Launched in 1994 Orange was the fourth entrant in the UK
market. By March 1996 the operator already had more subscribers
than One2One. The latter was acquired by Deutsche Telekom in
August 1999. In November Orange itself was acquired by Deutsche
Telekom's main competitor in Germany, Mannesmann for $33
billion, considerably more than the price paid for One2One.
Stewart Birdt, telecoms equity analyst at Bear Stearns,
explains why Orange had such a high valuation: "I think that
Orange has a better brand image in the market than One2One.
Their customer base was larger. The deal was also done later in
a rising market, and it was a stock deal rather than a cash
deal. The strengths of Orange are that the quality of service
is very good. Marketing and branding would be the top
strengths. I was not surprised at the price that Mannesmann
paid for Orange. It was at a premium."
The long-term implications of this transaction remain unclear,
however, following an unsolicited bid for Mannesmann issued in
late November 1999 by Vodafone AirTouch, one of Orange's
competitors in both the UK and other parts of Europe. Under
regulatory conditions in the UK, if Vodafone AirTouch succeeds
in its bid, in all probability Orange would be spun off.
Birdt is positive about Orange's prospects in the UK,
especially in the wireless data market: "I think they are very
well positioned, because of their marketing skills and
innovation with branding and products. Their performance over
the last couple of years is second to none. I did the original
flotation when I was at Goldman Sachs and I have been a big fan
ever since. They have not let me down yet. I think what sets
them apart is management's focus on customer service and
branding. I think they figured out a lot sooner than most
people that this business is not about technology, it is not
about who can build the most base stations. It is really about
marketing and customer services and being at the forefront of
innovation in order to attract customers."
Perceived as an innovator, Orange is focusing more and more on
business customers and is launching a number of futuristic
products, such as Wildfire. An intelligent, voice-activated
virtual personal assistant, it uses the latest speech
recognition technology to listen, react and respond to
customers' spoken requests. Orange is also going to be one of
the first cellular operators to offer a wide range of
multi-media services, involving the Wireless Application
Protocol. In addition, the operator intends to launch a mobile
video phone next year.
In an exclusive interview, the CEO of Orange Hans Snook talks
to Global Telecoms Business about the Mannesmann/Orange
transaction, the bid by Vodafone AirTouch and its implications
for Orange and also provides some examples of the operator's
wire-free vision and innovative strategy.
What synergies do you gain from your merger with
Mannesmann? Why did you decide to accept this offer?
Snook: When you look at this offer, you will find
that it all happened within a very short space of time. And
this is very unusual. The reason is that Orange as a company
was already intent on expanding into Europe and later on
outside Europe. And we have operations in Austria, Switzerland,
Belgium, as well as other businesses in Germany and France. But
our main focus was leveraging those service provider businesses
and our knowledge of those markets into something that was more
We initially focused on what we call virtual network
operations, which involves the purchase of a huge amount of air
time, almost like the big satellite systems, at cost plus
basis. As we were going through that, it became evident - and
we had lots of discussions with the network operators in those
countries - that the current shareholders of E-Plus, in
particular VIAG and RWE, were going to sell.
That gave us an opportunity, as the network hadn't been built
up very long. We thought that if we secured that business at a
relatively low price, we could leverage this network into
something. We also had some other plans under discussion. So
this had all been presented to our board. Our board had already
recognized the need to go outside the UK and the other
countries where we were at that time. It is becoming a global
business, an international business. And the winners will be
those companies which are going to control that going forward,
doing it faster and better than anyone else, in particular
somebody who has a brand. Companies with a brand have been the
winners so far. And this is going to be even more important in
the future, especially as we go global and do not operate
solely in a local market.
Hutchison themselves had also come through this whole process.
We were not just going to use cash in our expansion: we were
going to use our currency. It makes sense as the brand is
valuable. So they knew that they were going to have to dilute.
So the stage was almost set for us to do something and drive
the business forward.
At that point Mannesmann walked through the door and said:
"Listen, we would like to buy Orange. And we know that if you
go ahead with your E-Plus transaction" - they were aware of
this issue, as you can't keep these things quiet - "you are
going to use your currency, but you will also need some
refinancing, as you are starting to be stretched on the debt
market. Why don't we give you some cash and some Mannesmann
shares, both to you, Hutchison and all the other Orange
shareholders? So you can have your cake and eat it too: you
receive some cash, almost like dividends today, you receive
some shares in the biggest wire-free telecoms group in Europe
and probably the most competitive combined fixed and mobile
group in Europe." So for the shareholders, even for myself,
looking at where I was going, I am quite sure that if we had
completed the E-plus transaction, our share price would
probably have hit £20 ($32). But there would have been no
cash for the shareholders and we would have been obliged to go
back, to some extent, to the debt market.
