Orange sees no gloom in first-half results

Stating that there is no gloom at Orange SA, the French mobile phone group on Thursday reported a reduced net loss, compared to pro forma figures for the first half of the year.

The group, created last year out of the merger of the mobile assets of France Télécom SA and of Orange PLC in the U.K., reported a net loss of 500 million euros (US$425 million, as of June 30, the last day of the period being reported). This compared to a pro forma net loss of 592 million euros in the first half of last year, treating the companies as if they were already merged in the first half of 2000.

"We do not share the gloom of the market today," said Jean-François Pontal, chief executive of Orange, at a news conference Thursday.

Revenue at the group, which has its main operations in France and the U.K., jumped 31 percent to 7.1 billion euros from 5.4 billion euros (again, based on pro forma figures for last year).

Net debt also grew, from 5 billion euros at the end of last year, to 6 billion euros on June 30.

In France, Orange said its customer base grew 36 percent to 15.9 million customers by June 30, from 11.7 million last year. Of the customers, 48 percent pay a monthly subscription, while 52 percent use the prepaid service. Revenue in France rose 21 percent to 3.2 billion euros from 2.6 billion euros.

In the U.K., Orange said it had 11.9 million customers on June 30, up 65 percent from 7.2 million at the same time last year. A large majority of the customers -- 71 percent -- use the prepaid service. Revenue in the U.K. came in at 2.6 billion euros, up 39 percent from 1.8 billion euros.

For Orange, keeping customers in France is tougher than keeping a U.K. customer. Churn, or the percentage of customers that leave during the course of a year, increased in France from 21.9 percent to 22.6 percent, while in the U.K. churn decreased from 12.6 percent to 11.8 percent. One reason that churn figures are higher in France than in the U.K. lies the way the local networks account for customers who switch from a prepay to a subscription tariff, or vice-versa: in France these count as disconnections, in the U.K. they do not.

Acquiring a new customer in France is also more expensive than in the U.K. Although customer acquisition cost declined from 165 euros to 135 euros per customer in France, getting a customer on board in the U.K. costs only 89 euros, up from 88 euros last year.

Outside of France and the U.K., Orange said it now has 7.7 million customers, 70 percent more than the 4.5 million last year. Revenue from these other networks grew 44 percent to 1.4 billion euros from 954 million euros.

Orange expects 25 percent of its revenue to come from nonvoice services by 2005. To illustrate the growth, the company said 2.4 billion SMS (Short Message Service) text messages were carried by its networks in the U.K. and France in the first half of the year, an increase of 57 percent over the second half of last year.

For the full year 2000, Orange expects earnings before interest, taxes, depreciation and amortization (EBITDA) to reach 3 billion euros, beating market expectations, according to a company statement.

At the press conference, Pontal stressed that Orange believes much of its short-term financial growth will come from voice calls.

"Voice is a market which is still underexploited. Voice is, for us, a colossal opportunity. And there is still growth in the 2G (second generation) platform. We will be leading customers to use the 2G services more. From there we lead them to 2.5G and then on to 3G (third generation)," Pontal said.

"The average (mobile phone usage) is going to increase significantly in the next few years, even in the U.K.," added Orange's deputy chief executive officer and chief financial officer (CFO), Graham Howe.

Orange expects a growth rate in its voice-generated revenue of 2 percent per year, and that by 2005 the revenue generated by voice traffic will be 5 percent higher than it is currently, Howe said.

"We see increased usage in the existing customer base, through fixed line displacement and through added services," Howe said.

One of those newly added services is something that Orange customers are receiving -- and paying for -- whether they want it or not. Howe pointed to the service quietly launched by Orange this year in which customers who call information in the U.K. to request a telephone number receive a follow-up text message with the requested number which can be saved for later use. "That brings more usage and added service," Howe said.

"We feel that we can have greater value from voice transactions, new value from data and we will also be leveraging and extending the Orange footprint," Pontal said.

As part of that expansion, Orange will be in 50 countries, mostly in Europe, by 2005, Howe said. In the beginning of next year, Egypt will be "brought into the fold," after which Orange will begin to concentrate on Spain and Norway, Pontal said.

Orange will continue to work to strengthen its position in Germany with current partner MobilCom AG (which is 28.5 percent owned by France Télécom). "We are now a minority shareholder in MobilCom and we expect partnerships to strengthen in Germany. I think there will be a consolation in Germany, but it's hard to say when. We do not expect to see six networks (for 3G) built in Germany," Howe said.

In building out its own networks for next generation of services, Orange has earmarked 7 billion euros to 8 billion euros to spend between 2001 and 2003. "Most of that money will be spent in the 2002-2003 time frame," Pontal said.

"We said we would spend 4.3 billion pounds from 2001 to 2003, and we still expect to spend that. There is no question of any difference in the scale of expenditure, because we still need to build our networks," Howe added.

Orange will begin rolling out its GPRS (General Packet Radio Service) -- or 2.5G -- services to the corporate market early next year. "Early GPRS, though technically sound, does not improve the customer services. Being first to market is not always important. It's the applications and getting those right, that are most important," said Orange's executive vice president for Orange World, Richard Brennan.

"The applications (for GPRS) are in trials now but are not yet ready for the consumer market. We also want to make sure we've got the right device and then launch that across Europe," Brennan said.

With that in mind, Orange will release GPRS services to the corporate market in the second quarter of 2002, Brennan said.

Orange sees GPRS making a dent in the corporate market by mid-2002 with consumer uptake by the end of 2002, early 2003, Brennan said.

What Brennan called "early 3G" will begin in 2003 -- once GPRS is firmly established -- and will then start to have a more meaningful presence in 2004, he said.

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