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Orange Earnings Dip on Price Competition

Iain Morris
4/28/2015

French telecom incumbent Orange has flagged a slight dip in earnings for the January-to-March quarter, despite healthy growth in its customer base, amid tough regulatory and competitive conditions in some of its chief markets.

The operator saw revenues for the first quarter of the year slip by 0.9%, to €9.67 billion (US$10.51 billion), compared with the same period in 2014, while EBITDA fell by 1.9%, to €2.92 billion ($3.17 billion), over the same period.

Orange (NYSE: FTE)'s share price was trading down more than 2.5% on the Euronext Paris exchange in early-hours trading Tuesday morning following the publication of results.

The operator serves 246.9 million customers across a number of European and African markets, having added 6.3 million over the past year, but it still derives about half of its revenues from France, where price-based mobile competition has been rampant ever since discount operator Iliad (Euronext: ILD) (which offers services using its Free brand) entered the sector in 2012. (See Iliad Plans Next Assault on French Rivals and Eurobites: Free's Price Drop Spooks Rivals.)

Even so, the latest results suggest the domestic-market environment may be improving. Revenues in France fell by just 1.6% -- about the same rate of decline as in the final quarter of 2014 -- having dropped by 2.6% in the third quarter and by 4.4% in the first half.

Earlier this week, CEO Stéphane Richard was reported to have expressed optimism that France's price war may be coming to an end and argued the market would function better with three operators than four. (See Eurobites: Orange Sees End to Price War.)

The remarks come several weeks after cable investor Altice was reported to be eyeing up a move for Bouygues Telecom , the country's third-biggest mobile operator. By merging Bouygues with number-two player SFR , which it already owns, Altice would create the country's biggest mobile operator and reduce the number of infrastructure companies from four to three.

Orange managed to increase its mobile subscriber base in France by 366,000 compared with the first quarter of 2014, giving it 27.3 million customers in total, but average monthly revenue per user fell from €24.1 ($26.2) to €22.6 ($24.6) over the same period.


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Despite customer gains in Spain and Poland, however, its European businesses have lost about 3 million subscribers during the past year, and all except Poland reported steeper revenue declines than Orange suffered in France.

The picture was brighter in Orange's African and Middle Eastern markets, where revenues grew by 6.8%, to €1.12 billion ($1.22 billion), thanks to an 11.3% increase in the mobile customer base. That gave Orange more than 100 million mobile customers across the region in the first quarter.

Orange expects to make between €11.9 billion ($12.9 billion) and €12.1 billion ($13.2 billion) in EBITDA this year, down from €12.2 billion ($13.3 billion) in 2014, but is aiming to return to growth next year. (See Orange Feels European Squeeze.)

Last month, the operator unveiled an ambitious investment plan dubbed Essentials2020, promising to spend €15 billion ($16.3 billion) on network improvements between now and 2018 in a bid to restore growth. (See Eurobites: Orange Plans €15B Networks Upgrade.)

Orange believes these investments will triple the average data speeds available to customers using its fixed and mobile networks in 2018 compared with 2014.

In line with those plans, capital expenditure rose by 3% in the first quarter, to €1.19 billion ($1.3 billion).

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

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nasimson
nasimson
4/28/2015 | 10:41:21 PM
Price war
The €1.5 drop in ARPU is indeed alarming. Merging of number 2 and number 3 players would help Orange but only to a limited extent as the main reason behind price war is Illiad's fierce pricing.
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