25,826

27,849

Total assets

122,437

92,044

94,785

100,601

102,616

109,350

96,083

94,276

90,910

93,652

100,601

Net financial debt

45,148

33,941

35,859

37,980

42,017

47,846

30,890

31,840

32,534

35,424

37,980

Equity attributable to the owners of the parent

34,613

26,021

27,090

29,471

26,437

24,860

27,573

29,101

26,864

27,032

29,471


CONSOLIDATED STATEMENT OF CASH FLOWS

(millions of euros)

2009
$(2)

2009

2008

2007

2006

2005

CONSOLIDATED STATEMENT OF CASH FLOWS

CONSOLIDATED STATEMENT OF CASH FLOWS

in euros

(million)

2011

2010

2009

2008

2007

Net cash provided by operating activities

19,134

14,384

14,999

14,644

13,863

13,374

12,879

12,588

14,003

14,743

14,644

Net cash used in investing activities

(9,353)

(7,031)

(8,035)

(6,881)

(4,691)

(11,677)

(6,308)

(5,951)

(5,397)

(7,167)

(6,881)

Purchases of property, plant and equipment
and intangible assets

(7,605)

(5,717)

(7,140)

(7,064)

(7,039)

(6,142)

(6,711)

(6,102)

(5,454)

(6,657)

(7,064)

Net cash used in financing activities

(10,987)

(8,260)

(6,057)

(7,654)

(9,271)

(860)

(2,860)

(6,117)

(9,554)

(6,706)

(7,654)

Cash and cash equivalents at end of year

5,253

3,949

4,800

4,025

3,970

4,097

8,061

4,428

3,805

4,694

4,025


RATIO

(euros)

2009
$(2)

2009

2008

2007

2006

2005

Dividend per share for the year

1.86

1.40(4)

1.40

1.30

1.20

1.00

DIVIDEND

      
 

2011

2010

2009

2008

2007

Dividend per share for the year (euros)

1.40(5)

1.40

1.40

1.40

1.30

Dividend per share for the year (dollars)(6)

1.83

1.83

1.83

1.83

1.70


(1)  The weighted average number of ordinary shares used for calculating basic earnings per share is 2,643,535,474.

(2)  The weighted average number of ordinary shares used for calculating diluted earnings per share is 2,711,972,965.

(3)  Earnings per share calculated on a comparable basis.

(4)  Includes goodwill and the other intangible assets.

(5)  Subject to approval by the shareholders' meeting of June 5, 2012.

(6)  The U.S. dollar amounts presented in the table have been translated solely for the convenience of the reader using the Noon Buying Rate on April 6, 2012 of €0.764 to $1.00.


(1)

Earnings per share calculated on a comparable basis.

(2)

In millions. The U.S. dollar amounts presented in the table above have been translated solely for the convenience of the reader using the Noon Buying Rate on April 30, 2010 of €0.7518 to $1.00.

(3)

Includes goodwill and the other intangible assets.

(4)

Subject to approval by the shareholders' meeting of June 9, 2010.

(5)

The weighted average number of ordinary shares used for calculating basic earnings per share is 2,648,020,364.

(6)

The weighted average number of ordinary shares used for calculating diluted earnings per share is 2,649,121,002.



OPERATIONAL DATA

OPERATIONAL DATA

OPERATIONAL DATA

2009

2008

2007

2006

2005

2011

2010

2009

2008

2007

Number of fixed telephone lines (in millions)

46.1

46.7

47.4

48.7

49.2

44.3

45.1

46.1

46.7

47.4

Number of mobile customers (in millions)

132.6

121.8

110

97.6

84.3

167.4

150.4

132.6

121.8

110

Number of broadband (mainly ADSL) customers (in millions)

13.2

12.7

11.7

9.8

7.6

14.4

13.7

13.5

12.7

11.7

Number of employees (workforce end of period, in thousands)

180,580

186,049

187,331

191,036

203,008

Number of employees (workforce end of period)

171,949

168,694

164,651

169,692

187,331



20092011 form 20-F /FRANCE TELECOM 67



Back to Contentstable of contents


Exchange rate information

Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar equivalent of the euro-denominated prices of the sharesShares and, as a result, will affect the market price of the ADSs in the United States. In addition, exchange rate fluctuations will affect the U.S. dollar equivalent of any cash dividendsdividend received by holders of ADSs.

The following table sets forth, for the periods and dates indicated, certain information concerning the Noon Buying Rate in New York City for cable transfers for foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York expressed in U.S. dollars per €1.00.€1.00, as published elsewhere. Such rates are provided solely for the convenience of the reader and are not necessarily the rates used by France Telecom in the preparation of the Consolidated Financial Statements included elsewhere in this Form 20-F. No representation is made that the euro could have been, or could be, converted into U.S. dollars at the rates indicated below or at any other rate. See Item 3.DRisk factors:factors: “France Telecom’s results and cash position are exposed to exchange rate fluctuations”.

U.S. dollar per €1.00

Period end rate

Average rate(1)

High

Low

YEARLY AMOUNTS

    

2007

1.4603

1.3797

1.4862

1.2904

2008

1.3919

1.4726

1.6010

1.2446

2009

1.4332

1.3935

1.5100

1.2547

2010

1.3269

1.3261

1.4536

1.1959

2011

1.2973

1.3931

1.4875

1.2926

     

MONTHLY AMOUNTS

    

September 2011

1.3449

1.3747

1.4283

1.3446

October 2011

1.3947

1.3732

1.4172

1.3281

November 2011

1.3453

1.3558

1.3803

1.3244

December 2011

1.2973

1.3155

1.3487

1.2926

January 2012

1.3053

1.2910

1.3192

1.2682

February 2012

1.3359

1.3238

1.3463

1.3087

March 2012

1.3334

1.3208

1.3336

1.3025

 

(1)  The average of the Noon Buying Rates on the last business day of each month during the relevant periodfor the full year average, and on each business day of the month for the monthly average.


U.S. dollars per €1.00

Period end
rate

Average
rate(1)

High

Low

YEARLY AMOUNTS

    

2005

$1.1842

$1.2400

$1.3476

$1.1667

2006

$1.3197

$1.2661

$1.3327

$1.1860

2007

$1.4603

$1.3797

$1.4862

$1.2904

2008

$1.3919

$1.4726

$1.6010

$1.2446

2009

$1.4332

$1.3935

$1.5100

$1.2547

MONTHLY AMOUNTS

    

October 2009

$1.4755

$1.4821

$1.5029

$1.4532

November 2009

$1.4994

$1.4908

$1.5085

$1.4658

December 2009

$1.4332

$1.4579

$1.5100

$1.4243

January 2010

$1.3870

$1.4266

$1.4536

$1.3870

February 2010

$1.3660

$1.3680

$1.3955

$1.3476

March 2010

$1.3526

$1.3570

$1.3758

$1.3344

April 2010

$1.3302

$1.3417

$1.3666

$1.3130

     

(1)

The average of the Noon Buying Rates on the last business day of each month during the relevant period for the full year average, and on each business day of the month for the monthly average.


On April 6, 2012, the Noon Buying Rate was $1.3089 per one euro.

For information regarding the effects of currency fluctuations on France Telecom’s results, see Item 5Operating and Financial Review and Prospects.



2009 form 20-F /FRANCE TELECOM – 7



Back to Contents



3.B      CAPITALIZATION AND INDEBTEDNESS

Not applicable.

3.C      REASONS FOR THE OFFER AND USE OF PROCEEDS

Not applicable.



2011 form 20-F /FRANCE TELECOM8



table of contents



3.D      RISK FACTORS

The information set forth in section 4 Risk factors on pages 1315et seq. of the 20092011 Registration Document is incorporated herein by reference.

The price of France Telecom’s ADSs and the U.S. dollar value of any dividendsdividend will be affected by fluctuations in the U.S. dollar/euro exchange rate.

The ADSs are quoted in U.S. dollars. Fluctuations in the exchange rate between the euro and the U.S. dollar are likely to affect the market price of the ADSs. For example, because France Telecom’s financial statements are reported in euro, a decline in the value of the euro against the U.S. dollar would reduce France Telecom’s earnings as reported in U.S. dollars. This could adversely affect the price at which the ADSs trade on the U.S. securities markets. Any dividend that France Telecom might pay in the future would be denominated in euro. A decline in the value of the euro against the U.S. dollar would reduce the U.S. dollar equivalent of any such dividend.

Holders of ADSs may face disadvantages compared to holders of France Telecom’s shares when attempting to exercise certain rights as shareholders.

Holders of ADSs may face more difficulties in exercising their rights as shareholders than they would if they held shares directly. For example, to exercise their voting rights, holders of ADSs must instruct the depositary how to vote their shares. Because of this extra procedural step involving the depositary, the process for exercising voting rights will take longer for holders of ADSs than for holders of shares. ADSs for which the depositary does not receive timely voting instructions will not be voted at any meeting.

Preemptive rights may be unavailable to holders of France Telecom’s ADSs.

Holders of France Telecom’s ADSs or U.S. resident shareholders may be unable to exercise preemptive rights granted to France Telecom’s shareholders, in which case holders of France Telecom’s ADSs could be substantially diluted. Under French law, whenever France Telecom issues new shares for payment in cash or in kind, France Telecom is usually required to grant preemptive rights to its shareholders. However, holders of France Telecom’s ADSs or U.S. resident shareholders may not be able to exercise these preemptive rights to acquire shares unless both the rights and the sharesShares are registered under the Securities Act of 1933 or an exemption from registration is available.

If the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case no value will be given for these rights.

Auditors in various non-U.S. jurisdictions, including France, are not inspected by the U.S. Public Company Accounting Oversight Board (“PCAOB”) and, as a result, there is a risk that quality improvements or deficiencies that could be identified by a PCAOB inspection will not be identified or addressed.

The independent registered public accounting firms that issue the audit reports included in this Annual Report on Form 20-F are required by the laws of the United States to undergo regular inspections, including reviewing of work papers and interviews, by the PCAOB to assess their compliance with the laws of the United States and applicable professional standards.  Because France Telecom’s auditors are located in France, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the French authorities, France Telecom’s auditors are not currently inspected by the PCAOB.  France Telecom’s auditors are, however, subject to regular inspections by the Haut Conseil du commissariat aux comptes, a comparable French regulatory body, that are similar in scope to the PCAOB inspections.

During its inspections, the PCAOB may identify deficiencies in an accounting firm’s audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality.  Since the PCAOB cannot conduct inspections in France, the PCAOB is prevented from regularly evaluating our auditors’ audits and quality control procedures.  As a result, investors in France Telecom securities may be deprived of any benefits that would have been realized as a result of PCAOB inspections and, depending on the circumstances, investors in France Telecom securities could lose confidence in France Telecom’s control procedures, financial statements or, more generally, in the quality of its reported financial information.


20092011 form 20-F /FRANCE TELECOM 89



Back to Contentstable of contents


ITEM 4    Information on France Telecom

4.A      HISTORY AND DEVELOPMENT OF THE COMPANYFRANCE TELECOM

See Item 18Financial Statements – Note 32 to the consolidated financial statements.

