Orange to Gang Up on Vodafone

France Telecom SA's (NYSE: FTE) wireless subsidiary Orange SA (London/Paris: OGE) has announced plans to join an existing alliance with three key European operators as part of a group strategy designed to placate industry fears that the carrier is financially hamstrung and suffers from a lack of unity within its regional divisions (see Orange Unveils Group Strategy).

New chief executive Solomon Trujillo signaled the carrier’s intention to join rivals Telecom Italia Mobile SpA (Milan: TIM), Telefónica Móviles SA, and T-Mobile International AG in a roaming and data alliance considered by many analysts to be a defensive move against the pan-European might of market leader Vodafone Group plc (NYSE: VOD) (see Mobile Trio Form Alliance).

"I think the focus is right,” he told analysts at a London event. “This enables us to create an enhanced roaming experience for our customers." Trujillo hopes to see the tieup happen quickly and for the first benefits such as seamless roaming across partner networks to be available “by the fall.” Orange stands to gain through enhanced roaming revenues.

Analysts believe the deal makes sense on paper but could prove difficult to implement. “Vodafone has a strong pan-European presence and is able to unite its networks to offer roaming services to a better extent than other players,” says IDC senior analyst Paolo Pescatore. “This is clearly designed to combat Vodafone’s dominance in attracting roaming customers, but there could be problems for each carrier in the branding of their services. Clearly T-Mobile will not want to be branded as a TIM service.”

In addition, Orange emphasized plans to streamline the company’s infrastructure. “We need to start operating as one entity,” comments chief operating officer Sanjiv Ahuja. “We are a combination of many different companies that grew up very differently, but that has created a great number of inefficiencies. We are about to change that.”

According to Ahuja, this will mean a move to one central billing platform across all of the company’s European divisions (Denmark, France, Romania, Slovakia, Switzerland, the Netherlands, and the U.K.) and the creation of one central CRM system (from a mass of 20) by the second quarter of 2004.

There was also a bold promise to boost core earnings (EBITDA) by 15 to 17 percent per year until 2005 from at least €6.2 billion (US$7.1 billion) in 2003, and raise revenue growth beyond five percent in 2004/5. The carrier also expects operating cash flow to rise by 40 to 45 percent per year by 2005, generating €14 billion ($16.1 billion) over that time.

“This is about tedious, boring, day-to-day stuff, but we have a management capable of delivering it,” says Trujillo. “By doing so we can become the number one or two carrier in every country we operate in.”

The moves mark one of the most aggressive public stances taken by a European carrier in recent times, but Orange remains confident it isn’t about to fall flat on its face. “They are aggressive targets but ones we are confident we can achieve,” Trujillo insists.

— Justin Springham, Senior Editor, Europe, Unstrung

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