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Orange Needs Target Practice

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LR Mobile News Analysis
Light Reading
10/30/2002

Orange SA (London/Paris: OGE) released its third-quarter figures Tuesday, showing an 11 percent increase in total revenue to €4.48 billion (US$4.4 billion) over the equivalent quarter a year ago (see Orange Revenue & Subs Increase). But it seems the international operator will miss its annual targets, come the end of 2002.

The latest figures give the operator a 12.8 percent increase in total revenues to €12.5 billion ($12.3 billion) for the first nine months of the year (ended September 30). Group recurring revenues for the nine months -- "including outgoing traffic, incoming traffic, access fees, visitor roaming and value added services" -- were up by 15.4 percent to €11.5 billion ($11.3 billion).

The quarter's revenues are "in line with our expectations and marginally ahead of [analyst] consensus" of €4.37 billion, according to analysts at Lehman Brothers. But Orange, which has mobile operations in 21 countries, had set itself an annual revenue increase target of 15 percent, a figure that CEO Graham Howe admitted during a conference call would likely be missed. He says total annual revenues are expected to come in at around €17 billion ($16.7 billion), which would be a year-on-year climb of 13 percent.

Data (or non-voice) revenues across the group were €1.2 billion ($1.18 billion) in the first nine months, equivalent to 10.5 percent of those group recurring revenues. This means Orange has its work cut out to reach a few more self-imposed targets related to data revenue.

At the recent launch of its sooper-dooper branded handset, the SPV (see Orange Uncovers Its SPV), Richard Brennan, executive VP for Orangeworld and Brand, stated that the group is aiming for €1.7 billion ($1.67 billion) in revenues from data services for 2002, leaving it in need of €500 million from these non-voice services between October 1 and the end of the year.

In addition, the group is aiming to generate 25 percent of its revenues from data services by 2005, added Brennan. The operator is banking on the takeup of the kind of services available on the SPV to reach these targets. CEO Howe is quoted in the press release as saying the latest figures "can’t yet show the impact of the new Wirefree devices [such as the SPV] and services we are rapidly introducing – including picture messaging, email, instant messaging and the ability to access your personal and business databases, diary and emails wherever you are, through Orange. As these services progressively become ubiquitous, they will add to Orange’s future growth and value.”

The next step forward in terms of data service provisioning is the rollout and launch of 3G networks to help deliver such enhanced data services. Orange does not see 3G as the service enabler, but as an enhancement to what can already be achieved. "3G for us is about capacity," said Brennan at the SPV launch. "GPRS can provide the promised services before 3G arrives." Graham Howe stated in the conference call that Orange was not planning to launch commercial 3G services until 2004, at the same time sticking the knife into 3G greenfield operator Hutchison 3G UK Ltd., by saying the new entrant could disappoint the market by launching too early. Hutchison is in the process of testing 3G phones on its network to iron out bugs and technical issues before it launches commercially in the coming months (see I'll Up You a Million).

Orange's share price closed Tuesday down 8.4 percent, or 33 points, at 360 pence on the London Stock Exchange. It had risen by almost exactly the same amount on Monday. A few more days like that and Orange will become known as YoYo Ltd.

Back to the stats. The key figure for mobile operators these days is the grossly named ARPU -- average revenue per user. Orange has had mixed success here, with the annual ARPU (based on most recent 12 months) for its U.K. customer base rising by 3.2 percent to £258 ($401.6), but the annual ARPU in France falling 3.8 percent to €380 ($373.4).

Orange is the market leader in France, with 18.8 million subscribers, 49.8 percent of the market. Its customer numbers rose by 972,000 in the past nine months, but by just 170,000 in the third quarter.

It is also the market leader in the U.K., with 13.1 million subs, just ahead of Vodafone Group plc (NYSE: VOD), which claims 13 million subscribers. Orange UK has increased its customer base by 673,000 in the past nine months and added 258,000 in the third quarter.

Across the whole group, Orange recorded 2.5 million net additions to its subscriber base in the first nine months, taking the total to 43.2 million, 12.6 percent higher than the figure recorded at the end of September 2001. Vodafone, meanwhile, claims a global base of more than 100 million.

— Ray Le Maistre, European Editor, Unstrung
www.unstrung.com

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