As filed with the Securities and Exchange Commission on May 12, 2004

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 20-F

OR

For the fiscal year ended: December 31, 2003

OR

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

Commission file number: 1-14844

Equant N.V.

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 [X] No [  ]

Indicate by check mark which financial statement item the registrant has elected to follow. Item 17 [  ] Item 18 [X]

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TABLE OF CONTENTS

In this document, the “Company,” “Equant,” “we,” “us,” and “our” refer to Equant N.V. The “Network” refers to the network we operate and which is described in “Item 4. Information on the Company — Business Overview — Our Skills and Know How.”

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 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 fact that the interests of France Telecom, our largest shareholder, may differ from the interests of our other shareholders (ii) the fact that we may face difficulties in protecting our minority shareholder rights; (iii) adverse effects of our relationship with France Telecom, SITA or other indirect sales channels; (iv) the adverse effects of the vulnerability of the Network to intentional or unintentional disruption; (v) the effect of, and changes in, regulation and government policy; (vi) the effects of competition; (vii) the timely development and acceptance of our new products and services; (viii) the effect of technology changes in the communications and information technology sector; and (ix) our success at managing the risks of the foregoing.

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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, the common currency of twelve member states of the European Union. 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, 2001, 2002 and 2003 (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 to U.S. GAAP of net income, shareholders’ equity and financial position. 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.

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 following tables present selected financial and other data as of and for each of the years in the five-year period ended December 31, 2003.

We report our results in accordance with French GAAP, which differs in certain 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 reconciliations of our net income for each of the years in the three-year period ended December 31, 2003, shareholders’ equity and financial position as of December 31, 2002 and 2003 prepared in accordance with French GAAP to those under U.S. GAAP.

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The selected French GAAP consolidated financial data for each of the years in the five-year period ended December 31, 2003 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. PricewaterhouseCoopers, independent accountants, audited the financial statements for the years ended December 31, 1999 and 2000. The financial statements for the years ended December 31, 2001 and 2002 were audited by PricewaterhouseCoopers LLP and Ernst & Young LLP, independent accountants, as indicated in their joint reports found in the “F” pages in this document. Deloitte and Touche LLP, independent accountants, audited the financial statements for the year ended December 31, 2003, as indicated in their report found in the “F” pages in this document.

While under French GAAP our combination with Global One is treated as an acquisition of Global One by us, under U.S. GAAP the transaction is treated as a reverse acquisition of Equant. Under U.S. GAAP the historical financial data relate to Global One alone (rather than Equant) in the periods prior to the date of the business combination. The data for 1999 and 2000 include Global One’s carrier and calling card services with Global One as the primary obligor from January 1, 2001 to June 29, 2001 and from June 30, 2001 are included in the results with Equant undertaking the services as an agent of France Telecom.

The selected U.S. GAAP combined financial data for the years ended December 31, 1999 and 2000 have been derived from the combined financial statements of Global One. The combined financial statements of Global One for the year ended December 31, 2000 were audited by RSM Salustro Reydel and Ernst & Young Audit, independent accountants, while the combined financial statements of Global One for the year ended December 31, 1999 were audited by Ernst & Young Audit, independent accountants.

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Selected Financial Data Presented In Accordance With French GAAP:

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

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RISK FACTORS You should carefully consider the risk factors described below in addition to the other information presented in this document. This document also contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those 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.

The Interests Of France Telecom, Our Largest Shareholder, May Differ From The Interests Of Our Other Shareholders

Since acquiring us, France Telecom has taken an active interest in our business, including operational matters ordinarily decided by our management. France Telecom, through its subsidiary, Atlas, holds approximately 54.13% of our voting shares. Accordingly, France Telecom has the ability to control us, and to determine matters submitted for a vote of shareholders. France Telecom also has the right to control the appointment and removal of members of the Management Board and the majority of the members of the Supervisory Board. Through its control of the Supervisory Board, France Telecom can also require the Management Board to submit specific matters not specified by the Articles of Association to the Supervisory Board and direct us to take actions, including related party transactions, 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.

We have adopted certain corporate governance procedures intended to protect the interests of minority shareholders, such as requiring the approval of our independent directors for us to enter into material transactions with France Telecom or its affiliates. France Telecom’s interests as a controlling shareholder may differ from your interests, and these corporate governance measures may not adequately protect your interests.

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 directors are distinct from those established under the statutes or judicial precedent in U.S. jurisdictions. Therefore, our public shareholders might find it more difficult to protect their interests against actions of our management, supervisory directors or controlling shareholders than they would as shareholders of a corporation incorporated in the United States.

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.

France Telecom Could Sell Shares Of Ours That It Owns

France Telecom could sell our shares at any time, subject to the restrictions contained in the Contribution Agreement signed by France Telecom, Atlas and SITA in November 2000. France Telecom currently owns about 54.13% of our shares.

The Contribution Agreement generally prohibits France Telecom from selling or otherwise disposing of more than an aggregate of 25% of our shares between June 29, 2002 and June 29, 2005. France Telecom can dispose of shares beyond these limits if our independent directors approve, or if our public shareholders can participate, or if the transaction would combine us with another company and France Telecom would hold at least 34% of the voting rights in the new entity. The Contribution Agreement also prohibits France Telecom from knowingly permitting a third party to acquire or accumulate an interest in us that makes that third party our largest shareholder at a level of 34% or more, unless all of our shareholders are treated the same as France Telecom.

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France Telecom could sell shares, within the constraints described above, in several ways, including public sales or private sales to strategic or other investors. In addition, because France Telecom controls us, it may be able to cause us to waive or amend the restrictions of the Contribution Agreement, although this would require the consent of our independent directors. Any proposed or actual sale of our shares could cause our share price to decline.

We Have A History Of Operating Losses

Global One and we have had a history of operating and net losses.

In 2001, we had revenues of $2.4 billion, operating losses of $267 million and net losses of $376 million. As reported under U.S. GAAP, our 2001 revenues were $2.1 billion, we incurred operating and net losses of $8.7 billion.

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.

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 volatile due to 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. Although the numerous currencies in which we operate have not moved uniformly, the U.S. dollar appreciated against all other major currencies during 2001. The effect of this appreciation was most pronounced on the Euro, with an appreciation of 5.2% in exchange rates during 2001, and an appreciation of 3.0% against sterling. In 2002, the U.S. dollar initially continued its upward trend, reaching a peak against its major counterparts in the first quarter. After a short period of stabilization the dollar started to decline, and overall 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. Foreign exchange had a positive effect on revenues of approximately $129 million and a negative impact of approximately $199 million on costs.

In addition, translation adjustments have and will continue to materially impact our balance sheet. These adjustments resulted in a decrease in our shareholders’ equity of $42.4 million in 2001, and increases of $89.5 million and $107.4 million in 2002 and 2003, respectively. The change in shareholders’ equity in each year resulted primarily from the translation of local Network assets, held in the currency of the countries in which they are located, into U.S. dollars. We seek to hedge certain exposures from the effect of exchange rate movements on our results of operations. We might not effectively hedge our risks and our use of derivative financial instruments will not have the intended effect of reducing our foreign exchange exposure.

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We May Require Additional Funding From France Telecom Or External Sources

At December 31, 2003, we had $330.1 million of cash and cash equivalents, including amounts deposited with France Telecom of $138.2 million, which are accessible to us on demand. We also have an unsecured, short-term loan receivable of $150 million to France Telecom as of December 31, 2003. We have signed a $50 million treasury management agreement with France Telecom. The terms of this agreement are set forth in “Item 5. Operating and Financial Review and Prospects” — “Liquidity and Capital Resources.”

We believe that our existing cash resources will be sufficient to fund our operations beyond the end of 2004. However, should our expectations regarding our income and expenses prove incorrect we may require additional cash at an earlier time, and we may draw down on the treasury agreement from France Telecom. We do not have financing options in place other than the treasury management agreement. If we are unable to generate enough cash from our operations, or to raise additional cash from France Telecom or external sources, our financial condition would be materially adversely affected and we might need to reduce our operations.

We Are Subject To Network Service Interruptions

Like many other data network services providers, we have in the past experienced, and may in the future experience, interruptions in service. 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. 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 their 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 also 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 expanding and 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 in our balance sheet. Should the owner of the capacity fail to honor their 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.

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Changing Technology Creates Risk For Us

Our ongoing success will depend, in part, on our ability to service changing customer requirements. The data network services industry is characterized by:

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 alternate delivery systems. Our inability to meet evolving industry standards and customer requirements could have a material adverse effect on our business, financial condition or operational results.

We 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.

If We Fail To Meet Our Strategic Objectives, We May Not Be Able To Meet Our Future Business And Revenue Goals

We operate in a competitive, rapidly changing environment, and our future business and operating results depend in part on our ability to adapt to our customers’ requirements. In response to the evolving needs of our customers, we plan to focus on expanding our portfolio of service skills and to build our consulting, service and project management services, as well as expanding our integration and managed service businesses, and combine them with our network services to provide our customers integrated network and IT infrastructure solutions. The expansion and integration of these service skills require substantial financial, operational and management resources. If we do not successfully develop and integrate our portfolio of service skills or we fail to predict the future service needs of our customers, we may face competitive disadvantages or be unable to support our clients’ communications needs adequately in the future. In addition, if we have underestimated the cost of this plan, or if we have failed to predict the needs of our customers in the service sector or are unable to successfully implement this plan, we may not meet our revenue goals.

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 and heterogeneous customer environments; manage our vendors efficiently; reduce the customer’s cost of operating its communications services; and successfully migrate the customer’s 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. If we are successful in winning multiple outsourcing projects, we may not have the resources to properly manage multiple outsourcing contracts simultaneously.

