Orange Sticks to High-Fiber Diet

Michelle Donegan
News Analysis
Michelle Donegan
11/7/2016



As Orange rolls out fiber-to-the-home (FTTH) in Europe, the operator doesn't appear to be bothered about the possibility of new competition from companies like Google entering the infrastructure fray.

Speaking to journalists and analysts in London on Thursday about Orange (NYSE: FTE)'s strategy and wide-ranging industry trends, Gervais Pellissier, the French incumbent's deputy CEO and executive director of European operations gave a Gallic shrug to the prospect of infrastructure newcomers. He said that companies from other sectors that are trying to enter the connectivity market might change their minds and questioned whether Google (Nasdaq: GOOG) will continue with its fiber deployment in the US, after the Internet giant recently announced it had put its Google Fiber project on pause. "My feeling is that they will not," he said. (See Google Fiber Hits Pause Button, Scales Back.)

Although he noted that Google isn't deploying fiber in Europe, he explained that the reason for his doubts about these new entrants in infrastructure builds comes down to experience. "These are new technologies but use old-ways skills," he said. "When you dig a trench to install a line, this is a new service but it is still old fashioned. A guy who is digging the trench to bring the line is not exactly what I would call a digital worker."

Fiber and 4G are the key technology pillars of Orange's overall convergence strategy and the operator is spending big on both this year. In the first nine months of 2016, Orange capital expenditure was €4.7 billion ($5.24 billion), up 5.3% compared with the same period last year. So far, the operator's fiber investments are 14.6% higher in 2016 than at the same stage last year, driven mainly by rollouts in France and Spain. (See Orange Earnings Buoyed by Spain, Africa.)


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"[Fiber] is the technology for at least the next 25 years," said Pellissier. "We strongly believe in favoring the long-term technology, instead of upgrading the existing network year after year. You cannot consider that you will have some pieces of copper in your network [to connect customers] in 25 years."

"Not all operators have decided to go this way, but we have and are confident that it will continue to bear fruit," he added.

According to Pellissier, Orange had 3 million fiber customers as of the end of the third quarter, which is twice the amount it had a year ago, and nearly 17 million households are within reach of Orange’s fiber access in France, Spain and Poland.

Orange has recently said that 1Gbit/s speeds would be common for residential fixed-line consumers in France, Spain and Poland in 2018. (See Orange Forecasts 'Common' Gigabit by 2018.)

Next page: Fiber and convergence in action



Fiber and convergence in action
Orange is aggressively pursuing its fixed and mobile convergence strategy across Europe. Via greenfield deployments, acquisitions or partnerships, the operator is gathering the assets it needs to offer fixed and mobile services to individual consumers as well as entire households.

In Poland, Orange hopes that converged services and fiber access will improve its financial performance. Poland is one of the fastest-growing economies in Europe in terms of GDP growth with a population of 38.4 million people, 14.2 million households and 20 million Facebook users. Orange is the largest of four mobile and four fixed-line operators in the market and the only operator with both fixed and mobile networks. The Polish communications services market is characterized by low prices, low ARPU and intense competition.

Orange Poland's business has been steadily declining. In the third quarter this year, revenues were down 3.9%, a continued trend from the previous two quarters. Orange Poland CEO Jean-François Fallacher said: "My challenge is to find ways back to growth."

It is only the fixed-line PSTN voice business that is declining -- as one might expect -- but also the fixed-line broadband business, which Fallacher blamed mainly on having legacy DSL technology.

"The decision to invest in fiber in Poland is absolutely crucial to rebounding the business," he said.

Starting last year, Orange Poland is investing roughly 600 million Polish zloty ($154 million) a year in fiber deployments. As of the end of September, Orange Poland had 57,000 FTTH customers and passed 1.2 million households. It plans to reach 1.5 million by the end of this year and 3.5 million by the end of 2018, which would be a quarter of households in the country, noted Fallacher.

Of the newly acquired fiber customers, 47% are convergence customers -- that is, they take at least a fixed-line and mobile service.

And since mobile services account for two-thirds of Orange Poland's business, investment in 4G is important here, too. The operator recently acquired new spectrum licenses in the 800MHz and 2.6GHz bands and its 4G network covers 97% of the population.

"We're using fixed services based on 4G in rural areas where our customers are complaining about the speed of DSL," said Fallacher.

Fallacher also noted that the operator's investment in fiber has benefits for its mobile network. He said that 60% of its basestations in Poland are connected via fiber. "There is a very concrete synergy between fixed fiber investment and mobile," he said. "And we see much less congestion on a basestation that is connected with fiber."

With fiber and 4G technology foundations, Orange can start to build new converged services targeted at households. In Poland, Orange has launched three such offers: an Orange Finanse banking service, Orange Energy and Orange Smart Home. So far, Orange has 345,000 banking customers, 15,000 energy customers and has sold 8,000 smart home kits.

Serious about convergence
Pellissier said that convergence generates value, reduces churn by between 10% and 40%, and, most importantly, brings in new services. Orange has nearly 10 million convergent customers, which is 11% more than it had a year ago, he said.

And to show just how serious it is about convergence and the value it creates, Orange will publish a convergence financial indicator with its quarterly results starting in the first quarter of 2017.

— Michelle Donegan, contributing editor, special to Light Reading

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