The information set forth in section 5.15.1.History and developmentevolution of the Company on pages 2527 and 2628 of the 20092011 Registration Document is incorporated herein by reference.

Agent in the United States: Patrick Roussel, France Telecom North America, 2 World Financial Center, 225 Liberty Street suite# 4301, New York, NY 10281.Participations U.S. Inc., 13375 McLearen Road, Oak Hill, Virginia 20171

4.B      BUSINESS OVERVIEW

The information set forth under:

Section 6Overview of the Group’s businesson pages 2729et seq.,

The GTechnical glossarylossary of technical terms appendix on pages 566598et seq.,

of the 20092011 Registration Document is incorporated herein by reference.

Seasonality

In general, France Telecom’s business operations are not affected by any major seasonal variations. However, the telephone traffic generated from fixed line telephony over the Northern Hemisphere summer months in the third quarter (ended September 30) is generally lower than in the other quarters.

Furthermore, in the personal communication services markets, the number of new mobile customers for telecommunications services is generally higher in the second half of the calendar year than in the first half, primarily because of the increase in sales during the Christmas season. Consequently, revenues generated from the sale of equipment and packages, as well as the costs incurred in ordering equipment for customers and sales commissions, are higher in the second half of the calendar year than in the first half.

4.C      ORGANIZATIONAL STRUCTURE

The information set forth in section 7Organizational chart on page 175169 of the 20092011 Registration Document is incorporated herein by reference.


4.D      PROPERTY, PLANT AND EQUIPMENT

The information set forth under:

Section 8Property, plant and equipment on pages 177 171et seq.,

Section 6.4subsectionEnvironmental InformationInvestment in networks of section 9.1.1.4Significant events, on pages 162 197 and 198,  

and section 17.4Environmental information, on pages 358et seq.seq.,

of the 20092011 Registration Document is incorporated herein by reference.


20092011 form 20-F /FRANCE TELECOM 910



Back to Contentstable of contents


ITEM 4A  Unresolved staff comments

None.

ITEM 5    Operating and financial review and prospects

There are no differences between IFRS as adopted in the European Union and IFRS as issued by the IASB, as applied by France Telecom.

References in this Item to the notesNotes to the consolidated financial statements are references to the consolidated financial statements presented in Item 18Financial Statementsof this document.

5.A      OPERATING RESULTS

This section sets forth:

an overview of the operating results of the Group, incorporated by reference to (i) the introduction to section 9.1Analysis of the Group’s financial position and earningsand (ii) section 9.1.1Overview, on pages 198194et seq. of the 20092011 Registration Document;

a presentation of critical accounting policies set forth below;

a comparative analysis of the Group income statement and capital expenditures (and related financial information) and a comparative analysis by business segment for 2009, 20082011, 2010 and 20072009 incorporated by reference to sections 9.1.2Analysis of the Group’s income statement and capital expendituresand 9.1.3Analysis by operating segment, respectively on pages 204203et seq. and 222et seq. of the 20092011 Registration Document;

In this Annual Report on Form 20-F, including in the foregoing sections that are incorporated by reference herein, France Telecom sets forth certain financial aggregates that are not defined under IFRS, in addition to the financial aggregates that are in accordance with IFRS. Accordingly, the information set forth in section 9.1.5.4Financial aggregates not defined underby IFRS on pages 262273et seq. of the 20092011 Registration Document is incorporated herein by reference. The financial aggregates not defined under IFRS are provided as additional information and should not be substituted for or confused with the financial aggregates that are defined under IFRS.

In addition, the information set forth in (i) section 9.1.5.1Transition from data on a historical basis to data on a comparable basison pages 252263et seq. of the 20092011 Registration Document; (ii) notesection 9.1.5.2Additional information by operating segmenton pages 268et seq., (iii) Item 18Financial Statements - Note 1 to the consolidated financial statements; and (iii)(iv) the Financial Glossaryglossary set forth in appendix on pages 572 605et seq. of the 20092011 Registration Document is incorporated by reference herein.

Critical accounting policies

In accordance with the applicable rules in the European Union (“EU”) which require companies that are incorporated in a Member State and that have securities listedThe information set forth under section 20.1.3Critical accounting policies on an EU regulated market to use IFRS beginning with their 2005 financial year, France Telecom prepares its consolidated financial statements in accordance with IFRS as published by IASB, and bases its discussion and analysis of its financial condition and results of operations on such consolidated financial statements.

Although IFRS as issued by IASB constitutes a comprehensive basis of accounting, it should nevertheless be noted that reported performance and comparability among companies reporting under IFRS can be impacted by the following elements:

alternatives available under IFRS 1 when transitioning from previous local GAAPs to IFRS, such as electing not to restate business combinations prior to the transition date, recognition in equity of actuarial gains and losses on employee benefits measured at the transition date, transfer to other comprehensive income of all exchange rate variations, on a cumulative basis, for all foreign operations, at the transition date;

alternatives proposed by various IFRS standards, such as recognition of actuarial gains and losses on employee benefits according to the corridor method, proportionate consolidation of jointly controlled entities;

IFRS does not have a specific standard or interpretation for common control transactions, or for acquisitions of (or commitments to) non-controlling interests not resulting in a change in control, or for other similar transactions. In such circumstances, France Telecom – like other preparers – has to define its accounting policy in accordance with paragraphs 10 to 12 of IAS 8. As the IASB and IFRIC adopt or clarify the accounting standards and interpretations over time, France Telecom may modify its previously adopted accounting method (e.g. upon application of IAS 27R);

IFRS does not provide for specific accounting rules as to the form and contentpages 501et seq. of the income statement but does include a standard on financial statements presentation.



2009 form 20-F /FRANCE TELECOM – 10



Back to Contents


Therefore and as further described in Notes 1 and 2 to its consolidated financial statements, France Telecom’s reported financial condition and results of operations are sensitive to the selection and application of the accounting policies2011 Registration Document is incorporated herein by France Telecom and the judgment and other uncertainties affecting application of those policies.

In addition, France Telecom’s reported financial condition and results of operations are sensitive to estimates together with the related judgment, assumptions and uncertainties that underlie the preparation of its consolidated financial statements. The estimates may be revised if the underlying circumstances change or in the light of new information or experience. Consequently, estimates made at December 31, 2009 may subsequently be changed. These factors should be considered when reviewing France Telecom’s consolidated financial statements, in particular the topics discussed below:

Measurement of property, plant and equipment and intangible assets other than goodwill

As of December 31, 2009, 2008 and 2007, total property, plant and equipment amounted to 24.3 billion euros, 26.5 billion euros and 27.8 billion euros, respectively, and total intangible assets (mainly telecommunication licenses, trademarks, customer relationships and rights of use) amounted to 10,4 billion euros (4,9 billion euros  of which was recognized in business combinations), 14.5 billion euros and 16.7 billion euros, respectively.

Property, plant and equipment and intangible assets other than goodwill are recorded at their acquisition or production cost. When such assets are acquired in a business combination, purchase accounting requires judgment in determining the estimated fair value of the assets at the date of the acquisition. As direct observable fair values are not always readily available, indirect valuation methods are often used with their inherent limitations. Examples of indirect methods France Telecom commonly uses for certain acquired intangibles include the Greenfield method for licenses, the relief of royalty method for trademarks, or the excess earnings approach for customers relationships.  A change in any of the assumptions used in any of the indirect valuation methods could change the amount to be allocated to the acquired intangibles.

Similarly, judgment is required in determining the useful lives of the assets both at and subsequent to the acquisition date. Such judgment considers obsolescence, physical damage, significant changes to the manner in which an asset is used, worse than expected economic performance, a drop in revenues and other external indicators.

Considering the type of assets and the nature of the activities, most of the France Telecom’s assets do not generate independent cash flows from those attached to the Cash-Generating Unit (CGU). Hence, the assessment of the need for an impairment test is mostly determined at the CGU level (see hereunder).

Purchase price allocation and allocation of goodwill

As of December 31, 2009, 2008 and 2007, the net book value of goodwill amounted to 28.2 billion euros, 30.3 billion euros and 30.8 billion euros, respectively as restated following the amendment to IAS 36 by IFRS 8 and described in Note 1.2.

The amount of goodwill determined in a business combination is dependent on the allocation of the purchase price over the Group’s corresponding equity in the fair value of the underlying assets acquired and the liabilities assumed, a process that requires a significant level of estimate and judgment.

Goodwill is not amortized but is reviewed for impairment at least annually at the level of the CGU or group of CGUs (see hereunder).

Goodwill is to be allocated to each of the acquirer’s CGUs or groups of CGUs that is expected to benefit from the synergies of the business combination. Such allocation represents the lowest level at which the goodwill is monitored for internal management purposes and is not larger than an operating segment.

Therefore, changes in the way management monitors goodwill or in the segment reporting structure may require a reallocation and trigger the need for an impairment test.  



2009 form 20-F /FRANCE TELECOM – 11



Back to Contents


Impairment testing of the recoverable amount of a CGU or group of CGUs

Impairment of goodwill and non-current assets were recorded for 0.5 billion euros in 2009, 0.3 billion euros in 2008 and 0.1 billion euros in 2007.

The determination of impairment involves the use of estimates which include but are not limited to the cause, the timing and the amount of the impairment. As such, the determination of the recoverable amount represents an area where significant assumptions and judgment are required.

The recoverable amount is the higher of the fair value less costs to sell and the value in use:

fair value less costs to sell is the best estimate of the amount obtainable from the sale of a CGU in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. Because the fair value of France Telecom’s CGUs is rarely directly observable, it is determined on the basis of available market information, such as revenue and EBITDA multiples for comparable companies or transactions, or discounted cash flows including market participant assumptions on WACC or long-term growth rates;

value in use is determined by France Telecom based on the discounted cash flows derived from the applicable business plan.

When cash flow projections are used, they are based on economic and regulatory assumptions, license renewal assumptions and forecast trading conditions, including:

the influence of competitors;

the evolution and utilization of new technologies;

the level of appeal of these new technologies and related services to the customers; and

the long-term growth rate and discount rate.

The values assigned to each of these parameters reflect past experience and anticipated changes over the period of the business plans.

In the economic environment induced by the financial crisis that has prevailed since 2008:

the business plans were drafted during the fourth quarter of each period in order to factor in the latest trends, particularly regarding the first year of the plans;

the discount rate used to determine the value in use may include a specific risk premium to account for contingencies in the execution of certain business plans or for country risk (such as for certain African countries);

the perpetual growth rates used have been maintained on the whole, as in the Group’s assessment carried out at the end of 2009, the economic environment should not lead to any change in the long-term outlook of its industry. Perpetual growth rates were revised for a limited number of Eastern European countries to factor in the effects of the financial crisis.

Changes in the economic and financial environment, legal and regulatory decisions, or changes in competitors’ behavior in response to this economic environment will affect the estimate of recoverable amounts. They may also be affected by unforeseen changes in the political, economic or legal systems of certain countries.