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

In 2003, SITA accounted for approximately 22%, or $641 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. Our contract with SITA provided “minimum revenue guarantees” of $504 million from July 2001 through June 2002 and $495 million from July 2002 through June 2003. Since the expiration of the minimum revenue guarantees in June 2003, our revenues from SITA have decreased by $52 million as compared to the second half of 2002. Now that the “minimum revenue guarantee” commitment has expired, we may experience further significant reductions in SITA revenues, which could adversely affect our business, financial condition, or results of operations, if we are unable to generate comparable new revenues from other sources.

We Are Dependent On France Telecom, Our Second Largest Customer

France Telecom, our second largest customer, accounted for approximately 13%, or $372 million, of our revenues in 2003. 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 2003.

We Do Not Control Radianz, Our Joint Venture With Reuters, To Which We Have Certain Obligations

We have equal representation on the board of Radianz with Reuters and the provisions of the shareholders agreement we entered into with Reuters regarding Radianz suggest that operating decisions are jointly controlled. However, in practice (and principally due to Radianz’s start-up nature), we are unable to invoke joint control because Reuters remains the dominant customer of Radianz, and accordingly is in a position to affect significantly the operations of Radianz without our prior approval.

Our ability to affect Radianz’s performance is limited by our ability to influence its operations. Moreover, our ability to generate revenues from Radianz may be limited if Radianz and we develop conflicting network strategies in the future or if Reuters ceases to use the Radianz network.

Our Failure to Deliver Cost Savings To Reuters Could Adversely Affect Our Results Of Operations and Our Financial Condition And Cause Us To Lose Our Investment in Radianz

Our agreement with Radianz obligates us to migrate portions of Radianz’s backbone network onto our Network by July 2003. We agreed to deliver cost savings on the operation of the migrated network. Under the terms of the agreement with Radianz, we are required to compensate them in cash for any shortfall in the cost savings anticipated in the agreement (which is calculated using detailed formulae) if we do not migrate the network by July 2003. We did not migrate the network by the July 2003 deadline. We have agreed with Reuters and Radianz to change the nature of the migration due largely to the more stringent requirements of Reuters. While we cannot now quantify the amounts we may have to pay to compensate Radianz, this payment could be material and could adversely affect our results of operations and financial position.

Renegotiation of the Joint Venture Agreement With Reuters May Result In Additional Costs

We have contributed $225 million to Radianz and agreed to provide future services up to $125 million to Radianz over a period of up to ten years from the date we entered into these arrangements in July 2000. As of December 31, 2002, we provided Radianz credits of approximately $31 million, in connection with these future services, and additional $12.5 million in 2003 for a total of $44 million since inception.

We are currently renegotiating the terms of the Radianz joint venture with Reuters. If these negotiations are unsuccessful or are concluded on terms not more advantageous to us than the current terms, we may be facing additional costs. While we cannot now quantify the costs we may incur in connection with the renegotiation of the joint venture, these costs could be material and could adversely affect our result of operations and financial position. Moreover, we may fail to recover our investment in Radianz.

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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 $345 million, or 12%, of our revenues in 2003, including approximately $89 million from Radianz, $80 million from Sprint and $24 million from Deutsche Telekom, and an aggregate of $152 million from other indirect sales channels. Overall revenues from these indirect sales channels decreased by $70 million in 2003 as compared to 2002. Revenues from these other indirect sales channels will likely decline.

We Face Uncertain And Changing Regulatory Restrictions

Various restrictive laws, policies, and licensing requirements in the telecommunications and data network services industries affect our business operations because they establish regulatory and market access barriers. The products and services we provide are deregulated 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 network and other services and of our status affects our ability to offer our full portfolio of services in certain jurisdictions, particularly in emerging markets. In these jurisdictions, we also face the risk of a change in the regulatory environment or in our regulatory profile 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. 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 that competition in the data network, integrated and communications outsourcing services, market will continue to increase as:

We expect these factors will continue to place severe downward pressure on the price of transmission capacity used to deliver our services. In addition, we will 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 customer base. 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 and our margins, and adversely affect our results of operations.

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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 materially adversely affect our business, financial condition, and results of operations.

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. Our target customers are MNCs and international institutions such as Ernst & Young, 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 the 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 or “dial-up” from portable computers or other network access interfaces. Our product portfolio includes:

Equant N.V. is a corporation 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. We also maintain executive offices in Herndon, Virginia in the United States and in Paris, France. Our registered office is in Amsterdam, The Netherlands. Our agent in the United States is Michael Berg, Senior Vice President and General Counsel, 2355 Dulles Corner Boulevard, Herndon, Virginia 20171. We define a number of the telecommunications related terms we use in this document on page 36 in “ Glossary of Selected Telecommunications Terms.”

Our History

The origins of our Network date back to 1949, when major airline companies from all over the globe formed Société International de Télécommunications Aéronautiques S.C. (‘SITA S.C.’ or ‘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 we call 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”, which held at that time 85.7% of this stock for the benefit of the SITA member airline companies and 14.3% of this stock for the benefit of a trust established for eligible employees of STH and SITA under an employee share award plan. In October 1995, SITA and STH also entered a joint venture agreement providing for joint ownership, operation and management of the network and giving each of SITA and STH indefeasible and exclusive rights of access to the network. Under the joint venture agreement, STH was given the exclusive right to provide network services to customers outside the air transport community, while SITA retained the exclusive right to provide network services to the air transport community.

Early in 1998, we changed our name from STH 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 Paris Euronext.

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In the second quarter of 2000, we formed Radianz with Reuters, a company that is 51% owned by Reuters and 49% owned by us. Radianz, which commenced operations on July 1, 2000, provides secure IP network services to the financial services industry. We contributed $225 million in cash, in addition to some of our customer contracts, to Radianz and agreed to provide $125 million in services to Radianz over a period of up to ten years.

On November 19, 2000, as part of a wider set of separate but interrelated transactions, we entered into a contribution agreement with France Telecom and its wholly owned subsidiary, Atlas, which owned Global One. Global One was a provider of data, voice and IP telecommunications services with its own backbone network. Global One, which maintained its joint global headquarters in Reston, Virginia, USA and Paris, France, focused primarily on multinational businesses and their suppliers, distributors and customers. On completion of these transactions on June 29, 2001, France Telecom acquired a controlling interest in us. Pursuant to the execution of numerous contracts among France Telecom, its subsidiary Transpac, SITA, SITA Information Networking Computing N.V. (a SITA subsidiary) and us:

France Telecom issued to our shareholders (other than the SITA Foundation) one Contingent Value Right for each ordinary share held on June 28, 2001. Each CVR entitles its holder to receive a cash payment from France Telecom of up to €15 at maturity on the third anniversary of the closing of these transactions, depending on the market value of our ordinary shares at that time. Immediately following these transactions, France Telecom owned approximately 54.3% of our voting share capital with the balance held by the public.

At the same time, we terminated the Joint Venture Agreement with SITA and replaced it with several agreements we describe in detail in “Item 7. Major Shareholders and Related Party Transactions”. These agreements consisted of Strategic Relationship Umbrella Agreement, which establishes the general principles that govern the relationship between us; a Network Services Agreement, which establishes the terms and conditions that govern our delivery of network services to SITA; and a Transition and Management Agreement, which establishes the terms and conditions for the transfer over time of assets and employees to support the network from SITA to us and our management of the Network. Under our current arrangement with SITA, we control and manage the Network. We provide our portfolio of products and services to SITA, who delivers those services to the air transport community, globally.

On June 29, 2001, we also entered into a number of agreements with France Telecom through its Transpac subsidiary, which establish the legal arrangements with France Telecom relating to the sale and support of our services in France. In 2002, we entered into definitive agreements with France Telecom and its affiliates to support its carrier and voice businesses. These agreements were contemplated and referenced in Annexes to the Memoranda of Understanding entered into at the close of the merger in 2001. These new agreements are described further in Item 7. Redacted copies of these agreements were filed with our 2002 20-F as Exhibits, 1, 2, and 3. See “Item 7. Major Shareholders and Related Party Transactions”.

Since the 2001 merger with Global One, we have offered our products and services through one centralized organization instead of three operating divisions. In addition, following the France Telecom transactions, we now report our results under French GAAP instead of U.S. GAAP. In 2003, we substantially completed the legal integration of our and former Global One local country subsidiaries and branches identified for integration.

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

In response to the evolving needs of our customers, in the latter part of 2003, we began to develop our nascent consulting, service and project management services as well as integration and managed services. By combining these services with our core data and IP network products, we are able to design customized solutions to enable our customers’ critical business processes for delivery on our seamless global Network.

In 2004, we will continue to provide high quality data and IP network products and intensify our focus on delivering customized communications solutions to MNCs and international institutions designed by our 3000 service professionals, including fully managing the customers’ communications needs on an outsourced basis.

Competitive Strengths

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 mission critical applications that require high levels of customization, performance, reliability and security. 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:

     Global Network Footprint. Our Network reaches 220 countries and territories. We believe our ability to provide services in locations where our competitors cannot is a key selling point.

     Network Strength. The Network is designed to support high bandwidth, multimedia applications and is continually upgraded to take advantage of new technology. We have full operational control of the Network, rather than providing service through a patchwork of interconnected alliances. We believe that this provides a key advantage over our competitors.

     Global Support Infrastructure. Many of our customers operate on a global basis and require us to provide local support to the entirety of their operations, and not just to their headquarters. We operate five Global Customer Service Centers, and seven Hosting Centers, with staff based in approximately 165 countries. We believe that our ability to provide direct support to network management and integration services customers in such a wide range of locations is a key advantage over our competitors.

