Mobile services

Orange Bullish in Spain as Convergence Bid Pays Off

First-half results from Orange confirmed the French incumbent's position as one of Europe's best-performing telcos, with growth in revenues and underlying profits at the main European operations and in African markets.

The French operator was boosted by an especially strong turn in Spain, where it is outperforming local rival Vodafone Group plc (NYSE: VOD), as well as sales momentum in Africa. Its domestic business, which accounts for 44% of group sales, has also continued to grow despite fierce competition. (See Sales Squeeze to Drive Heavier Cutbacks at Vodafone.)

Orange (NYSE: FTE) revealed that overall sales were up 1.7% in the first six months, to around €20.3 billion ($23.8 billion), with adjusted earnings (before interest, tax, depreciation and amortization) up 3.3%, to around €6 billion ($7 billion), compared with the first half of 2017. Net income rose more than a fifth, to €879 million ($1 billion).

The French operator's share price had ticked up 1.4% in France at the time of publication, following today's earnings announcement.

Orange's Spanish business, its star performer in Europe, has made an aggressive push into the market for bundles of fixed and mobile services and withstood low-cost rivalry from Masmovil, which entered Spain as a fourth player in 2016.

Despite reporting a slight dip in subscriber numbers at its mobile and broadband divisions, Orange had success in shifting customers onto pricier deals. Revenues increased 3%, to around €2.6 billion ($3 billion), while earnings were up 10.1%, to €783 million ($917 million).

"It further underlines the importance of convergence," said Paolo Pescatore, an independent analyst previously at CCS Insight, during a phone call with Light Reading. "This company is delivering on that strategy and executing well."

The performance in Spain came in sharp contrast to that of Vodafone, which yesterday blamed a revenue decline on fierce competition in the market for bundles of fixed and mobile services.

There was also good news for Orange in France, where a similar focus on "fixed-mobile convergence" lifted sales by 1.4%, to nearly €9 billion ($10.5 billion), and adjusted EBITDA by 5.1%, to €3.3 billion ($3.9 billion).

As in Spain, Orange has faced a low-cost rival in its domestic market in the form of Iliad, which caused mayhem for established network operators when it launched a cut-price mobile offer in early 2012. "Orange has weathered the storm and been able to restructure," said Pescatore.

Overall headcount across the Orange business fell by 1,070 in the recent quarter, to 149,031, and is down from 152,744 in June last year, a decrease of about 2.4%. Orange recently told Light Reading it is replacing only one in three people who retire in its domestic market as it takes advantage of new "digital" technologies. (See Big Telcos Have Slashed 107K Jobs Since 2015.)

For all the latest news from the wireless networking and services sector, check out our dedicated mobile content channel here on Light Reading.

Outside the European region, Orange recorded a 5.7% increase in sales at its Africa and Middle East business, to about €2.5 billion ($2.9 billion), and said EBITDA rose 7.8%, to €794 million ($930 million). The increase in sales in the region reflected a growing appetite for mobile money and data services, said Orange, with no change in revenues at the traditional voice business.

Pescatore thinks Orange will ultimately have to make a stronger push into the content market -- particularly in Spain -- if it wants to differentiate itself from low-cost rivals developing their own convergence strategies.

"There is scope for Orange to replicate part of its strategy in France, perhaps through an exclusivity deal with HBO," he told Light Reading. "We've seen the arrival of Sky with its Now TV brand, and Amazon and HBO are evident there, so there is an opportunity for Orange to do novel things around content."

In France, Orange has been developing closer ties with media giant Vivendi as it tries to lure customers to premium content offerings. (See Orange Teams With Canal+ on Movies.)

— Iain Morris, International Editor, Light Reading

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