The methodology used and the related estimates have a material impact on the recoverable value and ultimately the amount of any asset impairment. If the assumptions do not materialize as expected, this may result in decreased revenue, EBITDA or cash flows and materially change the potential impairment.

A sensitivity analysis of the recoverable amount in relation to the perpetual growth rate or discount rate and to the cash flows is provided in Note 8 to the consolidated financial statements.



2009 form 20-F /FRANCE TELECOM – 12



Back to Contents


Income taxes

As of December 31, 2009, 2008 and 2007, France Telecom recorded deferred tax assets under IFRS amounting to approximately 2.6 billion euros, 3.8 billion euros and 5.7 billion euros, respectively, net of deferred tax liabilities. These balances consist primarily of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes, and tax loss carryforwards mainly related to France Telecom S.A., the parent company.

Significant judgment on the part of management is required in determining current and deferred income taxes, as a result of the inherent necessity of interpreting tax laws or assessing the respective technical merits of the company and tax administration positions following a tax audit as well as assessing the availability of future taxable income that can be offset against tax loss carryforwards within the appropriate timeframe, as estimated by management.

The realization of deferred tax assets is also reviewed by France Telecom’s management using each entity’s tax forecast based on budgets and strategic plans.

Net recognition (derecognition) linked to the reassessment of the recoverability of deferred tax assets in 2009, 2008 and 2007 amounted to (0.2) billion euros, (0.3) billion and 0.8 billion euros, respectively.

Revenue recognition

France Telecom receives certain installation and activation revenue from new customers. These revenues are recognized on a straight-line basis over the expected service period. The estimation of the expected service period is based on historical customer turnover. In the event of a change in estimate, material differences may result in the amount and timing of revenues recognized for a given period. For example, a reduction in the expected service period may result in accelerated revenue recognition.

France Telecom’s policy for revenue recognition, in instances where multiple deliverables are sold contemporaneously to the same counterparty, is in accordance with IFRS 18.13. Specifically, if the Group enters into sales contracts for the sale of multiple products or services, then the Group evaluates all deliverables in the arrangement to determine whether they represent separate units of accounting, each with its own separate earnings process, and their relative fair value. Such determination requires judgment and is based on an analysis of the facts and circumstances surrounding the transactions.

Reporting revenue on a gross versus net basis (acting principal vs. agent) is also a matter of judgment that depends on a relevant set of facts and circumstances. This analysis is performed using the following criteria:

who is the primary obligor under the arrangement;

who bears inventory risk;

who has a reasonable latitude in establishing price with the customer for the service;

who has discretion in supplier selection;

who is involved in the determination of service specifications; and who bears the credit risk.

France Telecom’s policy for revenue recognition is further explained in Note 2.6Revenues to the consolidated financial statements.

Employee benefits and share-based payment

Employee benefits obligations and expenses are based on certain assumptions used by France Telecom in calculating such amounts. Those assumptions include, among others, the discount rate, the participation rate to the benefit scheme and the annual rate of increase in future compensation levels.

France Telecom’s assumptions are based on historical experience and external data regarding compensation and discount trend rates. While France Telecom believes that its assumptions are appropriate, significant differences in its actual experience or significant changes in its assumptions may affect its obligations and its future expenses.

France Telecom has various share based compensation plans for employees that may be affected, as to the expense recorded in the income statement, by changes in valuation assumptions. For example, the fair value of stock options is estimated by using the binomial model on the date of grant based on certain assumptions, including, among others expected volatility, the expected option term and the expected dividend payout rate. The assumption as to volatility has been determined by reference to the implied volatility of options available on France Telecom shares in the open market, and also in light of historical patterns of volatility. The expected option term is estimated by observing general option holder behavior as well as the actual historical terms of France Telecom’s option programs.  



2009 form 20-F /FRANCE TELECOM – 13



Back to Contents


Litigation and claims

At December 31, 2009, 2008 and 2007, provisions totalling each year 0.5 billion euros, are recorded to cover litigation and claims.

France Telecom exercises significant judgment in measuring and recognizing provisions or determining exposure to contingent liabilities that are related to pending litigation or other outstanding claims. These judgment and estimates are subject to change as new information becomes available.

The risk associated with the August 2, 2004 decision of the European Commission concerning alleged State aid in favor of France Telecom (and for which France Telecom has placed 1.0 billion euros in escrow since 2007), which was classified as a contingent liability, has crystallized in 2009 with the November 30, 2009 decision of the European Court of First Instance and therefore has resulted in a charge of 1.0 billion euros.

Fair value of financial instruments

Fair value corresponds to the quoted price for listed financial assets and liabilities.

Where no active market exists, the Group establishes fair value by using a valuation technique determined to be the most appropriate in the circumstances, for example:

available-for-sale assets: comparable transactions, multiples for comparable transactions, discounted present value of future cash flows;

loans and receivables, financial assets at fair value through profit and loss: net book value is deemed to be approximately equivalent to fair value because of their relatively short holding period;

accounts payable: book value is deemed to approximate fair value because of their relatively short holding period;

financial liabilities at fair value through profit and loss: put options relating to non-controlling interests are deemed to be granted at fair market value, and are assessed according to the parameters of the contractual arrangements;

derivatives: either option pricing models or discounted present value of future cash flows. Because internal valuation techniques are a matter of judgment, their result is benchmarked by the Group with external valuations provided by banks.reference.



2011 form 20-F /FRANCE TELECOM11



table of contents



5.B      LIQUIDITY AND CAPITAL RESOURCES

This section presents, for the France Telecom group:

i) a comparative analysis of liquidity and cash flows, with a presentation of organic cash flow, of the net cash provided by operating activities, of the net cash used in investing activities and of the net cash used in financing activities,

ii) a presentation of the Group’s shareholders’ equity, and

iii) a discussion on the Group’s financial debt and financial resources,

incorporated herein by reference to section 9.1.4Cash flow, shareholders’ equity and financial debt, on pages 244253et seq. of the 20092011 Registration Document.

See also Item 18Financial Statements – Notes 18, 22, 2310 and 2811 to the consolidated financial statements.

5.C      RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.

The information set forth in section 11Innovation, research and development, patents and licenseson pages 275287et seq. of the 20092011 Registration Document is incorporated herein by reference.



2009 form 20-F /FRANCE TELECOM – 14



Back to Contents



5.D      TREND INFORMATION

The information set forth under:

Section 9.1Analysis of the Group's financial position and earnings on pages 198194et seq.,

Section 6.1The telecommunications services market, on pages 2830et seq.,

Section 6.2France Telecom’sTelecom-Orange strategy, on pages 3133et seq.,

Section 4Risk factors, on pages 1315et seq.,

of the 20092011 Registration Document is incorporated herein by reference.

5.E      OFF-BALANCE SHEET ARRANGEMENTS

See Item 18Financial Statements– Note 3114 to the consolidated financial statements.

5.F      TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

See Item 18Financial Statements– Notes 28.311.3 and 3114 to the consolidated financial statements.

5.G      SAFE HARBOR

Not applicable.


20092011 form 20-F /FRANCE TELECOM 1512



Back to Contentstable of contents


ITEM 6    Directors, senior management and employees

6.A      DIRECTORS AND SENIOR MANAGEMENT

The information set forth under:

Section 14.1.1in section 14CompositionAdministrative and management bodies and senior management on pages 295et seq. of the Board of directors, on pages 284et seq.,

Section 14.1.2Information on the directors, on pages 286et seq.,

Section 14.2.2Information on the Chief Executive Officer, on pages 298et seq.,

Section 14.2.4Executive Committee, on pages 299et seq.,  

of the 20092011 Registration Document is incorporated herein by reference.

6.B      COMPENSATION

The information set forth in sectionsections 15Compensation and benefits paid to directors, corporate officers and senior management on pages 311et seq. and 17.2.4Compensation on pages 346et seq.of the 20092011 Registration Document is incorporated herein by reference.

6.C      BOARD PRACTICES

The information set forth under:

Section 14.1.1.14.1.1Composition of the Board of directorsDirectors, on pages 284296et seq.,

Section 14.1.2.3Court rulings, bankruptcy, conflicts of interest and further information, on page 293,

Section 14.1.3Organization of the Board of Director’s and its committee’s work, on pages 294et seq.,

Section 14.1.4.1Adoption of a code of corporate governance, on page 297

Section 14.2.1Managementand limits set on CEO’s authority, on page 298,

Section 14.2.5Group governance committees, on page 302 (with respect to the committees of the Company's management bodies),

Section 15.1Rules for determining the compensation of Directorsdirectors and corporate officers, on pages 312et seq.,

Section 15.315.2.1.3Compensation of Group Management CommitteeTables summarizing other benefits granted to the corporate officers in 2009,, on page 316.316,

Section 15.3Executive Committee compensation in 2011, on page 318,

Section 16.1.1Reference to a Code of Corporate Governance, on page 320,

Section 16.2Operation of the Board of Directors, on page 321et seq.,

Section 16.3Operation of the General Management, on page 324et seq.,

Section 16.4Internal Control and Risk Management,on page 326et seq.,

of the 20092011 Registration Document is incorporated herein by reference.

6.D      EMPLOYEES

The information set forth in sections 17.117.2.1Workforce trendsEmployment, on pages 320338et seq., 17.217.2.2WorkOrganization of working hours, on pages 324344et seq., and 17.417.2.3Labor relationsSocial dialogue, on pages 330345et seq. of the 20092011 Registration Document is incorporated herein by reference.



20092011 form 20-F /FRANCE TELECOM 1613



Back to Contentstable of contents



6.E      SHARE OWNERSHIP

The information set forth under:

Section 14.1.214.1.3.2Information on theCompany shares held by directors and corporate officers, on pages 286306et seq.,

Section 14.2.4.214.2.2EmployeeshareholdingsShareholdings and stock-options, on page 302310 (with respect to the Executive Committee),

Section 15.2.1Compensation paid to the Chairman and Chief Executive Officercorporate officers, on page 314,

Section 15.2.315.3 OtherExecutive Committee compensation paid to salaried directorsin 2011, on page 315,318,

Section 15.3GroupManagement Committee compensation, on page 316,

Section 17.317.2.4Compensation, on pages 325346et seq. (with respect to employees),

of the 20092011 Registration Document is incorporated herein by reference.

ITEM 7    Major shareholders and related party transactions

7.A      MAJOR SHAREHOLDERS

The information set forth in section 18Major shareholders, on pages 337365et seq. of the 20092011 Registration Document is incorporated herein by reference.

Securities held and number of record holders in the United States

As of April 30, 2010,March 20, 2012, there were 40,304,68187,116,043 ADSs of France Telecom outstanding and 112157 holders of record were registered with The Bank of New York Mellon, depositary for the ADS program.

As of March 25, 2010, 5421, 2012, 36 United States residents were registered as owners of France Telecom’s shares with BNP Paribas Securities Services, provider of securities services for France Telecom S.A. TheseTelecom. Those U.S. residents held 8 00010 924 France Telecom shares.