     Combined Network and Services Expertise. Our strategy is to deliver customized, integrated communications solutions using our seamless global Network and our portfolio of services. Our IP based network is designed to support the increasing convergence of data, voice and video. In contrast, many of our competitors have traditionally focused on voice telephony within national markets. We believe that our significant experience in operating a Network combined with our services expertise provide us with a competitive advantage.

     Customized Service Offerings. We provide our customers with a wide range of services that complement our data and IP network products. With our local support expertise in approximately 165 countries, we are able to deliver consulting, project management, service management, integration services as well as messaging, hosting and security to our customers both globally and locally. The offering of many of these services capitalizes on our relationships with Cisco, Nortel and Microsoft and we have earned formal global accreditation from each of these companies.

     Strong Customer Base. We have a broad and stable base of customers across a wide range of industries. We serve over 3700 large business customers, including two-thirds of the top 100 companies in Business Week’s “Global 1000” list for 2003, such as Ernst & Young, Hanjin Shipping, Japan Tobacco International, Le Meridien Hotels, and Zurich Financial Services. Our focus on building long-term relationships with blue chip organizations has resulted in an ongoing expansion of the level of business with these customers.

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Our Company Today

We appointed a new CEO in August 2003, as we completed the integration phase, which began after the Global One merger in 2001. Our strategic direction is now focused on using our global Network reach to grow our presence in the communications services market. Under the leadership of our new CEO, we have undertaken a number of initiatives to put us on track for growth and profitability. Chief among these initiatives is an internal reorganization, which underscores our reinvigorated focus on designing, delivering and managing customized, integrated solutions for our MNC customers. We have replaced our Customer Service and Network (“CS&N”) function with three new functions to improve customer service, network and management operations. These functions are Customer Care and Integration Services (“CCIS”), Network, Managed Services and Security (“NMSS”) and Business Operations and Services (“BOS”). Moreover, we have organized our service skills into five business practices, — Consulting, Project Management, Service Management, Field Services, and IT Services — to optimize the skills of our 3000 service professionals to meet the varied needs of our MNC customers.

Customer Care and Integration Services

CCIS’ mission is to provide the best customer service in our industry by reinforcing the concept of customer satisfaction across our company and enlisting the skills of all customer-facing entities as a means of supporting the growth of our service revenues and profitability. The CCIS function is comprised of:

Other Functions

We have consolidated our Brand and Strategy functions as well as streamlined our Marketing function and combined them under a new function named Business Development, Marketing and Communications. In addition to this newly formed function, the Sales and Marketing function will continue to lead our global sales and operational marketing efforts using a consultative sales engagement model focused on selling customized solutions including pursuing outsourcing opportunities to fully leverage our Network reach and our data portfolio. The Products and Solutions function will continue to manage the lifecycle of our portfolio of products and solutions, with the Finance, Human Resources, Information Technology and Systems, and Legal and Regulatory functions providing global support to the business.

Strategy

In response to the evolving needs of our MNC customers, in the latter part of 2003, we began to expand our portfolio to develop our nascent consulting, service and project management services as well as integration and managed services. To increase our leadership in global, integrated and customized communication solutions around the world for MNCs, we intend to further expand our existing portfolio of service skills and combine them with our network expertise. Our goal is to nearly double the proportion of our service revenues to 25% of total revenues in 2006 / 2007. In order to drive growth in our service business, we have reorganized our services skills around five business practices covering consulting, project management, service management, integration services and managed services. This focus on the services business will enable us to address a larger part of the communications services market and allow us to further differentiate our offerings from competitors. To execute our strategy, we intend to focus on the following priorities:

Data Network and IP Services

Our strategy for growing this part of our business is to expand our network product portfolio to provide greater flexibility to respond our customers’ needs. This will encompass both private and public based VPN networks. In 2003, we added new customers for our IPVPN product and signed our 1000^th IP VPN customer. We also enabled the migration of our legacy data customers to new IP-based solutions.

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In 2004, we will further reinforce our data and IP network products portfolio with VPN bridge to allow a smooth migration from legacy data to IP, Customer Managed IP VPN, especially for the North American market and Optical Ethernet to enhance our high-speed offerings and reporting capabilities for all data and IP services. We also plan to offer our IP VPN service to our indirect channel partners for resale in 2004.

Services Business

We will continue to expand our services business to be able to deliver integrated network and IT infrastructure solutions to our customer base. To drive the growth of our services business, we have reorganized our 3,000 service professionals, which include consultants, project managers, service managers, managed services experts, and field engineers into five business practices to address the key needs of MNCs. The business practices are:

Consulting Practice – Our 300 consultants, who are part of the Sales and Marketing function, assist customers in designing effective communications infrastructure solutions to support their business operations.

Project Management Practice – Our 300 project managers, who are also part of the Sales and Marketing function, manage the implementation of the solution for the customer.

Service Management Practice – Our 350 service managers, who are part of our of CCIS function, ensure operational efficiency focusing on overall performance, capacity, change management, availability, and enhanced fault management.

Field Services Practice – Our 1500 field engineers, who are part of our CCIS function, provide local support with global coordination, preventive maintenance with remote diagnostics and remediation.

IT Services Practice – Our 450 engineers, who are part of our NMSS function, design, deliver and manage solutions in messaging hosting and security and server management.

To implement this strategy, we will leverage our network expertise and the five newly established business practices to assist our customers in analyzing and improving their business processes, integrating complex communications solutions, securing a high level of operational efficiency and accessing a comprehensive portfolio of network related services. We believe the fact that we control our global Network is significant in differentiating us from our competitors in the IT applications and communications services market, who do not operate a network. We have already experienced some success with this strategy as evidenced by the fact that MNCs such as Electrolux, Le Meridien, Lufthansa Systems, and Infratec GmbH among others, have purchased our services.

Industry Background

Technology Overview

Data networks use packet switching technology to transmit both data and voice as opposed to the circuit switching technology most voice networks employ. Packet switching technology is particularly suited to the “bursty,” error-intolerant nature of data transmission. Compared to circuit switching, it provides data networks with better bandwidth utilization, improved congestion control, error detection and correction, powerful addressing facilities and higher availability in the case of node and line failures. Packet switching divides data into segments, each of which is enclosed in an individual “data envelope”. These data packets contain user data plus information such as addressing, sequencing and error control. A typical user message can consist of one or more packets. Packet switching technology today has developed to include frame and cell switching technology.

Data protocols or “network languages” permit computers to exchange information using a common software algorithm. Protocols are the critical technology in data networking because they dictate the speed and flexibility with which data can be exchanged between computers. Numerous protocols have been developed over the years, which support digital data transmission. These protocols are deployed within a network and at the network access level. They fall into two categories: those conforming to agreed international standards known as “open protocols,” and others developed by companies as “proprietary protocols.” The development of open protocols permits the seamless migration and integration of different protocols.

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The most common data network protocols are:

The most significant development in the data network industry is the proliferation of the Internet Protocol. IP standards can be used to create “Intranets,” which are closely managed networks that operate like the Internet but are designed for internal corporate use with more consistent performance and better security. The widespread deployment of IP standards facilitated the growth of “Extranets” that link IP-based corporate networks. The development of IP is especially important, as suppliers of applications increasingly offer their services to companies across the so-called public Internet. By “public Internet,” we mean the services available to anyone via the Internet, as opposed to intranet and extranet services that only authorized users can access.

Among available protocols, IP is experiencing very strong growth as the protocol of choice for new networks, while Frame Relay use has stabilized in developed countries and continues to grow at a steady pace in the developing countries. X.25, now approaching the end of its life cycle, is still used in the countries that lack the telecommunications infrastructure of the quality necessary to deliver high speed and high quality service, while in most technologically advanced countries, X.25 is used as a legacy WAN service.

ISDN is often used as a dial back up to provide connectivity in the event of a failure of an access circuit. Access to the network is by definition local. To establish a permanent connection, leased lines are traditionally used and are a proven means of access. They are widely available, but they can also be expensive. Other network access options include:

The Communications Services Market

As a result of the global economic slowdown, IT and telecom budgets stayed flat and cost savings became an imperative for a vast majority of companies over the past three years. The outlook for IT and telecom budget spending in the next year is cautiously optimistic. Although some industry analyst consider that IT and telecom budget spending will likely increase in 2004, we have planned our activities assuming a stable communications services market of $26.5 billion. This includes data and IP networks, voice over IP networks, network equipment sales and network outsourcing. We will also continue to expand our presence in the IT services market.

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To the extent there is growth in the global data networking services market it will likely be driven by several factors:

Business customers’ requirements for their communications infrastructure include:

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

To meet the expanding customer expectations and requirements, communications network service providers are continuing to improve network infrastructure with new technology. 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 as well as coping well with dynamic capacity demands. MPLS is used in many of these networks to provide virtual private networking capability.

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Managed services represent an increasingly important part of the communication infrastructure solutions for MNCs. The management of content, applications, and servers or the provision of a fully managed messaging service, forms a significant element of this new paradigm. For communications service providers, the ability to support critical business processes increasingly require the network to interact efficiently with other elements of IT infrastructure, including security.

Our Skills and Know-How

The focal point of our business, and our key competitive strengths, are the Network and the skills of our highly specialized employees whose top priority is customer service. We offer our portfolio of managed data, voice, integrated voice and data and other value added network services through a single global network. The Network currently spans 220 countries and territories with local support in 165 countries. IP is available in 142 countries, either through native IP or other broadband protocols, Frame Relay at 1040 sites in 186 countries, and ATM at 272 sites in 47 countries. Overall, the network serves approximately 3700 large business customers, with approximately 42,500 customer routers and approximately 180,000 customer connections.

