Orange to Be All-IP by 2020, Says AMEA Boss

The French incumbent has an ambitious target for the shutdown of its global PSTN networks.

Iain Morris, International Editor

July 3, 2015

6 Min Read
Orange to Be All-IP by 2020, Says AMEA Boss

Orange is planning to shut down PSTN networks across its entire footprint and run every service over all-IP technology by 2020, according to Marc Rennard, the operator's senior executive vice president in charge of international operations in Africa, the Middle East and Asia (AMEA).

The operator is conducting a pilot in Mauritius and plans to move faster in markets where it owns fixed-line networks.

"Each time we study the case there is value to move more rapidly to save costs," said Rennard at a presentation about the operator's Africa and Middle East strategy in London earlier this week. "First we will address countries where we own incumbent operators, such as Senegal, Ivory Coast, Jordan and Mauritius -- when you are purely mobile there is not exactly the same value."

Most of Europe's biggest operators are investing in all-IP networks, and plotting the shutdown of older PSTN technologies, as a way of reducing costs and developing the service agility they need to challenge over-the-top (OTT) rivals such as Google (Nasdaq: GOOG) and Facebook .

But Orange (NYSE: FTE) is one of only a small number to have announced firm targets for the all-IP migration.

Probably the most ambitious player in that regard is Germany's Deutsche Telekom AG (NYSE: DT), which aims to complete its all-IP transformation in Europe by 2018 and has already turned off the PSTN network in Macedonia and Slovakia.

At this year's Mobile World Congress, Deutsche Telekom indicated the use of all-IP and cloud-based technologies would allow it to save €1.2 billion (€1.3 billion) in costs by 2020, with €500 million ($555 million) of those savings coming outside Germany. (See Deutsche Telekom Turns On Pan-European IP.)

According to Claudia Nemat, Deutsche Telekom's head of Europe and technology, that €500 million would include €200-250 million ($222-277 million) from harmonization of platforms and reduced spending on vendors, €200 million ($222 million) from simplification of technical services and about €50 million ($55 million) from PSTN shutdown.

Nevertheless, the main goal is to facilitate the efficient development and launch of new services in a number of different geographical markets. Deutsche Telekom's grand plan is to replace many of the facilities it maintains for specific countries with a centralized "factory," producing and supporting services that can be rolled out across the entire footprint.

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

While Orange has yet to provide more details regarding the efficiency gains and other benefits it expects to realize from all-IP transformation, slashing costs and tackling the OTT threat are clearly of paramount importance to the French company.

During Thursday's presentation, Rennard and Ramon Fernandez, Orange's chief financial officer, unveiled a target of increasing sales by 20% in Africa and the Middle East between now and 2018 and indicated that EBITDA should grow at an even sharper rate. (See Orange Aims for 20% Sales Growth in Africa.)

Similar to Deutsche Telekom in central and eastern Europe, Orange expects to reduce operating expenses partly through the consolidation of equipment, outlining plans to monitor networks in ten African markets from facilities in Abidjan (Ivory Coast) and Dakar (Senegal).

Next page: All-IP Attractions

All-IP attractions
A move to all-IP over the next few years might help the operator to realize a similar vision of service agility in Africa to the one Deutsche Telekom is chasing in Europe.

Operators desperately want to be able to roll out services as quickly and efficiently as the web players that are now hurting them in emerging markets.

"The business is evolving as operators add more mobile broadband customers," says Guy Zibi, the chief analyst at Xalam Analytics, the Africa and Middle East research unit of Heavy Reading . "A lot of people are using the services of WhatsApp and Viber, which is eating into voice revenues."

According to Rennard, revenues from mobile data services -- excluding the SMS business -- are currently growing at a year-on-year rate of 40% in Africa and the Middle East, but overall sales in the region rose by a less impressive 7% last year, to roughly €5.7 billion ($6.3 billion).

Although Rennard dismisses suggestions OTT players are having a big impact on Orange's Africa business, he is clearly unhappy they use the operator's network "for free" and face almost no regulation.

He is also skeptical that certain types of partnership can be made to work.

Through its initiative, Facebook has convinced a number of emerging-market operators to provide free access to some web services -- a practice known as "zero-rating." (See Facebook Faces Operator Doubts on Tie-Ups.)

The theory is that a free taste of the mobile Internet will persuade customers to pay for unlimited usage, but Rennard says he is "not totally enthusiastic" about such arrangements.

Besides helping Orange stand up to the OTT players, an all-IP strategy could also support the operator's B2B goals in Africa and the Middle East. "If you have a strong baseline in Morocco and Tunisia then you complement the presence in some key Middle Eastern markets and you can really make a push for the enterprise sector using technologies like NFV and SDN," says Zibi. (See Orange Unveils NFV-Based Offering for SMBs.)

Orange regards the B2B sector as one of three priorities in Africa and the Middle East -- the others being mobile data and mobile money -- and says it is focusing on serving the needs of small office/home office and small and midsized enterprise customers in the region.

Other analysts reckon an all-IP strategy might help justify takeover activities -- allowing operators to increase both sales and margins by acquiring other players and then disposing of assets and employees they would need in a PSTN environment.

"Deutsche Telekom's long-term strategic goal is to become Europe's leading operator, and in our view the all-IP platform it is creating could provide a financial rationale to pursue cross-border M&A as one potential route to realizing its ambitions," said Tim Boddy, an analyst with Goldman Sachs, in a research note about the German incumbent issued in March. (See T-Mobile US Sale Fits DT's All-IP Game Plan.)

Orange has recently placed all of its Africa and Middle East operations under one holding company to simplify the management structure, and this move could also support merger activity in future.

"We're in a position to consider adding assets on a selective basis if we find the right price and the right complementarity with our operations," said Fernandez. "West Africa and Central Africa are places where we are quite strong."

— Iain Morris, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, News Editor, Light Reading

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About the Author(s)

Iain Morris

International Editor, Light Reading

Iain Morris joined Light Reading as News Editor at the start of 2015 -- and we mean, right at the start. His friends and family were still singing Auld Lang Syne as Iain started sourcing New Year's Eve UK mobile network congestion statistics. Prior to boosting Light Reading's UK-based editorial team numbers (he is based in London, south of the river), Iain was a successful freelance writer and editor who had been covering the telecoms sector for the past 15 years. His work has appeared in publications including The Economist (classy!) and The Observer, besides a variety of trade and business journals. He was previously the lead telecoms analyst for the Economist Intelligence Unit, and before that worked as a features editor at Telecommunications magazine. Iain started out in telecoms as an editor at consulting and market-research company Analysys (now Analysys Mason).

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