Based on a Euroclear Identifiable-Bearer Securities (Titres au porteur identifiable) service report and on a survey conducted by Thomson Financial and ona specialized information provided by The Bank of New York Mellon,provider, France Telecom estimates that U.S. corporate and institutional investors held approximately 14.514.6 % of its share capital as ofat December 31, 2009.2011.

7.B      RELATED PARTY TRANSACTIONS

See Item 18Financial Statements– Note 339.2 to the consolidated financial statements.

The information set forth in section 19Related party transactionsTransactions with parent companies, on page 341369 of the 20092011 Registration Document is incorporated herein by reference.

7.C      INTERESTS OF EXPERTS AND COUNSELS

Not applicable


20092011 form 20-F /FRANCE TELECOM 1714



Back to Contentstable of contents


ITEM 8    Financial information

8.A      CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

See Item 18Financial Statements.

The information set forth in sections 20.3Dividend distribution policy, on page 518 and 20.4Litigation and arbitration proceedings, on pages 518et seq.page 554 of the 20092011 Registration Document is incorporated herein by reference.

8.B      SIGNIFICANT CHANGES

On April 12, 2012, France Telecom-Orange (FT) and Orascom Telecom Media and Technology Holding S.A.E. (OTMT) announced that they agreed on new terms for their continued partnership in Egyptian Company for Mobile Services (ECMS), which is listed on the Egyptian Exchange (EGX).  FT and OTMT currently hold 51.03% of the capital and voting rights of ECMS through MobiNil for Telecommunications S.A.E. (MobiNil). In addition, OTMT holds 20% directly and the remaining 29% of ECMS’s share capital is held by the public.

As part of the agreements,  on April 12, 2012, MT Telecom filed an application to launch  a mandatory tender offer to purchase up to 100% of the shares of ECMS with the Egyptian Financial Supervisory Authority (EFSA) at a price per share of EGP 202.5. OTMT has agreed to sell its 15% stake in ECMS as part of the planned offer. The offer remains subject to approval by the EFSA.  

Pursuant to the new agreements, following the settlement of the offer, OTMT will decrease its direct shareholding in ECMS from 20% to 5% and a new holding company, MT Telecom, would hold up to 95% of the outstanding equity of ECMS after the proposed transactions, assuming EFSA approvals and 100% of the free float is tendered in the offer.  MobiNil, the company that is currently owned by OTMT and FT (28.75% and 71.25% respectively), would be 100% owned by FT once the transactions are completed.

MobiNil will also tender its entire shareholding in ECMS in the offer, thereby reducing its ECMS holding to zero. FT will also purchase OTMT’s 28.75% stake in MobiNil.  Based on current exchange rates, FT’s estimated total investment in ECMS as a result of the proposed transactions is 1.5 billion euros (which may be increased as a result of the exercise of the put and call options described below by up to approximately 185 million euros).

Following successful completion of the planned offer, OTMT would remain FT’s strategic partner in Egypt through MT Telecom, in which it would hold 28.75% of the voting rights, with FT holding the remaining 71.25%. OTMT would continue to be represented on the board of directors and participate in the management of ECMS through an amended and restated shareholders' agreement reflecting this new structure and its general services agreement. The parties have agreed to a revised set of put and call options with respect to OTMT’s remaining stakes in ECMS and MT Telecom, with a maximum exercise price of EGP 296 per share for shares sold pursuant to the put or call options in 2017.

Furthermore, the information set forth in section 20.5Significant change in financial or trading position, on page 519554 of the 20092011 Registration Document is incorporated herein by reference.


2011 form 20-F /FRANCE TELECOM15



table of contents


ITEM 9    The offer and listing

The principal trading market for the shares is NYSE Euronext Paris, where the shares have been traded since October 20, 1997. Prior to that date, there was no public trading market for the shares. The shares are included in the “CAC 40 Index” (a main benchmark index of 40 major stocks listed on NYSE Euronext Paris). The shares in the form of American Depositary Shares (“ADSs”) are also listed on the New York Stock Exchange. BNP Paribas holds the share registry for France Telecom and The Bank of New York Mellon acts as depositary for the ADSs.9.A      OFFER AND LISTING DETAILS

For information regarding risks related to France Telecom’s shares and ADSs, see Item 3.DRisk Factors: “France Telecom’s share price may fluctuate due to a wide range of factors”. “The price of France Telecom’s ADSs and the U.S. dollar value of any dividendsdividend will be affected by fluctuations in the U.S. dollar / euro exchange rate”. “Holders of ADSs may face disadvantages compared to holders of France Telecom’s shares when attempting to exercise voting rights” and “Preemptive rights may be unavailable to holders of France Telecom’s ADSs”.

Trading history of France Telecom’s securities listed on the New York Stock Exchange (NYSE)

France Telecom S.A. shares areTelecom’s share is traded on NYSEcompartment A (large capitalizations) of Euronext Paris compartment A (ISIN code: FR 0000133308)(ticker : FTE.PA and International Security Identification Number : FR0000133308) and in the form of American Depositary Shares (ADSs) on the New York Stock Exchange under the symbol “FTE” (Code 35177Q10).



2009 form 20-F /FRANCE TELECOM – 18



Back to Contents


The following table shows the monthly historical share price performance (unadjusted for payment of dividends) for the shares of France Telecom S.A.ADS on the NYSE Euronext Paris(ticker : FTE and the ADSs on the New York Stock Exchange for the most recent six months.

 

Euronext Paris S.A.

New York Stock Exchange

(Price €)

(Price US$)

 

High

Low

High

Low

November 2009

17.45

16.90

26.61

25.28

December 2009

17.82

16.96

26.84

24.69

January 2010

17.76

16.43

25.91

23.06

February 2010

17.23

16.23

23.80

22.50

March 2010

17.83

17.35

24.59

23.58

April 2010

17.82

16.34

24.12

21.41

Source: Bloomberg


CUSIP : 35177Q10).

The table below shows the annual historical shareprice performancehigh and low prices, unadjusted for dividends, for France Telecom S.A.’sTelecom’s shares on Euronext Paris and France Telecom’s ADSs on the NYSE Euronext Paris and ADSs on the New York Stock Exchange from 20052007 to 2009.2011.  

Euronext Paris S.A.

New York Stock Exchange

Euronext Paris

NYSE

(Price €)

(Price US$)

US$

High

Low

High

Low

High

Low

High

Low

2005

25.83

20.44

32.94

24.29

2006

21.87

15.73

27.75

21.07

2007

26.78

18.94

39.51

25.36

26.78

18.94

39.51

25.36

2008

25.87

16.94

38.42

22.57

25.87

16.94

38.42

22.57

2009

20.75

15.55

28.75

21.00

20.75

15.55

28.75

21.00

2010

17.83

14.15

25.91

17.31

2011

16.53

11.39

23.54

15.14

Source: Bloomberg

Source: Bloomberg

Source: Bloomberg


The table below shows the quarterly historical shareprice performancehigh and low prices, unadjusted for dividends, for France Telecom S.A.’sTelecom’s shares on Euronext Paris and France Telecom’s ADSs on the NYSE Euronext Paris and ADSs on the New York Stock Exchange in 2008, 2009 and for the first quarter ofsince January 1, 2010.

 

Euronext Paris S.A.

New York Stock Exchange

(Price €)

(Price US$)

 

High

Low

High

Low

First Quarter 2008

25.87

20.25

38.42

31.81

Second Quarter 2008

22.48

17.46

35.26

27.36

Third Quarter 2008

20.53

19.09

32.02

26.99

Fourth Quarter 2008

21.00

16.94

28.99

23.00

First Quarter 2009

20.75

16.86

28.75

21.00

Second Quarter 2009

17.55

15.86

24.05

21.13

Third Quarter 2009

18.69

15.55

28.00

22.35

Fourth Quarter 2009

18.08

16.86

27.38

24.69

First Quarter 2010

17.83

16.23

25.91

22.50

Source: Bloomberg


 

Euronext Paris

NYSE

US$

 

High

Low

High

Low

First Quarter 2010

17.83

16.23

25.91

22.50

Second Quarter 2010

17,82

14,29

24,20

17,31

Third Quarter 2010

16,55

14,15

21,84

17,80

Fourth Quarter 2010

17,36

15,60

24,47

20,41

First Quarter 2011

16,53

14,74

22,62

20,31

Second Quarter 2011

15,90

14,19

23,54

20,12

Third Quarter 2011

14,66

11,39

21,33

15,52

Fourth Quarter 2011

13,59

11,58

19,34

15,14

First Quarter 2012

12,36

11,01

16,08

14,51

Source: Bloomberg


2009

2011 form 20-F /FRANCE TELECOM 1916



table of contents


The table below shows the monthly high and low prices (unadjusted for payment of dividends) for France Telecom’s shares on Euronext Paris and France Telecom’s ADSs on the NYSE for the most recent six months.

 

Euronext Paris

NYSE

US$

 

High

Low

High

Low

October 2011

13,59

12,03

19,34

15,80

November 2011

12,84

11,58

17,82

15,37

December 2011

12,70

11,72

17,02

15,14

January 2012

12,36

11,20

16,08

14,68

February 2012

11,73

11,25

15,87

14,75

March 2012

11,62

11,01

15,45

14,51

Source: Bloomberg


9.B      PLAN OF DISTRIBUTION

Not applicable

9.C      MARKETS

The principal trading market for the Shares is Euronext Paris, where the Shares have been traded since October 20, 1997. Prior to that date, there was no public trading market for the Shares. The shares are included in the “CAC 40 Index” (a main benchmark index of 40 major stocks listed on Euronext Paris). The shares in the form of American Depositary Shares (“ADSs”) are also listed on the NYSE. BNP Paribas holds the share registry for France Telecom and The Bank of New York Mellon acts as depositary for the ADSs.

9.D      SELLING SHAREHOLDERS

Not applicable

9.E      DILUTION

Not applicable

9.F      EXPENSES OF THE ISSUE

Not applicable


2011 form 20-F /FRANCE TELECOM17



Back to Contentstable of contents


ITEM 10  Additional information

10.A      SHARE CAPITAL

Not applicable.

10.B      MEMORANDUM OF ASSOCIATION AND BYLAWS

The information set forth under:

Section 14.1.2.3Court rulings,  bankruptcy, conflicts of interest and further information, as to the subsection entitled14.1.3.2.3Restrictions regarding the sale of shares by the directors and corporate officers, on page 293,306,

Section 14.1.3.1Board of director’s functioning and activity, as to the subsection entitled16.2.2Chairman of the Board of Directors, on page 294,321,

Section 21.2Memorandum and bylaws, on pages 524 558et seq.,

Section 21.3Factors that may have an impacteffect in the event of a public offeroffering, on page 523,561,

of the 20092011 Registration Document is incorporated herein by reference.

Ownership of shares by non-French persons

Under the French Commercial Code, there is no limitation on the right of non-residents or non-French shareholders to own or, where applicable, to vote securities of a French company.