We operate and manage the Network. SITA, with whom we previously operated the network under a joint venture agreement prior to the France Telecom transactions, has become an 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. In some countries, SITA cannot yet transfer ownership of the network and thus we manage such networks on SITA’s behalf in order to ensure the orderly and seamless operation of the Network globally. We are responsible to SITA for the cost of operating in those countries. SITA will continue to operate locally in countries until we can assume full ownership of all of the local network assets. We will assume ownership as soon as it becomes possible in each of the affected countries.

Equipment and Systems. The Network makes extensive use of large capacity communications circuits, including 2.5Gbps wavelength and wide-band circuits with capacities of up to 622 Mbps. The infrastructure deployed to support our customer connections includes more than 1930 IP routers, 1,630 Passport nodes, 2,078 Data Packet Nodes, 19742 PPP dial channels and 15498 X.28 dial ports. The Network supports customer traffic with international bandwidth of more than 39 Gigabits per second and domestic bandwidth of 80 Gigabits per second.

The configuration of the Network provides many alternate paths for data packets to travel to connect points on the Network. This approach is “fault tolerant,” since a fault, such as a broken line or switch, will not interrupt traffic, as intelligent switches in the Network can sense the failure and dynamically reroute the flow using alternate routes. The Network also uses switches that are fault tolerant and contain redundant elements that can be brought into service if one element fails. Nortel Networks and Cisco principally supply our Network equipment.

Local Access. Customers can access the Network either directly or through dial access services. Dial access service offers access to the Network through the local public switched telephone network. Direct access is arranged through the LNO in each country where the customer desires a service. Direct access is usually arranged through a dedicated facility such as a leased line.

We offer different access methods and adapt them to our network backbone for greater efficiency. Among those offered is ATM at the access layer for customers requiring high-speed access for multimedia operations. We also offer SDSL and IDSL access in the United States.

Network Development and Integration

In 2003, we deployed our optical infrastructure to support traffic flows for both ATM and IP. In 2004, we will progressively separate ATM and IP traffic in order to:

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Global Operations

The following table shows our revenues by geographic region. Revenues are attributed to the region in which the services are invoiced.

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 drive 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.

Products and Services

We offer network, integration and other services. Our data and IP network products include Frame Relay, LAN Access, ATM, IPVPN, Internet Direct and traditional MDNS (X25/X28). Integration services include remote server management, messaging, hosting, security, fulfillment or equipment sale, deployment, maintenance and consulting services. Other services includes convergence solutions and circuit-switched voice services. The following tables show revenues from the provision of network services, integration services and other services.

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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 both to monitor performance of the services we provide and observe our progress in resolving problems. Equant WebVision is a real time monitoring tool that provides customers with information on traffic, connections, and configurations and is a PC based on-line browser tool. Equant WebVision also allows customers to view “trouble tickets,” or reports of problems or errors. WebVision includes a suite of services that are offered over the portfolio of IP and Data services, under the name of Customer Select Program. With the addition of 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 plan to launch a fully managed version of Equant WebVision for the Asia Pacific region in 2004.

Integration Services

Our integration services consist of the deployment, monitoring and maintenance of customers’ equipment as well as consultancy and professional services to support our customers beyond their networking requirements. With engineers and consultants, linked by three of our five global support centers, our integration services allow us to manage the customers’ network remotely, including application performance, monitoring and diagnostics. The integration services portfolio currently consists of the following services:

Deployment Services. Implementing international projects using internal resources can place a heavy burden on a customer’s internal team. We focus on three types of projects: LAN Deployment, Cisco Router Deployment and Nortel Integration Services. Deployment includes resale of network equipment and staging and installation of LAN and WAN infrastructure worldwide and general equipment supply.

Maintenance Services. We provide local support with global coordination of support professionals in more than 80 countries and 200 service locations. By leveraging our service partnerships such as that with SITA, we are able to extend service to over 200 countries. Our Global Customer Support Centers manage any reported incidents, supported by Atlas, our global service management system.

Enterprise Remote Management. We provide remote management capabilities to address customers’ SNMP-based devices. Enterprise Network Management provides an out-tasked solution for customers seeking 24-hour proactive fault management of their network equipment and servers.

Consulting and Professional Services. We provide both consultancy and project management to take responsibility for every aspect of the deployment of a customer’s solution. We have consultants who specialize in Security, Messaging and IP Telephony consulting who assess the customer’s current and future requirements to decide on the best solution for that particular customer. Project Management services grew steadily in 2003. In 2004, we are establishing both project management and consultancy services as global business practices across the company to drive and grow our services business.

Managed Services

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

Messaging Applications. We provide managed Exchange, managed Lotus Notes and managed Sun ONE messaging services including consulting, design, infrastructure optimization, deployment, migration, operation and maintenance services. We manage 800,000 mail users.

Web Applications. We provide managed services for the infrastructure supporting major web and thin client technologies. This includes consulting, design, server consolidation, deployment, application integration and migration, operation and maintenance of Windows, Unix and Linux platforms.

Security Applications. We provide managed services for security infrastructure as firewalls, antivirus, authentication, filtering and intrusion detection. This includes consulting, design, deployment, migration, operation and maintenance on major security related technologies.

In 2004, we will introduce additional products based on the existing managed services portfolio. We will enhance our services with specific consulting methodologies adapted to a specific customer business need and enhance solutions to address customer requirements for business continuity

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Other Services

Convergence Solutions. Our convergence solutions are as follows:

Unified Enterprise Telephony. In 2002, we launched our IP Telephony portfolio of services designed to provide customers with an end-to-end voice and data solution in a limited number of countries in Europe and North America. IP Telephony involves the real-time transmission of voice traffic over the LAN through an IP PBX over Equant’s Voice for IP VPN service. In 2003, we saw modest growth on IP Telephony and Voice over IP VPN. In 2004, we plan to extend this service to additional regions.

Product developments: We will continue to enhance our convergence services with more detailed reporting, improved service management and SLAs and small office solutions with DSL. We also plan to introduce new services based on switchless resale of domestic voice services in selected countries in 2004.

Mobility Services. In 2002, we introduced remote access and mobile access services, such as DSL and mobile access services. A Mobility Services product line was introduced in 2003 using existing services such as IP Dial, GSM Dial and GPRS services (available only in selected countries in 2003), as well as Access Companion.

Product developments: In 2004, we will expand our GPRS coverage, introduce public Wireless LAN services and develop mobilized applications, like messaging. We expect to grow our mobility services revenues in 2004.

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.

Sales and Marketing

We sell our products and services through direct and indirect sales channels. As of December 31, 2003, our sales force was comprised of approximately 430 direct and 45 indirect sales staff, compared with approximately 485 direct and 55 indirect sales staff in 2002. Improvements in efficiency allowed us to reduce the number of direct sales staff without sacrificing customer service. We hire sales and technical personnel experienced in communications and related 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 will reinforce our sales and consultancy skills by hiring new staff and training existing staff to ensure we are able to support these activities. We summarize below the key elements of our marketing and distribution strategy.

Marketing. Our marketing units operate under the guidance of a global marketing plan, which specifies a set of global programs for press relations, customer events, and direct mail activities that are delivered through local offices.

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Account Management. All customers with significant revenue streams are assigned an account manager who is responsible for developing the commercial relationship with that customer. In addition, we 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 across all regions. The program currently focuses on about 25 companies as compared to 50 customers in 2002. We have limited this program so that we can divert some sales staff to cultivating 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 ensuring that the requirements are understood and a tailored solution is developed. In some cases the appropriate solution may require a combination of our products and services as well as products and services we acquire from others. We actively market additional products and services from our portfolio to our existing customers. In some cases the customer migrates into an outsourcing arrangement where we take ownership of customer contracts, assets or people. This type of relationship represents a growing market and in 2003, we established a Global Solutions team to pursue opportunities identified in this market sector.

Indirect Sales. Our major indirect sales channels complement our direct sales force and are an integral part of our strategy. These channels include SITA, which addresses the air transport community, Radianz, our joint venture with Reuters, which uses our network and provides enhanced access to the financial services industry, market specific joint ventures and distributors (such as Sprint in the United States and Deutsche Telekom in Germany). In total, indirect channels generated approximately $1.4 billion, or 46%, of our revenues in 2002, as compared to approximately $1.3 billion, or 43% of our revenues in 2003.

Approximately 100 members of our sales staff are focused on indirect channels and are dedicated to managing and expanding our indirect channel sales. Our strategy is to focus our resources and efforts on deepening the relationships with our top indirect sales partners. Outside of these core strategic relationships, other distributor relationships are being continually reviewed, assessed and developed.

We intend to broaden and increase our revenue streams from indirect sales channels. In some of the locations where we currently operate, we plan to revitalize and redirect our existing indirect sales channels and select new indirect sales channels such as value added resellers, distributors, and agents. In addition, where appropriate, we also plan to pursue new revenue opportunities through specific market channels such as mobile providers and to develop cross-selling relationships via systems integrators, professional or consultancy firms, telecommunications equipment manufacturers, and related channels.

Sales geography. Our sales force is concentrated in the countries with the largest markets for telecoms and related services with additional limited presence in secondary markets. We do not have a direct sales presence in tertiary markets but where appropriate serve these through partners.