So this was such a beautiful balance, allowing Orange to
expand and become the partner of a bigger group and still have
the opportunity to expand the Orange brand. It was really a
no-brainer. I had to recommend it and the board had to
recommend it to all the shareholders. Linking up with
Mannesmann affords us greater reach and provides us with
greater financial flexibility - when I say us, I am refering to
the combined group - but I am still talking now in some sense
about Orange. If you look at Mannesmann's other operations, D-2
can't really expand out of Germany, Omnitel can't really
advance from Italy. And if you look at their fixed wire
projects, such as o.tel.o and Arcor, they are really home-grown
products and can't really leave the domestic market.
So when Mannesmann bought Orange, it didn't only acquire a
great customer base and the best network in the United Kingdom.
It also acquired a great management team - our depth in staff,
whether it is customer service, technical or financial is
stronger in my opinion than in most other companies that I have
seen in our industry. And it also acquired the brand - and it
needs a brand to start linking everything together. The Orange
brand today, in addition to the UK, Switzerland, Austria and
Belgium, also operates in Israel through Partner
Communications, which is going extremely well.
So you can look at all that and the Mannesmann operations and
think about the future of wire-free telecoms: last night we
launched our ISP, Orange.net; last week we launched the WAP
phone, the Internet phone. Next week we will launch high speed
circuit-switched data cards, little cards that you simply plug
into your palm top or lap top and give you up to 64kbp/s and
ISDN speeds over the air.
I suspect that the future of data and data-based revenues on
wire-free networks is going to be much bigger than voice today.
Everybody has seen the example of the Internet and Internet
growth. It is going to explode, when mobile phones or other
small devices or even voice-activated devices can access the
information on the Internet, particularly if it is
voice-activated. So there are great revenue opportunities.
That is one of the big drivers for Mannesmann. Omnitel in
Italy was one of the first companies to launch a
voice-activated access to the Internet on a mobile phone. It is
still very robotic, even slow sometimes, but that is going to
We launched Wildfire in the UK, which does a lot for personal
messaging and intercepting callers and reminders and things
like that. Our next step is Internet access. The next step for
Omnitel is making it more user-friendly. Now we have to explore
the possibility of linking the two technologies. And since D-2
in Germany hasn't done either yet, it may be the first fusion
for those types of technologies. There are other things: the
linking of the fixed and wireless networks, bundling
opportunities. Mannesmann has ownership of the fixed wire and
cable in Germany and Italy.
Here in the UK Orange has always adopted a wire-free strategy,
although we have commercial links with companies such as NTL,
for two reasons. Firstly to make sure that we always get hold
of peoples's shopping lists. We don't necessarily have to solve
the fixed wire part. If we want to get in, we solve the
wire-free part. If we can create a better bundle for them or a
better overall solution, by putting them both together, we will
Once we have them as a customer, we can understand their needs
better. And we can start developing more pro-active services,
particularly for the business market, that make them more
wire-free. So they will migrate slowly over time. I think with
Mannesmann - and they share this view as well - there is a
short-term inter-marriage in a bundling concept for a lot of
people, whether they want to have one supplier for fixed and
mobile. Eventually all that traditional voice and data traffic
is going to go wire-free and our business is going to change
But so are the companies that do fixed today, as it is all
going to revolve around ultra-high bandwidth services. There
will be holograms in your living room or office. So most of the
time when you want to talk to people, you will wear something
in your ear or lapel. You will talk to it to access
information. Your personal avatar will put you in touch with
whoever you want to talk to or whatever information you want.
But if you are at home or in the office and you really want to
see somebody, you talk to your holographic screen and you use
the same avatar.
So they are going to make a lot of money on 3-D television,
inter-active television, super-high bandwidth Internet,
holographic communications. And the technology to do this
exists today. Let us take holograms. The inventor of the white
line photograph for credit cards has a project in the US with
MIT. And he has created the world's first full colour hologram.
It floats in front of you: it is not like 3-D. You can actually
walk around it or go underneath and still see the whole thing
in colour. The limiting factor today is one thing: cost. But
the computing power required to do that - and if you just
follow Moore's law in what is happening in silicon - I predict
that in 10 years it will become a real commercial reality,
instead of a plaything. Some operators in the US on the cable
side are saying that it could happen in five years.
