After a long dry spell, Orange is growing in its home market of France once again. It has been eight years of steady revenue declines under its new name for the once mighty France Telecom, but finally the Q2 2017 financial reports shows overall growth in France once again. More specifically, the never-ending decline in legacy PSTN services, along with a slight dip in mobile revenues, has finally been offset by growth in FTTH residential broadband services.
However, it is too early to say that a corner has been turned and the company's Essentiels2020 strategic plan will be a success. There is fierce competition in the French market in both mobile and broadband services. The company's much touted Orange Money, which has proven to be a successful in the African markets served by the company, has yet to catch hold in Europe. Also, Orange has 95,000 employees in France and substantial social obligations reflecting its long history, giving it the power and burdens of incumbency. Still, the return to growth in Q2 breaks the long chain of down quarters for the company.
Some positive results for the first half of 2017
Overall, Orange reported group revenue of Euro 20.276 billion in the first half of 2017, an increase of 1.1% (Euro 222 million) following an increase of 0.9% in the 2nd half of 2016 (Euro 188 million). Revenue growth accelerated in the 2nd quarter of 2017, rising 1.4% (Euro 138 million) after rising 0.8% in the 1st quarter (Euro 85 million). Orange recorded group operating income of Euro 2.434 billion in the 1st half of 2017, an increase of Euro 293 million compared with the 1st half of 2016.
Group highlights
Orange group's capex was Euro 3.276 billion in the 1st half of 2017, up 3.0% on a comparable basis, with capex on the telecom activities (Euro 3.251 billion) up 2.2% while the ratio of capex to revenue for the telecom activities was 16.0% (up 0.2 percentage points compared with the 1st half of 2016). Investments in fibre and very high-speed mobile (4G and 4G+) rose 16.5% compared with the 1st half of 2016, in line with the objectives of the Essentiels2020 strategic plan.
The group's fixed broadband base had 19.1 million customers at June 30, 2017 (up 5.4% year on year on a comparable basis). Mobile contracts customers in France and Europe segment had 350,000 net additions in the 2nd quarter of 2017, with the customer base up 3.3% as at June 30, 2017 year on year. 4G in France and in the Europe segment continued its rapid development, rising 39% year on year with 31.6 million customers at June 30, 2017.
Return to growth in France:
• Total Q2 revenue in France amounted to Euro 4,452, up 0.5% compared to the same period last year.
• Broadband ARPU amounted to euro 33.8, up 1.4%.
• Mobile ARPU was euro 21.7, down 0.5%.
• Mobile contract net adds amounted to 111,000; churn rate was 11.4%, unchanged from a year ago.
• FTTH net adds amounted to 111,000, bringing the installed base to 1.7 million.
• ADSL subscriptions dropped by 38,000.
• In France, Orange invests more capex (18.1% of revenue) than elsewhere (16.0% overall).
SFR growing faster in FTTH across France
In comparison, rival SFR recently reported that it added 330,000 new connections to its fibre network (FTTB/FTTH) in France during Q2. SFR continued to hold the leading position in terms of FTTH subscriptions too with 10 million connections in 1,500 municipalities.
On July 12th, Altice-SFR announced an ambitious program in order to accelerate the fibre coverage across the country, aiming to cover 80% of the territory with FTTB/H by 2022 and 100% by 2025. The initiative will rely on private investment without direct public subsidy. Under the plan, Altice-SFR will have its own infrastructure for both very high speed fixed and mobile broadband, reducing its dependence on third parties.
Orange sees faster growth in Spain, lower mobile ARPU
In Spain, Orange added 148,000 net mobile contracts, but suffered a churn rate of 18%. The number of 4G customers reached 8.7 million, up 35% over the same period last year. Mobile ARPU stands at Euro 14.2, up 5.9% over last year, but below the European average. Orange had 141,000 net FTTH adds for Q2, but there were 133,000 ADSL deactivations. Orange has more homes within its FTTH footprint in Spain than in France: 10.7 million FTTH connectable homes in Spain (up 28% yr/yr), versus 7.9 million FTTH connectable homes in France (up 34% yr/yr). Orange's momentum in Spain traces back to its 2015 acquisition of Jazztel.
Orange is moving into content partnerships
A final area worth watching at Orange for the second half of the year is its moves to become a content aggregator. In March, the company announced the formation of Orange Content. It has already signed a number of agreements with prestigious partners, including Canal+, a historic partner, and HBO. Under the first partnership, Orange will distribute a new CANAL+ ESSENTIEL offer to its fibre customers, without commitment and at a competitive price.
At present, it appears that Orange will rely on content partnerships rather than acquiring content rights directly, even for football rights or sponsorships with other professional sports. This differs with rival Altice-SFR, which is pursuing sports rights directly and recently acquired exclusive distribution rights for the Champions League and Europa League for the 2018 to 21 seasons. SFR Sport is now also available on Android TV and on connected TVs in its OTT version. As with other telecom operators, exclusive content is now seen as the key to market differentiation and the best chance of reducing customer churn.
