As filed with the Securities and Exchange Commission on                                          2005

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 20-F

OR

For the fiscal year ended: December 31, 2004

OR

For the transition period from N/A to N/A

Commission file number: I-14844

Equant N.V.
(Exact name of Registrant as specified in its charter)

Equant N.V.
(Translation of Registrant’s name into English)

The Netherlands
(Jurisdiction of incorporation or organization)

Heathrowstraat 10
1043 CH Amsterdam, The Netherlands
(Address of principal executive offices)

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

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 by the annual report:

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 þ No o

Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 þ Item 18 o

TABLE OF CONTENTS

Forward-looking statements
Presentation of financial information

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In this document, the “Company,” “Equant,” “we,” “us,” and “our” refer to Equant N.V. The “Network” refers to the network we operate.

FORWARD-LOOKING STATEMENTS

Some of the statements in this document are forward-looking. These forward-looking statements include statements in “Item 4. Information on the Company” relating to competition, trends and anticipated developments in the industry, an anticipated combination between Equant and France Telecom, and the data network services market. These forward-looking statements also include statements in “Item 11. Quantitative and Qualitative Disclosure About Market Risk” and statements relating to our performance in “Item 5. Operating and Financial Review and Prospects.” In addition, we may make forward-looking statements in future filings with the Securities and Exchange Commission, and in written material, press releases and oral statements issued by or on behalf of us. Forward-looking statements include statements regarding our intent, belief or current expectations or those of our officers (including statements preceded by, followed by or that include forward-looking terminology such as “may,” “will,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “continues,” or similar expressions or comparable terminology) with respect to various matters.

It is important to note that our actual results could differ materially from those anticipated in these forward-looking statements depending on various important factors. These important factors include (i) the potential that a recent Combination Agreement approved by our Management and Supervisory Boards and subject to approval by a majority of our Shareholders at an extraordinary general meeting to be held on May 24, 2005, that would allow our majority shareholder, France Telecom, to purchase substantially all of our assets, assume of all of our liabilities, and pay us a cash amount to be distributed to our Shareholders may fail to successfully conclude; (ii) adverse effects of our relationship with France Telecom as a major customer and supplier that may result if the combination with France Telecom does not conclude, including the effects on our relationship with SITA or other indirect sales channels; (iii) the adverse effects that may occur if the Network succumbed to an intentional or unintentional disruption; (iv) the effect of, and changes in, regulation and government policy; (v) the effects of competition; (vi) the successful development and acceptance of our new products and services; (vii) the broad effect of technology changes in the communications and information technology sector; and (viii) our success at managing the risks of the foregoing.

All forward-looking statements in this document are based on information available to us on the date hereof. We do not undertake to update any forward-looking statements that may be made by us or on our behalf in this document or otherwise. In addition, please note that the matters set forth under the caption “Risk Factors” constitute cautionary statements identifying important factors with respect to these forward-looking statements, including certain risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements.

PRESENTATION OF FINANCIAL INFORMATION

We publish our consolidated financial statements in U.S. dollars. As used in this document, “U.S. dollar,” “dollar” or “$” means the currency of the United States of America, and “euro” or “ € ” means the euro. Unless otherwise indicated, the financial information relating to Equant contained in this annual report has been prepared in accordance with accounting principles generally accepted in France (French GAAP), which differs in certain significant respects from accounting principles generally accepted in the United States of America (U.S. GAAP). See Note 30 to our audited consolidated financial statements for the years ended December 31, 2002, 2003 and 2004 (together with the notes thereto, the “Consolidated Financial Statements”) included elsewhere in this annual report on Form 20-F for a description of the significant differences between French GAAP and U.S. GAAP, as they relate to us, and a reconciliation of net income, shareholders’ equity, and our financial position to U.S. GAAP. Certain financial information relating to Global One, which is contained in this annual report, has been prepared in accordance with U.S. GAAP.

PART I

Item 1. Identity of Directors, Senior Management and Advisers

This item is not applicable.

Item 2. Offer Statistics and Expected Timetable

This item is not applicable.

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Item 3. Key Information

SELECTED FINANCIAL DATA

You should read the following selected consolidated financial data in conjunction with “Item 5. Operating and Financial Review and Prospects” and the Consolidated Financial Statements, including the notes thereto, found elsewhere in this document.

The selected French GAAP consolidated financial data for each of the years in the five-year period ended December 31, 2004 have been derived from the Consolidated Financial Statements and the notes thereto found elsewhere in this document and the Company’s historical consolidated financial statements and related notes. The financial statements for the year ended December 31, 2000 were audited by PricewaterhouseCoopers, independent auditors. The financial statements for the years ended December 31, 2001 and 2002 were audited by PricewaterhouseCoopers LLP and Ernst & Young LLP, independent auditors. Deloitte and Touche LLP, independent registered public accounting firm, audited the financial statements for the years ended December 31, 2003 and 2004, as indicated in their report found in Item 17 of this document.

The selected U.S. GAAP combined financial data for the year ended December 31, 2000 have been derived from the combined financial statements of Global One, which were audited by RSM Salustro and Ernst & Young Audit, independent accountants.

The following tables present selected financial and other data as of and for each of the years in the five-year period ended December 31, 2004.

Selected Financial Data Presented In Accordance With French GAAP:

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Selected Financial Data Presented In Accordance With U.S. GAAP:

We also adopted, SFAS No. 142 “Goodwill and Other Intangible Assets,” with an effective date of January 1, 2002, and ceased to amortize goodwill from that date. Prior to 2002, goodwill was amortized on a straight-line basis over its estimated useful life.

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RISK FACTORS

Our business is affected by a number of factors, not all of which are wholly within our control. Although many of the factors influencing our performance are market specific and likely to affect the performance of businesses generally, some aspects of our business make us particularly sensitive to certain areas of business risk. This section highlights some of those specific areas. However it does not purport to be an extensive analysis or disclosure and should be considered in addition to the other information presented in this document. Some risks, currently believed to be immaterial, could turn out to be material, and some risks may be unknown to us. This document also contains forward-looking statements that involve risks and uncertainties. Our business, turnover, profits, assets, liquidity, and capital resources may differ materially from the results anticipated in these forward-looking statements as a result of certain factors, including the risks we face. Unless otherwise noted, amounts and explanations of disclosures are in accordance with French GAAP.

We Have Entered Into A Combination Agreement With France Telecom, Pending Shareholder Approval, That May Be Prevented From Successfully Closing Due To Unforeseen Regulatory, Legal, Or Other Practical Obstacles

On February 9, 2005, our Supervisory and Management Boards signed a combination agreement with our majority shareholder, France Telecom, for France Telecom to purchase substantially all of our assets in exchange for the assumption of all of our liabilities and a cash payment. This combination agreement specifies that following the closing of this transaction, we will distribute the cash payment we receive from France Telecom to our Shareholders in substitution and satisfaction of their ownership interests in us, will suspend our shares from trading and delist from the New York Stock Exchange and the Euronext Paris, and will deregister from the U.S. Securities and Exchange Commission. An extraordinary general meeting is scheduled for May 24, 2005 for our shareholders to vote on the February 9, 2005 combination agreement, the selection of a liquidator, and our ultimate liquidation after the distribution of the cash proceeds from France Telecom to our shareholders among other items. While we expect to close this transaction in a timely manner, the transaction may not close due to unforeseen legal or regulatory matters.

If the Combination With France Telecom Does Not Successfully Close, The Interests Of France Telecom, Our Largest Shareholder, May Differ From The Interests Of Our Other Shareholders

If the transactions contemplated by our combination agreement with France Telecom do not successfully close, then France Telecom will still own a majority of our shares, and will have the ability to control us by determining matters submitted for a vote to our minority shareholders. France Telecom will also continue to have the right to control the appointment and removal of members of our Management Board and the majority of the members of our Supervisory Board. Given this possibility, France Telecom may also require our Management Board to submit specific matters to our Supervisory Board not specified by our Articles of Association and direct us to take actions, including related party transactions with France Telecom that we may not otherwise take. France Telecom’s interest in exercising these powers may not be consistent with the interests of our minority shareholders.

You May Face Difficulties In Protecting Your Shareholder Rights

Our Articles of Association and Dutch corporate law govern our corporate affairs. The rights of our shareholders and the responsibilities of our Supervisory Board of Directors are distinct from those established under the statutes or judicial precedent in U.S. jurisdictions. Our public shareholders might find it more difficult to protect their interests from actions of our management, supervisory directors, or controlling shareholders than they would as shareholders of a corporation incorporated in the United States. This is exemplified by France Telecom’s agreement to vote or cause to be voted at the upcoming extraordinary general meeting all of our shares it or its affiliates own in favor of the sale of our assets to it in accordance with the combination agreement. Because France Telecom or its affiliates own approximately 54.1% of the voting power of all our shares, the approval of the resolutions at the extraordinary general meeting approving this transaction is assured without the affirmative vote of any other shareholders.

Additionally, under our Articles of Association, once the general meeting of shareholders adopts our annual financial statements, the supervisory and management boards will not be liable with respect to the performance of their duties during the financial year concerned. This is the case unless the general meeting of shareholders makes an explicit reservation without prejudice to the Dutch law provisions. These provisions include those relating to the liability of members of supervisory and management boards upon the bankruptcy of a company under the Dutch Civil Code.

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If the Combination With France Telecom Does Not Successfully Close, France Telecom Could Sell All Or Part Of Its Shares In Us That It Owns

If the combination is not completed, France Telecom would most likely re-evaluate our role within its overall corporate strategy. A contribution agreement signed by France Telecom, Atlas, and SITA on November 19, 2000 contains restrictions disallowing France Telecom from selling or disposing of more than 25% of our shares expires on June 29, 2005. France Telecom currently owns about 54.1% of our shares. Among other options, France Telecom could sell our shares and its controlling interest in us to a third party if it chose. In such an event, the proposed or actual sale of our shares could cause our share price to decline.

We May Require Additional Funding From France Telecom Or External Sources

As of December 31, 2004, we had $404 million in cash and cash equivalents, including $ 289 million deposited with France Telecom, which is available to us on demand.

Concurrent with the execution of our combination agreement with France Telecom, we entered into a $250 million revolving credit facility agreement with France Telecom. Under the revolving credit facility, we have access to a maximum of $250 million from France Telecom. Draw-downs are available in a variety of currencies during the period from February 9, 2005 until June 30, 2008. We may be required to make draw downs on this credit facility in the future, however no draw-downs have been made as of this date. Any amounts drawn down under the facility are repayable in the event that France Telecom ceases to hold at least 34% of our outstanding shares.

We Are Dependent On Our Ability To Exploit Technological Advances Quickly

We operate in an industry with a recent history of fast technological changes. We expect that new products and technologies will emerge and that existing products and services will develop further. Our ongoing success will depend, in part, on our ability to continually develop our services and products to exploit next generation technologies. We may not successfully identify new product opportunities, bring new products to market in a timely manner, keep abreast of our customers’ innovations or adapt our business to alternative delivery systems. Our inability to meet evolving industry standards and customer requirements could have a material adverse effect on our business, financial condition, or operating results.

We also depend on the ability and willingness of our suppliers to provide us with the level of service and technology required to offer services to our customers. Furthermore, we depend on our indirect sales channels’ ability and willingness to upgrade their technologies consistently in coordination with us. Their failure to do so may adversely affect our ability to service our customers effectively and lead to the loss of customers and revenues.

Our Transformation Strategy, Focusing On Significant Growth In Our Integrated Services and Solutions Offerings May Not Be Successful

We are implementing a transformation strategy to offer new products, services, markets, and culture as well as enter into new partner and distribution relationships to galvanize our growth. We expect to grow by expanding our portfolio of service offerings comprised of our consulting, project management, integration, messaging and security services, and to combine them with our network services to provide our customers with integrated network and IT infrastructure solutions. The expansion and integration of these service skills within our organization require substantial financial, operational, and management resources. In view of the likely level of competition and uncertainties regarding the level of economic activity, there can be no certainty that we will meet our growth targets in these new areas. If our transformation strategy is unsuccessful, we may be unable to achieve our goal of becoming profitable.

Our Entry In The Outsourcing Market May Not Be Profitable

As we actively pursue opportunities in the communications infrastructure outsourcing market, we face the risk of reduced short-term profitability resulting from initial high operating and capital expense required in the first two years to deliver service to new customers. Our success in this market depends on our ability to integrate complex customer environments with a mixture of different technologies; manage our vendors efficiently; reduce the customers’ cost of operating their communications services; and successfully migrate our customers’ communications systems to our virtual private network. If we are unable to successfully manage all of these factors, we face the risk of incurring additional losses. Moreover, if we are successful in winning multiple outsourcing projects, we may not have the resources to properly and simultaneously manage multiple outsourcing contracts.

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We Have A History Of Operating Losses

In 2002, we had revenues of approximately $3.0 billion, operating losses of $384 million and net losses of $590 million. As reported under U.S. GAAP, our 2002 revenues were approximately $3.0 billion, we incurred operating losses of approximately $2.9 billion and net losses of $3.1 billion.

In 2003, we had revenues of approximately $2.9 billion, operating losses of $276 million and net losses of $356 million. As reported under U.S. GAAP, our 2003 revenues were approximately $2.9 billion, we incurred operating losses of $451 million and net losses of $499 million.

In 2004, we had revenues of approximately $2.9 billion, operating losses of $375 million and net losses of $274 million. As reported under U.S. GAAP, our 2004 revenues were approximately $2.9 billion, we incurred operating losses of $516 million and net losses of $421 million.

We cannot guarantee that we will achieve or maintain profitability by any measure or, if we do achieve profitability, that we will be able to sustain or increase it on a quarterly or annual basis in the future.