How do you view the battle for mobile supremacy in
Europe? Do you think that Vodafone AirTouch have a good
Snook: This is interesting. First, look at the
purchase or merger of Vodafone and AirTouch, rather than the
result of a desire to become a global player. It was much more
of a defensive move by Vodafone. They always had a relationship
with AirTouch. In my opinion, they could have made this move a
lot earlier and far more cheaply. But it would seem that
Vodafone was not attracted to the North American market. They
have always been more Euro-centric, even though they have
operations in Australia and South Africa.
When Bell Atlantic made the bid for AirTouch, in my opinion
Vodafone felt that if Bell Atlantic acquired AirTouch, it would
lose its relationship with AirTouch. So they had to do
something. So then they outbid Bell Atlantic. However, this
didn't take account of the Bell Atlantic and AirTouch joint
venture, which covered some areas of the east coast and some
central parts of the US, which broke up.
Vodafone could then have bought Omnitel and Aerial - which
would have given them most of the presence that they needed.
They could have done it at a very cheap price. But they didn't.
They let Voicestream do that and consequently they found
themselves excluded in the American market.
So the next possible step was to buy Mannesmann. And now I
suspect that Klaus Esser was thinking: "do we want to be
Vodafone? No, I don't think so. We want to expand." He moved
very quickly to gain a controlling shareholding stake in
Omnitel in Italy. Klaus then thought about where to go next: he
had a shareholding in Italy, Germany and a small holding in
France. Where should he go to capitalize on developments. The
UK. What should he buy in the UK? Orange.
So Vodafone let all this happen. Potentially they now risk
being a smaller operator in a future world of giants or a
take-over target themselves, if they can't buy Mannesmann. In
addition, Vodafone has 35% of D-2 in Germany and also have a
link in Omnitel through AirTouch. Most of their operations in
Europe are minority stakes.
And it seems unlikely that they will be able to create tariff
packages for Vodafone subscribers who move around. What might
be great for Vodafone as a group to give to their customers
isn't necessarily going to be the best thing for all the
shareholders in a given country.
So Vodafone had to bid for Mannesmann. Mannesmann paid about
£20 billion for Orange. This is superb value creation.
Interestingly, as we will work so well together owing to all
the combined synergies and other opportunities, it is actually
a great deal for Mannesmann as well.
Interestingly, if Vodafone actually succeeds in its attempt to
buy Mannesmann, they will buy Orange as a premium to
Mannesmann's purchase. So which company has created the value
in this whole equation? Clearly Orange. Vodafone has to try. I
don't think that they will succeed. First of all Mannesmann's
shareholders are going to want a higher price, which would be
great if they could achieve that goal.
However, Vodafone's shareholders may not view this in such a
light, as they could see it as over-payment. Obviously owing to
regulatory concerns, Vodafone would have to sell Orange or
offer the shareholders some pro-rata rate for Vodafone shares.
Then Orange would revert to a FTSE company again all on its own
with no major shareholders. This would be another interesting
But, as you know, no hostile bid has ever succeeded in
Germany. Hutchison has indicated its readiness to back
Mannesmann against Vodafone, and rightly so. They have a 10.1%
holding in Mannesmann. Again this makes it difficult for
Vodafone to go out and obtain all the support that it needs. So
I think that this be a tough one. Going forward, if they don't
succeed, they will become a take-over target themselves.
How do you view the demand for mobile data
applications in the UK? What types of services are available to
customers? How do you view the opportunity for E-commerce over
a wireless phone?
Snook: The opportunity is going to be huge. It is
easy, user-friendly access to the Internet. I was talking
earlier about putting a lapel on your ear pin. Wildfire today
is all about voice-activated services. If you can imagine that
you have a stud and you have Mary or some other personal avatar
that you created yourself on the Orange network - you can
choose the sex, voice - and you have access to all the data,
information services on the Internet. You are walking down the
street and just say: "Mary, I am going to Houston tomorrow, can
you book me a flight, can you tell me what the temperature is
and do I need a raincoat?" And this avatar can give you all
that information immediately, through the access that you have
to the Internet, as well as booking your airline tickets and
Now if you can do that kind of thing, wherever you are,
without worrying about it, usage is just going to be
phenomenal. And it is going to change the way that we think and
do things to an extent that I don't believe that we can imagine
today. And usage will skyrocket . Essentially we are giving
people wire-free access in an easy way, things that they want
to have anyway. I think that the revenue potential is going to
What kind of demand do you perceive for mobile video
phones, which you are launching in late 1999/early 2000? Which
businesses will first use such phones?
Snook: We didn't develop mobile video phones in the
belief that we would sell hundreds of thousands next year.
There are a number of reasons. Firstly, owing to the design,
build and spectrum capacity of our network, we can actually put
what are termed third generation services onto a second
generation network. We are one of the few operators that can do
that. We will be able to do that in Belgium and Switzerland as
well, as we are designing the networks in the same way.
