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Telecoms must answer the investors' call

www.breakingviews.com

Payback time is approaching for France Telecom and Deutsche Telekom. They have yet to restore the dividends they cancelled during their hard times. And they are fast running out of plausible excuses to present to their shareholders.

Investors in the French and German telecoms incumbents have had a rough ride over the past few years. Not only did the value of their shares collapse after the companies took on too much debt in the telecoms boom; they also lost their dividend income.

What's more, France Telecom and Deutsche Telekom had to tap their shareholders for extra cash to make it through the downturn.

The former needed a e9 billion rights issue and the latter a e2 billion mandatory convertible bond – essentially a deferred issue of shares.

Investors stuck by the two groups for a reason. Even though they paid silly prices to plant flags across the globe, they bought high-quality assets. Investors' bet was that dividends would flow again in the future. However, both companies have been slower to return cash to shareholders than they were to spend it.

No-one would expect them to cough up before they had stabilized their debts.

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