Our Stock Price May Be Volatile

Our stock price may be affected by a number of factors, including:

Currency Fluctuations Affect Our Results

Currency fluctuations can significantly affect our results of operations and financial condition. We prepare our Consolidated Financial Statements in U.S. dollars. Since 2002 the dollar has lost value against the euro and against sterling. In 2002, the dollar lost 15.4% in value against the euro, and 10.8% against sterling. In 2003, this trend continued with the dollar declining by 16.2% against the euro, and 10.1% against sterling and reaching a low point against both currencies around year-end. In the first half of 2004, the dollar increased in value against the euro, while depreciating against sterling. In the second half of 2004 the dollar resumed its longer term downward trend against all major counterparts, resulting in net losses for the year of 6.9% against the euro and 9.5% against sterling. In 2004, foreign exchange had a positive effect on revenues of approximately $82 million and a negative impact of approximately $165 million on costs.

In addition, translation adjustments have in the past and will continue to materially impact our balance sheet. These adjustments increased our shareholders’ equity by $89.5 million, $107.4 million, and $20.3 million in 2002, 2003, and 2004 respectively. The change in shareholders’ equity in each year resulted primarily from the conversion of local Network assets, held in the currency of the countries in which they are located, into U.S. dollars.

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We May Experience Network Or Systems Failures Or Interruptions

Among other factors, our business is dependent upon our ability to transfer substantial volumes of data quickly. Any significant failure or interruption of such data transfer could have a material adverse effect on our business. Such interruptions could be caused either accidentally or intentionally. Unauthorized use of the network by hackers or others could also potentially jeopardize the security of confidential information that our customers store or transmit. In such instances, we may be liable to our customers, although our customer contracts generally relieve us from liability for consequential damages. The threat of unauthorized use may also deter potential customers. We continue to implement what we believe to be industry-standard security and service continuity protection measures, including the physical protection of our plant and equipment. Our competitors and we have taken similar measures in the past, but these measures have from time to time been circumvented. Our security measures could be circumvented in the future. Addressing security problems may require interruptions, delays or cessation of services to our customers, and additional resources. Our customers could cancel their services if they perceive our Network as being more vulnerable than our competitors, or if we experience significant Network disruptions.

We Are Dependent Upon Our Suppliers

We lease transmission capacity from a wide range of suppliers, both to link customer premises to the Network and for other transmission needs. We have at times experienced delays in receiving the transmission capacity we need from suppliers. We may not be able to obtain these services in the future at a reasonable cost and within a reasonable time. If we fail to obtain transmission capacity on a timely basis and at an affordable price in a particular jurisdiction, or if there is any prolonged interruption to local access services, or if one of our suppliers fails to honor its obligations to us, our business, financial condition, or results of operations could be adversely affected. We continually negotiate with a variety of suppliers in order to reduce our dependency on individual vendors. We rely on a small number of suppliers (mainly Nortel Networks and Cisco) for the network assets such as routers and switches we need to operate the Network. We use networking components that are based on industry standards so that alternate sources of comparable equipment exist. However, our suppliers also sell products to our competitors and may become competitors themselves. Our suppliers might enter into exclusive arrangements with our competitors or might stop selling their products to us on commercially reasonable terms or at all. If we are required to seek alternate suppliers, we would likely experience delays in obtaining the requisite equipment and pay higher prices for such equipment. We believe that it is unlikely that delays caused by switching to alternate suppliers or by the suppliers themselves would adversely affect the provision of services to our customers. However, we do believe that such delays would be likely to increase the costs of maintaining the Network.

We purchase capacity on major international routes where it is economically sensible to do so. The long-term agreements we have entered into (known as Indefeasible Rights of Use or IRUs) to date qualify as capital leases and typically involve the prepayment of all lease costs. These payments are included in long-lived assets on our balance sheet. Should the owner of the capacity fail to honor its contractual commitments, we would be required to impair the asset and need to record an onerous contract provision for the operating and maintenance fees we are contractually obligated to pay for the remaining lease term, but would, in any event, lose the capacity. This could result in our inability to service customers in part or in full, as well as the recognition of asset impairment.

We Are Dependent On SITA, Our Largest Customer and Indirect Sales Channel

In 2004, SITA accounted for approximately 19%, or $550 million, of our revenues. SITA is by far our largest customer and indirect sales channel. SITA derives its revenues almost exclusively from the air transport community. Ties between SITA and the air transport community are strong, since members of that community own SITA. The commercial airlines are not, however, required to use SITA for their communications needs. The ongoing economic downturn in the air transport industry has already reduced SITA’s spending with us, and we may experience further significant reductions in SITA revenues that could adversely affect our business, financial condition, or results of operations if we are unable to generate new revenues from other sources.

We Are Dependent On France Telecom, Our Second Largest Customer

France Telecom, our second largest customer, accounted for approximately 16%, or $451 million, of our revenues in 2004. Any significant reductions in France Telecom revenues could adversely affect our business, financial condition, or results of operations if we are unable to generate comparable new revenues from other sources. None of our other customers (other than SITA) accounted for more than 3% of our revenues in 2004. If the transactions contemplated by the Combination Agreement with France Telecom do not close for any reason, France Telecom is likely to reevaluate our position within its group and our commercial relationship with France Telecom to potentially divest its ownership of us and reduce or sever its commercial ties to us. See “If the Combination With France Telecom Does Not Successfully Close, The Interests Of France Telecom, Our Largest Shareholder, May Differ From The Interests Of Our Other Shareholders,” earlier in this Item.

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We Are Currently Dependent Upon Sales Through Indirect Channels

Indirect channel sales are an important element of our business. The term “indirect channels” refers principally to Sprint, Deutsche Telekom, and other incumbent operators. These indirect channel entities sell our services in specified regions or market sectors, generally under rebranding arrangements. Sales through indirect channels other than SITA totaled $321 million or 11% of our revenues in 2004, compared to $345 million, or 12%, of our revenues in 2003. Overall annual revenues from these indirect sales channels decreased by $44 million in 2004 as compared to a $70 million decrease in 2003. Revenues from these other indirect sales channels will likely continue to decline.

We Face Uncertain And Changing Regulatory Restrictions

Various restrictive laws, policies, and licensing requirements in the telecommunications and data network services industries may affect our business operations because they potentially establish regulatory and market access barriers. In our major revenue generating countries, most of our current and future services are de-regulated, and in some cases, no license is required. In most of the jurisdictions in which we operate, however, we generally must obtain licenses or enter into arrangements with locally licensed operators. Our ability to provide services in those jurisdictions depends on the continued availability and effectiveness of those licenses or arrangements.

In addition, some restrictive telecommunications laws and practices give rise to constraints, risks, and uncertainties. Uncertainty regarding the regulatory status of managed data networks and other services may affect our ability to offer our full portfolio of services in certain jurisdictions, particularly in emerging markets. In these jurisdictions, we also risk changes in the regulatory environment or in our regulators perceptions of us as our activity level increases. Consequently, we may be subject to fines or other enforcement actions or onerous licensing obligations. We may also be required to disconnect customers or introduce new services at a more cautious pace than might otherwise be the case without regulatory burdens. Our business, financial condition, or results of operations could be materially adversely affected if any of these events were to occur.

Our Industry Is Highly Competitive

We expect competition in the data network, integrated, and communications outsourcing services market to continue to increase as nations further liberalize their telecommunications markets; the data network industry consolidates; multinational corporations (MNCs) opt to outsource their communications needs to reduce their costs; new technologies emerge; and excess domestic and international transmission capacity continues to saturate the market.

We expect these factors to continue to place severe downward pressure on the price of transmission capacity used to deliver our services. In addition, we will most likely face greater competition from competitors with significant financial and other resources.

To compete successfully, we must continue to make our operations more efficient and find new ways to bring value to our customers. There is a risk that we may be unable to maintain or expand our market share as competitive pressures increase. Failure to do so could harm our revenues, margins, and results of operations.

We May Lose Key Employees

Our continued success will depend upon the continued efforts of our senior management team and technical, financial, marketing and sales personnel, as well as our ability to attract, train, retain, and motivate additional highly skilled and qualified personnel. If we lose the services of key personnel or are unable to attract additional qualified personnel, this could adversely affect our business, financial condition, and results of operations.

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Item 4. Information on the Company

HISTORY AND DEVELOPMENT OF THE COMPANY

Introduction

We provide global, integrated, and customized communications infrastructure solutions, comprised of data and Internet Protocol (IP) network products and value-added services, as well as network integration services through our numerous, globally dispersed subsidiaries. We deploy our own sales force in 40 key countries as well as using distributors, which include SITA, France Telecom Transpac, China Netcom, Japan Telecom, Sprint, and Deutsche Telekom. Our target customers are MNCs and international institutions such as Hanjin Shipping, Japan Tobacco International, Le Meridien Hotels, Ministry of Foreign Affairs — Netherlands, and Zurich Financial Services. Using our portfolio of value-added services and the seamless geographic reach of our Network, our customers can access their own company’s information and applications, as well as applications available from the Internet, anywhere in the world through direct connections from portable computers or other network access interfaces. In addition to data network services, we also provide communications services and solutions comprising consulting, project management, service management, integration services, and managed services, delivered by a core group of service professionals, engineers, and project managers. We also offer deployment services including the resale of network equipment and the worldwide staging and installation of local and wide area networks.

We are organized under the laws of The Netherlands. Our principal executive office is located at Heathrowstraat 10, 1043 CH Amsterdam, The Netherlands, and its telephone number is +31 20 606 9100. Our agent in the United States is Michael Berg, Senior Vice President, General Counsel and Secretary, 2355 Dulles Corner Boulevard, Herndon, Virginia 20171. We define a number of the telecommunications related terms we use in this document on page 28 in “ Glossary of Selected Telecommunications Terms.”

OUR HISTORY

The origins of our company date to 1949, when major airline companies from around the world formed Société Internationale de Télécommunications Aéronautiques, which is referred to herein as SITA, to provide communications and data processing services to the air transport industry. On March 3, 1995, SITA formed SITA Telecommunications Holdings N.V., which is referred to herein as STH. Later in 1995, SITA restructured its holdings in STH, distributing its stock in STH to a newly established Dutch foundation called the “SITA Foundation.” In October 1995, SITA and STH entered into a joint venture agreement providing for joint ownership, operation and management of the communication network and giving each of SITA and STH indefeasible and exclusive rights of access to the network. In 1998, STH changed its name to “Equant N.V.” We first offered our shares to the public in July 1998, with a listing on the New York Stock Exchange and the Bourse de Paris, now called Euronext Paris.

On November 19, 2000, we entered into a contribution agreement with France Telecom and its subsidiary, Atlas Telecommunications (subsequently renamed Atlas Services Belgium) to transfer France Telecom’s entire shareholding in Global One, a provider of data, voice and IP telecommunications services with a proprietary backbone network reaching more than 850 cities worldwide, to us in exchange for our newly-issued shares. Concurrently with this agreement, the SITA Foundation, then our largest shareholder, entered into a share purchase agreement with France Telecom pursuant to which SITA agreed to sell its entire shareholding in us to France Telecom.

Upon completion of these transactions, France Telecom became our majority shareholder with an approximate ownership of 54.3% of all of the issued and outstanding ordinary shares of us. At the same time, France Telecom issued to our shareholders (other than the SITA Foundation) one contingent value right, which is referred to herein as a Contingent Value Right (CVR), for each ordinary share held on June 28, 2001. Each CVR entitled its holder to receive a cash payment from France Telecom of up to €15 at maturity. The CVRs were paid by France Telecom on July 8, 2004 for an aggregate amount of €2,015 million. In addition, our articles of association were amended to reflect certain corporate governance arrangements agreed in the contribution agreement regarding France Telecom’s investment in us. These arrangements included, in each case for so long as France Telecom holds, directly or indirectly, at least 34% of our outstanding shares of capital stock, the following:

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See “Item 7. — Major Shareholders and Related Party Transactions” and “Item 10. Additional Information — Material Contracts” of our Annual Report on Form 20-F for the year ended December 31, 2003 filed with the Commission on May 12, 2004 for a detailed description of these and other related corporate governance arrangements.

On the same date, we entered into a number of agreements with France Telecom, through its Transpac subsidiary, which established the legal arrangements with France Telecom relating to the sale and support of our services in France. These agreements are described in “ Item 7. — Major Shareholders and Related Party Transactions — Arrangements with France Telecom” of our Annual Report on Form 20-F for the year ended December 31, 2003 filed with the Commission on May 12, 2004.

In November 2004, due to declining revenue trends in the telecommunications business overall, and in our own business in particular, our Management and Supervisory Boards began exploring various strategic alternatives. These alternatives included, among others, a standalone turnaround of the business through a focus on improving operating cash flows and a radical business transformation; a sale of the company to, or merger with, a strategic buyer; or engaging France Telecom in a buy-out of the minority shareholders.

On February 9, 2005, we entered into a definitive combination agreement with France Telecom pursuant to which we will sell to France Telecom all of our assets, other than (1) the consideration to be received by us from France Telecom pursuant to the combination agreement, (2) our rights under the combination agreement, (3) our employee option plan and the proceeds of any exercise of options thereunder, and (4) records relating to our corporate organization.

In exchange, France Telecom will (1) assume of all of our liabilities other than those relating to our obligations in respect to making a liquidating distribution to our shareholders of the consideration for the combination, withholding taxes, outstanding stock options, and agreements and covenants contained in the combination agreement to be performed by us, and (2) pay us €1,259,585,588.30, or approximately $1.6 billion, plus additional cash payments equal to the sum of the proceeds that are payable by us under the terms of the combination agreement in respect to outstanding stock options.

Our closing on the combination agreement is subject to several conditions, including the approval by our shareholders of the resolutions by our Management Board to enter into the combination agreement. Under the combination agreement, the resolutions will be validly adopted upon their approval by an absolute majority of the votes cast at the extraordinary general meeting scheduled for May 24, 2005. France Telecom has agreed to vote, or cause to be voted, all of the shares owned by it or its affiliates to approve the transactions contemplated in the combination agreement. Accordingly, given that France Telecom or its affiliates own our shares representing approximately 54.1% of the voting power of our shares, the approval of the resolutions at the extraordinary general meeting is assured without the affirmative vote of any other shareholders.