Under the French Monetary and Financial Code, a person who is not a resident of the European Union (“EU”) is not required to obtain a prior authorization before acquiring a controlling interest in a French company with the exception of investments in certain sensitive economic areas, such as defense and public health. However, both EU and non-EU residents must file an administrative notice (déclaration administrative) with French authorities in connection with the acquisition of 33 1/3 % or more of the capital or voting rights of a French company. Violations of this administrative notice requirement are sanctioned by a fine of 750 euros. This amount may be multiplied by five if the violation is made by a legal entity.

10.C    MATERIAL CONTRACTS

The information set forth in section 22SignificantMaterial contracts, on page 529563 of the 20092011 Registration Document is incorporated herein by reference.

10.D    EXCHANGE CONTROLS

Under current French exchange control regulations, there are no limitations on the amount of payments that may be remitted by France Telecom to non-residents of France. Laws and regulations concerning foreign exchange controls do require, however, that all payments or transfers of funds made by a French resident to a non-resident, such as dividends payments, be handled by an authorized intermediary. In France, all registered banks and substantially all credit establishments are accredited intermediaries.

Neither the French Commercial Code nor France Telecom’s bylaws presently imposesimpose any restrictions on the ability of non-French holders to hold or vote the shares.Shares.



20092011 form 20-F /FRANCE TELECOM 2018



Back to Contentstable of contents



10.E    TAXATION

The discussions set forth in this section are based on French tax law and U.S. federal income tax law, including applicable treaties and conventions, as in effect on the date of this annual report. These Tax laws, and related interpretations, are subject to change, possibly with retroactive effect. This section is further based in part on representations of the depositary and assumes that each obligation in the deposit agreement and any related agreement will be performed in accordance with its terms.

10.E.1  French Taxation

The following is a general summary of the material French tax consequences of owning and disposing of the sharesShares or ADSs of France Telecom. This summary may only be relevant to you if you are not a resident of France (as defined in Section 4 B of the French General Tax Code), no double tax treaty between France and your country contains a provision under which dividends or capital gains are expressly liable to French tax (see Section 4 bis of the French General Tax Code) and you do not hold your sharesShares or ADSs in connection with a permanent establishment or a fixed base in France through which you carry on a business or perform personal services.

This discussion is intended only as a descriptive summary. It does not address all aspects of French tax laws that may be relevant to you in light of your particular circumstances.

If you are considering buying sharesShares or ADSs of France Telecom, you should consult your own tax advisor about the potential tax effects of owning or disposing of sharesShares or ADSs in your particular situation.

France has recently introduced a comprehensive set of new tax rules applicable to French assets (such as the Shares/ADSs) that are held by or in foreign trusts. These rules provide notably for the inclusion of trust assets in the settlor's net assets for purpose of applying the French wealth tax, for the application of French gift and death duties to French assets held in trust, for a specific tax on capital on the French assets of foreign trusts not already subject to the French wealth tax and for a number of French tax reporting and disclosure obligations. The following discussion does not address the French tax consequences applicable to Shares and ADSs held in trusts.

Taxation on sale or disposal of sharesShares and ADSs

Generally, you will not be subject to any French income tax or capital gains tax when you sell or dispose of sharesShares or ADSs of France Telecom if bothall of the following apply to you:

you are not a French resident for French tax purposes, andpurposes;

you have not held not more than 25% of France TelecomTelecom’s dividend rights, known as droits“droits aux bénéfices sociaux,sociaux”, at any time during the preceding five years, either directly or indirectly, and, as relates to individuals, alone or with relatives; and

you have not transferred the Shares/ADSs as part of a redemption or repurchase by France Telecom, in which case the proceeds may under certain circumstances be partially or fully characterized as dividends under French domestic law and, as a result, be subject to French dividend withholding tax.

unless you are established or domiciled in a jurisdiction listed as a non-cooperative state or territory by(état ou territoire non coopératif) within the meaning of Article 238-0 A of the French administration,General Tax Code (a “Non-Cooperative State”), in which case you will be subject to a 50% tax on capital gain. The list of Non-Cooperative States is published by ministerial executive order and is updated on a yearly basis.

If aan applicable double tax treaty between France and your country contains more favorable provisions, you may not be subject to any French income tax or capital gains tax when you sell or dispose of any sharesShares or ADSs of France Telecom even if one or bothmore of the above statements doesdo not apply to you.

If you are a resident of the United States who is eligible for the benefits of the income tax treaty between the United States of America and France dated August 31, 1994 (as further amended) (the “U.S. France Treaty”), you will not be subject to French tax on any capital gain if you sell or exchange your sharesShares or ADSs unless you have a permanent establishment or fixed base in France and the sharesShares or ADSs sold or exchanged were part of the business property of that permanent establishment or fixed base.

Special rules apply to individuals who are residents of more than one country.



2011 form 20-F /FRANCE TELECOM19



table of contents


Subject to specific conditions, foreign states, international organizations and a number of foreign public bodies are not considered French residents for these purposes.

If you transferTransfers of shares issued by a listed shares using a written agreement, that agreement must generally be registered. In principle, and unless agreed otherwise, the purchaser will be required to pay a registration duty of 3% of either the purchase price or the market value of the shares transferred, whichever is higher. The maximum duty is 5,000 euros per transfer. However, in some circumstances, if the agreement is executed outsideFrench company such as France youTelecom will not be requiredsubject to payFrench registration or stamp duty if such transfers are not evidenced by a written purchase and sale agreement (acte). However, if the transfer is evidenced by a written purchase and sale agreement executed either in France or outside of France, the transfer of Shares or ADSs will be subject to transfer duty at (i) 3% for the portion of the sale price below €200,000, (ii) 0.5% for the portion of the sale price between €200,000 and €500,000,000, and (iii) 0.25% for the portion of the sale price exceeding €500,000,000.

Pursuant to law 2012-354 dated March 14, 2012, the transfer duty rate is scheduled to be reduced as from August 1, 2012, to 0.1% as from the first euro with no cap.  If the transaction falls in the scope of the new tax on financial transactions provided for by article 235 ter ZD of the French General Tax Code, the transfer duty does not apply.

Article 235 ter ZD of the French General Tax Code provides that as from August 1, 2012, the acquisition for consideration of shares or equivalent instruments issued by a company whose registered office is located in France and whose market capitalization exceeds € 1 billion on the January 1 preceding the taxable event, is subject to a 0.1% financial transactions duty. Such new rules have not yet been interpreted by the French tax authorities and it is uncertain at this duty.



2009 form 20-F /FRANCE TELECOM – 21



Back to Contents


stage whether ADSs are in the scope of Article 235 ter ZD. If you are considering buying ADSs of France Telecom, you should consult your own tax advisor about the potential tax effects of owning or disposing of ADS in your particular situation.

Taxation of dividends

Under French domestic law, French companies must generally deduct a 25%30% French withholding tax from dividends (including distributions from share capital premium, insofar as the company has distributable reserves)reserves, or the relevant portion of certain repurchase or redemption by France Telecom of its own shares) paid to non-residents.non-residents (21% for distributions made to individuals that are resident in the European Economic Area). Under most tax treaties between France and other countries, the rate of this withholding tax may be reduced in specific circumstances. Generally, a holder who is a non-French resident is subsequently entitled to a tax credit in his or her country of residence for the amount of tax actually withheld at the appropriate treaty rate.

However, if you are establisheddividends paid or domicileddeemed to be paid by a French corporation, such as France Telecom, towards non-cooperative States or territories, as defined in a jurisdiction listed as a non-cooperative state or territory byArticle 238-0 A of the French administration, a higherGeneral Tax Code, will generally be subject to French withholding tax at a rate of 50% will55%, irrespective of the tax residence of the beneficiary of the dividends if the dividends are received or deemed to be applied on any dividends paidreceived in such States or territories (subject to you by French companies.the more favorable provisions of an applicable double tax treaty).

Under some tax treaties, a shareholder who fulfills specific conditions may generally apply to the French tax authorities for a lower rate of withholding tax, generally 15%. Under some tax treaties, the withholding tax is eliminated altogether.

If the arrangements provided for by any of such treaties apply to a shareholder, France Telecom or the authorized intermediary will withhold tax from the dividend at the lower rate, provided that the shareholder complies, before the date of payment of the dividend, with the applicable filing formalities. Otherwise, France Telecom or the authorized intermediary must withhold tax at the full rate of 25%,21% or 30% or 55% as applicable, and the shareholder may subsequently claim the refund of excess tax paid.

Also, under the treaties that provided for the transfer of the tax credit (avoir fiscal) to non-resident individual shareholders, a tax credit attached to the dividends paid by French companies (of 50% of the amount of the dividend capped at 115 euros for single individuals and 230 euros for couples taxed jointly) may be transferred to non-resident individual shareholders under specific conditions.

If you are a resident of the United States who is eligible for the benefits of the U.S. France Treaty, French dividend withholding tax is reduced to 15% if your ownership of the sharesShares or ADSs is not effectively connected with a permanent establishment or a fixed base that you have in France and certain other requirements are satisfied. In particular, you will have to comply with the formalities set out in sectionSection 10.5.3 “Procedure for Reduced Withholding Rate”. If you fail to comply with such formalities before the date of payment of the dividend, France Telecom or the authorized intermediary shall deduct French withholding tax at the rate of 25%.21% or 30% or 55% as applicable. In that case, you may claim a refund from the French tax authorities of the excess withholding tax.



2011 form 20-F /FRANCE TELECOM20



table of contents


Certain tax exempt U.S. entities (such as tax-exempt U.S. pension funds, which include the exempt pension funds established and managed in order to pay retirement benefits subject to the provisions of Section 401(a) of the Internal Revenue Code (qualified retirement plans), Section 403(b) of the Internal Revenue Code (tax deferred annuity contracts) or Section 457 of the Internal Revenue Code (deferred compensation plans), and various other tax-exempt entities, including certain state-owned institutions, not-for-profit organizations and individuals with respect to dividends which they beneficially own and which are derived from an investment retirement account) may be eligible for the reduced withholding tax rate of 15% on dividends. Specific rules apply to them as further described below in Section 10.5.3 “Procedure for Reduced Withholding Rate”.  

Estate and Gift Tax

France imposes estate and gift tax where an individual or entity acquires shares of a French company from a non-resident of France by way of inheritance or gift. France has entered into estate and gift tax treaties with a number of countries. Under these treaties, the transfer by residents of those countries of shares of a French company by way of inheritance or gift may be exempt from French inheritance or gift tax or give rise to a tax credit in such countries, assuming specific conditions are met.  

Under the “Convention Between the United States of America and the French Republic for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates, Inheritance and Gifts of November 24, 1978” (as further amended), French estate and gift tax generally will not apply to youthe individual or entity acquiring your Shares or ADSs if that individual or entity as well as you are a residentresidents of the United States and if you transfer your sharesShares or ADSs by gift, or they are transferred by reason of your death, unless you are domiciled in France at the time of making the gift of the sharesShares or ADSs or at the time of your death, or you used the sharesShares or ADSs in conducting a business through a permanent establishment or fixed base in France, or you held the sharesShares or ADSs for that use.  

You should consult your own tax advisor about whether French estate and gift tax will apply and whether an exemption or tax credit can be claimed.  



