European giant Orange has ruled itself out of mobile operator acquisition activity – both in its home French market and across the continent – for at least the next year, marking a significant shift in recent strategy that the company believes is likely to be reflected across the wider telecoms sector in general.
Speaking at a media briefing in Paris yesterday, the company’s Europe CEO Gervais Pellissier referenced its failure two months ago to acquire French rival Bouygues (worth a reported €10 billion), as well as increased regulatory constraints imposed by Brussels, as the catalyst for its shift in mindset.
“It is not on the agenda for the next 12, maybe 18, 24 months. We don’t see any real short-term openings,” he noted, referring to both Orange’s outlook and wider industry deals. Looking further ahead, Pellissier did admit that the European mobile operator market is “highly fragmented” and that Orange and some of its tier-one rivals “would probably gain in the mid-term future by being bigger”.
In the last six months Orange has been linked to a number of acquisition targets, including Dutch operator KPN, Belgium’s Proximus and Telecom Italia.
No French M&A
Pellissier also ruled out any imminent repeat of attempts to acquire Bouygues in its domestic market, thanks to tighter regulation. “In-market mobile to mobile, or fixed to fixed [consolidation will be] difficult,” he said, noting that the European Commission “has put a hold on big in-market consolidation with the decision in the UK” between Hutchison and O2.
“In countries where there are still four mobile operators, moving to three is probably not to be considered in the short-term. We think that the decision of Brussels has some indirect consequence on the French market.”
Pellissier also gave an insight into why its efforts to acquire Bouygues failed to even get as far as regulatory approval. “The main reason it failed is a lack of trust between the players… This is a deal that cannot be executed in less than 18 months. And during this period you have to have trust that your competitors will not behave badly against you and not try to change the balance of power, and compete honestly. For that you need trust.”
Indeed, the planned tieup didn’t just need agreement from Orange and Bouygues, but also required complex negotiations involving the country’s other two operators, Numericable-SFR and Iliad.
The European head said Orange’s strategy is to now pursue organic growth, develop partnerships and introduce new services (such as its recent focus on mobile banking in France).
Fixed-mobile convergence is also big on Pellissier’s mind, offering customers bundled packages for its mobile and fixed services. In fact, the fixed-mobile convergence market is one area that the CEO does think could offer up consolidation opportunities for Orange both at home and abroad.
Meanwhile, Pellissier offered up some words of wisdom on how to deal with the move to 5G in the next few years. He doesn’t want to see a repeat of the 3G era when operators were accused of over investing in the technology before it had achieved widespread use. “Let’s not start again by investing too early [in 5G] versus the needs. We have also to analyse what will be the real need… and what will be the bandwidth consumption on mobile in 2020/21.”
He was also slightly sceptical on plans by some Asian operators to launch a 5G network in time for either the Winter Olympics (2018, South Korea) or Summer Olympics (2020, Japan). “You shouldn’t focus on one event that lasts 15 days to make strategic choices for the industry,” he quipped.
And he stressed that, unlike many other operators, Orange’s big focus on fixed-mobile convergence means it does not expect to carry the majority of its future traffic solely over its mobile networks. “We are strong believers because of fixed-mobile convergence that a big part of the traffic will be covered by the fixed infrastructure, FTTH plus Wi-Fi. So we are not believing that 90 per cent of the traffic will be on mobile infrastructure. We are building a fibre network, where we are spending much more money than on mobile infrastructure, because we are strong believers that when you are in the office or home you won’t use the mobile network and you will be on Voice over Wi-Fi.”
On the subject of voice over Wi-Fi, Orange has launched the technology in Romania and now has France in its sights – once it is able to satisfy the country’s regulators that someone making an emergency call via voice over Wi-Fi can be reliably located.