As promptly as practicable after the completion of the asset sale and pursuant to the combination agreement, we will make one liquidating distribution of money we received from France Telecom for our assets to our shareholders, which represents an implied consideration of €4.30 for each share. Once the money is distributed, we will liquidate, deregister and delist from the New York Sotck Exchange and Euronext Paris.

Capital Expenditures

For a discussion of our capital expenditures, see “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Capital Expenditures”.

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BUSINESS OVERVIEW

Our extensive global communications network and strong strategic partnerships enable us to serve customers around the world. Our global communications portfolio includes from desktop and network equipment and software, transport and connectivity, managed LAN (local area network) and IPVPN (internet protocol virtual private network) services, applications hosting, storage and security services, through to business transformation, outsourcing, and change management.

In 2004, we successfully expanded our services and outsourcing business while we continued to experience revenue erosion in our historic network businesses. In 2005, we will continue to adjust our processes and intensify our focus on delivering customized communications solutions to MNCs and international institutions as designed by our service professionals to fully manage all of the customers’ communications needs on an outsourced basis if desired.

Changes in Strategy and Business

Our strategy is to evolve from a network provider to a communications infrastructure solution provider. We believe that this transformation of our business is necessary to address the challenging and rapidly changing business environment in which we operate. Although market and technological evolutions have fueled a growing demand in volume for data networking, cheaper and more reliable IP solutions are becoming available to enterprises than those traditionally offered by us and our competitors. Moreover, new means of accessing computer networks such as DSL, high-speed wireless services, and broadband over cable, combined with existing network transmission overcapacity have resulted in very substantial price decreases. Concurrently, enterprise customers increasingly require differentiated levels of service and quality, advanced mobile computing services, and integration of a broad range of network and service components. A direct network point of presence is no longer a key requirement where DSL is available, and as a consequence, Virtual Private Network (VPN) providers like us are moving towards a variable cost environment with low barriers to entry and limited cost advantages derived from scale. As a result of these trends and the expected continued growth in Internet-based connectivity, low cost access technologies like DSL, and intense competition with increased pricing pressure not compensated by higher volumes, we believe that our addressable market for connectivity by way of traditional, legacy solutions will shrink substantially over the next several years. Consistent with this strategy to become a leading communications infrastructure solutions provider, we sold our 49 percent equity stake in Radianz, our joint venture with Reuters to provide extranet and related telecommunications services to the financial community, to Reuters in November 2004.

In light of these projected declines in pricing and in our addressable market, our intention is to transform our business by substantially reducing costs while growing our services business by increasing our focus on consulting, project management, and service management to deliver customized, integrated services to our customers. This new strategy will focus on (a) offsetting revenue lost in our core connectivity business by growing market share in adjacent segments and by capturing market growth in mobility and convergence, and (b) substantially reducing the fixed cost base of the connectivity business. We further expect that the decline in connectivity revenues can be partially offset by aggressively rolling out DSL, rationalizing our direct network points of presence and international backbone through outsourcing in non-contributive countries, and by progressively closing our legacy network when economically justified.

Changes in our Organization

In July 2004, we appointed Hervé Kauffmann as our new Chief Operating Officer (COO). In December 2004, we appointed Charles Dehelly as our new Chief Executive Officer (CEO) after our former CEO, Daniel Caclin resigned. Under Mr. Dehelly’s leadership, we substantially completed an internal reorganization, underscoring our reinvigorated focus on designing, delivering and managing profitable, customized, telecommunications solutions for our MNC customers. Our business is now organized into two divisions, each with its own profit and loss (P&L) accountability. Equant Network Services (ENS) focuses on traditional network services business and Equant Solutions & Services (ESS) focuses on our growing services business. These two business divisions are complemented by four sales channels supported by one marketing and one Customer Services & Operations (CS&O) function.

ENS

We have consolidated and formed Equant Network Services (ENS) to optimize the skills of our network professionals to meet the varied needs of our MNC customers. ENS is structured around three core P&L driven business units:

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These core business units are supported by the following functions:

ESS

We have consolidated our services skills into a newly created ESS division. ESS comprises four core business units in charge of growing our Solutions and Services business on a profitable basis:

EGS
Communications Infrastructure Outsourcing Services: Our outsourcing service offering to MNCs includes the management of all or part of the MNCs communications needs on a global, regional or local basis. Our outsourcing services include data services from WANs to LANs, voice services, mobility services, video services, hosting services, and the management of IT infrastructure supporting all networked applications, such as messaging and security applications. These services may include the transfer of assets, third-party contracts, and people for our customers. EGS skills and experts are organized into competence centers comprised of the following: joint opportunity assessment, due diligence, engineering and operations of end-state solutions, life cycle management, managed vendor services, and innovation development. Each outsourcing contract is managed by a fully dedicated Account Business Unit (ABU) that has complete responsible for contract execution and customer satisfaction.

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IS
Globally connected through our worldwide support centers, our engineers and consultants are remotely able to deliver our integration services and manage the customers’ networks. Our integration services currently consist of the following:

ITS
IT services include solutions related to the management of IT infrastructure supporting various applications such as:

PS
Through our Professional Services function, we take responsibility for every aspect of a customer’s information technology needs through consulting and project management. We have consultants who specialize in Security, Messaging and IP Telephony to assess a customer’s current and future requirements. We have established both project management and consultancy services as global business practices across the company to drive and grow our services business. PS consists of three skills-based practices of consulting, project management, and service management.

CS&O

CS&O supports and is accountable to ENS and ESS for costs, capital expenses, and delivery of best-in-class customer services and infrastructure operations. CS&O delivers network and field services, ensures service management, and provides customer service. We currently operate Global Customer Service Centers in Atlanta, London, Cairo, Sydney, and Rio, and maintain Global Network Management Centers in Reston, Paris, and Singapore.

The key responsibilities of CS&O include:

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Sales and Marketing

We sell our products and services through three direct sales channels, which we organized by region in 2004 into the Americas, Europe, and Asia Pacific. We also have one indirect channel including our relationship with SITA and France Telecom.

As of December 31, 2004, our sales force consists of 397 sales staff, compared with 471 sales staff as of December 31, 2003. We hire sales and technical personnel experienced in communications and other relevant sectors, and motivate them through a competitive sales compensation scheme. In the light of our new strategic direction to focus on the communications services market, in 2004 we reinforced our sales and consultancy skills by hiring new staff and training existing staff to ensure our ability to support these activities. Currently, our sales force is concentrated in 40 key countries, that represent the largest markets for telecom and related services. We also serve countries where we do not have a direct presence either from the respective region or through partners.

Account Management. All of our significant customers are assigned to an account manager. We also have established a dedicated global account management program for those customers who have articulated a desire to develop a sustained, long-term relationship with us. The account managers are responsible for developing sustainable commercial relationships with these customers and coordinating sales and support activity with these particular customers across all regions. This program currently focuses on approximately 25 companies, and we have diverted some sales staff to develop these new high-potential accounts. The direct business sales force and account managers work together with professional services staff in each location to provide cost-effective solutions. The sales force is encouraged to use a consultative sales approach to ensure that we understand each customer’s requirements well and tailor unique solutions for each one. In some cases, the appropriate customer solution may require a combination of our products and services with those we acquire from others. We actively market additional products and services from our portfolio to our existing customers. In some cases, customers migrate from a vending to an outsourcing arrangement with us where we take ownership of customer contracts, assets, or people. These outsourcing relationships represent a growing market for us, and is one on which we increasingly focus.

Indirect Sales. Our major indirect sales channels complement our direct sales force and are an integral part of our strategy. These channels include market specific distributors, such as Sprint in the United States and Deutsche Telekom in Germany, and sector specific channels such as SITA. SITA continues to be our most important indirect sales channel and our exclusive partner for delivering our services to the air transport community, which generally consists of airlines, airport operators, and related businesses.

Our Services

We provide telecommunications services and solutions for MNCs. These solutions may comprise any or all of the following services and service elements or customized variations thereof.

Network Services

We provide a full range of MDNS, using established industry protocols. MDNS is the generic name given to WAN data transport services managed by a supplier with a higher degree of functionality, security, reliability and cost effectiveness than data transport services provided by traditional public telecommunications organizations comprised of leased lines from other providers. For any customer, the availability of a particular access method, transmission speed, or telecommunications service is dependent upon a combination of factors, including:

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We provide both direct access (i.e., fixed and continuous connections between different customer sites) and remote access (i.e., connections initiated and terminated by a remote user) via the dial telephone network as well as the Internet including using DSL connections.

IP Services

Equant IP VPN. Our IP VPN provides a private and secure connection through an MPLS-based architecture. The key features are:

Equant Internet Direct and Internet VPN. Equant Internet Direct is designed for customers who use the Internet as a strategic resource and require a high level of Internet reliability and services on a worldwide basis. In 2004, we introduced an internet service provider resale solution, which is a one stop management capability for customers. We also enhanced our Equant Internet VPN services with VPN bridge capability for IP VPN or frame relay.

Frame Relay Service. Frame Relay is particularly suited to customers who want to manage their internal networks by acquiring dedicated but virtual paths between their locations, and as such, is a cost-effective means of connecting geographically dispersed office LANs. We offer Frame Relay services in a large number of city locations and countries, including all major business centers in North America, Europe, and the Pacific Rim with access speeds of up to 45Mbps. Despite the growth of IP VPN services, Frame Relay continues to be a key WAN service throughout much of the world, especially for mission-critical applications in the developing regions of the world.

LAN Access Service. This network offering is based on our robust Frame Relay network service but also includes our management of routers, switches, and other Customer Premises Equipment (CPE). Selecting a managed CPE option avoids the need for customers to invest in maintaining and upgrading their own hardware. Customers increasingly prefer this managed CPE option for us to handle a portfolio of Cisco routers or Nortel switches on the customers’ premises, as they believe this will improve performance and better reduce their total cost of ownership.

ATM Service. Our ATM service provides customers with transport speeds of up to 155 Mbps, which is suitable for transmitting high volume data applications, as well as integrated voice and video. Customers who have high-speed mission critical networking requirements select our ATM service, and use this service to provide full multimedia integration.

ATM/Frame Relay/LAN Access Product Developments. We continually enhance our portfolio of WAN services. In 2004, we continued to integrate our back office operations to improve productivity in the delivery and maintenance of our services. In addition, a number of additional features were introduced to maintain the competitive profile of our Frame Relay / LAN Access/ATM competitive profile including new access methodologies using DSL, Internet and satellite technology.

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Traditional MDNS (X25/X28). We offer direct access services, providing LAN-to-LAN connectivity, employing the X.25 protocol. These services provide flexible, cost-effective connections in a wide number of locations. Although customers in the United States, Western Europe and Japan are migrating to more rapid, higher capacity services, X.25 and SNA/SDLC usage continues to be used in emerging markets in Eastern Europe, Asia, and Africa. Equant’s traditional MDNS provides the quality required for most modern data-communications transport protocols. X.28 is a dial access (through the telephone network) arrangement of the X.25 Managed Service.

Service Management Tools. We have consolidated our range of service management tools into one single tool called Equant WebVision. This real-time tool permits our customers to monitor performance of the services we provide and observe our progress in resolving problems. Equant WebVision is a web-based, real-time monitoring tool that provides customers with information on traffic, connections, and configurations. Equant WebVision also allows customers to view reports of problems or errors. WebVision includes a suite of services that are offered over our portfolio of IP and Data services under the Customer Select Program. With the addition of the Equant Application Visualizer launched at the end of 2002, we provide access to information on the customers’ application usage across their LAN and WAN. We launched a fully managed version of Equant WebVision for the Asia Pacific region in 2004.

IS, PS and ITS
Please see our description of IS, PS and ITS services on page 15.

Convergence Solutions. Our convergence solutions are as follows:

Equant Voice VPN: Equant Voice VPN relies on a switched voice network that uses a virtual private network technology to provide our customers with the functionality of a dedicated private network combined with the flexibility, resiliency and cost effectiveness of a shared global network. The services formerly known as Integrated Voice and Data (iVAD) have been re-packaged as Equant Voice for IP VPN, Equant Video for IP VPN and Equant Call Center for IP VPN. These comprise an enhanced alternative to traditional switched voice services.

Equant Contact Center: Our Contact Center is a single point of contact for fault management and reporting for all of our services. The Equant Contact Center for IP VPN provides public access numbers in 40 countries and directs in-country calls to domestic or international contact centers through our Network. We will continue to enhance our convergence services with more detailed reporting, improved service management and SLAs and small office solutions with DSL.

Mobility Services: In 2004, we expanded our GPRS coverage, introduced public Wireless LAN services and developed mobilized applications, such as messaging.

Communications Infrastructure Outsourcing Services: As opportunities arise, we intend to pursue outsourcing opportunities with existing as well as new customers using our broad portfolio of data and IP network products and communications services. Outsourcing involves a long-term relationship where a company allows an external company to manage all or part of its communications needs. Companies usually engage in outsourcing to obtain higher levels of efficiency and user support at reduced operating and management costs through economies of scale and scope. The service may include parts or all of data, voice, wireless and hosting services as well as transfer of assets, contracts and people, and networked application management.

Service Revenues

The following table shows our revenues by geographic region. Revenues are attributed to the region in which the ultimate customer is located.

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Seasonality. Although our quarterly revenues vary at times, we do not believe that there is any major seasonal trend in our markets. The integration services business is subject to a desire by some customers to spend their internal budgets which in turn leads to a higher than normal level of activity in the fourth quarter of the year and a corresponding lower level of activity in the first quarter of the following year.

The following tables depicts our revenue by Services:

Our Customers

Our target customers are global MNCs and other large international institutions requiring multi-year, multi-service contracts. Our target customers typically:

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The multinational organizations who make up our target customer base typically acquire their telecommunications needs through competitive bidding. Our typical contract for communications services is for three years, although some of our contracts are for longer or shorter terms.

