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Orange Earnings Buoyed by Spain, Africa

Iain Morris
10/25/2016

France's Orange has reported modest growth in sales and earnings for its July-to-September quarter thanks to a strong performance in Spain and across the Middle East and Africa region.

The former state-controlled monopoly flagged a slight decline in its domestic market, which accounted for about 46% of total sales and where the failure of recent efforts to acquire rival Bouygues Telecom has left it battling three large competitors in both fixed and mobile markets. (See End of the Bouygues Affair for Orange.)

Overall revenues grew by 0.8% in the third quarter, to €10.3 billion (US$11.2 billion), compared with the year-earlier period, while EBITDA was up 1.6%, to about €3.6 billion ($3.9 billion).

The encouraging performance amid tough regulatory and competitive conditions prompted Orange (NYSE: FTE) to confirm its full-year target of delivering higher EBITDA than in 2015.

Investors welcomed the update, sending Orange's shares up by 4.5% in trading in Paris this morning.

In a statement, Orange attributed the gains to the success of its Essentials2020 strategy, which calls for investments in higher-speed networks to meet customer demands, as well as a push into the Internet of Things and mobile money markets.

Accordingly, Orange has spent about €4.7 billion ($5.1 billion) on capital expenditure so far this year, or about 15.6% of its revenues, up from €4.2 billion ($4.6 billion) -- or 14.2% of revenues -- in the first nine months of 2015.

Much of the spending has gone towards the rollout of ultra-fast fiber-to-the-home networks and senior executives have recently said they expect gigabit-speed connectivity to be "common" by 2018. (See Orange Forecasts 'Common' Gigabit by 2018.)

Quarterly growth owed much to the Spanish division, which grew revenues by 7.8%, to €1.3 billion ($1.4 billion), compared with the year-earlier period, and saw its base of mobile contract customers grow by 5.4% over the year, to 12.5 million.

Orange Spain also made hay in the fixed-line sector, where it has been rolling out higher-speed fiber networks and investing in TV services. The operator finished the third quarter with nearly 3.9 million broadband customers -- 5.3% more than in September 2015 -- and 458,000 TV ones, which was 2.1 times more than at the same time last year.


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In Africa and the Middle East, meanwhile, revenues grew by 2.5%, to about €1.4 billion ($1.5 billion). Thanks to the recent acquisition of businesses in the Democratic Republic of Congo and Liberia, Orange served as many as 113.5 million customers across the region in September, up from 108.5 million in June.

The performance was less flattering in France, although the year-on-year sales decline of 0.6%, to €4.8 billion ($5.2 billion), was a big improvement on the drop of 1.7% in the second quarter.

Orange's base of mobile contract customers in France grew by 2.8%, to about 20.6 million, compared with the year-earlier period. But prices have been falling due to regulatory action on roaming charges and competition from rivals including Bouygues, Numericable-SFR and Iliad (Euronext: ILD).

The latter's entry into the mobile market in early 2012 triggered a price war that has taken a heavy toll on older players. More recently, however, Orange, Bouygues and Iliad have profited from the misfortunes of Numericable-SFR, whose relentless focus on cost-cutting resulted in heavy customer losses earlier this year. (See France's Bouygues, Iliad Gain From Bigger Rivals' Pain.)

Orange did better in the fixed-line market thanks to the appetite for high-speed connectivity. Its customer base reached 11.1 million subscribers in September -- 4.2% more than a year earlier -- and included 1.3 million fiber customers, up from 827,000 in September 2015.

The real sore spot was Poland, where the take-up of SIM-only and converged services was blamed for a 3.9% decline in revenues, to €657 million ($715 million), compared with the year-earlier period.

In the smaller markets of Belgium and Luxembourg, Orange reported a 1.7% increase in sales, to €311 million ($338 million), while in its central European countries it recorded 0.8% growth, to €417 million ($454 million).

The enterprise division, which has been pioneering the development of network-as-a-service offers, flagged a 0.7% increase in revenues, to €1.6 billion ($1.7 billion). Sales of IP-VPN offerings, as well as IT and integration services, were chiefly responsible for the growth.

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

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