Customers

In 2003, our ten largest customers accounted for 45% of our revenues, with the largest customer, SITA, accounting for approximately 22% of revenues as compared to 24% of our revenues in 2002. Our second largest customer, France Telecom accounts for approximately 13% of our revenues in 2003 as compared to 10% in 2002. Radianz accounts for about 3% of revenues in 2003, compared to 4% in 2002, and Sprint accounts for less than 3% of our revenues in 2003 compared to 3.5% in 2002. We also recognized $142 million of ‘other income’ from France Telecom for reimbursement of costs related to switched voice and ancillary services. See “Item 5. Operating and Financial Review and Prospects — Results of Operations for the Year ended December 31, 2003 — Other Operating Income” for more details.

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

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The multinational organizations who make up our target customer base typically source their telecommunications needs through competitive bidding. Our typical contract for communications services is for three years, although a few of our contracts have terms beyond this up to a maximum of 10 years.

Competition

We operate in a very dynamic, highly competitive, and fragmented market that is in a constant state of change. The wave of recovery from bankruptcy filings and consolidation trends highlights the transition the industry is currently experiencing. Our market place is under transformation and providers have stated a willingness to move up the value chain. We observe a shift from providing basic communication services as global network services providers to becoming communications integration services providers to increase margin.

We face competition from both established global service providers and increasingly from competitors outside the traditional telecommunications realm. The competitive landscape is becoming increasingly complex as boundaries between IT and telecoms worlds disappear. IT players are willing to expand expertise towards networking while network providers are expanding their portfolio towards integration services. In addition, the equipment providers continue to partner with network providers but are branching out 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 Infonet. The established global service providers provide a range of data services, alongside their more entrenched voice services, nevertheless, they are becoming more competitive in the fast growing data services market.

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 as 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 jurisdictions in which 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.

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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 the ability to offer a broad variety of reliable products and services tailored to customer needs and an effective support structure. As the market becomes more competitive, we believe that price, end-to-end solutions and a concentration on customer service plays a more important role.

Customers also require design, implementation, and support services for network and desktop technologies, as well as 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, 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.

REGULATION

As with any international network 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 data network services are now deregulated, and in some cases no license at all 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 data network services. Nevertheless, some restrictive telecommunications laws and practices in certain countries give rise to constraints, risks and uncertainties which will for a time affect our 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.

WTO Agreement and Its Implications

On February 15, 1997, 69 countries at the World Trade Organization (“WTO”) reached agreement to liberalize market access and introduce national treatment in basic telecommunications services. In February 1998, the commitments of the signatory countries became formally binding on their governments. By the end of 2003, 88 countries had made commitments with respect to basic services.

Although the WTO agreement on telecommunications services is an encouraging development it does not overcome continuing regulatory obstacles in many secondary and tertiary countries. Many countries have made only limited commitments such as excluding voice services or postponing the opening of any type of voice competition for many years. Moreover, in less developed countries that are not well prepared for competition or for effectively regulating a liberalized market, gaining the requisite experience and expertise is likely to be a long and difficult process. Indeed, even in liberalized countries, considerable challenges remain as new regulators learn to administer new complicated licensing rules, enforce foreign ownership limits, and develop competition and interconnection safeguards.

Corporate Presence

In a number of jurisdictions, we are permitted to provide service to local 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 an arrangement with the incumbent PTO.

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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. These services are generally characterized for licensing purposes as data transmission services or value added services. We are authorized by law or by license (either individual or “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:

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 over time further with the advance of liberalization. Furthermore, the impact on our revenues and operating ability would not likely be material.

     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 that 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 are carefully monitoring regulatory pronouncements on this subject to enable future compliance.

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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 Internet-based services have not been authoritatively resolved in the United States. Certain Internet-related services may be subject to regulation in the future.

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.

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 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 its affiliation with France Telecom. Specifically, we are classified as a dominant carrier on the international routes between the United States and France, Argentina, Jordan, Poland and Mauritius. As a dominant 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.

Agreement with FBI and 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 (FBI) and the Department of Justice (DOJ) 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 related to the future operation of 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

In 1999 the European Commission launched a major review of existing EU telecommunications law that resulted in the adoption of a new regulatory framework for electronic communications in 2002, to be applied as of July 2003. The 5 goals of the new framework are:

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Primary Instruments

Four Directives and a Decision were adopted by 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.

Authorisation Directive introducing a system of general authorisation, instead of individual licences and the like, to facilitate entry in the market and reduce administrative burdens on operators.

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 establishes 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 have liberalised 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 the different markets (18), retail and wholesale, that national regulators are reviewing under new regulatory framework obligations.

Implementing the new regulatory framework

The European Parliament and Council established a deadline of July 24, 2003 for member countries to adopt the main provisions of the new framework. As of November, only eight countries had adopted the Framework, Authorization, Access and Universal Service Directives into national primary legislation. These are: Denmark, Spain, Ireland, Italy, Austria, Finland, Sweden and the United Kingdom. We held operating rights in all of these countries under the old framework. These rights have been grandfathered under the newly implemented framework, although both Finland and Ireland required a notification within a month of implementation. We now operate in all of these countries under a General Authorization.

Infringement proceedings against the Member States that had not adopted legislation were opened in early October 2003 under Article 226 of the Treaty, for failure to communicate transposition measures to the Commission. In these countries 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.

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Accession Countries

On May 1, 2004, ten countries (Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, 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. We are already licensed to provide services in all but two of these countries, Cyprus and Malta. We are in the process of applying for a license in Malta.

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 SA 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 SA, has obtained the Authorizations under the new authorization regime, covering the same scope as the L33 and L34 licenses. The individual licenses L33-1 and L34-1, held by Equant Telecommunications SA, will be cancelled in 2004.

New telecommunications legislation to implement the new EU framework is currently under consideration. The French regulator (ART) has published guidelines on how it will deal with licensing during the period between the deadline for implementation of the new EU Communications package (July 25, 2003) and the effective date of the new French Communications Act. The ART has not issued any new telecommunications licenses under the old framework since July 2003. The current licence holders keep their license(s), which remain in force for the time being. In case of a new operator, a Declaration has to be made to ART before commencing activities.

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. 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 is currently under consideration but is not expected to come into force before early 2004. Our license will be automatically transferred to the General Authorization regime under the new EU framework.

United Kingdom

Under the old EU framework regime, we provided our managed data services on an international basis under the Telecommunication Services class license (the “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.

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The General Authorization regime under the new EU framework was implemented on 25 July. Both the licences held by EGN B.V. and Global One CHL were automatically transferred on that date and the General Authorisations permit the full portfolio of services previously provided under the old framework. We will continue to operate under both General Authorisations 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 Europe 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 environment. It is possible that we may not timely conform our service offerings to the changing regulatory environment. 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, India, Indonesia, Malaysia, 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. Some of these markets such as India and Malaysia have begun to liberalize their markets, and we are investigating possibilities to acquire licenses such that our current agreements with local operators could be supplemented or replaced.

South and Central America. 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. We currently provide MDNS, switched and packet voice in these countries, to the extent permitted under our own licenses, through our arrangements with licensed local operators or through SITA authorizations.

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 Europe countries, some of which are aligned with the Western Europe regulatory environment. For example, in the Czech Republic and the Slovak Republic, where the telecommunications markets have been fully liberalized, and in Poland and Hungary, we are authorized to provide our full data service portfolio. In Russia, we hold the necessary licenses for providing our full service portfolio, including voice.

Elsewhere, the Baltic States are on course for membership in the European Union in 2004 and their telecommunications markets are almost 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.

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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 54.13% of our shares.

Our significant subsidiaries are as follows:

PROPERTY, PLANT AND EQUIPMENT

At December 31, 2003, the total net book value of our property, plant and equipment was $1,170 million, of which Network assets, such as packet switches and routers, accounted for approximately 66%. 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”.

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 differs 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. Note 30 also provides condensed consolidated statements of operations and cash flows for the three years ended December 31, 2003 prepared in accordance with U.S. GAAP to assist the reader in assessing our results of operations and cash flows presented under U.S. GAAP.

Given the fundamental difference in the treatment of the business combination of Equant and Global One 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. A discussion of the results of operations for the last three financial years under U.S. GAAP therefore requires a review of the historic performance of Global One (rather than Equant) for the period from January 1, 2001 to June 29, 2001. Global One’s carrier and calling card services are included in the results of Global One with Global One as the primary obligor from January 1, 2001 to June 29, 2001 and from June 30, 2001 are included in the results with Equant undertaking the services as an agent of France Telecom.

     Operating and Financial Review under French GAAP

Overview

Our principal revenue stream continues to be the provision of MDNS to MNCs that use the Network to carry their mission critical data. During 2003, we announced many new customers, such as APL, Baker & McKenzie, Electrolux, and Kuehne and Nagel. We also announced our largest direct sales contract ever, a comprehensive outsourcing solution for Zurich Financial Services. We have direct channels to market deploying our own sales force in 40 key countries, and we also use indirect channels, which include SITA, China Netcom, Japan Telecom, Sprint and Deutsche Telekom.

We also provide communications services and solutions comprising consulting, project management, service management, integration services and managed services using our 3,000 service professionals around the world. 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, staging and installation of local and wide area infrastructure worldwide.

In 2003, we continued to enhance our data and IP network product portfolio introducing broadband DSL access in 13 countries and secure corporate access to the public Internet. We introduced managed intrusion detection service and a cache management service to strengthen our services portfolio. We added a remote on-site option to strengthen our messaging portfolio. We also offer a range of voice services including circuit-switched voice and enhanced data and IP based voice services. During the year we added GPRS access and video over IP to our portfolio. Approximately 13% of our IP VPN customers already use IP telephony and Voice over IP solutions.

