Carrier Scorecard: Orange

Orange (NYSE: FTE) reported full-year 2006 results this week, and mobile services account for more than half of the group's revenues. (See FT Revenues Up, Profits Down in '06 and France Telecom Reports 2006.)

So as part of Unstrung and Light Reading's new Carrier Scorecard system, we've taken a closer look at the numbers so we can grade how well the operator's international mobile business -- which trades under the brand Orange -- is doing. (See Carrier Scorecard: T-Mobile and Carrier Health Check.)

Table 1: Orange Mobile: Facts & Figures
2006 2005 % change
Revenue (� Millions) 27,745 23,535 17.90%
Operating Profit/Loss (� Millions) 9,686 8,471 14.30%
Total Subscribers (millions) 97.633 84.822 15%
ARPU (� per month*) 23.68 23.12 2.40%
* ARPU for year = total revenue divided by customer base divided by 12

With mobile operations that reach to nations as diverse as France and Madagascar, the picture for Orange is mixed.

Orange's revenue growth driver is clearly coming from the emerging markets.

These territories, which the operator calls its "high-growth markets," recorded impressive revenue and subscriber growth. Revenues from these markets were up by 15.5 percent to €6.9 billion (US$9 billion) and subscribers grew to 35 million, a 30 percent increase.

(Note: Orange's high-growth markets include Botswana, Cameroon, Dominican Republic, Egypt, Equatorial Guinea, Ivory Coast, Jordan, Mauritius, Madagascar, Mexico, Moldavia, Poland, Romania, Senegal, Slovakia, Vanuatu, and Vietnam.)

CEO Didier Lombard hinted at possible acquisitions in Africa, so the operator looks well placed to continue this growth in less developed countries where telephone coverage is sparse. (See FT Revenues Up, Profits Down in '06.)

But in the operator's mature markets -- France, the U.K., and Spain -- the picture is less rosy. Average revenue per user (ARPU) was down (-3.8 percent in Spain) and revenue gains were modest (1 percent in France and 0.7 percent in the U.K.).

Table 2: Orange Mobile: Declining ARPU in Mature Markets
ARPU (� per month) 2006 ARPU (� per month) 2005 % change
France 34 35 -2.9
U.K. 31.5 32 -1.5
Spain 25 26 -3.8

Orange has been hit with higher operational costs in these markets due to intense competition, rebranding, and the cost of launching converged services. CFO Gervais Pelissier says 80 percent of the carrier's cost increases are "ascribed to defending our position in mature markets...

"We have to spend a lot of money to convince customers to stay," says Pelissier. "At the same time, we need to acquire new customers."

Orange did well to more than triple mobile broadband subscribers to 5.8 million (3.6 million are in France) at the end of 2006, compared to 1.6 million at the end of 2005. In France, data services revenues rose by 10.8 percent, and non-messaging data revenue rose by 13.1 percent.

Orange's most difficult market last year was the U.K., where Dresdner Kleinwort says the operator was "weak," with flat revenues. But Orange says that early sales in the first quarter of 2007 indicate that the "washing machine" of churn could be slowing down.

Also, Orange's agreement with Vodafone Group plc (NYSE: VOD) to share 3G radio access networks (RANs) will go some way to reducing operational costs. (See Vodafone, Orange to Share RANs.)

In Spain, following the integration of Spanish operator Amena and rebranding to Orange last year, the operator significantly increased subscribers and improved the mix of contract and prepaid customers.

Table 3: Orange Mobile: Subscribers by Territory
Subscribers 2006 (millions) Subscribers 2005 (millions) % change
France 23.3 22.4 3.70%
U.K. 15.3 14.9 3.20%
Spain 11.1 10.3 7.90%
Poland 12.5 9.9 26%
Rest of World 35.4 26.8 32%

Orange Spain added 278,000 customers in the fourth quarter, compared to 174,000 in the third quarter. Contract customers made up 70.8 percent of total subscriber additions in the fourth quarter, compared to 47.1 percent in the first quarter last year. (See FT Takes on Telefónica.)

Overall, Orange's emerging market growth masks the turbulence in its Western European businesses as the operator strives to maintain or increase market share and introduce new converged, broadband services, while striving to keep costs down. Orange impresses with converged mobile and fixed services, but costs remain an issue.

We're giving Orange a B- grade.

— Michelle Donegan, European Editor, Light Reading

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