In 2004, our ten largest customers accounted for 44% of our revenues, with the largest customer, SITA, accounting for approximately 19% of revenues, as compared to 22% of our revenues in 2003. Our second largest customer, France Telecom accounts for approximately 16% of our revenues in 2004 as compared to 13% in 2003. See “Item 5. Operating and Financial Review and Prospects — Results of Operations for the Year ended December 31, 2004” for more details.

Markets and Competition

Market Trends

We operate in a very dynamic, highly competitive, and fragmented market that is in a constant state of change and is experiencing continuous erosion in prices for telecommunications connectivity. Bankruptcy filings and consolidation trends highlight the current transition in the industry. The acquisition and merger announcements by Infonet and BT, AT&T and SBC, and MCI and Verizon exemplify the continuing consolidation in our market.

Despite cautiously optimistic expectations, the IT and telecom budgets of our customers for traditional communications services stayed flat in 2004, and cost savings are still an imperative for a vast majority of companies. At the same time there is a significant growth of traffic due to the continuous expansion of Internet usage and e-business, and an increasing demand for “media-rich” applications and customized solutions. Expansion in these areas increases the use of intranets, extranets, e-mail messaging, collaborative applications, electronic data interchange, and other applications to facilitate electronic transactions.

Communications network service providers continue to improve network infrastructure with new technology to meet expanding customer expectations and requirements. These networks are often referred to as next-generation optical networks. These networks reduce the high cost and complexity of traditional backbone networks by providing a more efficient way to transmit large amounts of data and handle dynamic capacity demands well. MPLS is used in many of these networks to provide virtual private networking capability and varied levels of service depending on the particular application.

Another trend in the communication infrastructure business is the migration of customers toward a hybrid of public and private IP services in small and remote locations to reduce the cost of transmitting increasing volumes of data in those areas. Business customers are also concerned with the quality of service and the need for service level agreements as a means of ensuring availability, minimal latency, and guarantees against losses in application performance.

Competitors

We face competition from both established global service providers and from competitors outside the traditional telecommunications sector. The competitive landscape is becoming increasingly complex as boundaries between IT and telecommunication sectors disappear. Information technology vendors are willing to expand their expertise toward networking while network providers are expanding their portfolio towards integration services. In addition, the equipment and network providers continue to partner as they extend into other sectors of the communications market.

We face competition mainly from five types of companies:

Our established competitors in the “pure” network service market include the following companies: AT&T Business Services, BT Global Services, and MCI. The established companies provide a range of data services alongside their entrenched voice services. Nevertheless, these competitors are becoming more competitive in the fast growing data services market.

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Newer entrants such as COLT Telecom and Level 3 Communications have entered the market, but do not necessarily offer end-to-end solutions with the same geographic scope that we provide. These newer competitors are focused on “point-to-point” or IP-based network services as well as providing bandwidth to other carriers.

In the countries we offer services, we also compete with incumbent providers, such as local public telecommunication organizations (PTOs), some of which still have special regulatory status and the exclusive rights to provide certain services, and virtually all of which have historically dominated their local telecommunications markets.

We compete with equipment vendors and installers and communications software developers as they move into data networking. We also compete with many of these providers in the fast growing communications outsourcing market. We believe that competitiveness in the data network services, integration services, and communications outsourcing sectors is largely a function of a company’s ability to offer a broad variety of reliable products and services tailored to customer needs and related support. As the market becomes more competitive, we believe that price, end-to-end solutions, and customer service will increasingly create a competitive advantage for us.

Customers also require design, implementation, and support services for network and desktop technologies, as well as the supply and distribution of desktop and network equipment. The marketplace for fulfillment, desktop, and network integration services is fragmented both geographically and in terms of competitor organizations. The main categories of competitors for these services include computer service companies, virtual network operators, outsourcers, computer manufacturers, and network integrators. Competitors include companies such as Electronic Data Systems Corporation, Accenture, IBM Global Services, BT Global Services/Syntegra, NCR Corporation, Unisys Corporation, and Hewlett Packard. Competition in fulfillment services is principally price driven while competition in desktop and network integration services is more a function of the ability to provide additional services including design, implementation and support services.

Our Competitive Strengths

The continuing convergence of multiple network infrastructures for voice, data and video and multiple network infrastructures has significantly increased the cost and complexity of implementing and maintaining such networks. In addition, today’s corporate communications infrastructures are designed to enable critical business processes and applications to support operations on a global scale. MNCs demand real-time access to highly-customized, reliable, and secure applications. We believe that with our global Network reach combined with our services offering, we are well positioned to meet these demands. Specifically our competitive strengths include:

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REGULATION

As with any international telecommunications services provider, we face regulatory and market access barriers in various countries resulting from restrictive laws, policies, and licensing requirements. In our major revenue generating markets, all of our current and planned services are now deregulated, and in some cases no license is required. In most other countries with significant revenue potential, licenses or arrangements with a local licensed operator make it possible for us to offer our full range of services. Nevertheless, some restrictive telecommunications laws and practices in certain countries give rise to constraints, risks and uncertainties which will affect our short-term ability to develop and market our full portfolio of existing and future services.

Some or all telecommunications services are subject to restrictive or monopoly regimes in countries that are beginning to deregulate their markets. We are unable to provide services in such countries without entering into an arrangement with the incumbent telecommunications operator. We cannot guarantee that we will be able either to enter into or to maintain the requisite arrangements with the incumbent provider or will be able to comply with local regulatory requirements either at a reasonable cost or at all.

Corporate Presence

In a number of jurisdictions, we are permitted to provide service to our customers only after first establishing a corporate presence, either through the incorporation of a subsidiary or the registration of a branch or representative office. We generally establish such a local presence in each of the jurisdictions where such a presence is legally required. In jurisdictions where we have not yet established a corporate presence, we usually rely on indirect channels such as through the incumbent PTO.

Regulatory Analysis by Service Type

Managed Data/ IP Network Services

The core of our network services business is the provision of managed data/IP network services to corporate customers on an intra-corporate basis. Regulators generally characterize these services for licensing purposes as data transmission services or value added services. We are authorized by law or by license (either individually or by “class” license) to provide these services in the major and material revenue-generating countries in which we provide network access. In the European Union, these services may be provided upon a simple registration, notification, or authorization procedure.

Countries in which we operate, but are not formally licensed or authorized to provide managed data/IP services, can be grouped into three categories:

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This third category of countries generally includes only lower revenue generating countries. For countries that fall into this category, we only offer service where the relationships with local authorities and operators are strong and where we believe that the authority to operate, even where informal, is reliable. A risk nevertheless exists that local authorities in a country could deny requests for new network connections to our customers or require that customers be disconnected. We believe that this risk is remote and will diminish further over time with the long-term trend of regulatory liberalization. Furthermore, in such countries, the impact on our revenues and operating ability would not likely be material if such regulatory action were to occur.

Corporate Voice Services

We provide our international corporate voice services (“IP VPN for Voice”) only in those countries where the regulatory regime permits us to do so. Most countries’ laws fall generally within one of the following four regulatory categories (in order of the most restrictive to the least restrictive):

We believe that in jurisdictions in which we are providing corporate voice services, we are doing so in accordance with applicable regulatory requirements, in all material respects.

Corporate Internet Services

With limited exceptions, the corporate Internet services that we provide do not require any authorization beyond what we already hold for managed data/IP network services. In the aggregate, these countries account for a very small percentage of our revenues. Because the regulation of Internet access is ill defined or in flux in some countries, there is a risk that customers are using the network to access the Internet in countries that may prohibit (or wish to prohibit) such access. We minimize this risk by proactively discontinuing such access when we become aware of any legal requirements to block such access. The offering of voice services over the Internet, and the use of the Internet by customers to conduct voice communications, continues to grow. The regulatory status of these activities is developing, and we carefully monitor regulatory pronouncements on this subject for our future compliance.

Substantive Regulation in Key Markets

United States

The regulatory framework governing the offering of telecommunications services in the United States permits us to offer our complete portfolio of products and services without significant legal constraints. We may provide these services either on a facilities or resale basis. To the extent that a future service requires prior authorization, either by the Federal Communications Commission (FCC) or by a state public utility commission, we believe there is no significant risk that such an application would be denied or that we would face processing delays that would adversely affect us. Nonetheless, the regulatory classification and treatment of IP-enabled services has not been authoritatively resolved in the United States. Certain IP-enabled services may be subject to regulation in the future.

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The offering of “basic” telecommunications services on a common carrier basis is subject to regulation in the United States. Entities that provide such services are classified as “telecommunications carriers.” Interstate and international common carrier services provided by a telecommunications carrier are subject to the FCC’s jurisdiction under Title II of the Communications Act. Intrastate telecommunications services (i.e., services that originate and terminate within the boundaries of a single state or the District of Columbia) are subject to regulation by the relevant state regulatory body. Private carriers and information service providers are subject to the FCC’s ancillary Title I jurisdiction.

Equant Inc., our wholly owned U.S. subsidiary, is authorized to provide interstate and international common carrier services on both a facilities and a resale basis within the United States and between the United States and foreign locations, pursuant to its FCC authorization. Under this authorization, we are subject to classifications and restrictions on certain international routes because of our affiliation with France Telecom. Specifically, we are classified as a dominant common carrier on the international routes between the United States and Argentina, France, Jordan, Mauritius, and Poland. As a dominant common carrier on these routes, we have special reporting and compliance obligations. In addition, on the international routes between the United States and the Central African Republic, Chad, Cote d’Ivoire, Djibouti, El Salvador, French Guiana, French Polynesia, Guadeloupe, Madagascar, Martinique, Mayotte, Reunion Island, New Caledonia, Saint Pierre and Miquelon, Senegal, and Wallis and Futuna we can only provide international switched services through the resale of an unaffiliated U.S. facilities-based carrier’s international switched services. To the best of our knowledge, we comply with this authorization. Equant also provides non-common carrier services.

Agreement with the Federal Bureau of Investigation and the Department of Justice

In order to obtain regulatory approval of the Global One/Equant merger, we entered into an agreement with the Federal Bureau of Investigation and the Department of Justice substantially similar in content to the agreements that telecom companies operating in the United States are generally required to execute. The agreement imposes a number of obligations on us relating to law enforcement and national security concerns in operating the merged network. We have taken steps to comply with the obligations imposed by this agreement and we remain, to the best of our knowledge, in compliance.

European Union

The 5 goals of the new regulatory framework that was implemented in 2003 are:

Primary Instruments

Four Directives and a Decision were adopted by a co-decision procedure and published in April 2002. A fifth Directive, on sector specific data protection, followed suit in July 2002. Member States were required to transpose the Directives into national law by July 25, 2003 (October, 31 2003 for the E-communications privacy Directive).

The new regulatory framework consists of the following instruments:

Framework Directive setting out the main principles, objectives, and procedures for an EU regulatory policy regarding the provision of electronic communications services and networks.

Access and Interconnection Directive stipulating procedures and principles, with emphasis on rules pertaining to operators, for imposing pro-competitive obligations regarding access to and interconnection of networks on operators with significant market power.

Authorization Directive introducing a system of general authorization, instead of individual licenses and the like, to facilitate entry in the market and reduce administrative burdens on operators.

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Universal Service Directive requiring a minimum level of availability and affordability of basic electronic communications services and guaranteeing a set of basic rights for users and consumers of electronic communications services.

Privacy and Electronic Communications Directive setting out rules for the protection of privacy and of personal data processed in relation to communications over public communication networks.

Radio Spectrum Decision establishing principles and procedures for the development and implementation of an internal and external EU radio spectrum policy.

Commission Competition Directive consolidating the legal measures based on Article 86 of the Treaty that has liberalized the telecommunications sector over the years.

In addition to these basic instruments, the Commission adopted additional measures that will play an important role in the functioning of the new framework:

Commission Guidelines on Market Analysis and the Assessment of Significant Market Power setting out a common methodology and principles for the national regulatory authorities charged with these tasks imposed by the new EU regulatory package.

Commission Recommendation on Relevant Markets (susceptible to ex ante regulation) providing a recommendation on 18 different markets, retail and wholesale, that national regulators are reviewing under new regulatory framework obligations.

Implementing the New Regulatory Framework

Transposition in the 25 Member States, based on the 10th Implementation Report (European Commission, DG INFSO, 2004):

Member States were required to transpose the EU regulatory framework by July 24, 2003 (EU 15) as regards the core directives and by October 30, 2003 as regards the ePrivacy Directive; it applied in its entirety from May 1, 2004 for the ten new Member States.

Twenty Member States have completed the adoption of primary legislation and notified the Commission thereof. This is a major achievement that in all cases has involved either a complete recasting of existing laws or the introduction of major new legislation.

However, five Member States, although they have in all cases carried out significant steps in the legislative process, still need to adopt primary legislation to transpose the framework:

Belgium, Czech Republic, Estonia, Greece, and Luxembourg have yet to adopt primary legislation implementing the regulatory framework.

Equant already held operating rights in all of the “old” EU15 countries under the old framework. These rights have been “grand fathered” under the newly implemented regulatory framework, although both Finland and Ireland required a notification within a month of implementation. We now operate in all of these EU15 countries under General Authorizations.

In the countries without primary legislation to implement the new EU Regulatory Framework, we continue to operate under the old framework and will comply with the necessary requirements to change to the General Authorization once the new framework is implemented.

Accession Countries

On May 1, 2004, ten countries (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia) joined the European Union. These accession countries agreed, in the course of the accession negotiations, to implement the 1998 telecoms acquis. Under this Agreement, once they have acceded, they will be required to comply with the new framework as from the date of accession, as mentioned above. We are already licensed to provide services in all but two of these countries, Cyprus and Malta.