2009 form 20-F /FRANCE TELECOM – 22



Back to Contents


Wealth Tax

You will not be subject to French wealth tax, known asimpôt de solidarité sur la fortune, on your sharesShares or ADSs of France Telecom if both of the following apply to you:  

you are not a French resident for the purpose of French taxation,taxation; and  

you own, either directly or indirectly, less than 10% of France Telecom capital stock, either directly or indirectly, provided your sharesShares or ADSs do not enable you to exercise influence on France Telecom.  

If a double tax treaty between France and your country contains more favorable provisions, you may not be subject to French wealth tax even if one or both of the above statements appliesdo not apply to you.

The French wealth tax generally does not apply to sharesShares or ADSs if you are a resident of the United States for purposes of the U.S. France Treaty.Treaty provided that you do not own directly or indirectly Shares or ADSs exceeding 25% of the financial rights of France Telecom.

10.E.2  U.S. Taxation of U.S. Holders

The following discussion is a general summary of certain U.S. federal income tax considerations relevant to the ownership and disposition of France Telecom sharesShares and ADSs. The discussion is not a complete description of all tax considerations that may be relevant to you, and it does not consider your particular circumstances. It applies to you only if you are a U.S. Holder, you hold the sharesShares or ADSs as capital assets, you use the U.S. dollar as your functional currency and you are eligible for the benefits of the U.S. France Treaty. It does not address the tax treatment of investors subject to special rules, such as banks, tax-exempt entities, insurance companies, dealers, traders in securities that elect to mark to market, U.S. expatriates or persons who directly, indirectly or constructively own 10% or more of the sharesShares or ADSs, have a permanent establishment in France or hold sharesShares or ADSs as part of a straddle, hedging, conversion or other integrated transaction.



2011 form 20-F /FRANCE TELECOM21



table of contents


In compliance with U.S. Treasury Department Circular 230, we notify you that this advice was written to support the promotion and marketing of the sharesShares and ADSs. As a result you cannot rely on the statements herein to avoid U.S. tax penalties. You should seek advice from an independent tax advisor about the tax consequences under your own particular circumstances of investing in the sharesShares or ADSs under the laws of France, the United States and its constituent jurisdictions, and any other jurisdictions where you may be subject to tax.

U.S. Partnerships

A U.S. partnership generally can claim benefits under the U.S. France Treaty only to the extent its income is taxable in the United States as the income of a resident, either in the hands of such partnership or in the hands of its partners. The French tax authorities have however conceded that the benefits of the U.S. France Treaty may still be claimed if one or several members of the U.S. partnership are themselves U.S. partnerships (and up to six tiers of interposed partnerships) to the extent of the income taxable in the United States as the income of a resident in the hands of the ultimate partner or partners.  

Specific rules apply to U.S. partnerships and their partners. Partnerships and their partners should consult their tax advisors concerning the French tax consequences of the acquisition, ownership and disposition of the sharesShares or ADSs.

As used here, a “U.S. Holder” means a beneficial owner of the sharesShares or ADSs, that is, for U.S. federal income tax purposes (i) an individual citizen or resident of the United States, (ii) a corporation or other business entity taxed as a corporation that is created or organized under the laws of the United States or its political subdivisions, (iii) an estate the income of which is subject to U.S. federal income tax without regard to its source or (iv) a trust subject to the primary supervision of a U.S. court and the control of one or more U.S. persons or that has elected to be treated as a domestic trust.  

The U.S. federal income tax treatment of a partner in a partnership that holds sharesShares or ADSs will depend on the status of the partner and the activities of the partnership. Partnerships should consult their tax advisors concerning the U.S. federal income tax consequences of the acquisition, ownership and disposition of the sharesShares or ADSs.  

U.S. Holders of ADSs generally will be treated for U.S. federal income tax purposes as owners of the shares underlying the ADSs.  

France Telecom believes, and this discussion assumes, that France Telecom is not and will not become a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes.



2009 form 20-F /FRANCE TELECOM – 23



Back to Contents


Dividends

Distributions on France Telecom sharesShares and ADSs, including French tax withheld and the gross amount of any payment on account of a French tax credit, will be includable in income as dividends from foreign sources when actually or constructively received. The dividends will not be eligible for the dividends received deduction generally allowed to U.S. corporations. Under existing law, theThe dividends received prior to January 1, 2013 by noncorporatenon-corporate U.S. Holders, however, will be taxed as qualified dividends, at the same preferential rate allowed for long-term capital gains, because the shares and ADSs are readily tradable on the New York Stock Exchange.NYSE.

The U.S. dollar amount of a dividend received on the sharesShares or ADSs will be based on the exchange rate for the currency received (if the dividend is paid in a currency other than U.S. dollars) on the date you recognize the dividend for U.S. federal income tax purposes, whether or not you convert the payment into U.S. dollars. You will have a basis in the currency received equal to the U.S. dollar amount of the dividend you realized. Any gain or loss on a subsequent conversion or other disposition of the currency generally will be ordinary income or loss from U.S. sources.

Subject to generally applicable limitations, you may claim a deduction or a foreign tax credit for tax withheld at the lowest withholding rate to which you are entitled. In computing foreign tax credit limitations, noncorporate U.S. Holders eligible for the preferential tax rate applicable to qualified dividend income may take into account only the portion of the dividend effectively taxed at the highest applicable marginal rate. You should consult your own tax adviser about your eligibility for benefits under the U.S. France Treaty including a reduced rate of French withholding tax and for applicable limitations on claiming a deduction or foreign tax credit for any French tax withheld.  



2011 form 20-F /FRANCE TELECOM22



table of contents


Dispositions

You will recognize gain or loss on disposition of France Telecom sharesShares or ADSs in an amount equal to the difference between the amount you realized and your adjusted tax basis in the sharesShares or ADSs. Your adjusted tax basis in a share or ADS will generally be the amount you paid for it measured in U.S. dollars. The U.S. dollar cost of a share or ADS purchased with foreign currency will generally be the U.S. dollar value of the purchase price. The gain or loss generally will be from sources within the United States. The gain or loss will be long-term capital gain or loss if the holder held the shares or ADSs for at least one year. Long term capital gains realized prior to January 1, 2013 by non-corporate U.S. Holders qualify for preferential tax rates as low as 15%. Deductions for capital losses are subject to limitations.

If you receive a currency other than U.S. dollars upon disposition of the sharesShares or ADSs, you will realize an amount equal to the U.S. dollar value of the currency received on the date of disposition (or, if you are a cash-basis or electing accrual basis taxpayer, the settlement date). You will have a tax basis in the currency received equal to the U.S. dollar amount you realized. Any gain or loss on a subsequent conversion or disposition of the currency received generally will be U.S. source ordinary income or loss.

Deposits or withdrawals of shares in exchange for ADSs will not be taxable transactions subject to U.S. federal income tax.

U.S. Information Reporting and Backup Withholding for U.S. Holders

Your dividends on the sharesShares or ADSs and proceeds from the sale or other disposition of the sharesShares or ADSs may be reported to the U.S. Internal Revenue Service unless you are a corporation or you otherwise establish a basis for exemption. Backup withholding tax may apply to amounts subject to reporting if you fail to provide an accurate taxpayer identification number or otherwise establish a basis for exemption. You can claim a credit against your U.S. federal income tax liability for amounts withheld under the backup withholding rules and a refund for any excess.


2009 form 20-F /FRANCE TELECOM – 24



BackUnder recent legislation, certain U.S. Holders will be required to Contents


report information with respect to Shares and ADSs that are held through foreign accounts.  U.S. Holders who fail to report information required under these rules could become subject to substantial penalties.  U.S. Holders are urged to consult their tax advisors regarding these and other reporting requirements that may apply with respect to their Shares or ADSs.

10.E.3

Procedure for reduced withholding rate

If you are eligible for benefits under the U.S. France Treaty, you will be entitled to reduce the rate of French withholding tax on dividends by filing the applicable form(s) with the depositary or other financial institution managing your securities account in the United States, or failing that, the French paying agent, if the financial institution managing your securities account or the French paying agent receives the form(s) before the date of payment of the dividend. If you fail to submit the applicable form(s) in time to avoid withholding, you may claim a refund for the amount withheld in excess of the U.S. France Treaty rate.

In order to have taxes on dividends withheld at the reduced amount, you generally must provide the depositary, or other financial institution managing your securities account in the United States, with a certificate of residence before the dividend is paid. If this certificate is not stamped by the U.S. Internal Revenue Service, the depositary or other financial institution managing your securities account in the U.S. must provide the French paying agent with a document listing certain information about the U.S. Holder and its shares or ADSs and a certificate whereby the financial institution managing your securities account in the United States takes full responsibility for the accuracy of the information provided in the document.

Tax exempt U.S. pension funds, charities or other tax exempt organizations must also provide a certificate from the U.S. Internal Revenue Service setting out that they have been created and operate in compliance with the Internal Revenue Code of 1986, as amended. Tax exempt organizations may obtain this certification by filing a U.S. Internal Revenue Service Form 8802. Similar requirements apply to REITs, RICs and REMICs.

Collective trusts of pension funds may apply for the withholding tax reduction on behalf of their members if they provide a complete list of their members, the required certificate from the IRS for each member which is a tax exempt U.S. pension fund and a certificate setting out the dividend to which each tax exempt U.S. pension fund which is a member is entitled.



2011 form 20-F /FRANCE TELECOM23



table of contents


The relevant French forms will be provided by the depositary to all U.S. Holders of ADSs registered with the depositary and all U.S. Internal Revenue Service Forms are also available from the U.S. Internal Revenue Service. The depositary will arrange for the filing with the French paying agent and the French tax authorities of all forms completed by U.S. Holders of ADSs that are returned to the depositary in sufficient time.

You should consult your own independent tax advisors about the availability and applicability of the reduced rate of French withholding tax.

10.F    DIVIDENDS AND PAYING AGENTS

Not applicable.

10.G    STATEMENT BY EXPERTS

Not applicable.

10.H    DOCUMENTS ON DISPLAY

We are subject to the reporting requirements of the U.S. Securities Exchange Act of 1934 (the “Exchange Act”) applicable to foreign private issuers. In connection with the Exchange Act, we file reports, including this Form 20-F, and other information with the Securities and Exchange Commission. Such reports and other information are available on the SEC’s website at www.sec.gov, and may also be inspected and copied at prescribed rates at the public reference facilities maintained by the SEC at its Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549.

All documents provided to shareholders as required by law may be consulted at France Telecom's registered offices at 6 Place d’Alleray, 75015 Paris, France.

In addition, the bylaws of France Telecom are available on France Telecom’s website at www.orange.com.

France Telecom’s consolidated financial statements for the past three years are also available on its website.

10.I    SUBSIDIARY INFORMATION

Not applicable.


2009 form 20-F /FRANCE TELECOM – 25



Back to Contents


ITEM 11  Quantitative and qualitative disclosures about market risk

See Item 18Financial Statements– Note 2811 to the consolidated financial statements.