We are one of the few operators in the world that can also
deploy high-speed circuit data. We know how to do it and have
the capacity. We know that the future will be in data, video
and inter-active services. There will be a lot of revenue
potential. We know the opportunities that you can gain from
first mover advantage. We have all the technology in house.
So what do we get out of it? We gain innovator advantage.
People who want a video phone for whatever reason, will only be
able to obtain one from Orange: Orange in Switzerland, Belgium
and Israel as well. We will have access to certain markets,
whether they are executives, who want a video phone. They may
move their whole account to Orange to obtain a video phone.
Usage is going to be high.
But let us go back and consider potential users. Let us take
paramedics out on the field or ambulances. This is a very
simple thing. The camera doesn't have to face you. So while
they are describing someone with a gaping wound, for example,
they can actually show somebody what it looks like. So then it
would be life-saving. There is a need in the emergency
industries in different ways.
There are other people who want to look at each other when
they talk or whatever they do. A video phone could also be used
as a child minder, but it would be expensive. But you would be
able to see your child, even when you are not at home.
Some people have claimed that it is very hard to
access Internet sites through a mobile owing to the time it
takes to type in the names of web sites. How are you resolving
Snook: First of all, the WAP phones we launched have
a very simplified typing system. As soon as it sees a letter,
it guesses the word that you are coming up with. And you can
reduce the number of key strokes to type in something. So that
helps. But the real benefit will come a little bit in the
future through Wildfire. You won't have to type, you will
simply say: "Wildfire, IBM website, semi-conductors" and you
will have that.
How do you view the threat posed by new competitors
such as Virgin, which claims that it will offer the lowest
possible mobile prices? Surely it has a built-in advantage
owing to its brand name and ability to leverage its music and
film sections to attract a new generation of subscribers?
Snook: This is interesting. This is the first time
that another real brand has appeared. So it will be seen as the
battle of the brands. I think that Virgin's presence can only
heighten interest. It may open the market a little bit more.
But Branson's strategy in the other businesses he has gone
into, hasn't worked in our industry. He has typically entered
industries, which were in his opinion over-priced. Nobody was
helping out. Virgin would be the white knight. But actually
today their offering is one of the least attractive in the
We have always been the leader in our industry for fairness,
transparency and offering great value to customers. The
industry we are in moves a lot faster than other industries.
Virgin's market reach is going to be relatively small: about
300 outlets of Virgin and Our Price stores. Orange today has
over 12,000 outlets. Clearly Virgin can leverage a little from
their other merchandise and services. But we can do that as
well. They may not be Virgin services. You can use Orange to
access lastminute.com and obtain the best airline tickets. You
can access ITN news services on an exclusive basis,. They are
talking about downloading music. We could do a deal, for
example, with Polygram, saying that our customers want to know
about the new CDs that are coming out. We want to play it down
the phone. It is not a very big deal.
I am interested in what they are going to do. In my opinion,
they are targeting what I would characterise as One-2-One
customers, rather than Orange clients. I wonder if they will
cannibalize One-2-One's existing customer base.
Would you look to form relationships with companies
such as Microsoft to develop wireless applications?
Snook: First of all we will have relationships with
Microsoft and others. None are firmly cemented. We have a
Sun-Netscape alliance, which was very instrumental in bringing
out the first mobile ISP service.
There is something else that I would like to add. In July we
thought that if this world is 150% or 300% penetrated, can we
do this ourselves? We are going to be living in a world of
multiple niche markets. If we live in a world of multiple niche
markets, how can we create the products and services for each
of those niche markets? And we looked at the computer industry,
looked at Microsoft and Apple and thought, Hey! These guys have
a common operating system and they allow people to access that
common operating system and those people are going to write a
bunch of software. Those people will then sell the software
onto their customers, which use Microsoft, as there is more
software available on Microsoft.
So we thought, why can't we build our network that way? We
decided to provide common access to our network for people to
create products and services. And we can help them do that as
well. We had our first developer's conference in July. It was
standing room only. We had expected 80 people. In fact 130
showed up. So we are already working in that area, not just
with Microsoft, but in a totally different way, again looking
at customer expectations and deciding how we will drive the
Finally, what are your hopes and ambitions for the
company? What trends do you see emerging in the world of mobile
communications over the next two-three years?
Snook: The future is data, as well as voice. Our
industry is going to change dramatically. The wire-free players
of the future are going to resemble the PTTs of the past in
terms of their size, power and revenue-generating capabilities.
The businesses of fixed operators will also change: they will
end up more in the entertainment businesses.