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France

Under the old framework, only the provision of public voice telephony services or the operation of infrastructure required individual licenses. Consequently, our managed data and corporate voice services did not require any form of authorization. Our subsidiary Equant Telecommunications S.A. held individual licenses L33-1 (network infrastructure for the Ile-de-France region) and L34-1 (public voice telephony — national coverage). These licenses have been succeeded by the General Authorization regime under the new framework. Another Equant entity in France, Equant France S.A., has obtained the Authorizations under the new authorization regime, covering the same scope as the L33 and L34 licenses. The Authorizations succeeding the legacy individual licenses L33-1 and L34-1, held by Equant Telecommunications S.A., were cancelled in 2004 since our new operating entity, Equant France S.A., is authorized for the same set of services under the new framework.

Germany

Following the merger with Global One and the integration of the German companies, under the old EU framework we held a nationwide Class 4 license for the provision of Public Voice Telephony with the right to interconnect with DT, and consequently cost-based call origination and termination throughout the German PSTN, and a Class 3 license for the use of dark fiber for selected intra-network links in designated areas. In 2004 we extended the scope to cover the whole of Germany. All other service activities were subject only to notification to the regulatory authority and were duly notified.

New draft telecommunications legislation to implement the new EU framework was adopted in 2004. Our licenses were automatically transferred to the General Authorization regime under the new EU framework, as transposed in Germany.

United Kingdom

Under the old EU framework regime, we provided our managed data services on an international basis under the Telecommunication Services class license (TSL). This authorized the provision of telecommunications services of any description, other than international switched voice, broadcasting, and conditional access services. The TSL allows the connection of the licensee’s telecommunications system to essentially any other licensed UK system, and allows the commercial supply of services to third parties.

EGN B.V. and Global One CHL, our wholly owned subsidiaries, were allowed to own and operate international transmission facilities, such as transatlantic IRUs, under licenses for Public Telephone Operators with international facilities (a “combined PTO/IFL” license) as part of the rationalization of the United Kingdom licensing system. These licenses authorized full rights to national and international interconnection. Our corporate voice services were also provided under these licenses.

The General Authorization regime under the new EU framework was implemented on July 25, 2003. Both the licenses held by EGN B.V. and Global One CHL were automatically transferred on that date and these General Authorizations permit the full portfolio of services as previously provided under the old framework. We will continue to operate under both General Authorizations until the integration of the UK companies is completed.

Regulatory Assessment of Other Markets

Currently, we are able to offer services in many Asia Pacific, South and Central American, and Central and Eastern European jurisdictions, and the regulatory regimes in many of these countries are liberalizing rapidly. We continually update our service offerings to comply with the changing regulatory environments. It is possible that we may not timely conform our service offerings to the changing regulatory environments. In such an event, we may be subject to a range of enforcement actions including fines or onerous licensing obligations.

Asia Pacific. Regulatory regimes vary greatly in character throughout the Asia Pacific region. At the liberalized end of the range, Australia, Hong Kong, Japan, New Zealand, Singapore, South Korea, and Taiwan have liberalized both international data and voice services, which we provide currently in all seven countries under the appropriate authorizations. In other countries in the region, such as China, Indonesia, the Philippines, Thailand, and Vietnam, we have for some time provided various services in our portfolio pursuant to agreements with licensed local operators, since in these countries licenses are unavailable or difficult to obtain by foreign service providers. India and Malaysia have begun to liberalize their markets, and we have obtained limited licensing and are investigating possibilities to acquire additional licenses such that our current agreements with local operators could be supplemented or replaced.

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South and Central America and the Caribbean. Corporate data and voice network services are relatively liberalized in the major South American countries, including Argentina, Brazil, Chile, Colombia, Peru, and Venezuela, and in parts of Central America and the Caribbean. We currently provide data and switched and packet voice in these countries, to the extent permitted under our own licenses or through arrangements with licensed local operators.

Central and Eastern Europe. Telecommunications services are liberalized in varying degrees in a number of the major countries.

Our operations involve all of the Eastern European countries, some of which have joined the EU in 2004 and therefore have implemented, or are in the process of implementing, the EU New Regulatory Framework, which entails full liberalization of their respective telecommunications markets. For example, in the Czech Republic, the Slovak Republic, Poland, and Hungary, we are authorized to provide our full data and corporate voice service portfolio. In Russia, we also hold the necessary licenses to provide our full service portfolio.

Elsewhere, the Baltic States have also joined the EU in 2004 and their telecommunications markets are fully liberalized. In Estonia, Latvia, and Lithuania, we are authorized to provide data and corporate voice services.

In the CIS countries we are working on the establishment of legal entities as a basic requirement for licenses and authorization applications.

ORGANIZATIONAL STRUCTURE

Since June 29, 2001, when France Telecom’s wholly-owned subsidiary, Atlas, acquired a 54.3% interest in Equant, N.V., we have been a member of the France Telecom group. As a result of subsequent dilution, France Telecom now controls approximately 54.1% of our shares. As consequence of the Combination Agreement described in “Item 7. Major Shareholders and Related Party Transactions — Related Party Transactions” we will become a 100% subsidiary of France Telecom and Equant N.V. will be liquidated.

Our significant subsidiaries are as follows:

E. PROPERTY, PLANT AND EQUIPMENT

At December 31, 2004, the total net book value of our property, plant and equipment was $971 million, of which Network assets, such as packet switches and routers, accounted for approximately 54%. We lease node sites and other facility locations and sales and administrative offices throughout the world. Our principal properties are our executive offices in Herndon, Virginia, Amsterdam, The Netherlands and other administrative offices and facility locations in Paris, France and in Slough, England, all of which are leased. We believe that, taken as a whole, our properties are in good operating condition and are suitable and adequate for our operations. For a description of our Network, see “ — Business Overview — The Network.” For a discussion of our capital expenditure plans, see “Item 5. Operating and Financial Review and Prospects — Liquidity and Capital Resources — Capital Expenditure”.

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F. GLOSSARY OF SELECTED TELECOMMUNICATIONS TERMS

The following explanations are not intended as technical definitions, but rather are intended to assist the general reader in understanding certain terms as used in this document.

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Item 5. Operating and Financial Review and Prospects

You should read the following discussion in conjunction with the Consolidated Financial Statements, including the Notes thereto, found elsewhere in this document. The Consolidated Financial Statements have been prepared in accordance with French GAAP, which differ in significant respects from U.S. GAAP. Note 30 to the Consolidated Financial Statements provides a description of the significant differences between French GAAP and U.S. GAAP as they relate to our business and a reconciliation to U.S. GAAP of our net income, shareholders’ equity and financial position prepared in accordance with French GAAP.

Given the fundamental difference in the treatment of the business combination of Equant and Global One on June 29, 2001 under French GAAP and U.S. GAAP, we discuss our results of operations under U.S. GAAP as well as French GAAP. While under French GAAP the combination was treated as an acquisition of Global One by Equant, under U.S. GAAP the transaction was accounted for as a reverse acquisition of Equant by Global One.

Operating and Financial Review under French GAAP

Overview

We are a recognized industry leader in global communications services for MNCs. A France Telecom subsidiary, we combine our network expertise, including unmatched seamless network reach in 220 countries and territories and local support in 149 countries, with our expanded services capabilities to provide global, integrated and customized communications services that enable our customers’ key business processes. Our principal revenue stream continues to be the provision of MDNS to MNCs that use the Network to carry their mission critical data. During 2004, we announced many new customers and contract renewals, including, Akzo Nobel, Allianz, Globalstar, Merck KgaA, Spencer Stuart, STMicroelectronics and Swiss Re, as well as a six-year, $144 million communications outsourcing contract with JT International. We have direct channels to market using our own sales force in 40 key countries, and we also use indirect channels, which include SITA, France Telecom Transpac, China Netcom, Japan Telecom, Sprint and Deutsche Telekom.

A growing portion of our business is communications services and solutions, which consists of consulting, project management, service management, integration services and managed services based on approximately 3,000 globally dispersed service professionals. MNCs who make significant purchases from our services portfolio include Electrolux, Le Meridien and Lufthansa Systems Infratec GmbH. We also offer deployment services including resale of network equipment and staging and installation of local and wide area infrastructure worldwide.

In 2004, we continued to enhance our services and solutions portfolio, unveiling the solution for MNCs mobile users as part of France Telecom’s “Business Everywhere” initiative, introducing satellite VPN solutions in partnership with Intelsat and iDirect, as well as the industry’s first global LAN utility service. We continue to roll out broadband DSL access with over 2200 connections at year-end.

Proposed Purchase of Assets and Liabilities by France Telecom

On January 22, 2005, we received an offer from France Telecom to purchase substantially all of our assets and liabilities for $1.6 billion (€1.26 billion). Approval of this transaction requires the unanimous approval of the Independent Directors of the Supervisory Board, the majority approval of both the Management and Supervisory Boards, and the majority approval of our shareholders at a general meeting.

On February 9, 2005, our Supervisory and Management Boards signed a combination agreement with France Telecom that provides for France Telecom to purchase substantially all of our assets in exchange for the assumption of all of our liabilities and a cash payment.

Following the closing of this transaction, we will distribute the cash payment we receive from France Telecom to our Shareholders in substitution and satisfaction of their ownership interests in us, will suspend our shares from trading and delist from the New York Stock Exchange and the Euronext Paris, and will deregister from the U.S. Securities and Exchange Commission. An extraordinary general meeting is scheduled for May 24, 2005 for our shareholders to vote on the February 9, 2005 combination agreement, the selection of a liquidator, and our ultimate liquidation after the distribution of the cash proceeds from France Telecom to our shareholders, among other items.

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Summary of Results

Revenues fell approximately 1% in 2004. Revenues from Network Services fell by over six per cent as a result of continuing pricing pressure and a higher level of disconnections, particularly in North America, as customers moved to lower cost IP solutions. Network Services indirect channels continued to be weak, mainly due to a reduction in revenues from Sprint, Deutsche Telekom and Radianz. In addition, revenues from SITA fell due to the expiry of the minimum revenue commitment (MRC) on July 1, 2003, and the ongoing move from older technologies to unmanaged internet-based solutions. In contrast, IS recorded strong growth reflecting our success in delivering services and solutions.

Gross margins decreased from 31.1% to 23.4% reflecting not just lower revenues but higher direct costs principally due to the adverse impact of foreign exchange rate movements, additional fulfillment costs and a change in revenue mix. Selling, general and administrative expenses fell from 21.2% of revenues to 18.8% reflecting the reduced personnel costs and lower support costs. We expect to make further reductions in selling, general and administrative expenses in 2005 as we maintain pressure on reducing costs.

We measure our operating performance based on operating result before depreciation, amortization, share plans and restructuring and integration, which decreased by 55 percent to $132 million in 2004, and as a percentage of revenues, decreased from 9.9% to 4.5%. We consider operating result before depreciation, amortization, share plans and restructuring and integration to be an effective measure of performance as it excludes certain variables that affect net income (including restructuring activities, asset bases, depreciation policies, financing activities and tax regimes) but may not be directly related to all financial aspects of our operations. The decrease reflects reduced revenues, the change in revenue mix, the expiry of the SITA MRC and the net negative effect of currency movements, partially offset by lower expenses.

Our operating loss increased from $276 million in 2003 to $375 million in 2004, an increase of 36%, largely as a result of the decrease in operating result before depreciation, amortization, share plans and restructuring and integration.

There were significant movements in exchange rates, particularly in the dollar/euro rate, during 2004. Foreign exchange had a positive effect on revenues of approximately $82 million while operating costs were negatively impacted by approximately $165 million. We recognized a foreign exchange gain of $11 million in 2004 compared to a loss of $22 million in 2003.

The net loss for 2004 of $274 million is 23% below the net loss of $356 million incurred in 2003, but includes a profit of $90 million arising from the disposal of our equity investment in Radianz. See below, “Significant Factors Affecting Our Results — Radianz, Our Joint Venture with Reuters.”

Financing

Our net cash and loans balance at December 31, 2004, amounted to $404 million. This was a decrease of $75 million compared with the net cash and loans position at December 31, 2003. We received $110 million in November 2004 on the disposal of our equity investment in Radianz. In February 2005, France Telecom agreed to make available to us a $250 million credit facility on normal commercial terms which is an addition to the existing $50 million treasury agreement in place since May 2002.

Despite rigorously controlling capital expenditures, operating free cash flow, which we define as operating result before depreciation, amortization, share plans and restructuring and integration less capital expenditures, was negative at $103 million in 2004, compared with an inflow of $12 million in 2003, as a result of deterioration in the Summary of Results discussed above. We have minimal external borrowings and therefore believe that operating free cash flow is the most appropriate indicator of the resources generated from operations, excluding significant restructuring and integration costs, working capital movements and other movements that will not necessarily continue in the long-term.

Staffing

We had 9,313 employees (full-time and full-time equivalents) at December 31, 2004, compared with 9,547 at December 31, 2003. The net decrease reflects our focus on reducing Selling, General and Administrative expenditures.

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Significant Factors Affecting Our Results

Our results over the last three years have been affected primarily by the following factors:

Our Merger With Global One

Following completion of the France Telecom transactions in June 2001, we began to integrate our business with Global One and the SITA/Equant network Joint Venture. Under the terms of the Contribution Agreement between France Telecom and us, we agreed to share certain restructuring and integration costs for a period of two years following June 29, 2001. France Telecom agreed to reimburse us for half the costs of employment and termination of the first 2,500 of our employees (including employees to be transferred from SITA to us pursuant to the SITA/Equant network Joint Venture) or Global One employees that we identified as not necessary for our long-term operation. For a period of two years following June 29, 2001, the Contribution Agreement obligated France Telecom to participate in the non-personnel related integration and restructuring costs we incured with respect to the integration of Global One and the SITA network and the realization of related synergies. France Telecom was to bear, or reimburse us for, 50% of the first $240 million of these costs and 100% of the next $90 million of these costs.

We incurred approximately $564.0 million of restructuring and integration costs in the period from June 29, 2001 to December 31, 2003. The major components of the costs incurred during the period since the transactions are asset write downs ($166.4 million), lease exit costs ($127.2 million), employee termination costs ($132.9 million), and integration planning and implementation costs ($69.7 million). France Telecom has reimbursed $286.2 million of the costs incurred to date, and this contribution has been netted against the expense. No further amounts will be reimbursed. Full details of our restructuring and integration activities are provided in Note 7 to the Consolidated Financial Statements. See “Item 7. Major Shareholders and Related Party Transactions – Related Party Transactions – Relationship with France Telecom” and “Item 10. Additional Information – Material Contracts” for further information.

