Orange epitomizes slow, steady approach
Orange’s “Conquests 2015″ strategy continues to make sound progress. The company has comfortably achieved its guidance in terms of 2010 revenue growth and EBITDA margins. The bright star has been strong subscriber growth, which is in some cases a real turnaround from earlier in 2010. Orange’s major challenge is monetizing mobile broadband further and generating revenue from its ongoing investment in next-generation access.
No surprises: a comfortable performance for 2010
France Telecom’s annual resultsfor 2010 reflect solid if unspectacular progress. Bedding down significant leadership, organizational, and corporate responsibility changes was a major focus for last year. Going forward the group has identified a healthy “social climate” as a key management priority. Overall, revenue and margin targets were reached.
The positives were €8 billion adjusted organic cash flow and overall growth in its subscriber base, which is helping to partially offset declines to France Telecom’s retreated EBITDA margin, which stood at 34.4% for 2010 compared to 35.3% in 2009, and fixed telecoms revenue decline across its key European markets.
Four-pillar conquest strategy echoes mid-term strategies elsewhere
Aside from the greater-than-average emphasis on its employee and social contract themes, Orange’s 2015 strategy mirrors the key themes we see from other large telcos (such as Telefonica). A strong focus on innovation (although that remains too nebulously defined in some cases) and new growth areas such as machine-to-machine combine with aggressive international development and a renewed effort to grow enterprise revenues.
A more embedded partnership approach is also a common theme; Orange’s recent announcement of its collaboration with Deutsche Telekom for M2M and its commercial alliance with Cisco, EMC, and VMware for flexible business solutions provide evidence of this.
ARPU remains a key challenge
The most obvious cloud in Orange’s results is the ongoing struggle to boost consumer revenues. Smartphone penetration is growing strongly across key markets including France, Spain and Poland partly as a result of a higher number of contract customers, which was also a highlighted achievement of the UK’s new Orange/Deutsche Telekom-owned entity Everything Everywhere. Orange has also turned around fixed broadband growth in France, Spain, and Poland.
In the latter, for example, the fourth quarter of 2010 saw a 12.1% share of net subscriber additions compared to a loss in the first quarter of 2010 of 9.9%. Although home ARPU (which includes fixed voice, Internet and IPTV) is growing; it is doing so at a slow rate (due to falling fixed calling revenues), and mobile ARPU is falling (annual rolling ARPU was down from €402 in Q4 2009, to €387 in Q4 2010) despite higher mobile data and SMS usage in France.
In the UK, the percentage of revenue from SMS is actually falling. Orange may rightly be shifting the emphasis in terms of performance from a short-term ARPU focus to other indicators that more aptly reflect long-term success such as customer lifetime value, service profitability and churn reduction. However, it’s still unclear how much revenue uplift this will provide in the longer term as higher data usage combined with aggressive pricing from competitors will potentially throttle back data revenue growth.
That underlines the challenge faced by Orange and other ambitious telcos in their attempts to monetize mobile data and content, and leverage innovation sufficiently enough to combat the relentless decline in fixed voice.