2011 form 20-F /FRANCE TELECOM24



table of contents


ITEM 12  Description of securities other than equity securities

12.A    DEBT SECURITIES

Not applicable.

12.B    WARRANTS AND RIGHTS

Not applicable.

12.C    OTHER SECURITIES

Not applicable.



2009 form 20-F /FRANCE TELECOM – 26



Back to Contents



12.D    AMERICAN DEPOSITARY SHARES

France Telecom's American Depositary Receipt ("ADR")ADR facility is maintained by the Bank of New York Mellon ("the Depositary"). A copy of our form of Amended and Restated Deposit Agreement ("the Deposit Agreement") among the Depositary, owners and beneficial owners of American Depositary Shares ("ADSs")ADSs evidenced by ADRs issued under the Deposit Agreement and France Telecom was filed with the SEC as an exhibit to the post effective amendment N°1 to our Form F-6 filed on March 26, 2008. Société Générale ("the Custodian") acts as agent of the Depositary for the purposes of this Deposit Agreement. For more complete information, including on holders’ rights and obligations, holders should read the entire deposit agreement, as amended, and the ADR itself.

Fees and charges payable by a holder of ADSs

Under the Deposit Agreement, the Depositary collects fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of the distributable property to pay the fees.

The charges offees payable to the Depositary payable by investors are as follows:

Depositary actions:

Fee:

Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property

$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)

Cancellation of ADSs for the purpose of withdrawal, including if the Deposit Agree­ment terminates

$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)

Any cash distribution to ADS registered holders

$.02 (or less) per ADS

Distribution of securities distributed to holders of deposited securities which are distributed by the Depositary to ADS registered holders

A fee equivalent to the fee that would be payable if securities distributed to holders of deposited securities had been shares and the shares had been deposited for issuance of ADSs

Depositary services

$.02 (or less) per ADSs per calendar year

Transfer and registration of shares on the Depositary'sDepositary’s share register to or from the name of the Depositary or its agent when depositing or withdrawing shares

Registration or transfer fees




2011 form 20-F /FRANCE TELECOM25



table of contents


In addition, investors must, as necessary, reimburse the Depositary for :


Cable, telex and facsimile transmissions (when expressly provided in the Deposit Agreement)

Expenses of the Depositary

Converting foreign currency to U.S. dollars

Expenses of the Depositary

As necessary

Taxes and other governmental charges the Depositary or the Custodian have to pay on any ADS or share underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes


As necessary

Any charges incurred by the depositary or its agents for servicing the deposited securities


•    Expenses of the Depositary for cable, telex and facsimile transmissions (when expressly provided in the Deposit Agreement)


•    Expenses of the Depositary for converting foreign currency to U.S. dollars

Fees and payments made by the Depositary to the issuer

No direct or indirect payments were made to France Telecom by the Depositary during the financial year ended December 31, 2009.Issuer

The Depositary has agreed to reimburse the Company for expenses the Company incurs that are related to establishment and maintenance expenses of the ADR facility. The Depositary has agreed to reimburse the Company for its continuing annual stock exchange listing fees. The Depositary has also agreed to pay the standard out-of-pocket maintenance costs for the ADRs, which consist of the expenses of postage and envelopes for mailing annual and interim financial reports, printing and distributing dividend checks, electronic filing of U.S. Federal tax information, mailing required tax forms, stationery, postage, facsimile, and telephone calls. It has also agreed to reimburse the Company annually for certain investor relationship programs or special investor relations promotional activities. In certain instances, the Depositary has agreed to provide additional payments to the Company based on any applicable performance indicators relati ngrelating to the ADR facility. The amount of reimbursement available to the Company is not necessarily tied to the amount of fees the Depositary collects from investors.

During the financial year ended December 31, 2011, a 0.6 million U.S. dollars payment was made by the Depositary to France Telecom.

Voting the Shares at shareholders’ meetings

Pursuant to a deposit agreement signed with the Company, the Depositary shall, at the instruction of the Company, mail to owners of ADSs (the Owners):

a notice of impending meetings,

a statement that the Owners will be entitled, subject to any applicable provision of French law and the bylaws of the Company, to instruct the Depositary as to the exercise of the voting rights pertaining to the shares represented by the ADSs,

copy or summary of any material provided by the Company,

a voting instruction card,

and a statement as to the manner in which such instructions may be given.

If no instruction is received by the Depositary, the latter shall deem the Owners, subject to certain conditions, to have instructed the Depositary to give a discretionary proxy to a person designated by the Company to vote the shares represented by the ADSs.

The Depositary will not charge any fee in connection with enabling the Owners to exercise their voting rights.

The Depositary and the Company may amend the voting procedures from time to time as they determine appropriate to comply with French or United States law or the bylaws of the Company.

Reports, Notices and Other Communications

On or before the first date on which the Company gives notice of any meeting of holders of Shares or of the taking of any action in respect of any cash or other distribution or the offering of any rights, the Company shall transmit to the Depositary a copy of the notice thereof. The Company will also arrange for the prompt transmittal to the Depositary of any other report and communication which is made generally available by the Company to holders of its Shares.  The Company may arrange for the Depositary to mail copies of such notices, reports and communications to all Owners.


20092011 form 20-F /FRANCE TELECOM 2726



Back to Contentstable of contents


PART II

ITEM 13  Defaults, dividend arrearages and delinquencies

As of the date of this Form 20-F and to France Telecom’s knowledge, there has been no material default in the payment of principal or interest or any other material default not cured within 30 days relating to indebtedness of France Telecom or any of its fully consolidated subsidiaries.

ITEM 14  Material modifications to the rights of security holders and use of proceeds

None.

ITEM 15  Controls and procedures

15.A    DISCLOSURE CONTROLS AND PROCEDURES

In 2003, France Telecom created a Disclosure Committee whose mission is to ensure the accuracy, the compliance with applicable laws, and regulations and recognized practices, and the consistency and the quality of the financial information disclosed by France Telecom. The Disclosure Committee, operating under the authority of the Chief Executive Officer Delegate, reviews all financial information distributed by the Group, andas well as related documents such as press releases, presentationpresentations to financial analysts and management reports. The Disclosure Committee is chaired, by delegation, by the Chief Financial OfficerGroup Accounting Director and includesbrings together the Executive Director for Communicationsheads of the Legal, Internal Audit, Investor Relations and Brand and the relevant directors within the accounting, legal, internal audit, management control and investor relations departments.Communication Departments.

France Telecom’s Chief Executive Officer and Chief Executive Officer Delegate (in his capacity as Chief Financial Officer,Officer), after evaluating the effectiveness of the Group’s disclosuresdisclosure controls and procedures (as defined by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934)Act) as of December 31, 2009,2011, have concluded that, as of such date, France Telecom’s disclosure controls and procedures were effective. France Telecom’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the specified time periods, and that such information is made known to the Chief Executive Officer and Chief Executive Officer Delegate in his capacity as Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.



2009 form 20-F /FRANCE TELECOM – 28



Back to Contents



15.B    MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

France Telecom’s management is responsible for establishing and maintaining adequate internal control over financial reporting of the companyFrance Telecom (as defined by Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934)Act).

France Telecom’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.Generally Accepted Accounting Principles.



2011 form 20-F /FRANCE TELECOM27



table of contents


The Company’sGroup’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;Group; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,Generally Accepted Accounting Principles, and that receipts and expenditures of the CompanyGroup are being made only in accordance with authorizations of management and directors of the Company;directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’sGroup’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The CompanyGroup management conducted an evaluation of the effectiveness of internal control over financial reporting based on the framework presented inInternal Control IntegratedControl--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, management concluded that the Company’sGroup’s internal control over financial reporting was effective as of December 31, 2009.2011. The effectiveness of the Company’sGroup’s internal control over financial reporting as of December 31, 20092011 has been audited by Deloitte et Associés and Ernst & Young Audit, independent registered public accounting firms, as stated in their report which is included herein.



2009 form 20-F /FRANCE TELECOM – 29



Back to Contents



15.C    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

To the Board of Directors and Shareholders of France Telecom:

We have audited France Telecom and subsidiaries (the “Group”) internal control over financial reporting as ofat December 31, 2009,2011, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO”“COSO criteria”).  The Group’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Group’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding pr eventionprevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of itsthe inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not preventbe prevented or detect misstatements.detected on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



2011 form 20-F /FRANCE TELECOM28



table of contents


In our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009,2011, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 20092011 consolidated financial statements of the Group and our report dated February 25, 201022, 2012 expressed an unqualified opinion thereon.

/s/ DELOITTE & ASSOCIES

/s/ ERNST & YOUNG AUDIT

 

Represented by Vincent de La Bachelerie


Neuilly-sur-Seine and Paris laParis-La Défense, France

February, 25, 201022, 2012

15.D    CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

None.


2009 form 20-F /FRANCE TELECOM – 30



Back to Contents


ITEM 16  [reserved]

ITEM 16A  Audit committee financial expert

At its meeting held on February 5, 2008, France Telecom’s Board of Directors determined that a member of its Audit Committee, Mr. Charles-Henri Filippi, is an Audit Committee financial expert as defined in Item 16A(b) of Form 20-F. Charles-Henri Filippi is ”independent”“independent” as defined by Rule 10A-3(b)(1)(ii) of the Securities Exchange Act, of 1934, as amended (see Item 6Directors, Senior Management and Employees)Employees).

ITEM 16B  Code of ethics

France Telecom’s boardBoard of directorsDirectors has adopted a Code of Ethics that applies to all France Telecom employees, including the Chief Executive Officer, Chief Financial Officer,principal financial officer, principal accounting officer and persons performing similar functions. A copy of France Telecom’s Code of Ethics is available on France Telecom’s website at www.orange.com.

ITEM 16C  Principal accountant fees and services

The information set forth under note 35See Item 18Financial statements - Note 20Fees paid to statutory auditors to the consolidated financial statements on page 463 of the 2009 Registration Document is incorporated herein by reference.for further information.


2011 form 20-F /FRANCE TELECOM29



table of contents


ITEM 16D  Exemptions from listing standards for audit committees

France Telecom’s Audit Committee consists of six directors including three directors who meet the independence requirements under Rule 10A-3 of the Securities Exchange Act, of 1934, as amended, (the “Exchange Act”) and three who are exempt from such requirements pursuant to Rule 10A-3(b)(1)(iv) of the Exchange Act. The Audit Committee members exempt from the independence requirements include Messrs. Bezard and Michel,Mr. Comolli, who meetmeets the exemption requirements under Rule 10A-3(b)(1)(iv)(E) of the Exchange Act relating to foreign government representatives, and Mr.Guillot,Messrs. Guillot and Maouche, who meetsmeet the exemption requirements under Rule 10A-3(b)(1)(iv)(C) of the Exchange Act relating to non-executive employees. France Telecom’s reliance on such exemptions does not materially adversely affect the ability of the Audit Committee to act independently.

ITEM 16E  Purchase of equity securities by the issuer and affiliated purchasers

The information set forth in section 21.1.3Treasury shares held by or on behalf of the issuer in its nameIssuer or by its subsidiaries – Share buyback program, on page 522pages 556et seq. of the 20092011 Registration Document is incorporated herein by reference.



