For the year ending December 31, net profit dipped to 2.78bn euros ($3.56bn) from the 3.20bn euros ($4.10bn) it recorded in 2003. Analysts had forecast net income in the region of 3.15bn euros ($4.03bn).

It is true that the 2003 net income figure was helped by tax gains, but it was still a big improvement considering France Telecom posted a record loss of 20.7bn euros ($26.50bn) in 2002, one of the largest ever net losses in French corporate history.

Indeed, the carrier’s financial position in 2002 was so precarious after an ill-fated expansion policy that the French government was forced to coordinate a rescue plan that included a combination of illegal state aid, new management, and massive job cuts and other restructuring activities.

This illegal state aid is now the subject of an appeal, which France Telecom and the French government lodged against a European Commission order that France Telecom must repay French state aid it deemed illegal.

According to reports, the European Court of Justice last August ordered the French operator to pay back the French state an amount estimated between 800m euros ($1.02bn) and 1.1bn euros ($1.41bn), plus interest. The telecoms operator was also deemed to have received state aid in the form of a shareholders’ advance. The French government is a major shareholder in the telecoms operator.

Following this government bail out, sales continued to grow at France Telecom, after revenues rose 4.1% to 47.2bn euros ($60.50bn) for 2004, from the 46.12bn euros ($59.11bn) in 2003. In 2002 the group posted revenues of 46.63bn euros ($59.77bn).

Again, it was up to the mobile phone unit, Orange SA, to act as the principle growth engine in 2004, with sales up 9.6% at 19.66bn euros ($25.25bn), compared to 17.941bn euros ($23.04bn) in 2003. The unit added more five million new mobile customers in 2004.

Wanadoo SA, the internet arm that also owns the Freeserve ISP in the UK, saw growth of 9.1% to 2.85bn euros ($3.66bn), compared 2.617bn euros ($3.36bn) in 2003. Growth mainly came from continued broadband uptake.

The decline of France Telecom’s fixed lines revenues stabilized somewhat during 2004, only declining 0.4% to 21.68bn euros ($27.84bn) from 21.76bn euros ($27.94bn) in 2003. Prior to that, 2003 fixed-line services had declined 5.6% compared to those in 2002.

Net debt at the carrier now stands at 43.9bn euros ($56.41bn). This time last year, net debt was at the 44.2bn euros ($56.80bn) mark, down from the colossal 68bn euros ($87.38bn) debt at the end of 2002, a figure that earned France Telecom the reputation as being one of the heavily indebted companies in the world.

Looking forward, France Telecom reiterated its forecast for fiscal 2005 sales growth in the range of 3% to 5%.

Meanwhile, France Telecom announced that it had reached agreement with network services company Equant NV to buy out the remaining minority shareholders for 578m euros ($742.7m). France Telecom said it would fund the deal by selling an 8% stake in telephone directory company PagesJaunes. Meanwhile, revenues at Equant for 2004 declined 10.2% to 2.34bn euros ($3.01bn), from 2.61bn euros ($3.35bn) in 2003.

Shares in France Telecom fell 0.8% to $31.4 on the New York Stock Exchange, as of 3pm GMT Thursday.