Orange faces challenge for pan-Europe corporates - World News

CommunicationsWeek International, April 1, 2002 by Joanne Taaffe

Large corporate customers looking to sign pan-European contracts may think twice about signing up with mobile operator Orange if the Paris-based company cannot offer Italian-or German--in-group roaming tariffs and service guarantees.

"Italy [is being] chopped out and that could be a nuisance [to purchasers of pan-European mobile services]." said Colin Mackenzie, director of Savantia Consulting, of London, which advises major enterprises on how to buy international mobile services.

The sale of Orange's 26.6% stake in Italian operator Wind will help to reduce high debt levels. But the effective withdrawal from Italy, as well as uncertainty over its future in Germany, both come at a time when competitors like Vodafone and T-Mobile are ramping up services for multinational corporate customers.

"Orange is in a very difficult position, particularly with business customers, who want European coverage so they can have roamed services they can rely on," said Delia McMillan, an analyst at the Gartner Group, of Egham, England.

Orange said it was in disagreement with majority shareholder Enel in Italy over the strategic direction for Wind, with little hope of imposing its brand name on the company.

"Enel wants to go in a direction that doesn't interest us," said Michel Bon, chief executive of France Telecom, the parent company of Orange.

Yet analysts say that corporate customers would be content with a partnership or a virtual network operator agreement that would guarantee continued roaming services for voice and data in Italy and Germany.

"Up against Vodafone, [Orange's west European coverage] doesn't look so good," said Gartner's Macmillan.

In fact, France Telecom has not excluded the possibility of re-entering Italy once it has sold its stake in Wind, although it did not say when or under what terms.

"We're pulling out...That puts us on hold for future possibilities," said Jean-Francois Pontal, chief executive of Orange. "It doesn't mean that we're renouncing the market completely."

As CWI went to press, it was still unclear how Orange would resolve its dispute with MobilCom and what role the French operator would eventually play in the German market.

In Germany, T-Mobile and Vodafone--two out of six licensed operators--control 80% of the market.

"There is little chance that four challengers can succeed," said France Telecom's Bon. Instead, consolidation is likely to reduce the number of players to three or four, according to France Telecom.

Despite this and the fact that Germany is a highly competitive, low-margin market, Orange has signalled its interest in maintaining some sort of play there.

Future plans could include being part of a larger consolidated operating group.

"It is in MobilCom's interest to participate in consolidation and keep investments to a strict minimum...Our German partner does not agree," explained Bon, who foresees that MobilCom could "find itself diluted in a larger structure, but viable."

This would please business customers, who are unlikely to care whether Orange is a majority shareholder, so long as it meets service demands, said Mackenzie, who adds that Orange "has been a good, corporate-facing supplier."

It is still uncertain when the much-anticipated consolidation in the German mobile market will take place.

Michel Bon contends that consolidation will not happen until operators' share prices rise, at which point Orange and France Telecom's financial standing would improve.

"If consolidation takes off in Europe, it means that the market has woken up and the problems of debt and share value [have improved]," said Bon.

In the meantime, Orange, which had strong results in the U.K. and Germany, is continuing its expansion in Eastern Europe, where it will be adopting the Orange brand in Slovakia and Romania.

Whereas Western Europe offers little potential for increasing subscriber levels, "Eastern Europe is practically greenfield," said Gartner's Macmillan.

Not only does Eastern Europe promise longer-term growth, it could also prove a trump card for winning corporate users, particularly as a second supplier.

"It is quite astute of Orange to be getting in there," said Savantia's Mackenzie. "It may give them the edge and make them a second supplier."