There must be a special school which CEOs of incumbents telcos attend, that teaches them optimism and calm, when all around them have their heads in their hands.
How else would the CEO of France Telecom be able to keep a straight face when he decided on what comments should go with this year’s results, claiming that everything was on target and that things were fine, as he reported revenues down, revenues down in almost every country successively, and EBITDA down by even more and operating income off a huge 12.3%, despite the previous year it being off by 14.3%. It brings Ozymandias to mind, the epic poem written by Shelley about a once proud king whose name fell into the mists of ruin and time. Well Orange is falling, but it has not yet disappeared.
The truth is that if at any point in time, you were to come across a business that does €12. 2 billion with an operating margin of 30.9%, you’d be pretty impressed. But knowing that this is exactly the same as last year and that it ends up in a net income of €925 million, down 50% on the year before, you’d figure you had permission to panic. If you had been in charge of it, you might believe that it was your fault.
The quarterly data is not any better – revenues of €10.05 billion, down 0.6%, EBITDA off by 0.7% although Orange does not provide a number for quarterly net income, you can assume that if it did, it would be down.
Such is the state of incumbents in Europe, beset on all sides by intensifying competition, in broadband, in voice and in both cellular data and voice, as well as in video delivery of every kind – so that every operator in Europe is allowed to be seen as a work in progress, in transition to the promised land of quad play economics. Many may never arrive.
But as such, Orange is well placed – it has 185.2 million cellular customers, which is rising and went up this past year by 6.5%, around 11.3 million; it has 16 million fixed broadband customers across its 4 main operating segments, France, Poland, Spain and the smaller businesses it groups into the Rest of the World, which includes parts of Africa and the Middle East as well as Romania, Belgium and Slovakia in Europe. Of note in broadband Orange grew 273,000 homes in Spain, and 245,000 in France and now has and 691,000 fiber connections.
But it seems that in all revenue areas the more customers Orange gets, the less money it makes. The CEO talks in terms of the rate at which cellular revenues are evaporating less rapidly and counts slowing down the losses as a victory, choosing to see light at the end of the tunnel.
However the one figure which is inevitably up, almost as if the CEO must cheer himself up by spending yet more cash, is capex. This is the tune right the way across Europe – during this transition, Capex must rise and it was up 1.3% to €5.6 billion, and the ratio of Capex spend to revenues was 14.3%, which at a time when revenues are falling means that this must represent an increased percentage when compared to 2013.
What operators do at these times is begin to measure how fast things are switching to “new” forms of revenue – so triple and quad play offers are nearly always tracked. The Canguro convergent offers were mentioned in these numbers – combinations of cellular and broadband lines sold under the Spanish name for Kangaroo – in the hope that these revenues will jump.
At the same time Orange is in the process of buying Jazztel there and will turn these double play offers into triple and quad plays by the additional of OTT video.
The great white hope for companies like Orange is to drive down costs and hope that one of these years, it will drive them down faster than revenues will fall, but at the current rate there are still a few years of declining numbers that will need a special form of optimism among investors as well as the company’s CEO. Perhaps he should give them lessons.
Orange said that in France its share of new broadband customers grew by 35% in the 4th quarter; so hinting that this remains a land grab market and that actual profit is not the priority right now.
The big redeeming feature of all telco business across Europe is the amount of cash they continue to throw off, and Orange is no exception and its operating activities threw off €8.8 billion of cash during 2014, a bit more than 2013, but over €1 billion less than 2012. And we suspect that over time it will throw off less and less.
On March 17th it says it will present Orange’s new strategic plan up to 2020 – and we will be all ears, although we suspect that it will be at least 4 or 5 years into this plan before we see a dramatic turnaround in fortunes, so the CEO will need more lessons in how to see only fresh green shoots among the debris and scorched earth.