SITA Minimum Revenue Guarantees

Following completion of the transactions closing the merger on June 29, 2001, we terminated the joint venture agreement with SITA, which previously governed our relationship, and replaced it with the agreements described in “Item 7. Major Shareholders and Related Party Transactions” and “Item 10. Additional Information – Material Contracts of our Annual Report on Form 20-F for the year ended December 31, 2003 filed with the Commission on May 12, 2004.” The resulting relationship is one whereby we assume operational control and management of the network and use it to provide global telecommunications services to SITA to support the Air Transport Community. Additionally, SITA agreed to spend a minimum of $504 million and $495 million with us for the two years ended June 30, 2002 and 2003, respectively. The minimum revenue guarantee provision expired on June 30, 2003. As anticipated, the revenues from SITA have decreased since the merger, declining from $713.7 million in 2002 to $641.0 million in 2003 and $549.7 million in 2004.

Pricing Policies

The prices we charge for our network services vary depending on the nature of the service being provided, service speed, geographic location and committed utilization of our capacity. In general, prices are established as either one-time charges (typically installation charges) or monthly charges. The type of monthly charges varies based on the product or service being sold. Monthly charges may be volume sensitive, such as for our voice transmission Internet dial-up service, or flat rate, such as for Frame Relay Private Virtual Circuits or for network Ports. The amount of flat rate monthly charges typically varies according to the bandwidth and customer geographies. Depending on the service, pricing can be aggregated, offering customers fully packaged solutions. In such circumstances, the price may include equipment, such as managed routers and network services.

Once we establish base service prices, we consider other factors, such as charges for additional network services. The pricing decision is then subject to further adjustment depending on the breadth of the service package. We also sometimes offer discounts to larger volume customers who are prepared to guarantee revenue levels over a designated period. In addition, some of our customer contracts have pricing review clauses to reflect benchmarking against market prices.

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Radianz, Our Joint Venture With Reuters

In the second quarter of 2000, Reuters and Equant formed Radianz, a company which was 51% owned by Reuters and 49% owned by us. Radianz, which commenced operations on July 1, 2000, has developed a secure IP network for extranet communications in the financial services industry. Radianz’s primary customer is Reuters.

We had equal representation on the board of Radianz with Reuters and certain provisions of the shareholders’ agreement we entered into with Reuters regarding Radianz suggested that operating decisions were to be jointly controlled. However, in practice we were unable to invoke joint control because Reuters remained both the dominant supplier and customer of Radianz, and accordingly was in a position to affect significantly the operations of Radianz without our prior approval.

We accounted for our 49% interest in the venture on the equity basis since we were unable to exercise joint control over Radianz. Our share of the results was shown as a single line item “Equity in loss of affiliate”, and supplementary summary information, including details of our share of the net result of Radianz, as well as the gross revenues and costs of the joint venture company, is included in Note 12 of the Consolidated Financial Statements.

On November 16, 2004, we disposed of our equity investment in Radianz for cash proceeds of $110 million, recognizing a gain of approximately $90 million.

Other Factors Affecting Costs

There is not an immediate direct relationship between revenues and costs. In addition to the effect on expenses of the size-related factors impacting our revenues, several further factors tend to affect our costs. We realize reductions in unit costs of our network activities as speed and bandwidth increase and as increased deregulation and competition in local markets and technological advancement drive prices downwards. We have not been significantly affected by inflation.

Critical Accounting Policies

As a member of the France Telecom group, we prepare our financial statements in accordance with French GAAP, which differs in a number of respects from U.S. GAAP. A detailed description of the more significant differences that apply to us is provided in Note 30 to the Consolidated Financial Statements.

Impairment of Goodwill and Long-Lived Assets

Long-lived assets are reviewed for impairment on a collective basis since we have no lower level of identifiable cash flows that are independent from other assets and liabilities below the single operating segment level, because long-lived assets are used throughout the geographic regions to generate cash flows jointly due to the nature of the network service revenues, which require traffic to be carried between the various regions.

Under French GAAP, long-lived assets, including goodwill, are subject to an impairment review when, as a result of events or changes in circumstances, their Recoverable Value appears to be permanently less than their carrying value. Such events or circumstances include significant declines, other than temporary, in the market price of our ordinary shares, difficult market conditions in the telecommunications sector that are not expected to be of a short-term duration and the receipt of notification from capacity suppliers that they are no longer able to honor their contractual commitments to provide capacity. Recoverable Value is the higher of net selling price and value in use. The value in use is determined by reference to the sum of discounted cash flows based on economic assumptions and forecasted operating activities approved by our management.

Given a combination of a current period operating loss combined with a history of operating losses and a current expectation that, more likely than not, the minority interest of Equant will be sold to France Telecom, we performed an impairment test at December 31, 2004.

There was no impairment of long-lived assets in 2004 under French GAAP because the recoverable amount exceeded the carrying value. We used the net selling price as the recoverable amount, based on the offer price received from France Telecom on January 22, 2005 to purchase substantially all of the assets and liabilities of the Company for $1.6 billion.

Impairments of long-lived assets of $154.8 million, nil and nil, were recognized in the years ended December 2002, 2003 and 2004, respectively.

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Under U.S. GAAP, long-lived assets, including intangible assets with definite lives, are written down when, as a results of events or changes in circumstances and impairment is first measured by reference to undiscounted cash flows. If impairment exists, we must measure impairment by comparing the fair value of the asset to its carrying value. Fair value is either market value (if an active market for the asset exists) or the sum of discounted future cash flows. The discount rate reflects the risk that is specific to that asset. For assets to be disposed of, the loss recognized is the excess of the carrying amount of the asset over its fair value less costs to sell. Under U.S. GAAP, impairments of long-lived assets of nil, nil and $114.4 million, were recognized in the years ended December 2002, 2003 and 2004, respectively.

There was an impairment of long-lived assets of $114.4 million in 2004 under U.S. GAAP because the carrying value exceeded the fair value. France Telecom retained independent valuers to produce a valuation report on the fair value of Equant as a single operating unit. The independent valuers utilized three valuation approaches being the market multiple methodology, comparable transaction and a discounted cash flow model and presented in their valuation report a range of fair values from $1,000 million to $1,400 million, based on a weighted average of the results from the three different approaches. We concluded that the best estimate of fair value was $1,219 million based on management’s evaluation of the report. The impairment charge was allocated to tangible and intangible assets on a pro-rata basis in the amounts of $102.1 million and $12.3 million, respectively.

Valuation methods we use include discounted cash flows using appropriate rates and considering other opportunities related to the acquisition such as synergies resulting from the integration as well as the strategic value of the acquired company to us, or by reference to quoted market prices. Significant management judgment is involved in determining the discounted cash flows and the underlying variables. These estimates, as well as the use of certain valuation methods, are the basis for the evaluation of the value in use of long-lived assets, and therefore the amount of any impairment.

Under U.S. GAAP, SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”) addresses the initial and ongoing financial accounting and reporting for acquired goodwill and intangible assets with indefinite lives. SFAS 142 requires that goodwill no longer be amortized but tested for impairment at least annually (or more frequently if impairment indicators arise). We evaluated impairment using a prescribed two-step process on adoption. First, we test for potential impairment by comparing the carrying value of each reporting unit to its fair value. If the carrying value is determined to be in excess of the fair value, then a second step is performed to quantify the amount of goodwill impairment, if any. In the second step, we estimate the fair value of the assets and liabilities of the reporting unit, including recognized and unrecognized intangible assets. We estimate the fair value based on reference to the share price of our publicly traded stock, since it best represents our fair value given that we have only one reporting unit. To the extent that the carrying value of the reporting unit’s goodwill is in excess of the fair value, it is considered impaired.

Under U.S. GAAP, amounts of $2,423.5 million, nil and nil for the years ended December 31, 2002, 2003 and 2004, respectively, were recorded as impairment charges. The impairment charge in 2002 was recognized as a result of the first annual goodwill impairment test in December and resulted in remaining book value of nil given that our share price was $4.05 at December 31, 2002, compared to $11.65 on December 31, 2001. If we had used another method to determine fair value, such as a discounted cash flow model, the amount of the goodwill write off, if any, could have been significantly different.

Revenue Recognition

Like many companies in the telecommunications industry, revenue recognition is one of our critical accounting policies because of its potential effect on our results of operations and financial position. This policy is critical in that it determines whether a transaction is treated as an increase in revenues or a reduction in cost, and it dictates when to record revenue in the income statement.

We derive our revenue from the sale of data network services, voice and network connectivity services and other value-added services, such as hosting, security and professional services. We also sell network hardware products to our customers. See, “Item 4- Business Overview.” Management judgments and estimates must be made in connection with the revenue recognized in any accounting period. Material differences might result in the amount and timing of our revenue for any period if our management made different judgments or utilized different estimates.

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We recognize revenue when (1) there is persuasive evidence of an arrangement; (2) delivery of products has occurred or services have been rendered; (3) the seller’s price to the buyer is fixed or determinable; and (4) collectibility is reasonably assured.

We frequently enter into bundled service contracts with customers, which we account for by considering if there are multiple deliverable elements in the contracts and whether the delivered elements have a standalone value and the undelivered elements have an objective and reliable evidence of the fair value. If these two conditions are met, then each element is recognized based on the revenue recognition guidance specific to that element. If elements may not be separated, application of revenue recognition criteria would be applied to the combined elements.

Revenues are recognized net of discounts and customer sales incentives. Unless otherwise stated, revenues are recognized on a consistent basis under French GAAP and U.S. GAAP. Our principal revenue streams and their respective accounting treatments are discussed below:

Network Services

Network services revenues are generated from sale of transmission of data traffic and on-going service charges for managing the customer’s network system. Integration services revenues are generated from deployment, monitoring and maintenance of customers’ equipment as well as consultancy and professional services.

For all service revenue arrangements, fixed fee elements, which are specified in the contractual arrangements, are contracted to be performed continuously over the contractual term of the arrangement (and any subsequent renewals) and revenue is recognized using the straight-line method over the term of the contract (and any subsequent renewals). Variable fee elements, such as volume-based consumption or traffic, are recognized in the period the service is provided or utilized by the customer.

Connections revenue related to network services are deferred and recognized over the longer of the term of the contract or expected customer relationship. Direct and incremental connections costs are deferred over the term of the contract (and any subsequent renewals).

Equipment Sales

We recognize revenues from telecommunications equipment sales when the equipment is delivered and accepted by the end customer.

Services Provided to France Telecom & Affiliates

We provide services to Transpac. We recognize revenues and cost of sales on a gross basis. We recognized revenues of $296.3 million, $372.0 million and $450.7 million, respectively, in 2002, 2003 and 2004.

Certain billing, product development, staff costs, branding and human resource services were provided to affiliates of France Telecom (the ‘affiliates’) to support the switched voice and network services businesses. We charge the affiliates on a cost recovery basis and invoice the affiliates for such charges. Under French GAAP, the revenues for such services are classified within other operating income and the cost of such services are classified within costs of services and products sold. Under U.S. GAAP, these services are considered to be peripheral and incidental to our operations and thus are considered to be a gain, which is classified on a net basis against the related costs. In 2002, 2003 and 2004, revenues of $196.1 million, $142.4 million and $132.8 million, respectively, were recognized.

We act as France Telecom’s agent on a limited risk basis for its pre-paid and post-paid calling cards in various countries. We are also the distributor for France Telecom’s carrier business outside France. Given this limited risk in providing these services, we earn a fee of cost plus 0.5% for administrative services rendered on these transactions. The amounts invoiced from suppliers are passed through to France Telecom less our fees. Revenues and cost of sales are recognized on a net basis and are classified within costs of services and products sold. Both of these commercial relationships derive from distribution agreements originally executed by France Telecom and Global One.

Capacity Purchases

The decision whether to classify capacity purchases as capital leases, operating leases or service contracts has a significant effect on our financial statements.

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We purchase capacity on major international routes where it is economic to do so. The agreements we have entered to date (known as Indefeasible Rights of Use or IRUs) are capitalized if we have the right to use a specific amount of capacity on specific fiber optic cables and related equipment for a specific time period. IRUs are capitalized if we have the right to use the total capacity from the specific underlying assets (specific fibers or wavelengths) and if the IRU lease term is greater than 75% of the estimated economic life of the underlying asset. IRUs are amortized over the shorter of ten years or the contract term. IRUs that do not meet these criteria are accounted for as service contracts.

Under French GAAP, capacity purchases qualifying as capital leases are recorded within long-lived assets in the balance sheet, with an annual amortization charge recognized in the Consolidated Statement of Operations. Under U.S. GAAP, capacity purchases qualifying as capital leases are recorded within property, plant and equipment and are depreciated over the lesser of the lease term or the estimated useful life of the capacity. As of December 31, 2003 and 2004, $139.2 million and $128.8 million, respectively, was recognized as the net book value of intangible assets, under French GAAP, for capacity purchases qualifying as capital leases. The amount recognized under U.S. GAAP within property, plant and equipment as at December 31, 2004 was $115.3 million, as a result of the allocation of the impairment loss recorded under U.S. GAAP described above in Impairment of Goodwill and Long-lived Assets, to the carrying value of capacity contracts.

We may purchase capacity for a short-term period, typically six months, from a provider while the terms of a longer-term capacity purchase with the same provider are finalized. Under French GAAP and U.S. GAAP, such short-term capacity purchases qualify as service contracts and are deferred within other current assets and prepaid costs and recognized as an operating expense over the period of the service contract. As of December 31, 2003 and 2004, there were no amounts recognized on the balance sheet for purchases of capacity qualifying as service contracts.