Summary of Results and 2004 Expectations

Revenues fell approximately 1% in 2003. There was strong growth in Network Services direct revenue offset by continued weakness in our Network Services indirect sales channels, mainly due to reduced revenues from Sprint, Deutsche Telekom and Radianz. In addition, revenues from SITA fell due to the expiry of the minimum revenue commitment on July 1, 2003. We expect the environment for corporate business solutions to remain challenging, particularly in the first half of 2004, but should show some improvement in the second half. With increased competitive pricing pressure and customers migrating to lower cost IP-based connections, we expect full year 2004 revenues will be lower than 2003 revenues.

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Gross margins improved from 30.2% in 2002 to 31.1% in 2003 largely as a result of our continuing focus on cost reduction, integration of the network and reduction in duplicative transmission capacity. Selling, general and administrative expenses fell from 23.8% of revenues in 2002 to 21.2% in 2003 reflecting the continuing optimization of the sales force and a reduction in back office costs. We expect to make further reductions in selling, general and administrative expenses in 2004 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 increased by 52% to $292 million in 2003, and as a percentage of revenue, increased from 6.5% to 9.9%. Our operating loss decreased from $384 million in 2002 to $276 million in 2003, a decline of 28%. 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. This improvement arises from higher gross margins and lower selling, general and administrative expenses as a percentage of revenues.

There have been significant movements in exchange rates, particularly in the dollar/euro rate, during 2003. Foreign exchange had a positive effect on revenues of approximately $129 million and had a negative impact of approximately $199 million on costs. We incurred an operating loss of $276 million in 2003, a reduction of 28% from 2002. The reduced operating loss is due to the significant increase in operating result before depreciation, amortization, share plans and restructuring and integration.

We incurred a net loss in 2003 of $356 million, which is 40% below the loss incurred in 2002. Despite a significant improvement in our cost base, we are facing increased competitive pricing pressure, customer migration to lower cost IP services, and significant movements in exchange rates that negatively impact on our profitability, which could cause our net loss to deteriorate.

Capital Expenditures

We invested $280 million in capital expenditures of which $218 million was incurred to expand and enhance the capabilities of the Network. Approximately 78% of our capital expenditures in 2003 were in network equipment, in line with previous years, and we expect this trend to continue.

Financing

Our net cash and loans balance at December 31, 2003 (which is analyzed in Note 2 to the Consolidated Financial Statements), amounted to $479 million. This was an increase of $34 million compared to the position at December 31, 2002. We expect our net cash and loans balance to decline during 2004 as a result of working capital investments to fund future growth opportunities.

Restructuring and Integration

We completed the process of restructuring and integrating our operations, the SITA network Joint Venture and Global One during 2003 as described in the Contribution Agreement. The costs incurred to date amount to $558 million, of which $192 million was incurred in 2003. Consistent with the Contribution Agreement, we received $113 million from France Telecom in respect of 2003 restructuring and integration costs.

Staffing

We had 9,547 employees (full-time and full-time equivalents) at December 31, 2003, compared with 10,132 at December 31, 2002. The reduction reflects the ongoing reorganization of the business, and is consistent with reductions anticipated at the time of the merger. We expect our headcount to fall further in 2004, although at a slower pace.

Strategy

To solidify our leadership in global, integrated and customized communication solutions around the world for MNCs, we intend to further expand our existing portfolio of services skills and combine them with our network expertise. Our goal is to nearly double the proportion of our service revenues to 25% of total revenues in 2006 / 2007. To drive growth in our services business, we reorganized our services skills around five business practices covering consulting, project management, service integration, Field services and IT services. This focus on the services business will enable us to address a larger part of the communications services market, which will further differentiate our offering from competitors.

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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 incurred 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 $558.3 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 ($64.0 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.

The Network integration program launched in July 2001 continued in 2003, focusing on the completion of the remaining network integration activities. This mainly involved the closure of redundant sites, the elimination of local legacy partnerships, the full integration of most domestic networks, and completing the migration our legacy switched voice customers from the our switched voice network to the legacy Global One switched voice network, which is now the responsibility of France Telecom.

During 2003, we finalized the integration of the Global One domestic networks, and completed the post-2002 integration activities of migrating customer traffic and data to our Ordering/Provisioning system. We also completed the switched-voice migration from our legacy switched voice network to the legacy Global One switched voice network on time, with the last 49 of the original 174 customers being migrated in 2003. A total of 31 of our legacy switches of were phased-out following completion of these activities and our legacy switched voice network was shut down in 2003.

The site integration project also progressed well in 2003, with 56 sites being closed in 2003, ahead of our internal target. A total of 138 sites having been closed and 8,765 customer connections migrated since July 1 2001. We plan to close an additional 26 sites in 2004.

The partner rationalization project enabled us to close six partnerships (representing 140 connections) in the year. Ten smaller partnerships (representing 90 connections) remain to be closed in 2004 as part of our normal network optimization program.

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 we describe below under “Item 7. Major Shareholders and Related Party Transactions” and “Item 10. Additional Information – Material Contracts”. 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 $729.8 million on a pro forma basis in 2001 to $713.7 million in 2002 to $641.0 million in 2003.

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Pricing Policies

The prices we charge for our 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.

Radianz, Our Joint Venture With Reuters

In the second quarter of 2000, Reuters and Equant formed Radianz, a company which is 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. Other customers include ABN Amro, Euroclear, HSBC, Merrill Lynch, Knight Trading Group, Inc. and Computershare.

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

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

Our agreement with Radianz obligated us to integrate portions of Radianz’s backbone network with our network by July 2003 or we would be obligated to compensate Radianz in cash for any shortfall in the cost savings anticipated in the agreement (which is calculated using detailed formulae). The integration was not completed by the established deadline. We have agreed with Reuters and Radianz to revise the requirements of the migration due largely to the more stringent requirements of Reuters. While we cannot now quantify the amounts we may have to pay to compensate Radianz, this payment could be material and could adversely affect our results of operations and financial position.

We are currently renegotiating the terms of the Radianz joint venture with Reuters. If these negotiations are unsuccessful or are concluded on terms not more advantageous to us than the current terms, we may be facing additional costs. While we cannot now quantify the costs we may incur in connection with the renegotiation of the joint venture, these costs could be material and could adversely affect our result of operations and financial position. Moreover, we may lose our investment in Radianz.

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.

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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.

Revenue Recognition

Like many companies in the telecommunications industry, revenue recognition is a critical accounting policy because of its potential effect on our results of operations and financial position. This policy is critical in two respects: 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 and IP network products, 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. Management judgments and estimates are 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.

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. 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. The Company’s 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 customer’ equipment as well as consultancy and professional services.

For all service revenue arrangements, fixed fee elements, which are specified in the contract are 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 $134.7 million, $296.3 million and $372.0 million, respectively, in 2001, 2002 and 2003.

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 2001, 2002 and 2003, revenues of $146.4 million, $196.1 million and $142.4 million, respectively, were recognized.

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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. In light of our limited risk of providing these services, we earn a fee of cost plus 0.5 percent 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.

As part of our investment in Radianz, we agreed to purchase certain circuits owned by third parties and leased by Reuters, and to deliver certain cost savings on the supply of Network services to Radianz following the migration of the circuits leased by Reuters to us. In exchange we were granted an exclusive agreement to supply Network services to Radianz. Until the network is fully migrated to us, We lease the circuits until they could either be replaced or novated. Reuters bills us for circuit lease charges (which we record in costs of services and products sold). We recognized revenues of approximately $26 million in 2003 and $60 million in 2002 on our billing to Radianz for Network services provided using circuits leased from Reuters.

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. We purchase capacity on major international routes where it is economic to do so. The agreements we have entered into to date (known as Indefeasible Rights of Use or IRUs) qualify as leases. These agreements typically involve the prepayment of all lease costs. Under French GAAP, capacity purchases qualifying as capital leases are recorded within long-lived asset in the balance sheet, with an annual amortization charge recognized in the income statement. 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, 2002 and 2003, $151.9 million and $139.2 million, respectively, was recognized as the net book value of intangible assets, under French GAAP, and the net book value of property, plant and equipment, under U.S. GAAP, for capacity purchases qualifying as capital leases.

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, 2002 and 2003, the amounts recognized on the balance sheet for purchases of capacity qualifying as service contracts were not significant.

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, we 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 January 1 to June 29, 2001 are excluded from the income statement for the year ended December 31, 2001.

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.

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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 asset 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.

Impairment of Goodwill and Long-Lived Assets

Under French GAAP, long-lived assets, including goodwill, are subject to an impairment review when events or circumstances occur indicating that impairment might exist. Such events or circumstances include significant declines, other than temporary, in the market price of our ordinary shares as well as difficult market conditions in the telecommunications sector.

Under French GAAP, the need to record an impairment is determined by reference to the sum of discounted cash flows based on economic assumptions and forecasted operating activities approved by our management. When a write-down is deemed necessary, it is calculated by reference to the difference between the carrying value and the fair value. The determination of the fair value is based on valuations that differ depending on the method used.

Under U.S. GAAP, we are required to test long-lived assets, including intangible assets, for impairment whenever there is an indication of impairment and, for assets to be held and used, 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 intangible assets of $179.2 million, nil and nil were recognized in the years ended December 2001, 2002 and 2003, respectively.

Under U.S. GAAP, accounting for goodwill was substantially the same as current French GAAP until the adoption of SFAS No. 142, Goodwill and Other Intangible Assets (“SFAS 142”), on January 1, 2002, which 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) under SFAS 142. We evaluated impairment using a prescribed two-step process on adoption. First, we screen 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. We did not have to recognize an impairment under the strictures established by SFAS 142.

