Orange holds margins steady as price war diminishes

The future could be looking a little brighter for Orange after the France-based operator stabilised its profit margin and said the worst of the price war that has been raging in the French market since early 2012 is over.

Stephane Richard, France Telecom Orange

Orange CEO, Stephane Richard

Group EBITDA declined by 3.8 per cent to €3.02 billion ($4.1 billion) in the first quarter of 2014, yielding a steady operating margin of 30.8 per cent. The group also confirmed its EBITDA target of €12 billion to €12.5 billion in 2014 as a whole. Revenue in the first quarter was down 3.8 per cent at €9.8 billion, while the group had a total of 239.4 million customers at March 31, a year-on-year increase of 4.2 per cent (+9.6 million net additions).

"Continued efforts to improve the group's cost structure allowed us to stabilise our profit margin from the first quarter and to confirm our full-year targets for 2014," said CEO Stephane Richard.

The company was able to reduce costs by €267 million, offsetting 69 per cent of the revenue decline of €387 million.

In France, the revenue decline slowed from 6.2 per cent in the fourth quarter of 2013 to 4.9 per cent in the first quarter, with the improvement attributed to growth in fixed and mobile services.

Orange's head of finance Gervais Pellissier told Reuters that the fierce price war sparked by the arrival of sub-€20 plans from Iliad's Free Mobile in January 2012 had abated somewhat; operators were now carrying out normal promotional activities rather than continuing to slash prices.

"We are maybe not totally out of the tunnel but we do see positive trends," Pellissier said.

Orange was also able to improve revenue growth in Spain from 2.7 per cent in the previous quarter to 3.2 per cent, attributed to handset sales on instalment plans and fixed services. Poland saw an improvement from minus 2.2 per cent to minus 1 per cent, while revenue in Europe as a whole fell by 8.4 per cent after declining by 9.2 per cent last quarter.

Revenues in Africa and the Middle East grew by 6 per cent, led by Mali, Guinea and Côte d'Ivoire, while revenue from the group's enterprise business dropped by 2.3 per cent--an improvement on the 4.5 per cent decline in the final quarter of 2013.

"Orange's first quarter 2014 performance was very satisfactory, aided in large part by the continued strong commercial momentum in our core countries," commented Richard. "Orange benefits from the efficient segmentation of its offers as well as its investment in very high-speed broadband--fibre and 4G--which enable the group to differentiate itself from the competition."

In France, Orange has focused heavily on promoting its LTE plans under its Orange Origami and Sosh brands and also has a strong multi-service offering with Orange Open plans that combine home broadband and TV services with mobile plans.

The company said its LTE network now covers 58 per cent of the population in France, while the number of households covered by its fibre network increased by 47 per cent over the year to 2.7 million. In Spain, LTE coverage is now at 50 per cent of the population, while in Poland coverage is around 29 per cent.

Total capex in the first quarter reached €1.1 billion.

Future challenges include the continuing strong competition in France, where SFR is planning to merge with Numericable to create a stronger rival in fixed and mobile services. The environment in Spain also remains harsh due to the tough economic climate in the country; Orange is understood to be seeking options to boost its presence there, such as buying a fixed provider like Jazztel.

The group has also offloaded some of its more peripheral assets such as Orange Dominicana and Wirtualna Polska in Poland, and is considering the future of its activities in Kenya and Uganda.

For more:
- see Orange's Q1 results statement
- see this Reuters article

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Rumour Mill: Orange to appoint France's Treasury chief as CFO
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