Business Combinations

The difference between the French GAAP and U.S. GAAP treatment of our acquisition of Global One has a fundamental effect on our results of operations and financial position under the two accounting regimes. Under French GAAP Equant acquired 100% of the shares of Global One and the transaction was accounted for under the method described in paragraph 215 of Rule 99-02 of the Comité de la Réglementation Comptable or CRC. The results of Global One were included in the income statement prospectively from June 30, 2001. Under U.S. GAAP (EITF 90-13 “Accounting for Simultaneous Common Control Mergers”), by contrast, the acquisition was accounted for as a reverse acquisition in which Global One acquired us, since France Telecom was previously a shareholder of Global One and became the majority shareholder in the combined entity. Global One is viewed as the predecessor entity, and our results for the period prior to June 29, 2001 are excluded from the income statement.

Under paragraph 215 of CRC Rule 99-02, we carried over the historical carrying value of Global One in our financial statements. If we had not applied this accounting treatment we would have been required to recognize goodwill, calculated on the basis of the excess of the purchase price and the fair value of assets acquired as an asset, rather than writing it off directly to equity.

The U.S. GAAP treatment for the Global One transaction required recognition of approximately $6.5 billion of goodwill and $208.6 million of other intangible assets. On June 29, 2001, approximately $3.9 billion of goodwill and intangible assets existed in the predecessor entity, Global One, from the ‘push down’ by France Telecom of goodwill and other intangible assets generated on the purchase of the interests of Sprint and Deutsche Telekom in Global One.

Control of Affiliates

We consolidate companies that we own, or control. Investments in businesses that we do not control, but have the ability to exercise significant influence over operating and financial policies, are accounted for using the equity method. French GAAP requires the proportional consolidation of entities that are under the joint control of two or more parties.

Our investment in Radianz was accounted for under the equity method of accounting until its disposal because we were unable to exercise joint control over its operations, although we had equal representation on the board and certain provisions of the shareholders’ agreement we entered into with Reuters regarding Radianz suggested that operating decisions were made jointly. Reuters was both the dominant supplier and customer of Radianz and therefore was in a position to affect significantly the operations of Radianz without our prior approval. We also accounted for our investment in Radianz under the equity method of accounting under U.S. GAAP. Proportional consolidation is not permitted under U.S. GAAP except in certain very specific circumstances that do not apply to us.

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Restructuring and Integration Charges

Restructuring and integration charges represent amounts arising from significant reorganizations and significant asset impairments resulting from these reorganizations, and are shown as an operating cost on a separate line of the Consolidated Statement of Operations. Under French GAAP it is possible to classify restructuring and integration charges as either ‘operating’ or ‘non-operating’ – if we had chosen to classify our restructuring activities as non-operating our operating loss for the years ended December 31, 2004, 2003 and 2002 would have been reduced by $34.8 million, $85.1 million and $98.1 million, respectively. Our net loss would not have changed in any year.

Amounts recoverable from France Telecom under the Contribution Agreement in respect of restructuring and integration of Equant, Global One and the SITA Equant network Joint Venture were shown as a reduction of restructuring and integration charges. Under U.S. GAAP, amounts recoverable are accounted for as capital contributions and recorded as additional paid-in capital upon receipt – this difference is included in the reconciliation of French GAAP to U.S. GAAP in Note 30 to the Consolidated Financial Statements.

Restructuring provisions represent costs related to severance and other costs incurred in connection with a decision to exit non-strategic businesses. These measures are based on formal management decisions, establishment of agreements with the employees’ representatives or individual agreements with the affected employees as well as the public announcement of the restructuring plan. The related reserves reflect certain estimates, including those pertaining to separation costs, settlements of contractual obligations and other closure costs. We reassess the reserve requirements to complete each individual plan under our restructuring program at the end of each reporting period. Actual experience has been and may continue to be different from these estimates. See Note 7 to the Consolidated Financial Statements for further discussion of Restructuring provisions.

Pension Benefits

We have significant pension benefit costs and credits, which are developed from actuarial valuations. Inherent in these valuations are key assumptions, including discount rates and expected return on plan assets, which are usually updated on an annual basis at the beginning of each fiscal year. We are required to consider current market conditions, including changes in interest rates, in making these assumptions. Changes in the related pension and post-retirement benefit costs or credits may occur in the future due to changes in the assumptions.

The key assumptions used in developing our 2004 net pension benefit charge were a weighted average discount rate of 5.09% (2003 was 5.30%), an expected return on plan assets of 7.58% (2003 was 8.03%) and a rate of compensation increase of 3.46% (2003 was 2.89%). The changes in the assumptions from 2003 reflect current market conditions in those countries providing the plans. Compared with 2003, our net pension benefit charge in 2004 increased by $1 million to $13 million, however this increase has been restricted due to changes in the French GAAP rules governing accounting for pension benefits. Our net pension benefit charge is expected to increase to approximately $15 million during 2005, primarily as a result of changes in economic conditions, lower discount rates and exchange rate fluctuations. Holding all other assumptions constant, a one-half percent increase or decrease in the discount rate would have increased or decreased 2004 pre-tax loss by approximately $1 million. Likewise, a one-half percent increase or decrease in the expected return on plan assets would have increased or decreased 2004 pre-tax loss by $0.5 million.

Share-Based Compensation

We have on various occasions granted awards of our shares to our employees under an employee share award plan, as well as issuing share options to management and employees.

Under French GAAP ‘Share Plan Costs’ reflect social charges payable by the Company on share option and share award plans. Social charges payable by the Company on the fair value of shares granted are accrued over the period between the dates of granting and vesting, based on the expected exercise rates.

Under U.S. GAAP, share-based compensation is accounted for using the fair value based method in accordance with Statement of Financial Accounting Standard No. 123 (‘SFAS 123’) ‘Accounting for Stock-Based Compensation’. Under SFAS 123, compensation cost is measured at the date awards are granted and is recognized through charges to expense over the employees’ service period. The compensation expense under U.S. GAAP does not include social charges until such time that such charges are payable upon exercise of the awards.

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We accounted for awards to employees under the Share Option Plan as a liability arrangement until January 1, 2004 because eligible employees had the option of settling the awards either in shares or in cash. These plans are now accounted for as equity-settled because we settled a significant option exercise during 2004 with the issuance of shares.

We use the Black-Scholes option-pricing model to determine the amount of share-based compensation cost to recognize in the financial statements. This requires us to make assumptions on such variables as share price volatility, expected lives of options and discount rates. Changes in these assumptions could significantly affect the amount of stock compensation cost recognized.

Deferred Taxes

Deferred tax assets must be assessed based upon the likelihood of recoverability from future taxable income and to the extent that recovery is not likely, a valuation allowance is established. The allowance is regularly reviewed and updated for changes in circumstances that would cause a change in judgment about the reliability of the related deferred tax assets. These calculations and assessments involve complex estimates and judgments because the ultimate tax outcome can be uncertain or future events unpredictable. As of December 31, 2003 and 2004, a valuation allowance of $625.4 million and $797.1 million, respectively, was recognized against deferred tax assets of $633.4 million and $797.1 million, respectively.

Provision for Bad Debts

At each balance sheet date, we evaluate the collectibility of trade debtors and record provisions for bad debts based on experience. These provisions are based on, among other things, comparisons of the relative age of accounts and consideration of actual write-off history. The actual level of debt collected may differ from the estimated levels of recovery, which could impact operating results positively or negatively. As of December 31, 2003 and 2004, our trade debtors were $630.3 million and $435.8 million, respectively, and the provision for bad debts was $71.6 million and $46.5 million, respectively.

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Results of Operations for the Year Ended December 31, 2004, compared to the Year Ended December 31, 2003 based on French GAAP

The following table sets forth our statement of operations for the years ended December 31, 2004 and 2003. The table includes certain pro forma financial information for the year ended December 31, 2003 calculated by applying the average 2004 exchange rates to our 2003 revenues and costs. The unaudited pro forma financial information is not intended to be a substitute for, and should be read in conjunction with, the Consolidated Financial Statements included in Item 17, including the notes thereto. We believe that this unaudited pro forma financial information provides useful disclosure because it separately identifies the effects of exchange fluctuations on our operations.

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Revenues

The following tables set forth our revenues, on an actual and a pro forma basis, broken down by line of business. Pro forma revenues are calculated by applying the 2004 monthly average foreign exchange rates to our 2003 revenues.

Our revenues declined by 1.2%, or $35.0 million, to $2,913.9 million for the year ended December 31, 2004 compared to $2,948.9 million for the year ended December 31, 2003. Compared with 2003, foreign exchange movements had a positive effect of $81.5 million on our revenues, driven in particular by the appreciation of the Euro against the U.S. dollar.

On a pro forma basis our revenues fell by 3.8% from $3,030.4 million. This reflects increases in revenues from Integration Services and Other Services, offset by decreases in revenues from Network Services and SITA. Our Network Services business enjoyed volume increases offset by significant price declines. The growth in Integration Services reflects our concentration on our services strategy and the success of our outsourcing activities.

The following table shows our revenues broken down by geographic region. Revenues are attributed to the region in which the ultimate customer is located, rather than the region from which the related services are invoiced.

Revenues in each region declined by between 1% and 3%. There was no change in the relative significance of any individual region.

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Network Services

The following table sets forth the revenues from our Network Services primary product lines.

Revenues from network services declined by 6.5%, or $104.2 million, to $1,502.9 million in 2004, as compared to $1,607.1 million in 2003. On a pro forma basis, calculated by applying the 2004 monthly average foreign exchange rates to our 2003 revenues, network services revenues fell by 9.3%, or $153.5 million, from $1,656.4 million in 2003.

The pro forma decrease in revenues reflects continuing price erosion on contract renewals, and competition remained strong in the marketplace. We experienced a higher level of disconnections, particularly in North America, as customers moved to lower cost IP solutions. Both of these trends have especially affected revenues from legacy data products such as X.25, X.28, Frame Relay and ATM, whereas revenues from IP-based products continued to grow, as shown in the table above.

Both our direct and indirect sales channels have experienced declines in revenues.

On a pro forma basis, direct revenues decreased by 7.3%, or $101.7 million, from $1,389.7 million in 2003. The pro forma decrease in revenues reflects the trends described above.

On a pro forma basis, indirect channel revenues fell by 19.4%, or $51.8 million, from $266.7 million in 2003. Actual revenues from Sprint, Deutsche Telekom and Radianz, former shareholders in Global One, totaled approximately $114 million in 2004 compared with approximately $177 million in 2003.

As a percentage of total Network Services revenues, direct revenues increased from 83.9% in 2001 to 85.7% in 2004, reflecting the ongoing reduction in revenues from wholesale channels.

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Integration Services

The following table sets forth our Integration Services revenues by product line. Pro forma revenues are calculated by applying the 2004 monthly average foreign exchange rates to our 2003 revenues.

Revenues for 2004 increased by 24.6%, or $117.3 million, to $593.9 million compared to $476.6 million in 2003. On a pro forma basis our integration services revenues grew by 20.2% from $494.2 million in 2003, reflecting the impact of our focus on skills-based services (see “Item 4. Business Overview’).

Compared with 2003, fulfillment revenues increased by 38.8%, or $64.8 million, of which 2.6% was due to the positive effects of foreign exchange movements, with strong growth in the European, Middle East and Africa region.

Hosting and applications revenues grew by 13.0%, or $17.3 million, in 2004 compared with 2003 benefiting from increased activity outside France and the positive effects of currency movements of $9.1 million.

Other Integration Services revenues include those from maintenance field services, project management and certain consultancy services. In 2004, Other Integration Services revenues showed an increase of 19.9%, or $45.2 million, compared with 2003, of which 3.5% was due to the positive effects of foreign exchange movements. The pro forma increase of $39.9 million arises mainly as a result of increased demand for our skills-based services, and despite a decrease in revenues from desk-top maintenance services in the US.

Other Services

The following table sets forth our Other Services revenues by type. Pro forma revenues are calculated by applying the 2004 monthly average foreign exchange rates to our 2003 revenues.

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Revenues from Other Services rose by 19.3%, or $43.2 million, to $267.4 million in 2004 from $224.2 million in 2003. On a pro forma basis revenues increased by 12.0%, or $28.6 million, from $238.8 million in 2003.

The 8.8% increase in pro forma convergence revenues reflects additional voice revenues from new outsourcing contracts.

The 17.0% increase in pro forma affiliation fees reflects increased product management fees from France Telecom Transpac, as a result of a change in the pricing structure of the Transpac contract. See “Item 7. Major Shareholders and Related Party Transactions – Related Party Transactions – Relationship with France Telecom” for further information on our arrangements with France Telecom Transpac.

SITA Contract

Our revenues from the SITA contract declined by 31.5%, or $91.3 million, to $549.7 million in 2004 from $641.0 million in 2003. Approximately $47 million of the decrease was due to the reduction in revenues following expiry on June 30, 2003 of the MRC. The remainder reflects lower activity levels as SITA’s customers moved away from traditional services to internet-based solutions.

Costs of Services and Products sold

Costs of services and products sold increased by 8.8% or $191.5 million, to $2,365.9 million in 2004 from $2,174.4 million in 2003. On a pro forma basis costs of products and services increased by 2.8%, or $65.4 million, from $2,300.5 million in 2003, largely as a result of increased costs required to support the additional fulfillment and outsourcing revenues described above.

We have experienced increases in customer access and data and voice termination costs as a result of our success in securing additional outsourcing customers – customer access costs have increased by 2.3% on a pro forma basis, and voice termination costs have increased by over 31%.

Our ongoing focus on cost optimization has delivered reductions in a number of aspects of our underlying cost base — our transmission costs declined by almost 10% during 2004, or almost 15% if the effects of exchange are excluded. We intend to continue to pursue aggressive cost reduction initiatives in 2005, particular in the areas of customer access costs and national and international circuits.

We employed 6,235 people in the Network at December 2004 compared to 5,936 at December 2003, an increase of 299 or 5%, in line with the pro forma increase in staff-related expenditure. We expect to see a reduction in staff-related expenditure in 2005 as our efforts to improve service quality through the centralization of our customer support resources yield results.

