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Summary

Orange Group’s 2015 annual results included news that merger talks with Bouygues could take several weeks. The deal is only one in the group’s continuing global portfolio review, but it is indicative of the difficult decisions the organization faces in relation to the future shape of its enterprise services.

Orange has reported revenues of €40.24bn in 2015, which is flat on a like-for-like comparison with the previous year, led by a favorable trend in France and the eurozone. It has also confirmed ongoing talks with Bouygues Group relating to the possible acquisition of its telecoms division. Orange said these discussions would last several weeks before a decision is taken, but is clearly in hot pursuit.

Orange’s portfolio remix will require a long-term strategy review

Orange has been involved in a number of deals in the first two months of 2016. In addition to the talks with Bouygues it has completed the sale of its 50% stake in the UK mobile operator EE, terminated its brand license deal with Partner in Israel, agreed to buy the mobile services provider Tigo from Millicom in the Democratic Republic of Congo, and acquired Airtel subsidiaries in Burkina Faso and Sierra Leone.

From the large enterprise point of view the first two deals are the most immediately significant because EE and Bouygues both serve enterprise customers in their main markets. Although EE did not help Orange Business Services much with its offer in the UK, Bouygues Telecom has been making inroads into enterprise markets in France in a joint venture with Telefonica. Disentangling that arrangement may be one of the sticking points in the negotiations between Orange and Bouygues, but a successful agreement between the two might remove a thorn in Orange’s side.

Orange needs to determine a way to get scale in world telecoms; one option might be through a regional partnership with Telefonica. So far the operator has avoided regional-to-global partnerships, focusing instead in its own vertical sector solutions (with SITA in aviation, for example). Now may be the time to reconsider this strategy. A global partnership with Telefonica is unlikely – Orange still competes hard in Spain, where it recently acquired the business broadband provider Jazztel, and the two operators have made heavy bets in competing service streams in China. However, they have plenty to gain by cooperating on data center services in the Americas.

Orange risks falling behind the times if it persists with its largely self-powered verticals strategy. Other telcos are considering joining forces with each other and with MNCs for open platform development, for example in the automotive and insurance sectors. Orange’s participation in a new partner operator alliance with BT, Deutsche Telekom, and Reliance Jio, which is designed to unify service innovation across telco networks for business innovators such as Airbnb and Spotify, is a start. But it also shows a preoccupation with mobile consumer services. As Ovum’s report Service Provider Snapshot: Orange Business Services 2016 shows, the operator’s territorial asset acquisitions in Africa are part of a widening footprint for international business services. Today these acquisitions will help Orange extend the emerging mobile banking service it is building. However, the operator must assess whether it can be the open platform provider of choice for the banking industry, which would require a more extensive enterprise partner strategy.

Appendix

Further reading

Service Provider Snapshot: Orange Business Services 2016, TE0005-000779 (February 2016)

“Telefonica and Bouygues take a bold approach in France,” TE0005-000716 (June 2015)

Author

David Molony, Principal Analyst, Enterprise

david.molony@ovum.com

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