2009 form 20-F /FRANCE TELECOM – 31



Back to Contents


The table below presents additional information on the purchases of treasury shares in 2009:2011 :


Period

Total number of
shares purchased

 

Weighted average
gross price
per share (€)

Total number of
shares purchased
as part of publicly
announced programs

 

Maximum number of
shares that may yet
be purchased under
the programs(1)

 

January 2009

735,836

 

19.49

735,836

 

260,276,341

(2)

February 2009

440,000

 

18.03

440,000

 

259,926,341

 

March 2009

1,565,000

 

17.31

1,565,000

 

258,361,341

 

April 2009

891,000

 

16.83

891,000

 

257,470,341

 

May 2009

361,000

(3)

16.73

361,000

(3)

261,499,124

(4)

June 2009

744,971

 

16.19

744,971

 

263,924,284

 

July 2009

451,930

 

16.14

451,930

 

263,930,454

 

August 2009

1,036,500

 

17.30

1,036,500

 

263,930,454

 

September 2009

609,800

 

18.25

609,800

 

263,930,454

 

October 2009

1,909,600

 

17.79

1,909,600

 

263,806,614

 

November 2009

4,557,500

 

17.22

4,557,500

 

263,931,910

 

December 2009

3,498,500

 

17.32

3,498,500

 

262,932,430

 

Total

16,801,637

  

16,801,637

   

(1)

Measured at month end.

(2)

Under the 2008 Share buyback program approved by the Annual Shareholders' Meeting of May 27, 2008 for up to 10% of the share capital, which expired on May 26, 2009.

(3)

All shares were purchased under the 2008 Share buyback program.

(4)

Under the 2009 Share buyback program approved by the Annual Shareholders' Meeting of May 26, 2009 for up to 10% of the share capital for a period of 18 months.

Settlement month

Total number of shares purchased(1)

Weighted average gross price per share (€)

Total number of shares purchased as part of publicly announced programs

Maximum number of shares that may yet be purchased under the programs(2)

January 2011

1,623,031

15.84

1,623,031

261,399,124

February 2011

2,348,532

16.17

2,348,532

261,499,124

March 2011

1,965,000

15.73

1,965,000

261,499,124

April 2011

1,609,639

15.59

1,609,639

261,499,124

May 2011

1,436,000

15.66

1,436,000

261,299,124

June 2011

1,900,000

14.93

1,900,000

263,600,793

July 2011

1,977,150

14.17

1,977,150

264,850,793

August 2011

7,225,099

12.76

7,225,099

258,425,793

September 2011

9,910,565

11.70

9,910,565

256,559,121

October 2011

2,565,978

12.53

2,565,978

264,217,764

November 2011

1,986,000

12.26

1,986,000

262,965,793

December 2011

932,718

12.00

932,718

264,850,793

Total

35,479,712

 

35,479,712

261,399,124

(1)  Until June 7, 2011, under the 2010 Share buyback program approved by the Annual Shareholders' Meeting of June 9, 2010  for up to 10% of the share capital; from June 7, 2011, under the 2011 Share buyback program approved by the Annual Shareholders' Meeting of June 7, 2011 for up to 10% of the share capital for a period of 18 months

(2)  At month end


ITEM 16F  Change in Registrant’s Certifying Accountant

Not applicable.


2011 form 20-F /FRANCE TELECOM30



table of contents


ITEM 16G  Corporate governance

France Telecom has endeavored to take into account the New York Stock ExchangeNYSE corporate governance standards.standards as codified in Section 303A of the NYSE Listed Company Manual. However, as a non-US company,because France Telecom S.A. is not obligeda US company, most of those standards do not apply to comply with the majority of these rules andFrance Telecom, which may choose to follow rules applicable in France.



2009 form 20-F /FRANCE TELECOM – 32



Back to Contents


The table below discloses the significant ways in which France Telecom’s corporate governance practices differ from those required for U.S. companies listed on the New York Stock Exchange.


NYSE.

NYSE Standards

Corporate Governance Practices of France Telecom

Board Independence

France TelecomTelecom’s Board of Directors has chosen to followcheck the independence of its members against the criteria for independence usedset out in France in the Afep/Medef Report (October 2003). The Afep/Medef Report(in Item 16G : “the Report”), which provides that one-third of board members should be independent. According to thesethe criteria the Report sets out, seven members (out of the total of 15 current board members) are independent.

France Telecom has not tested the independence of its board members under the NYSE standards; a majority of the board may not be independent under those criteria.

The criteria ofagainst which the directors’ independence must be tested, as provided in the Afep/Medef Report, are set forth in section 14.1.2.214.1.1.1 Independent Directors on page 297 of the 20092011 Registration Document, which section is incorporated herein by reference.

Executive Sessions/ Communications with the Presiding Director or Non-Management Directors

French law does not require (and France Telecom does not provide for) non-management directors to meet regularly without management and nothing requires non-management directors to meet alone in an executive session at least once a year. However, if the directors decide to meet in such session, they may do so.

French law does not mandate (and France Telecom does not provide for) a method for interested parties to communicate with the presiding director or non-management directors.

Compensation/Nominating/ Corporate Governance Committee

France Telecom has a combined Governance and Corporate Social Responsibility Committee. The Committee consists of three directors, including two independent directors. The NYSE standards provide for the implementation of two separate committees (a Nominating Committee and a Compensation Committee) composed exclusively of independent directors. In terms of internal mechanics, while the Committee has a written charter, it does not comply with all the requirements of the NYSE.

Audit Committee

France Telecom’s Audit Committee consists of six directors including three independent directors.

Of these, two members are representativesthose, one is a representative of the French governmentGovernment and one is an employeetwo are employees who isare not an executive officerofficers of the issuer.Issuer. While not meeting the definition of independence set forth in Rules 10A-3 (b) (1) of the Securities Exchange Act, of 1934, as amended, they fall within the exceptions under Rule 10A-3(b)(1)(iv) (C) relating to non executive employees and Rule 10A-3(b)(1)(iv) (E) relating to foreign government representatives. For its part, the Afep/Medef Report recommends that two-thirds of an audit committee’s members should be independent.

The Committee is responsible for organizing the procedure for selecting the statutory auditors. It makes a recommendation to the boardBoard of directorsDirectors regarding their choice and terms of compensation. As required by French law, the actual appointment of the statutory auditors is made by the Shareholders’ Meeting.

According to its charter, the Committee has the authority to engage advisors and determine appropriate funding for payment of compensation to an accounting firm for an audit or other service.

Equity Compensation Plans

Under French law, France Telecom must obtain shareholder approval at a Shareholders’ Meeting in order to adopt an equity compensation plan. Generally, the shareholders then delegate to the Board of Directors the authority to decide on the specific terms and conditions of the granting of equity compensation, within the limits of the shareholders' authorization.

Adoption and disclosure of corporate governance guidelines

France Telecom has adopted corporate governance guidelines (the “Internal Guidelines”, available on its website at www.orange.com) as required by French law.

These corporate governance guidelines do not cover all items required by NYSE guidelines for U.S. companies.

Code of Ethics

France Telecom has adopted a Code of Ethics to be observed by all its directors, officers and other employees that generally meets the requirements of the NYSE.


ITEM 16H  Mine Safety Disclosure


Not applicable.


20092011 form 20-F /FRANCE TELECOM 3331



Back to Contentstable of contents


PART III

ITEM 17  Financial statements

Not applicable

ITEM 18  Financial statements

The information set forth in section 20.1.1Consolidated financial statement, segmentstatements, Segment information, Notes to the consolidated financial statementson pages 344372 to 470499 of the 20092011 Registration Statement is incorporated herein by reference.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

To the Board of Directors and Shareholders of France Telecom:

We have audited the accompanying consolidated statements of the financial position of France Telecom and subsidiaries (the “Group”) as ofat December 31, 2011, 2010, 2009, 2008, 2007 and January 1, 2007, and the related consolidated statements of income, comprehensive income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2009.2011. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audits.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statementstatements presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2011, 2010, 2009, 2008, 2007 and January 1, 2007, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2009,2011, in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board.

Without qualifying the above opinion, we draw your attention to Note 1.2 that sets out the change in accounting policy relating to the application, since January 1, 2009, of new standards and interpretations, namely IFRS 8 "Operating Segments ", IAS 36 "Impairment of assets" amended by IFRS 8 and IAS 1 revised "Presentation of financial statements".

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Group’s internal control over financial reporting as ofat December 31, 2009,2011, based on the criteria established in Internal Control—IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 201022, 2012 expressed an unqualified opinion thereon.


/s/ DELOITTE & ASSOCIES

/s/ ERNST & YOUNG AUDIT

 

Represented by Vincent de La Bachelerie


Neuilly-sur-Seine and Paris la Défense, France

February 25, 2010

Neuilly-sur-Seine and Paris-La Défense,

February, 22, 2012


20092011 form 20-F /FRANCE TELECOM 3432



Back to Contentstable of contents


ITEM 19  List of exhibits

1.1

Bylaws (statuts) of France Telecom, as amended on February 24, 2010.

2.1*

8 billion euro syndicated credit agreement dated June 20, 2005 among France Telecom and the several parties named therein.January 10, 2012.

2.3**

Indenture dated March 14, 2001 between France Telecom and, inter alia, Citibank, NA as Trustee.

8.0

List of France Telecom’s subsidiaries (see: the information set forth in Note 3617Scope of consolidation and associates to the consolidated2011 Consolidated financial statements).

10.1

Consentstatements, on page 478 of Deloitte & Associés as auditors of France Telecom.

10.2

Consent of Ernst & Young Audit as auditors of France Telecom.the 2011 Registration Statement is incorporated herein by reference.

12.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

12.2

Certification of Chief Executive Officer Delegate acting in his capacity as Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

13.1

Certification of Chief Executive Officer pursuant to Section 18 U.S.C. section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

13.2

Certification of Chief Executive Officer Delegate acting in his capacity as Chief Financial Officer pursuant to Section 18 U.S.C. section 1350, as adopted by Section 906 of the Sarbanes-Oxley Act of 2002.

15.1

Excerpt of the pages and sections of the 2011 Registration Document that are incorporated herein by reference

15.2

Consent of Deloitte & Associés as auditors of France Telecom.

15.3

Consent of Ernst & Young Audit as auditors of France Telecom.


*

Incorporated by reference to France Telecom’s annual report on Form 20-F for the year ended December 31, 2005, as filed with the Commission on May 22, 2006.

**

Incorporated by reference to France Telecom’s annual report on Form 20-F for the year ended December 31, 2000, as filed with the Securities and Exchange Commission on May 29, 2001.



20092011 form 20-F /FRANCE TELECOM 3533



Back to Contentstable of contents


Signature

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

FRANCE TELECOM


/s/

Gervais Pellissier

Name:

Gervais Pellissier

Title:

Chief Executive Officer Delegate and Chief Financial Officer


Paris, France

May 5, 2010April 13, 2012



20092011 form 20-F /FRANCE TELECOM 3634