Wednesday, June 14, 2017

Profile of Orange, a global operation with big ambitions, slow, steady growth – Part 1

Orange S.A. is perhaps the global carrier with operations in the most diverse geographies and cultures. From its headquarters in Paris, Orange (formerly France Telecom) now serves 265.162,000 subscribers worldwide with mobile, broadband, fixed telephony, TV and a range of advanced enterprise services. The total number of subscribers was up 5.13% compared to the first quarter of 2016.

As an incumbent operator with historical roots tracing back to the semaphore long distance signalling system developed in 1792, Orange has substantial network in place, including 18,000 km of fibre optic cable in its home market of France. In 2015, Orange launched a Conquest initiative along with a strategic plan called Essentials2020. These refocused the company's efforts on ultra-high speed fixed and mobile networks, while expanding into new valued-added services such as mobile banking and dedicating itself to improving the customer experience. The company committed to a capital investment of over Euro 15 billion in its networks between 2015 and 2018, including Euro 4.5 billion in FTTH and Euro 5 billion in mobile. The goal is to triple its customers' average data speeds on fixed and mobile networks between 2014 and end 2018, and the fruits of this strategic planning are beginning to appear.


With the release of the company's financial results for the 1st quarter of 2017, Stéphane Richard, chairman and CEO of Orange Group, commented:

-    "The first quarter confirms the improvement in the 2016 trend. Revenues are growing, driven by solid commercial performances, particularly in France, Spain and Poland. The strategy Orange has pursued over a number of quarters, centred on convergence around the home, the best connectivity in the market due to sustained investment, and an unparalleled customer experience, is bearing fruit. For the fourth consecutive quarter, adjusted EBITDA is growing, underpinning the objective for 2017 of delivering adjusted EBITDA higher than 2016 on a comparable basis. Lastly, Orange's diversification into financial services will move into a new phase in 2017. In Africa, Orange Money crossed the 30 million customer mark this quarter, growing by 74% in one year, while in France, the Orange Bank offer will be launched with Orange employees in mid-May and for the general public on 6 July 2017".

Below is a summary of the latest performance indicators:

•   Revenue up 0.8% in the 1st quarter to Euro 10.070 billion, after rising 1.0% in the 4th quarter of 2016 (on a comparable basis), led by the Europe zone and in particular by strong growth in Spain.

•   Group adjusted EBITDA of Euro 2.598 billion in the 1st quarter, an increase of 2.0% (Euro 50 million) on a comparable basis.

•   Group capex of Euro 1.493 billion in the 1st quarter, up 2.1% on a comparable basis, with capex up 1.4% in telecom activities to euro 1.484 billion, while the ratio of capex to revenue from telecom activities was 14.7% (up 0.1 percentage point year on year) and investment in fibre and very high-speed mobile (4G and 4G+) up in line with the goals of the Essentiels2020 strategic plan.

Orange Group Metrics

31-Mar-17
31-Mar-16
Total number of customers* (millions)
265.162
252.211
Mobile customers* (millions)
203.499
190.837
- of which contract customers (millions)
70.418
65.42
Fixed broadband customers (millions)
18.951
17.989
- of which FTTH customers (millions)
3.653
2.226
TV customers (millions)
8.625
8.182
Orange - French market**
Mobile services
Number of customers* (millions)
30.489
28.612
- of which contract customers (millions)
27.09
24.581
Fixed services
Number of broadband customers (millions)
11.22
10.83
Broadband market share at end of period (%)
40.2
40
Number of fixed line subscribers (millions)
18.658
19.077
France
Mobile services
Number of customers* (millions)
21.601
21.768
- of which contract customers (millions)
18.203
17.738
Total ARPU quarterly (euros)
21.4
21.6
Fixed services
Number of broadband customers (millions)
10.962
10.57
- of which FTTH customers (millions)
1.579
1.075
Number of TV customers (millions)
6.687
6.579
Broadband ARPU quarterly (euros)
33.6
33.1
Number of fixed line subscribers (millions)
15.943
16.179
Number of wholesale lines (millions)
13.984
13.993
Europe****
Mobile services
Number of customers* (millions)
49.643
50.361
- of which contract customers (millions)
33.475
31.519
Number of MVNO customers (millions)
6.913
3.455
Fixed services
Number of broadband customers (millions)
6.835
6.282
- of which FTTH customers (millions)
2.013
1.117
Number of TV customers (millions)
1.883
1.551
Number of fixed lines (millions)
8.908
8.993
Spain
Mobile services
Number of customers* (millions)
15.765
15.227
- of which contract customers (millions)
12.65
11.995
Total ARPU quarterly (euros)
13.6
13
Number of MVNO customers (millions)
4.909
1.629
Fixed services
Number of broadband customers (millions)
4.171
3.958
- of which FTTH customers (millions)
1.806
1.018
Number of TV customers (thousands)
537
365
Broadband ARPU quarterly (euros)
31.6
30.6
*Excluding customers of MVNOs

** Customers from Orange France and Enterprise sector in France.

*** Company estimate.

**** Europe: Spain, Poland, Belgium & Luxembourg, and Central European Countries.




High-level perspective for its critical home market

While most of the world's major telecom carriers are pursuing a 'mobile first' strategy, Orange is taking a broader multi-pronged approach with mobile, fixed broadband (fibre), TV and satellite. In its vital home market of France, Orange actually lost subscribers over the past year. This the effect of a mature market where mobile penetration rates are well over the 100% mark. ARPU also declined slightly. Even in its home market, Orange was relatively slow to roll out its 4G LTE network, at least compared to other carriers in the Nordics, North America, Japan or Korea. The 4G coverage rate at March 31, 2017 was 89% of the population in France, 91% in Spain, 99% in Poland, 100% in Belgium, 83% in Romania, 80% in Slovakia and 98% in Moldova.

The sector with the biggest growth in France is fixed broadband, where the number of FTTH installed customers grew rapidly from just over one million a year ago to 1.579 million as of March 31, 2017, a remarkable 46.8% year on year growth. While the total number of broadband customers served by Orange in France remained about the same, it is certainly a good thing for the company that large number of DSL customers are now signing up for FTTH service. These are likely to be higher value customer with less churn and more likely to engage with additional offers from the innovative Livebox customer premise equipment, which will be capable of many more advanced services now that it can be connected at gigabit rates. A new Livebox and TV decoder has been marketed in France since May 2016, and this appears to be a significant factor driving the growth. Orange has also been busy modernising many of its stores.  So far, Orange has opened 72 locations in France with its Smart Store concept.

Overall, Orange's revenue in France are flat, or perhaps 'stabilised', after a long period during which every quarter showed a progressive revenue decline, largely due to inevitable loss of conventional fixed line telephony, the opening of the French market to outside competitors, and most recently the substantial decrease in mobile roaming revenue across Europe, Orange has now showed a very slight (-0.1%) loss in revenue in France.


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