Under U.S. GAAP, impairment charges of $7,299.5 million, $2,423.5 million and nil for the years ended December 31, 2001, 2002 and 2003, respectively, were recorded. The impairment charge in 2001 was recognized in accordance with reference to our share price. 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.

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. In light of the continued trading difficulties in the telecommunications market, and significant declines in telecommunications valuations, we recognized an exceptional amortization charge of $154.8 million in 2002 to reduce all French GAAP goodwill to nil. The size and timing of the exceptional amortization charge was based on our view that the discounted cash flows related to our investment were not sufficient to recover the carrying value of our investment.

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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 has been accounted for under the equity method of accounting because we are currently unable to exercise joint control over its operations although we have equal representation on the board and certain provisions of the shareholders’ agreement we entered into with Reuters regarding Radianz suggest that operating decisions are jointly controlled. Reuters is both the dominant supplier and customer of Radianz and therefore is in a position to affect significantly the operations of Radianz without our prior approval. Our investment in Radianz is also accounted for 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 Equant.

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, 2003, 2002 and 2001 would have been reduced by $85.1 million, $98.1 million and $110.2 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 are 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 postretirement benefit costs or credits may occur in the future due to changes in the assumptions.

The key assumptions used in developing our 2003 net pension benefit charge were a weighted average discount rate of 5.30% (2002 was 5.52%), an expected return on plan assets of 8.03% (2002 was 8.06%) and a rate of compensation increase of 2.89% (2002 was 3.44%). The changes in the assumptions from 2002 reflect current market conditions in those countries providing the plans. Compared with 2002, our net pension benefit charge in 2003 increased by $1 million to $12 million. Our net pension benefit charge is expected to increase to approximately $15 million during 2004, primarily as a result of exchange rate fluctuations. Holding all other assumptions constant, a one-half percent increase or decrease in the discount rate would have increased or decreased 2003 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 2003 pre-tax loss by $0.5 million.

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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.

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. We adopted SFAS 123 under the modified prospective method under the provisions of SFAS No. 148 ‘Accounting for Stock-Based Compensation – Transition and Disclosure’ in 2002. The effect of adopting this method is that the compensation cost recognized in 2002 is the same as that which would have been recognized had the recognition provisions of SFAS 123 been applied from its original effective date. We were not required to restate results for prior periods – if we had been required to do so, our net loss for the year ended December 31, 2001 would have increased by approximately $1 million.

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, 2002 and 2003, a valuation allowance of $554.5 million and $625.4 million, respectively, was recognized against deferred tax assets of $554.5 million and $633.4 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, amongst 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 2002, our trade debtors were $630.3 million and $857.9 million, respectively, and the provision for bad debts was $71.6 million and $101.0 million, respectively.

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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. On a constant currency basis, calculated throughout Item 5 by applying the 2003 exchange rates to our 2002 revenues and costs, revenues decreased by approximately 5%.

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

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Revenues for 2002 and 2003 are attributed to the region in which the ultimate customer is located, rather than the region in which the related services are invoiced, as was previously the case.

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.

Network Services

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

Revenues by product line:

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. On a constant currency basis, revenues decreased by approximately 2%. On the same basis, our Network Services business enjoyed volume increases, but these were more than offset by price declines.

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 have experienced increased demand for high speed protocols, but this has been partially offset by falling demand for low speed protocols, and we expect this trend to continue in the future as customers continue to seek improved network performance.

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 have increased from 79.4%, in 2002 to 83.9% in 2003.

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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.

Until December 31, 2002, network services billed through France Telecom Transpac were categorized as indirect revenues. Under the arrangements put in place at the time of the France Telecom transactions in June 2001, our French direct sales force was to be transferred to France Telecom Transpac and all existing network services customers become customers of France Telecom Transpac at the time of contract renewal. This integration became fully effective on December 31, 2002 and as a result $100.5 million of revenues previously categorized as Indirect were transferred to Direct.

We have continued to experience price declines on contract renewals due to the current focus on cost control of our target market, however have continued to perform well in securing contracts in competitive tenders, winning approximately 60%, of opportunities. Although our contracts typically average three years, three of the top ten orders (by total order value) during the fourth quarter were for terms of more than five years. We signed our largest direct sale ever in 2003, and will continue to pursue opportunities for further profitable growth, particularly in the outsourcing market.

Integration Services

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

Revenues for 2003 increased by $23.2 million, or 5.1% to $476.6 million compared to $453.4 million in 2002. This increase primarily reflects the impact of movements in foreign exchange rates, which has boosted the U.S. dollar value of revenues billed in other currencies. On a constant currency basis, revenues decreased by approximately 1%.

Revenues from fulfillment increased by $31.7 million or 23.5%, primarily due to an extremely strong fourth quarter. On a constant currency basis, revenues increased by approximately 21%, with most regions showing good growth. Fulfillment revenues in December 2003 were the highest in Equant’s history.

The $10.5 million or 8.6% increase in revenues from hosting and applications was entirely due to the impact of foreign exchange rate movements. On a constant currency basis, revenues decreased by approximately 6%, reflecting underlying growth in revenues from direct customers but lower revenues from France Telecom Transpac.

Revenues from other integration services have decreased by 9.7%, following a fall in demand for field services, particularly in North America. On a constant currency basis, revenues decreased by approximately 12%.

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Other Services

The following table sets forth our Other Services revenues by type:

Revenues from Other Services fell by 6.2% or $14.7 million to $224.2 million in 2003 from $238.9 million in 2002. On a constant currency basis, revenues decreased by approximately 15%. The underlying drop in revenues reflects a 12% reduction in revenues from Convergence Solutions (primarily the significant circuit-switched voice activity we acquired with Global One) as customers are migrated to voice over IP, as well as 21% drop in product management royalties from France Telecom Transpac. The reduction in product management royalties reflects a reduction in the royalty rate from 8.0% to 5.75%, partially offset by an increase in the range of products covered by the agreements. 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

The SITA Contract included a minimum revenue guarantee that expired on July 1, 2003. The expiration of this guarantee accounts for the majority of the decrease of $72.7 million or 10.2% to $641.0 million in 2003 from $713.7 million in 2002. The proportion of revenue earned on high speed protocols such as IP-VPN increased by over 50% during 2003, as low-speed connections are removed from the network.

Cost of Products and Services

The cost of products and services decreased by 4.2%, or $95.5 million, to $2,174.4 million in 2003 from $2,269.9 million in 2002. On a constant currency basis, calculated by applying the 2003 exchange rates to our 2002 expenditure, costs of products and services decreased by over 10%, notwithstanding increased costs to support the additional fulfillment and outsourcing revenues discussed above.

We had 5,936 people employed in the Network at December 2003 compared to 6,405 people at December 31, 2002, a reduction of 469 or over 7%. Staff-related expenditure declined by approximately 3% during the year, and as we continue to rationalize our Network activities we expect further reductions in staff costs and headcount in 2004.

The network restructuring and integration activities performed since July 2001 have yielded significant cost savings. Our access and data termination costs for 2003 were approximately 6% below that of 2002, following completion of initiatives to identify redundant or high cost circuits, and we have seen an 18% reduction in the cost of transmission over the same period. Our total network costs have fallen by approximately 15% from 2002 to 2003, despite the adverse impact of foreign exchange.

Other Operating Income

Other operating income comprises recoveries from France Telecom in respect of our switched voice services and the provision of ancillary support services with respect to the network. These recoveries from France Telecom are classified as Other Operating Income. We recognized $142.4 million of Other Operating Income in 2003, compared to $196.1 million in 2002, a decrease of $53.7 million or 27.4%.

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Switched Voice Services

We have agreed to transfer the operation, management and financial responsibility for our switched voice business and switched voice platform (most of which we acquired in the merger with Global One) to France Telecom by the end of 2005. France Telecom and we have planning and financial arrangements in place to ensure that the switched voice business does not materially affect our profitability. We recognized income of $95.4 million from France Telecom in 2003 under these arrangements, compared to $131.1 million in 2002. We expect to migrate gradually our voice business to a Voice over IP platform by the end of 2005 and accordingly these amounts should fall in the future.

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 $47.0 million for these support services in 2003, compared to $65.0 million in 2002.

Gross Profit

Gross profit grew by 2.0% or $17.6 million to $916.9 million in 2003 from $899.3 million in 2002. The gross margin increased to 31.1% in 2003 from 30.2% in 2002. The improvement in gross margin is largely a result of our continued focus on operational efficiencies and the effects of the Network restructuring and integration activities described above.

The improvement in gross profit arises mainly from a combination of higher direct Network Services revenues and an improvement in the Network cost structure, following the integration of the Global One network, offset in part by the reduction in revenues from SITA and the conditions facing our indirect Network Services business described above.

Our ability to increase margins will depend, among other things, on our ability to successfully manage our Network costs, continue to increase our Network Services volumes in the current environment of declining prices, correct the recent sales declines in our Indirect Network Services business, and market and sell additional specialist services to our customers. Margins may in fact remain static or decline.

Selling, General and Administrative Costs

Selling, general and administrative (‘SG&A’) costs comprises expenses incurred to promote and sell our products and services, as well as expenses incurred by central and local management functions to monitor Equant’s performance. SG&A costs decreased by 11.6% to $625.3 million in 2003 from $707.3 million in 2002. As a percentage of total revenues, SG&A costs fell from 23.8% in 2002 to 21.2% in 2003.

