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Orange Aims for 20% Sales Growth in Africa

French telecom incumbent Orange has unveiled an ambitious plan to increase revenues across its African and Middle Eastern markets by 20% between now and 2018.

The operator is also aiming to increase EBITDA at an even sharper rate through a major cost-saving program.

Besides pursuing network-sharing agreements with other players, the operator has revealed plans to use virtualization technologies to monitor networks across ten of its markets in West and Central Africa from facilities in Dakar (Senegal) and Abidjan (Cote d'Ivoire).

"This has never been done in the world," said Marc Rennard, Orange (NYSE: FTE)'s Africa and Middle East boss, during a presentation in London Thursday.

The chief aim is to reduce indirect costs, which have been climbing as revenues have grown, according to Rennard.

"We will sign a contract in the next couple of weeks and it will be implemented by the end of the year," Rennard told Light Reading on the sidelines of the event, when pressed on the timescale for the networking-monitoring plan.

Largely because of low labor costs in the region, Orange currently boasts an EBITDA margin of about 33% across its 19 markets in Africa and the Middle East, compared with one of 31% for the Group as a whole.

But Rennard is eager to share passive network equipment, such as mobile masts, with his rivals in order to further boost profitability. "It's a bit surprising that we are used to sharing submarine cable and we don't easily share the inland infrastructure. Why? I don't know," he said.

Regional rivals such as MTN Group Ltd. have also been selling off tower assets as another way of improving efficiency, but Orange is not yet ready to take such a radical step.

"We use tower companies such as IHS to optimize management but we have not decided in principle to sell our towers," said Rennard. "Ask me the question again in two years."

Orange generated revenues of about €1.1 billion (US$1.7 billion) in Africa and the Middle East in the January-to-March quarter -- about 11.6% of overall sales and 6.8% more than in the same period of 2014 -- and the new revenue target will call for an increase of 5% each year between now and 2018.

Although there is little subscriber growth to be had in some parts of the continent, Orange hopes to capitalize on rising demand for mobile data, B2B and mobile money services.

"They have two types of markets in Africa," says Guy Zibi, chief analyst at Xalam Analytics, the Africa and Middle East research unit of Heavy Reading . "In some of the smaller ones in West Africa, the penetration is still low and there is room for expansion, but larger markets like Morocco and Senegal are becoming a challenge."

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Rennard claimed that mobile data revenues excluding SMS are currently growing at an impressive rate of 40% each year and downplayed concern that usage of over-the-top applications like WhatsApp and Viber is cannibalizing revenues from traditional voice and messaging services.

"It's not very significant but there is some pressure on pricing," he said when asked about the impact of OTT services on the operator's mainstream business.

Nevertheless, Orange clearly has a difficult relationship with OTT players in the region and Rennard takes the controversial view that operators should be able to charge web companies for bandwidth usage -- a practice that is fiercely opposed by supporters of net neutrality.

He also expresses skepticism about "zero-rating," whereby operators provide free or heavily discounted access to specific Internet services with the aim of persuading customers to pay for additional usage.

"I'm not totally enthusiastic about this, although we have been testing it in some cases," he said. "At the end of the day, someone has to pay for the bandwidth."

Besides boosting sales of data services, the French operator believes it can increase revenues at its mobile money business from about €50 million ($78 million) last year to around €200 million ($312 million) in 2018.

Customers are charged for transferring money via SMS but the fees are much lower than rates offered by traditional money-transfer businesses such as Western Union.

Orange's update comes several weeks after the operator announced plans to manage all of its Africa and Middle East businesses from one holding company. (See Eurobites: Orange Looks to North Africa.)

"We can use the structure to welcome strategic and financial partners and we could also consider a listing but we've not decided on that yet," said Ramon Fernandez, Orange's chief financial officer, during today's presentation.

Fernandez also said that Orange would consider takeover activity at the "right price" but would not be drawn on his interest in buying assets from India's Bharti Airtel, which operates in a number of African markets.

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

sowen557 7/3/2015 | 12:42:11 PM
Re: Ambitious cloud-based assurance Cant speak for all of Africa but in Nigeria the largest African Nation, more than 50% of the population doesnt have access to electricity.  All cities suffer from constant flows of electricity and you want to provide a cloud service here?  Can it deliver Electricity?


Gabriel Brown 7/3/2015 | 10:54:47 AM
Re: Ambitious cloud-based assurance  And to give Orange its due, it identified the benefits of a centralized cloud to serve its African operations some years ago -- at least three, from memory.
[email protected] 7/3/2015 | 5:46:42 AM
Ambitious cloud-based assurance There's no doubt there are real gains to be had from shared, cloud-based resources that cover multiple operating territories, but for such strategies to work a reliable end-to-end network infrastructure is needed in addition to well connected data center assets and a very clear understanding of the regulations that couod impact such operations.

THis is a very interesting development!
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