Orange chief hopeful of sector turnround
Orange chairman and chief executive Stéphane Richard
Stéphane Richard, Orange chairman and chief executive
After years of being squeezed by a price war of unprecedented severity and the grip of regulations, Stéphane Richard, chief executive of Orange, can afford himself some hope for the years ahead.
“We are higher than Free’s arrival two years ago. I am happy with this position,” Mr Richard said, alluding to a period when the arrival of a fourth, cut-price competitor in France’s mobile market sent prices – as well as Orange’s shares – spiralling downwards.
A share price recovery has been helped by extensive cost cutting at Orange, something Mr Richard is committed to maintain with no plans to replace many of the 30,000 employees set to retire in the next few years.
But, more importantly, investors have begun to take greater interest in Orange due to the evolving competitive situation in European telecoms. Mr Richard believes Orange, and perhaps the rest of European market, has reached the cyclical nadir. The French price war might well be over.
“We are at the end of the cycle. We have had massive price cuts in the French market – 30 per cent on average in mobile contracts – so we are now at the low of the lowest in Europe. At a level not sustainable for some of the players for long.”
This, he predicts, will mean further consolidation in the French telecoms market to follow the merger deal between SFR and Numericable.
“Bouygues is facing a real challenge. In my view, they have a standalone plan, but that will probably lead them to restructuring the company massively with quite a social impact,” he said.
“So I understand that they would also look at other options including finding an understanding with the other players such as network sharing or a merger. I think they are still assessing the options, but they need to make a decision quite quickly.”
The merger between SFR and Numericable would have a “limited indirect impact” on Orange’s wholesale revenues, since the mobile operator would have less need to use its fixed line network. But he is not worried about increased competition from the merged group, even if he will seek to level the regulatory position with competition authorities.
“SFR and Numericable will be a powerful convergent player. SFR is a good brand, much better than Numericable, but Orange will remain the leader in all the markets.”
More broadly, Mr Richard detects a change in tone among European politicians about the telecoms sector, which has been hamstrung by restrictions on mergers as well as cuts to revenues from roaming and connections, according to executives.
He said the telecoms sector was no longer regarded as just a “mine for taxes” but something that needed to be nurtured to ensure global competitiveness. This view has been reinforced by recent support for telecoms consolidation by European Commission presidency hopeful Jean-Claude Juncker and German leader Angela Merkel.
Orange to protest against Numericable-SFR deal
Orange, France’s largest telecoms group, will complain to the competition authorities about tax and regulatory concerns caused by the merger between Numericable and SFR, its Vivendi-owned rival, write Daniel Thomas and Adam Thomson .
The £14bn deal will be the start of a period of French telecoms consolidation, according to Stéphane Richard, chief executive, as companies battle to survive a drop in prices over the past two years.
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While French politicians failed to block the takeover deal by Numericable of SFR, there is a tide of opinion that the decision to introduce a fourth operator into the market was a mistake and should be reversed.
Mr Richard has, however, been “relatively disappointed” by the overall package of telecoms reforms overseen by Neelie Kroes, Europe’s digital commissioner. He hopes that the next commissioner following the elections in May will be more supportive of building a strong telecoms sector for the digital economy of Europe.
Mr Richard’s own position as chief executive of Orange was extended last month by the board, which is expected to be ratified by shareholders at the company’s general meeting.
He is still under investigation in a long-running fraud inquiry involving businessman Bernard Tapie when he was chief of staff of former French finance minister Christine Lagarde. “I reject clearly and totally the accusations regarding my personal involvement in this matter,” he said, adding that there was no update on the investigation.
He said that he was not worried about the outcome of the inquiry, although he noted that he “would not advise any friends to take a position in the government” in future as “it becomes really risky”.
Orange is, however, coming to an end of its bombastically named “Conquest 2015” strategic plan, which he admits will fall short in a couple of areas but only as a result of the unexpected changes in the telecoms market in the period.
For example, an objective to reach 300m customers in the emerging markets will probably miss by 20m-30m, but he says that the right objectives were addressed in the plan such as network improvement, 4G rollout and employee conditions.
“We have made a lot of progress, probably not as much as we would have liked. But the situation with the industry in Europe and big change in French market can explain that we were not position to do as much as we could have done.”
Meanwhile, the long-mooted merger of Deutsche Telekom and Orange has not moved closer to being a reality, even if Mr Richard points out that the narrowing of the valuations between the two would make it easier.
“It is clearly not an option in the short term, not because of competition but because of the current situation of both companies. Also, market values of both companies would make it difficult to have merger of equals, which would need to be a precondition.
“Now, with the recent recovery in share price, the gap has reduced a lot . . . but still not in the right ratio But you can have some changes; if they sell the US business to Sprint, it can change the situation.”