Orange (NYSE: FTE) reported first-quarter results last week, and now it's time for Unstrung to get out the red pen and grade the French operator's mobile business, Orange, on its performance. (See France Telecom Reports 1Q07 and Carrier Health Check.)

The last time Unstrung graded Orange, we gave it a B- because average revenue per user (ARPU) was down in key European markets due to the operator's efforts to gain market share, introduce new services, and keep costs down, even though growth in emerging markets was good. (See Carrier Scorecard: Orange.)

So, how has Orange performed this quarter?

First-quarter 2007 revenues were up 4.3 percent, on a comparable basis, to €6.9 billion (US$9.4 billion), compared to €6.6 billion ($9 billion) in the first quarter of 2006. And subscriber numbers increased by 15.1 percent from 87 million in the first quarter of 2006 to 100 million in the first quarter of this year. But ARPU was down by 9.3 percent. (See Table 1.)

{Table 1}

Orange's operations in emerging markets continue to drive revenue growth. The operator reported revenues from emerging markets of €1.8 billion ($2.4 billion) in the first quarter, which is a 14.5 percent increase, on a comparable basis, to the first quarter last year. And the subscriber base is growing rapidly. Orange had 38 million customers in emerging markets in the first quarter of this year, which is a 32.6 percent year-on-year increase. Orange cited particularly strong subscriber growth this quarter in Egypt, Romania, Senegal, and Jordan.

Orange continues to expand its presence in developing markets, particularly Africa. During the first quarter, Orange acquired three new licenses in Guinea, Guinea Bissau, and the Central African Republic. (See Orange Wins Africa Licenses .)

But in mature markets (France, the U.K., and Spain), Orange continues to struggle with declining ARPUs, even though its mobile broadband and data services are gaining momentum. (See Table 2.)

{Table 2}

In Europe, Orange notes that revenues were hit by regulated reductions in call termination rates and only "moderate" subscriber growth. This quarter, Orange estimates the negative revenue impact from reduced call termination rates to be €74 million ($100 million) in France and €11 million ($15 million) in Spain. Meanwhile in Switzerland, Belgium, and the Netherlands, Orange says that subscriber increases were partially offset by reduced call termination rates.(See Table 3.)

{Table 3}

Orange more than tripled its mobile broadband customer base to 7.2 million (of which 4.4 million are in France) in the first quarter of 2007, compared to 2.2 million in the first quarter last year. And mobile broadband subscriber growth was particularly strong in the first three months of this year. Orange added 1.4 million mobile broadband customers (which includes EDGE and UMTS subscribers) in the first quarter of 2007, which is a 25.4 percent increase from 5.7 million customers at the end of 2006.

Data services are contributing slightly more to overall ARPU compared to a year ago. In France, revenues from data services (including SMS messaging) were 17.4 percent of total network revenues in the first quarter this year, compared to 15.9 percent in the first quarter of 2006.

In the U.K., Orange more than doubled its UMTS subscribers to 1.1 million in the first quarter this year, compared to 425,000 in the first quarter last year. Orange added 208,000 UMTS customers in the first quarter this year. And data service revenues were up 8.8 percent in the first quarter 2007 compared to the previous year.

This quarter, Orange partnered with social networking outfit Bebo, added content to its mobile TV service, and launched a mobile video gameshow. The customer takeup of new services such as these (and how that translates into revenue) will be what to watch for this year. (See Orange, Bebo Team Up, Orange Adds to Mobile TV, and Orange Launches Video Gameshow.)

Next quarter, Orange will have new leadership. CEO Sanjiv Ahuja announced his resignation last week. He will be replaced by Olaf Swantee, who will join the France Telecom group as executive vice president for personal communications and will have responsibility for Orange. Swantee has 17 years experience in the IT industry and is currently a senior vice president at HP Inc. (NYSE: HPQ) responsible for enterprise sales and software. (See Ahuja Leaves France Telecom.)

Orange does well to pursue growth in emerging markets. But mobile broadband and data services are not yet compensating for ARPU declines in France, the U.K., and Spain. The operator is also struggling with reduced call termination rates in Europe.

Factoring all that in, we're giving Orange another B- grade this quarter.

— Michelle Donegan, European Editor, Unstrung