Other Operating Income

Other operating income comprises recoveries from France Telecom in respect of our switched voice services and the provision of ancillary services with respect to the network. We recognized $132.8 million of Other Operating Income in 2004, compared to $142.4 million in 2003, a decrease of 6.7%, or $11.6 million.

Switched voice services

In 2004, we entered into a new contract with France Telecom that provided for us to retain ownership, management and financial responsibility for our switched voice business and switched voice platform, most of which we acquired in the merger with Global One. As part of this arrangement, we provide services to France Telecom on a cost recovery basis. We recognized income of $89.0 million from France Telecom in 2004 under these arrangements, compared to $95.4 million in 2003, a decline of 6.7%, or $6.4 million. We have also recorded an amount of $56.5 million within deferred income relating to future France Telecom cost recoveries pursuant to this new agreement.

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Ancillary support services

We provide transmission capacity and IP services to France Telecom in countries where France Telecom does not have a presence. Pricing for these services is based on market price. We also supply ancillary support services to France Telecom on a cost recovery basis. These commercial relationships will continue so long as France Telecom continues to own at least 34% of our outstanding shares; however, the commercial terms can be varied. France Telecom paid us $43.8 million for these support services in 2002, compared to $47.0 million in 2003.

Gross Profit

Gross profit declined by 25.8%, or $236.1 million, to $680.8 million in 2004 from $916.9 million in 2003. On a pro forma basis, gross profit declined by 22.2%, or $194.6 million, from $875.4 million in 2003.

The gross profit reduction reflects a significant decrease in revenues from Network Services and SITA, which have not been offset by a decrease in network costs. This revenue decrease, mainly driven by price erosion and by the expiry of the SITA MRC, amounts to approximately $196 million, or approximately $245 million on a pro forma basis.

Our gross margin in 2004 was 23.4% compared to 31.1% in 2003, a decline of 7.7%, or 5.5% on a pro forma basis. Our ability to increase margins will depend, among other things, on our ability to successfully manage the continuing decline in Network Services revenues, to increase customer demand for our higher margin skills-based services and to reduce our network costs. Margins may in fact remain static or decline.

Selling, general and administrative costs

Selling, general and administrative (‘SG&A’) costs comprise expenses incurred to promote and sell our products and services, as well as expenses incurred by central and local management functions to monitor our performance.

SG&A costs decreased by 12.3%, or $76.8 million, to $548.5 million in 2004 from $625.3 million in 2003. On a pro forma basis the decline amounted to 21.5%, or $117.8 million, from $666.3 million. SG&A expenses as a percentage of revenue declined to 18.8% compared with 21.2% in 2003, or 22.0% on a pro forma basis.

We released bad debt allowances of $22.2 million in 2004, compared to recognizing a charge of $0.1 million in 2003, as we were able to more accurately assess the recoverability of our receivables following the implementation of improved accounting and reporting systems.

Our ongoing focus on indirect costs yielded considerable benefits during 2004.

We achieved a 12% reduction in property and telecommunications costs, or approximately 16% on a pro forma basis, as the cost saving initiatives launched in 2003 delivered results. We reduced marketing and advertising expenditure by a further 12%, or approximately 14% on a pro forma basis, as we improved the focus of our marketing activities. Increases in professional fees relating to our compliance with the Sarbanes-Oxley Act and the implementation of International Financial Reporting Standards, and increased branding and corporate identity fees for the use of France Telecom support services partially offset these improvements were.

We experienced a 9% reduction in staff-related expenditure in 2004, or approximately 15% on a pro forma basis, as staff numbers fell from 3,611 at the beginning of the year to 3,078 at the end of the year.

Operating result before depreciation, amortization and restructuring and integration charges

Operating result before depreciation, amortization and restructuring and integration charges decreased by 54.6%, or $159.3 million, to $132.3 million in 2004 from $291.6 million in 2003. As a percentage of revenue, it declined from 9.9% in 2003 to 4.5% in 2004. This change includes the net negative impact of currency movements of $82.5 million.

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On a pro forma basis, operating result before depreciation, amortization and restructuring and integration charges decreased by $76.8 million or 26.3% in 2004 from $209.1 million in 2003. The pro forma decrease reflects reduced revenues and the impact of a change in revenue mix, which were partially offset by a reduction in SG&A expenses.

Depreciation and amortization, excluding goodwill

Depreciation and amortization decreased by 2.1%, or $9.9 million, in 2004 to $472.5 million from $482.4 million in 2003. As a percentage of revenue, depreciation and amortization decreased slightly from 16.4% in 2003 to 16.2% in 2004.

On a pro forma basis, depreciation and amortization decreased by 8.2%, or $42.2 million, in 2004 from $514.7 million in 2003. The depreciation charge is substantially above the current rate of capital expenditure, reflecting the high levels of capital expenditure in past years, however is declining as assets purchased in 2000 and 2001 become fully depreciated.

Restructuring and integration charges

The following table sets forth the components of our restructuring and integration charges for the periods indicated.

Restructuring and integration charges in 2004 amounted to $34.8 million. This comprised $29.1 million of restructuring costs in connection with our strategic reorganization and $5.7 million of integration costs following the France Telecom transactions.

During 2004, we incurred employee termination costs of $16.8 million and lease exit costs of $12.3 million in connection with our strategic reorganization. We expect to incur additional expenditure in 2005 as we continue our transformation into a services-focused organization.

Following the merger with Global One and the termination of the SITA/Equant network Joint Venture, we commenced integrating the operations of the three organizations. We have incurred restructuring and integration costs of $564.0 million during the period since the transactions, the major components of which are asset write downs ($166.4 million), lease exit costs ($127.2 million), employee termination costs ($132.9 million), and integration planning and implementation costs ($69.7 million).

Under the terms of the Contribution Agreement, France Telecom reimbursed $286.2 million of the costs incurred since July 2001, and this contribution has been netted against the expense.

Operating loss

We recorded an operating loss of $375.0 million in 2004 compared to $275.9 million in 2003. This change reflects the decrease in operating result before depreciation, amortization, share plans and restructuring and integration, partially offset by the decrease in restructuring and integration expenses.

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Financial income (charges)

The following table sets forth the components of our financial income/(charges) for the periods indicated.

Net interest expense for 2004 was $1.2 million compared to net interest income of $0.3 million in 2003, a decrease of $1.5 million.

At December 31, 2004 we had cash balances of $404.4 million (including $289.0 million on deposit with France Telecom), compared to $330.1 million (including $138.2 million on deposit with France Telecom) as at December 31, 2003. At December 31, 2004 these deposits were earning interest at rates of 2.33% per annum, compared to 1.06% per annum on December 31, 2003. At December 31, 2003, we were also earning interest at a rate of 1.56% per annum on a short-term loan of $150 million to France Telecom that was repaid in July 2004. See “—Liquidity and Capital Resources”.

Interest expense includes the amortization of the discount on the onerous contract liability associated with services to be provided under the Radianz contribution agreement, which rose from $2.4 million in 2004 to $2.5 million in 2004, as well as interest on bank loans and overdrafts.

In 2003, the U.S. dollar lost 16.2% in value against the euro, 10.1% against sterling and 9.7% against the yen. In the first half of 2004, the dollar actually increased in value against the euro and the yen, while depreciating against sterling. In the second half of 2004, the dollar resumed its longer term downward trend against all major counterparts, resulting in net losses for the year of 6.9%, 9.5% and 2.9%, respectively against the euro, sterling and the yen.

We recognized a foreign exchange gain of $10.7 million in 2004 compared to a loss of $22.0 million in 2003. We ceased entering into foreign exchange contracts to provide cover against fluctuations in foreign exchange rates in 2004.

Income taxes

We recognized a tax credit of $0.1 million in 2004 compared to a tax charge of $17.0 million in 2003, largely as a result of our ability to recover historic tax payments through the carryback of tax losses.

The following table sets forth the calculation of our tax charge for the periods indicated.

Our tax charge has varied considerably from year to year as a result of the varying levels of profitability of our operations in certain countries and the utilization of tax losses carried forward. We have a taxable presence in almost 100 countries and, even if an overall loss is incurred, a taxable profit is typically made in certain countries.

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Certain of our subsidiaries, particularly the former Global One companies, have a history of significant losses, resulting in substantial tax losses being carried forward. These are recorded on the balance sheet as deferred tax assets net of valuation allowance, reflecting our determination that it is probable that we will fail to realize our investment in some portion or all of these assets in the immediate future.

Estimated net operating loss carry forwards at December 31, 2004 and 2003 and their expiration dates as at December 31, 2004 are shown below:

Certain jurisdictions apply laws or procedures which attempt to restrict or eliminate the carry forward of tax losses on amalgamations or where there is a change of ownership in conjunction with a change in business operations. Certain of the country amalgamations could give rise to such restrictions or eliminations. The figures in the table above are without regard to such possible restrictions or eliminations on the basis that they will be resisted.

At December 31, 2004 the deferred tax asset was $797.1 million, including those related to operating losses of $691.5 million and to fixed asset and other temporary timing differences of $105.7 million. However, we have recorded a 100% valuation allowance against the asset to reflect our estimate that it is not probable that we will realize the asset in the immediate future. While we provided for these assets , the tax losses remain available for use in the future.

The comparable figures at December 31, 2003 were a deferred tax asset of $633.4 million with a valuation allowance of $625.4 million.

Equity in income ( loss) of affiliate

We recognized a gain of $5.8 million in 2004 in respect of our share of the results of Radianz, compared to a loss of $40.6 million in 2003. This reflects the improvement in Radianz’s operational performance in the period prior to disposal, as well as our $15.0 million share of a gain on the disposal of Radianz’s voice business.

Profit on disposal of affiliate

We disposed of our equity investment in Radianz in November 2004 for cash proceeds of $110.0 million. Our commitment to provide future services to Radianz free of charge was also deemed to be satisfied upon termination of the joint venture agreement, and we therefore recognized a gain of $90.1 million upon disposal.

Other non-operating charges (net)

Other non-operating charges (net) comprises the following components:

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The employees of majority-owned French subsidiaries of France Telecom are eligible to participate in a profit sharing program, the amount of which depends on the overall performance of the France Telecom group. These costs were negative in 2004 as a result of the receipt of a partial reimbursement of historic contributions from France Telecom.

Employees of majority-owned subsidiaries of France Telecom in certain countries, including France, the United Kingdom and the United States, were eligible to purchase shares at a discount to market value in 2004. We incurred a charge of $1.7 million in respect of this program.

We were required to record a charge of $3.9 million in connection with our adoption of Recommendation 2003-R.01 of the French National Accounting Board (“Conseil National de la Comptabilité” — CNC) relating to the rules for accounting for and the measurement of pension obligations and similar benefits, as this new standard expanded the scope of those arrangements covered by the rule. We also recorded a further $38.0 charge to Shareholders’ equity to recognize a previously unrecognized actuarial loss on the balance sheet. See Note 17 to the Consolidated Financial Statements for more detail.

Net loss

We recorded a net loss of $274.2 million in 2004 compared to $356.2 in 2003, a decrease of 23.0%. This change reflects the gain on disposal of Radianz, and the increases in equity in result of affiliate and financial income, partially offset by the increased operating loss.

The net loss per share decreased by 23.0% to $0.94 per share, from $1.22 per share in 2003.

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Results of Operations for the Year Ended December 31, 2003, compared to the Year Ended December 31, 2002 based on French GAAP

The following table sets forth our statement of operations for the years ended December 31, 2002 and 2003 and the percentage change between the two periods:

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Revenues

The following table sets forth our revenues broken down by line of business:

Our revenues fell by 0.8% to $2,948.9 million for the year ended December 31, 2003 compared to $2,973.1 million for the year ended December 31, 2002. This reflects declines in Other Services and the SITA contract, partially offset by increases in revenues from Network Services and Integration Services. After excluding the effect of changes in exchange rates, our Network Services business enjoyed volume increases, but these were more than offset by price declines.

The following table sets forth our revenues broken down by geographic region:

Revenues are attributed to the region in which the ultimate customer is located, rather than the region from which the related services are invoiced.

Europe, Middle East and Africa achieved 1.6% revenue growth, Asia Pacific achieved 3.6% revenue growth, while the Americas experienced a decline of 9.9% for the year ended December 31, 2003 as compared to 2002. These figures reflect the positive impact of changes in foreign exchange rates on our non-dollar-denominated revenues, partially offset by declining revenues in the increasingly competitive North American market.

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Network Services

The following table sets forth the revenues from each of our Network Services primary product lines:

Revenues from network services grew by $40.0 million or 2.6% to $1,607.1 million in 2003, as compared to $1,567.1 million in 2002. If the effects of movements in currencies is excluded, revenues decreased by approximately 2%.

These revenue increases were principally the result of increases in volume, which resulted from the growth in the international data transmission market and from both new and increased existing customer penetration. We experienced increased demand for high speed protocols, but this was partially offset by falling demand for low speed protocols.

The following table sets forth our Network Services revenues split by direct and indirect channels:

Direct revenues increased by $103.4 million, or 8.3%, to $1,348.3 million in 2003 compared to $1,244.9 million in 2002. As a percentage of total Network Services revenues, Direct revenues increased from 79.4%, in 2002 to 83.9% in 2003.

Indirect revenues have fallen by $63.4 million,or 19.7%, to $258.8 million in 2003, compared to $322.2 million in 2002. This reflects significant decreases in the level of revenues from Sprint and Deutsche Telekom, former shareholders in Global One.

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We continued to experience price declines on contract renewals due to the ongoing focus on cost control of our target market, however continued to perform well in securing contracts in competitive tenders, winning approximately 60% of opportunities in 2003. Although our contracts typically average three years, three of the top ten orders (by total order value) during the fourth quarter of 2003 were for terms of more than five years.

Integration Services

The following table sets forth our Integration Services revenues by product line.