On a constant currency basis, calculated by applying the 2003 exchange rates to our 2002 expenditure, SG&A costs decreased by over 17%, and as a percentage of total revenues fell from 24.4% in 2002 to 21.2% in 2003.

Our bad debt expense fell by $28.0 million or 99.7% to $0.1 million in 2003 compared to $28.1 million in 2002, reflecting the reduced level of customer bankruptcies and the impact of our improved credit control procedures on the collectibility of our receivables.

Our ongoing focus on indirect costs yielded considerable benefits during 2003.

Facilities costs fell by over 19% during 2003, as we closed a further 33 sales and administrative offices. We intend to close further offices in 2004.

We have achieved a 26% reduction in marketing and advertising expenditure, as we have focused on our Global Large Accounts program. Indirect taxes decreased by over 50%, as legislation covering certain U.S. sales taxes was changed, and professional fees fell by almost 9% as we re-evaluated a number of our supplier arrangements.

Both staff-related expenditure and headcount declined by approximately 3% between 2002 and 2003, as staff numbers fell from 3,727 at the beginning of the year to 3,611 at the end of the year.

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We expect to make further significant reductions in selling, general and administrative expenses during 2004, as the ongoing focus on cost control should enable further efficiencies. We expect SG&A expenses to fall below 20% of revenues.

Operating Result Before Depreciation, Amortization, Share Plans And Restructuring And Integration Charges

Operating result before depreciation, amortization, share plans and restructuring and integration charges increased by 51.9% to $291.6 million in 2003 from $192.0 million in 2002. As a percentage of revenue, it increased from 6.5% in 2002 to 9.9% in 2003. This improvement reflects the increased gross margins as well as the reduction in selling, general and administrative costs.

On a constant currency basis, calculated by applying the 2003 exchange rates to our 2002 results, operating result before depreciation, amortization, share plans and restructuring and integration charges increased by approximately 139%, and a percentage of total revenues rose from 3.9% in 2002 to 9.9% in 2003.

Depreciation and Amortization, Excluding Goodwill

Depreciation and amortization decreased by $5.3 million or 1.1%, in 2003 to $482.4 million from $487.7 million in 2002, primarily due to the impact of $24.1 million charged in 2002 as a result of the failure of certain IRU suppliers to honor their contractual commitments to us. As a percentage of revenue, depreciation and amortization remained constant at 16.4%.

The depreciation charge is substantially above the current rate of capital expenditure, reflecting the high levels of capital expenditure in past years. We expect depreciation to fall slightly in 2004 but then to decline significantly as the asset base matures and integration and operating benefits reduce our future capital expenditure expectations.

Share Plan Costs

Since all our share option exercises have been satisfied with the issue of new shares, share plan costs represent the social charges expected to be payable on exercise. These costs were negative in 2002 as a result of the release of accruals for social charges which will no longer be payable following the decline in our share price.

The credit recognized in 2002 includes an exceptional gain of $9.8 million following finalization of social charge payments relating to the pre-merger share option scheme.

Restructuring and Integration Charges

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

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Restructuring and integration charges in 2003 amounted to $197.7 million, comprised of $191.6 million of restructuring and integration costs following the France Telecom transactions and $6.1 million of costs incurred in connection with our strategic reorganization.

Restructuring and integration charges in 2002 amounted to $192.5 million, largely comprised of restructuring and integration costs following the France Telecom transactions.

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 $558.3 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 ($64.0 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. 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.

As a result of our restructuring activities, we have experienced improved gross margins and operating income, and we expect this trend to continue in 2004. A detailed analysis of our restructuring and integration activities is provided in Note 7 to the Consolidated Financial Statements.

Operating Loss

We recorded an operating loss of $275.9 million in 2003 compared to $383.9 million in 2002. This change reflects the significant increase in operating result before depreciation, amortization, share plans and restructuring and integration charges, together with a reduction in restructuring and integration charges partially offset by a small increase in the depreciation charge.

Financial Income / (charges)

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

Net interest income for 2003 was $0.3 million compared to $5.1 million in 2002, a decrease of $4.8 million.

At December 31, 2003 we had net cash and loans balances of $479.1 million, (including $138.2 million on deposit with, and $150.0 million on loan to France Telecom), compared to $445.2 million (including $307.8 million on deposit with France Telecom) as at December 31, 2002. At December 31, 2003 these deposits were earning interest at rates between 1.06% and 1.56% per annum, compared to 1.36% per annum on December 31, 2002. We have maintained a positive net cash and loans balance since June 2001. 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 $1.6 million in 2002 to $2.4 million in 2003, as well as interest on bank loans and overdrafts.

The U.S. dollar initially strengthened against all other major currencies in 2002, reaching a peak against its major counterparts in the first quarter. After a short period of stabilization the dollar started to decline, most notably in the months May and June and, again, towards year-end. Overall in 2002 the dollar lost 15.4% in value against the Euro, 10.8% against sterling and 7.6% against the yen. This trend continued in 2003, with the dollar declining by 16.2% against the Euro, 10.1% against sterling and 9.7% against the yen and reaching a low point against all three currencies around year-end.

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We recognized a foreign exchange loss of $22.0 million in 2003 compared to a gain of $8.2 million in 2002, as the steep decline in the value of the U.S. dollar during the second half of the year increased the cost of settling our non-U.S. dollar denominated liabilities that were not covered by forward contracts. The contracts we enter into are not treated as hedges for accounting purposes, but are intended to provide cover against fluctuations in exchange rates. Although we attempt to hedge our foreign currency exposures, there can be no guarantee that our strategy will be fully successful, and if there continues to be such volatility in the currency markets, we may experience significant foreign exchange gains or losses.

During 2002, we ended our practice of entering into foreign exchange contracts to offset certain inter-company foreign exchange balances, and instead designated these items as long-term inter-company funding balances. The unwinding of the contracts in place resulted in a $37.0 million cash inflow, which was not matched by a corresponding cash movement on the inter-company balances. Our net foreign exchange gain of $8.2 million reflected the impact of the sudden weakening of the dollar on our non-dollar-denominated net payables which were not fully covered by forward contracts.

Reversal of (loss on) impairment of investments accounted at cost

A gain of $0.3 million was recognized in 2002 upon the disposal of our non-controlling interest in Tripeze.com, which had been fully written down in 2000.

We hold a 1.5% stake in iPass, a company that listed on NASDAQ in 2003. In accordance with French GAAP, we hold this investment at the amount we paid in 2000 for our initial stake, since the investment is not held primarily for sale. The market value at December 31, 2003 was approximately $13.7 million, compared to a cost of investment of $5.1 million.

Income taxes

Our tax charge increased by 42.9% to $17.0 million in 2003 from $11.9 million in 2002, largely as a result of improvements in the profitability of a number of the group’s entities following successful restructuring and integration activities. Our effective tax rate increased from 2.1% to 5.0% due to a change in the profitability mix of entities.

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.

Certain of our subsidiaries, in particular 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.

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Estimated net operating loss carry forwards at December 31, 2002 and 2003 and their expiration dates as at December 31, 2003 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 they will be resisted.

At December 31, 2003 the deferred tax asset was $633.4 million, including those related to operating losses of $547.0 million and to other temporary timing differences of $86.4 million. However, we have recorded a valuation allowance of $625.4 million against the asset to reflect our estimate that it is not probable that we will realize the full value of the asset in the near future. While these assets have been provided for, the tax losses remain available for use in the future.

The comparable figures at December 31, 2002 were a deferred tax asset of $554.5 million with a 100% valuation allowance.

Employee Profit Sharing

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. In 2003, we incurred $0.9 million, of expense in respect of this program, compared to $0.6 million in 2002.

Equity In Loss Of Affiliate

Our equity in the loss of Radianz has increased by $13.3 million, or 48.7%, to $40.6 million in 2003 from $27.3 million in 2002. The 2003 result was adversely affected by a $7.7 million charge, being our share of an impairment of long-lived assets recognized by Radianz due to the under-utilization of a hosting center.

Goodwill Amortization

In light of the generally depressed state of the telecommunications market, we reassessed the fair value of goodwill in 2002 and recognized an exceptional amortization charge resulting in a net book value of goodwill of nil.

Net Loss

We recorded a net loss of $356.2 million in 2003 compared to $589.7 million in 2002, a reduction of 39.6%. This change reflects reductions in goodwill amortization and operating loss, partially offset by increased financial charges, income taxes and equity in loss of affiliate.

The net loss per share decreased by 39.3% to $1.22 per share, from $2.01 per share in 2002.

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Results of Operations for the Year Ended December 31, 2002, compared to the Year Ended December 31, 2001 based on French GAAP

The following table sets forth our statement of operations for the years ended December 31, 2001 and 2002. The table includes certain unaudited pro forma condensed combined financial information for the year ended December 31, 2001 as if the acquisition of Global One and the integration of the SITA Equant Joint Venture had occurred on January 1, 2001 on a French GAAP basis. We believe that this unaudited pro forma condensed combined financial information provides useful disclosure of the effects of the combination because it compares twelve months activity of each entity.

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Unaudited pro forma statement of operations for the year ended December 31, 2001

The presentation of financial information on a pro forma basis is prepared in accordance with French GAAP, and the basis for the presentation of these financial statements is set out in Note 5 of the Consolidated Financial Statements. There can be no guarantee that Equant would have achieved results similar to those presented in the pro forma financial information had the business combination in fact taken place on January 1, 2001. The unaudited pro forma financial information is not intended to be a substitute for, and should be read in conjunction with, the Financial Statements included in Item 18, including the notes thereto.

The following table is not intended to replace the Consolidated Financial Statements prepared in accordance with French GAAP.

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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.