Orange has aspirations to be the top converged services provider in Europe, but it's unlikely that cross-border consolidation will help it achieve that ambition any time soon.
At a press briefing in London this morning, Gervais Pellissier, Orange (NYSE: FTE)'s deputy CEO and executive director in charge of European operations, explained why cross-border M&A was still so difficult in Europe. "In spite of some good intentions expressed by the [European] Commission, there is not yet a strong base for a single digital market," he said.
This is most obvious in the inconsistency of spectrum management in Europe.
"Europe needs a single authority to decide on spectrum allocation," he said, so that spectrum can be managed on a Europe-wide basis. That doesn't mean there should be a single spectrum auction for the entire continent when new frequencies become available, he explained. But, at the very least, the same spectrum, such as 700MHz, should be auctioned and made available over the same period of time in each country.
Pellissier also noted that, while consumption patterns may be similar in different markets, "we're not there with enough synergies to justify cross-border consolidation. There's not enough value to put on the table."
And don't even get Pellissier started on content regulation in Europe. "Telco regulation is still fragmented, but it's worse for content," he said.
While the European digital single market remains elusive and cross-border consolidation is not enticing, Europe is still a "promising business" for Orange, according to Pellissier. He admitted that, compared with other continents, Europe has less growth, less flexibility, more regulation and more competition. And while that makes it appear less attractive than other parts of the world, Europe is still spending money. Orange has seen some mobile ARPU stabilization over the last 18 months, driven in part by in-market consolidation and the increase in the concentration of services the operator provides.
Le Roi of convergence?
Orange heralds convergence as the key to just about everything it does, making it the cornerstone of the Essentials2020 strategic plan it announced in March.
With operations in eight European markets, Orange aims to be the number one converged-services provider on the continent in terms of the number of customers subscribing to bundles of fixed and mobile services. So far, France and Poland stand out as the operator's top two converged-services markets, according to Pellissier. (See Eurobites: Orange Plans €15B Networks Upgrade.)
That means Orange needs not only access to fixed and mobile assets in each of its markets but also a new marketing strategy to target households as well as individuals.
"Four years ago, addressing households was interesting; today it's a necessity," said Pellissier.
In order to deliver the full suite of converged services in each market, Orange will either build its own infrastructure (such as FTTH in France, Poland, Slovakia and Spain), buys assets (such as cable operator Jazztel plc in Spain), partner with other providers (as in Romania, where it has co-invested in a next-generation network), use regulation to achieve a level playing field with cable operators (which it has done in Belgium) or use 3G and 4G technologies to provide broadband services in areas where it lacks fixed-line infrastructure (in Romania, for instance, it is using a 3G router to deliver fixed-broadband-like speeds).
Spain is a prime example of Orange's convergence strategy. It's also noteworthy for the speed at which Orange introduced converged services to the market, according to Jean-Marc Vignolles, the CEO of Orange Spain .
In 2011, Orange did not offer any converged services in the Spanish market: 64% of its customers were mobile only; 29% were fixed broadband only; and 7% were low-cost mobile subscribers.
Orange launched fixed-mobile bundled services in the fourth quarter of 2012 and now estimates that 64% of its customers are using converged services.
Orange is now focused on the integration of Jazztel in Spain. Pellissier said that the first step was being able to connect an Orange customer to the Jazztel infrastructure. It will continue to maintain both the Orange and Jazztel brands. (See Eurobites: Orange Gets EC Nod on Jazztel.)
Next page: On the way to all-IP